10-K

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K

(Mark One)
þ	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the fiscal year ended December 31, 2005
OR
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the transition period from           to          .

Commission file number: 001-16447

Maxtor Corporation

(Exact name of registrant as specified in its charter)

Delaware	77-0123732
(State or other jurisdiction of Incorporation or organization)	(I.R.S. Employer Identification No.)

500 McCarthy Blvd., Milpitas, California 95035

(Address of principal executive offices)

Registrant’s telephone number, including area code:

(408) 894-5000

Securities registered pursuant to Section 12(b) of the Act:

Common Stock, par value $0.01 per share

Securities registered pursuant to Section 12(g) of the Act:

5.75% Convertible Subordinated Debentures, due March 1, 2012

      Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.     Yes þ          No o

      Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act.     Yes o          No þ

      Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 (the “Act”) during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes þ          No o

      Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.     o

      Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer     þ          Accelerated filer     o          Non-accelerated filer     o

      Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).     Yes o          No þ

      The aggregate market value of the registrant’s common stock, $.01 par value per share, held by non-affiliates of the registrant on July 2, 2005, the last business day of the registrant’s most recently completed second fiscal quarter, was $1,327,344,521 (based on the closing sales price of the registrant’s common stock on that date). Shares of the registrant’s common stock held by each officer and director and each person who owns more than 5% or more of the outstanding common stock of the registrant have been excluded in that such persons may be deemed to be affiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes. As of February 15, 2006, 258,478,134 shares of the registrant’s common stock, $.01 par value per share, were issued and outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

      Portions of the Proxy Statement for the 2006 Annual Meeting of Stockholders (the “Proxy Statement”), to be filed within 120 days of the end of the fiscal year ended December 31, 2005, are incorporated by reference in Part III hereof. Except with respect to information specifically incorporated by reference in this Form 10-K, the Proxy Statement is not deemed to be filed as part hereof.

TABLE OF CONTENTS

PART I
	Item 1. Business
	Item 1A. Risk Factors
	Item 1B. Unresolved Staff Comments
	Item 2. Properties
	Item 3. Legal Proceedings
	Item 4. Submission of Matters to a Vote of Security Holders
PART II
	Item 5. Market for Registrant’s Common Equity and Related Stockholder Matters
	Item 6. Selected Consolidated Financial Information
	Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
	Item 7A. Quantitative and Qualitative Disclosures About Market Risk
	Item 8. Consolidated Financial Statements and Supplementary Data
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
CONSOLIDATED STATEMENTS OF OPERATIONS
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
CONSOLIDATED STATEMENTS OF CASH FLOWS
MAXTOR CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
	Item 9. Changes In and Disagreements with Accountants on Accounting and Financial Disclosure
	Item 9A. Controls and Procedures
	Item 9B. Other Information
PART III
	Item 10. Directors and Executive Officers of the Registrant
	Item 11. Executive Compensation
	Item 12. Security Ownership of Certain Beneficial Owners and Management
	Item 13. Certain Relationships and Related Transactions
	Item 14. Principal Accounting Fees and Services
PART IV
	Item 15. Exhibits, Financial Statement Schedules
SIGNATURES
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
INDEX TO EXHIBITS
EXHIBIT 3.2
EXHIBIT 10.59
EXHIBIT 10.60
EXHIBIT 10.61
EXHIBIT 10.62
EXHIBIT 12.1
EXHIBIT 21.1
EXHIBIT 23.1
EXHIBIT 31.1
EXHIBIT 31.2
EXHIBIT 32.1
EXHIBIT 32.2

PART I

Item 1. Business

Overview

      Maxtor Corporation (“Maxtor” or “the Company”) is one of the world’s leading suppliers of hard disk drives for desktop, enterprise and consumer electronics applications.

      Our desktop products are marketed under the DiamondMax and MaXLine brand names and consist of 3.5-inch disk drives with storage capacities that range from 40 to 500 gigabytes (“GB”). These drives are used primarily in desktop computers; however, the market for these products in a variety of consumer electronic applications, including digital video recorders (“DVRs”), set-top boxes, game consoles and personal storage, is growing rapidly. We also provide a line of high-capacity ATA/ Serial ATA drives for use in mid-line and near-line storage applications for the enterprise market. Our MaXLine-branded drives, with 250 to 500 GB of capacity, are designed specifically for high-reliability to meet the needs of enterprise customers who need ready access to fixed content data files. Finally, we offer a line of high-end 3.5-inch hard disk drives for use in high-performance, storage-intensive enterprise applications such as workstations, enterprise servers and storage subsystems. These Intel-based server products are marketed under the Atlas brand name and provide storage capacities of 36.7 to 300 GB at speeds of 10,000 rotations per minute (“RPM”) and 15,000 RPM.

      Maxtor, DiamondMax, MaXLine and Atlas are registered trademarks of Maxtor. Maxtor Personal Storage, Maxtor OneTouch and Maxtor QuickView are trademarks of Maxtor. All other brand names and trademarks appearing in this report are the property of their respective holders. IDC derived information mentioned in this report was provided by IDC, Worldwide Hard Disk Drive 2005-2009 Forecast Update: Mid Year Update, Doc. #34300, Oct. 2005.

      We are incorporated in the State of Delaware. Our principal executive offices are located at 500 McCarthy Boulevard, Milpitas, California 95035. The telephone number is (408) 894-5000.

Pending Acquisition by Seagate Technology

      On December 20, 2005, we entered into a definitive agreement with Seagate Technology (“Seagate”) in which Seagate will acquire Maxtor in an all stock transaction. Under the terms of the agreement, which was unanimously approved by the boards of directors of both companies, Maxtor stockholders will receive 0.37 shares of Seagate common stock for each Maxtor share they own. When the transaction is completed, Maxtor stockholders will own approximately 16% of the combined company. The transaction was valued at approximately $1.9 billion at the time of its announcement on December 21, 2005. It is anticipated the transaction will be completed in the second half of 2006, subject to obtaining stockholder and regulatory approvals. There is a termination fee of $300 million payable to Maxtor under certain conditions.

Industry Background

      Maxtor participates in the desktop computing, enterprise and consumer electronics markets.

      Desktop Computing Market. Desktop computing represents the largest market for hard disk drives for both Maxtor and the industry. According to IDC, drives shipped for use in desktop computing applications totaled approximately 211 million in 2005 compared with total drive shipments of 374 million. Approximately 85% of the drives that Maxtor shipped in 2005 were for the desktop computing market. Desktop computers are used in a variety of environments, including the home, business and multimedia entertainment. Demand for hard disk drives used in desktop computers has been driven by a variety of factors, including:

•  the rapid increase in digital data;

•  the general growth of PC sales in the United States and Western Europe;

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•  the growth of non-branded desktop computers in emerging economies, specifically China and other parts of Asia, Russia, Eastern Europe and Latin America; and

•  larger file sizes created by multimedia-intensive applications.

      According to IDC, hard drives shipped for desktop computing will increase approximately 5.5% from 2005 to approximately 223 million in 2006. IDC estimates that revenue from drives shipped to the desktop computing market will increase approximately 2.4% from $12.6 billion in 2005 to $12.9 billion in 2006. Revenue growth is expected to be slightly more moderate than the growth rate of unit shipments due to a continued decline in average selling prices (“ASPs”) of desktop drives, a trend which has characterized the industry. The decrease in ASPs reflects the declining prices of desktop computers, the hard drive industry’s ability to reduce the average unit cost of its drives and competitive pressures. Success in this market requires excellent quality and reliability, technology and low-cost manufacturing.

      Enterprise Market. The enterprise market for hard disk drives includes manufacturers of workstations, servers, storage area networks and computer subsystems. This market has traditionally been served with hard disk drives that use either fiber channel or small computer system interface (“SCSI”). According to IDC, the market for enterprise drives totaled approximately 26.7 million in 2005 and is expected to increase 7.9% to approximately 28.8 million in 2006. IDC expects revenue for enterprise drives to increase approximately 6.8% from $5.1 billion in 2005 to approximately $5.5 billion in 2006, reflecting an increase in units shipped.

      With the introduction of our next generation higher capacity SCSI drives in late 2004, we were successful in gaining volume and share in the enterprise market throughout 2005, resulting in higher revenue and increased gross profit margins for this product line.

      During the past several years, a new enterprise market has emerged for mid-line and near-line storage which addresses applications that require ready access to large pools of fixed content data and where cost per gigabyte is a critical factor. Such applications include e-mail archiving, engineering drawings, medical imaging, scientific data and video. We were a pioneer in this market, offering our high capacity ATA/ Serial ATA MaXLine hard drives specifically designed with high reliability features. We believe this market continues to offer growth opportunities, driven by recent regulatory requirements for archiving and retrieving data and the growth of digital imaging.

      Consumer Electronics Market. Demand for emerging consumer electronics devices that incorporate hard disk drives is growing. DVRs, set-top boxes and game consoles use 3.5-inch hard drives to enhance the entertainment experience. Sales of these devices have grown rapidly since their introduction in 1999 and represented approximately 19 million of hard drives sold in 2005, according to IDC. Maxtor shipped a total of 4.5 million drives into consumer electronics applications in 2005.

Our Strategy

      Maxtor is a leading supplier of hard disk drives to computer and consumer electronics manufacturers, distributors and retailers. In 2005, our new management team began implementation of a plan to return Maxtor to profitability. In December 2005, we announced our pending acquisition by Seagate Technology, subject to stockholder approval, as well as regulatory approvals. The transaction is expected to be completed in the second half of 2006. Taking into account the pending acquisition, we will continue to pursue our turnaround strategy as set forth below.

      Rationalize Product Roadmap. In early 2005, we revamped our product roadmap to reduce its complexity, improve efficiency and lower costs. At the beginning of 2005, we had seven unique product platforms for desktop drives. By the fourth quarter of 2005, we had four. We are on track to produce desktop products on two platforms by the second half of 2006. Simplifying our product platforms will allow us to eliminate the costs associated with the unique tooling, manufacturing, infrastructure and capital required to support each platform. In addition, it will enable a faster design process, enhance manufacturing efficiency and provide more flexibility. In the fourth quarter of 2005, we introduced our 500 GB drive, targeted for high capacity storage markets including high-end computing, consumer electronics, personal storage and mid-line and near-line storage. We expect to introduce the next-generation 160 GB per platter desktop drive in the

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second quarter of 2006. During 2005, in light of the expansion of flash technology into the consumer hand-held market and our priority to improve our desktop operation, we canceled our 1.0-inch drive development effort. Rationalizing the product roadmap will allow us to focus on quality, reliability and the predictability of delivery schedules and help enhance customer satisfaction. Savings will be not be apparent until the second half of 2006, when we have achieved a much greater degree of commonality and scalability across our entire product line.

      Pursue Low-Cost Manufacturing. During 2005, we continued to move forward on the transition of the manufacturing of entry-level desktop hard disk drives from Singapore to our manufacturing facility in Suzhou, China. Manufacturing in China offers the potential to significantly reduce costs through a lower salary structure and as we use suppliers with a local Chinese presence. By the fourth quarter of 2005, approximately two-thirds of our desktop volume, including nearly all of our one- and two-platter drives, was produced in China. As planned, we closed one of our two factory buildings in Singapore for sale as of December 31, 2005. In February, the building was sold. We will continue to ramp our production capability in China to achieve additional savings. In addition, we continue to pursue initiatives to improve factory throughput and manufacturing efficiencies.

      Optimize Supply Chain and Ensure Access to Sufficient Supply. We have strategic partnerships with our two head vendors — SAE Magnetics (HK) Ltd., a wholly owned subsidiary of TDK Corporation, and ALPS Electric Co. Ltd. We will work with these suppliers on an ongoing basis. Our internal media division provides a majority of our media requirements. During 2005, the industry faced a tightness of media components that is expected to last into the second half of 2006. To ensure adequate supply, we added internal capacity and expanded our relationship with external suppliers. We amended our agreement with Komag Inc. (“Komag”), our external media supplier, for incremental capacity to produce four million units of media per quarter, with initial incremental volume expected to begin in the second quarter of 2006. Maxtor has agreed to prepay for its media supply in an amount totaling $50 million. We will be paid back by a per disk payment credit. Initial incremental volume from Komag is expected to begin in the second quarter of 2006. We are evaluating options that will further reduce the cost structure of our internal media operation.

      Pursue Opportunities in Growth Markets. We believe the demand for hard disk drives in consumer applications will continue to grow. Today, DVRs, set-top boxes and game consoles represent the primary market for hard disk drive volume in the consumer electronics market. We are supplying leading manufacturers with hard disk drives for a variety of their consumer electronic applications. Our Maxtor QuickView drives are designed specifically for digital entertainment applications and include acoustics features, audio video streaming performance, thermal monitoring systems and error correction code. Our recently-introduced 500 GB drive is designed to address the high capacity storage needs of this market.

      We also believe there is growth potential in the enterprise market for high capacity, high reliability ATA/ Serial ATA drives in mid-line and near-line storage applications, where data is generated in large volumes and retrieved occasionally. Specific applications include e-mail archiving, engineering drawings, medical imaging, scientific data and video images. In these environments, we believe high capacity, high reliability desktop drives provide the optimal cost per gigabyte metric that enterprise storage customers seek. We currently have relationships with some of the leading storage subsystem vendors, including EMC Corporation, Hewlett-Packard Company, LSI Logic Corporation and Network Appliance, Inc. to provide hard disk drives for these applications. Our recently-introduced 500 GB drive is designed to address the very high capacity requirements of this market and we anticipate volume shipments of this drive to mid-line and near-line customers in the first half of 2006.

      Maintain Leading Presence With Core Computer Manufacturer, Distribution and Retail Customers. We will continue to focus on improving our execution, particularly with regard to quality, reliability and dependability of delivery schedules, for our desktop and enterprise hard drives. Introduction of our 160 GB per platter drive is targeted for the second quarter of 2006 and is expected to grow in volume throughout the second half of 2006. We made progress in expanding our presence in emerging geographies by strengthening our relationships with certain distributors and adding regional service centers in India and other fast-growing

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economies in Asia, Europe and Latin America. We will leverage our in-country presence to further penetrate these markets by working with our distributors to offer additional services and support. We have an extensive retail network in the United States and Western Europe. During 2006, we will seek to increase our presence in select rapidly-growing areas primarily in Asia.

Technology and Product Development

      Hard Disk Drive Technology. The basic design of a hard disk drive has not changed materially since its introduction in the 1950s. The main components of the hard disk drive are the head disk assembly and the printed circuit board. The head disk assembly includes the head, media (disks), head positioning mechanism (actuator) and spin motor. These components are contained in a base plate assembly. The printed circuit board includes custom integrated circuits, an interface connector to the host computer and a power connector.

      The head disk assembly consists of one or more disks positioned around a spindle hub that rotates the disks by a spin motor. Disks are made of a smooth substrate to which a thin coating of magnetic material is applied. Each disk has a head suspended directly above or below it, which can read data from or write data to the spinning disk. The actuator moves the head to precise positions on the disk.

      The integrated circuits on the printed circuit board typically include a drive interface and a controller. The drive interface receives instructions from the computer, while the controller directs the flow of data to or from the disks, and controls the heads. The location of data on each disk is logically maintained in tracks, divided into sectors. The computer sends instructions to read data or write data to the disks based on track and sector locations. Industry standard interfaces are utilized to allow the disk drive to communicate with the computer.

      A key performance metric in the hard disk drive industry is “areal density,” which is the measure of stored bits per square inch on the recording surface of a disk. A higher areal density allows a hard disk drive provider to increase the storage capacity for a particular drive, or to reduce the number of heads and/or disks to achieve the same capacity. The rate of increase in areal density for the industry has slowed as current capacities are sufficient to meet most user requirements and the technology to achieve higher densities has become more complex. This slower rate of increase in areal density has meant longer product lives and, therefore, potentially further decreases in the price per drive in the later stages of product life, which could exacerbate the pressure to reduce the costs of components. This is a particular issue for us as we are not vertically integrated with regard to the supply of heads. We will continue to pursue increases in areal density across our product lines to address the markets with high capacity requirements.

      Product Development. Our product development activities include advanced technology and product design.

      We augment our traditional product development with an advanced technology group. The group’s purpose is to invent new disk drive technologies and monitor and evaluate advancements for possible integration into our future products. This group also works closely with our product development teams and strategic component vendors to:

•  create state-of-the art technologies to be used in our future products;

•  develop early prototypes to ascertain the feasibility and manufacturability of our planned products; and

•  analyze the latest head, disk, channel, motor and application specific integrated circuit technologies and designs to broaden and strengthen our technology platform.

      This group also focuses on leveraging our current proven technology platform by re-using as much electronic and mechanical technology as possible in each successive product generation.

      Our product design group concentrates on achieving required product specifications and improving product performance, robustness, manufacturability, quality and materials costs. The product design group is also responsible, in part, for executing our new product introduction process. This process is highly disciplined

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and is designed to ensure that new product designs meet clearly specified criteria in terms of yield, scrap, quality, productivity and production ramp rates prior to release into volume production.

Products

      Our desktop products are marketed under the DiamondMax and MaXLine brand names and consist of 3.5-inch hard disk drives with storage capacities that range from 40 to 500 GB and speeds of 5,400 RPM and 7,200 RPM. Our desktop drives come in configurations ranging from 1 to 4 platters per drive, allowing us to address a wide range of applications for desktop computers, from entry level to mid-range to the high-end. In addition, there is an emerging market for these drives in a variety of consumer electronics applications, including DVRs, set-top boxes, and game consoles. All of these hard disk drives have a number of features including high speed interfaces for greater data throughput, a robust mechanical design for reliability, and a digital signal processor-based electronic architecture.

      Our high performance 3.5-inch hard disk drives are for use in storage-intensive applications such as workstations, enterprise servers and storage subsystems. These Intel-based server products are marketed under the Atlas brand name and provide storage capacities of 36.7 to 300 GB and speeds of 10,000 RPM and 15,000 RPM.

      We also offer a line of personal storage products designed for use in the home or office. Our OneTouch external storage drives provide a simple, powerful solution for storage and backup of important digital data, including MP3 music files, digital photographs, video images and business data. Maxtor Shared Storage Plus is a network storage device that allows users to back up, centralize, organize and share photos, music, video clips and data on a home or small office network. Our QuickView Expander is designed to augment the storage of television shows and movies for DVR owners.

      The table below sets forth the key performance characteristics of our hard disk drive products.

	Capacity		Product		Rotational
	per Disk		Capacity		Speed
Products	(GB*)		(GB*)		(RPM)		Applications
DiamondMax Plus 8 & 8S		40		40		7,200	Entry-level Desktop PCs & Consumer Electronics with PATA and SATA interfaces
DiamondMax 16		60/80	40/60/80/120 160/250/300			5,400	Mainstream Desktop PCs & Consumer Electronics
DiamondMax Plus 9		60/80	60/80/120/160 200/250			7,200	High-performance Desktop PCs & Workstations
DiamondMax 10		80/100	80/120/160 200/250/300			7,200	High-performance Desktop PCs & Workstations with SATA
DiamondMax 11		100/125		400/500		7,200	High-performance Desktop PC & Workstations with SATA
MaXLine III		80/100		250/300		7,200	Near-line & Mid-line Storage
MaXLine Pro 500		100/125		400/500		7,200	Near-line & Mid-line Storage
Atlas 10K		73.5		73/147/300		10,000	Servers, Workstations & Storage Subsystems
Atlas 15K		36.7		36/73/147		15,000	Servers, Workstations & Storage Subsystems
Maxtor OneTouch II External Hard Drive		100/125	100/200/250/ 300/500			7,200	Personal Consumer Storage & Data Backup
Maxtor OneTouch III External Hard Drive Turbo Edition		100/125		600/1000		7,200	High Performance Consumer & Professional Storage & Backup
Maxtor Shared Storage Plus		100/125		200/300/500		7,200	Home & Small Office Network

*  GB = A gigabyte means 1 billion bytes. Total usable capacity may vary with operating environments.

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Manufacturing

      To be competitive, we must manufacture high-quality, high-performance hard disk drives with industry leading time-to-volume production at competitive costs, and we must be able to respond quickly to changes in product delivery schedules. Our hard disk drive manufacturing operations consist primarily of the final assembly of high-level subassemblies, built to our specifications, and the testing of completed products.

      We manufacture our disk drives in two locations — Singapore and Suzhou, China. Our manufacturing facilities utilize a cell-based process, enabling us to dedicate manufacturing cells to a particular product model. We combine our cell-based approach with a sophisticated factory information system that collects data on various product and quality metrics. The cell-based approach provides us with the flexibility to readily scale our production in response to customer needs.

      Our cell-based process enables us to:

•  better monitor and control process trends, resulting in improved product quality, faster time-to-volume production and overall customer satisfaction;

•  simultaneously manufacture multiple product configurations;

•  quickly reconfigure our manufacturing cells to respond to customer change requests and changes in product and customer mix;

•  effectively adapt our inventory management model to something closer to a build-to-order business model that many of our desktop computer manufacturer customers have adopted; and

•  add capacities in small increments as needed, allowing for better capacity utilization.

      During 2005, we transitioned the manufacturing of our one- and two-platter desktop hard disk drives from Singapore to China. By the fourth quarter of 2005, approximately two-thirds of our desktop drives were produced in China. As planned, we closed one of our two buildings in Singapore for sale as of December 31, 2005. In February 2006, the building was sold. Singapore will continue to manufacture our higher-capacity desktop drives and our enterprise drives.

      We also manufacture media used in our desktop products through our internal media division at its facilities in San Jose and Fremont, California. During 2005, we expanded our internal media production capacity. The media we manufacture internally addresses a majority of our needs. In light of our pending merger with Seagate, we are reevaluating our plan to move our media operation offshore.

Materials and Supply Chain

      We have developed and continue to develop strategic relationships with leading suppliers of many of the key components for our hard disk drive products. These relationships enable us to actively manage our supply chain to improve our ability to acquire state-of-the-art components and to reduce component inventory and overall product costs. In addition, our strategic suppliers work closely with our advanced technology group, enabling us to gain early access to leading edge hard disk drive technology and to improve the overall efficiency of our product design process.

      We rely on a limited number of suppliers to provide Maxtor specific components for our products. These components include heads, media, custom electronics, motors and mechanical parts. Maxtor will typically qualify two or three sources for these key components for each product in order to meet supply assurance requirements. For some components, we have selected a single source; however, in these cases, we have qualified dual manufacturing facilities to ensure availability of supply and flexibility.

      During 2005, the hard drive industry experienced a tightness of media components that is expected to persist into the second half of 2006. To ensure adequate supply, we increased our internal media production capacity and we amended our agreement with Komag, our external media supplier, for incremental capacity to produce four million units of media per quarter, with initial volume expected in the second quarter of 2006.

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We have agreed to prepay for our media supply in an amount totaling $50 million. We will be paid back by a per disk payment credit.

Customers and Sales Channels

      We sell our products directly to leading manufacturers of desktop computer and server systems and consumer electronics devices, through key distributors and through the retail channel. Leading OEM customers include Dell Computer Corporation (“Dell”), Hewlett-Packard Company (“Hewlett Packard”), IBM Corp., Lenovo and Samex Inc. Leading distributors include Almasa Computer LLC, Bell Microproducts Inc., Esys Integrated Pty. Ltd., Ingram Micro Inc. and Zander International Inc. Retail chain stores that feature our products include Best Buy, CompUSA, Fry’s Electronics, Office Depot and Staples.

      Manufacturers. Revenue from our five largest OEM customers represented 30.4%, 25.6% and 25.1% in 2005, 2004, and 2003, respectively, of total net revenues. During fiscal year 2005, Dell and Hewlett Packard represented 13.9% and 10.8% of our sales, respectively. None of our customers accounted for 10% or greater of our sales in 2004. Dell represented 11.0% of our sales in fiscal 2003. No other customer represented over 10% of our sales during such periods. We believe that our success depends on our ability to maintain and further develop strong customer relationships with desktop, storage and server computer system and consumer electronics manufacturers and to provide products that fit their specific needs.

      Distributors. We use a select group of distributors to sell our products cost-effectively to a large number of geographically dispersed customers, each of which tend to hold small market shares of the overall desktop and server computer markets. These distributors service value-added resellers, dealers, system integrators and small desktop and server manufacturers. Distributors accounted for 38.3%, 39.4% and 41.8% of our revenue in 2005, 2004 and 2003, respectively. Distributors generally enter into non-exclusive agreements with us for the purchase and redistribution of product. We grant certain of our distributors price protection and limited rights to return product on a rotation basis.

      Retailers. To expand awareness of the Maxtor brand, we sell our retail-packaged products, including hard disk drives and external storage devices, into the retail channel. We sell directly to major retailers such as computer superstores, warehouse clubs and computer electronics stores, and authorize sales through distributors to smaller retailers. Retailers accounted for 10.3%, 8.6% and 7.7% of our revenue in 2005, 2004 and 2003, respectively. We believe the retail channel complements other sales channels. Retailers supply the after-market “upgrade” sector in which end users purchase and install hard disk drive products to upgrade their computers. Retail distribution is also an important channel for the sale of our external storage products which appeal to the end user interested in emerging consumer applications that have extensive storage requirements, such as digital photography, MP3 music downloads, video-editing and data backup. We grant certain of our retailers price protection and limited rights to return product on a rotation basis.

      We conduct our operations internationally, with sales to both domestic and foreign customers. For further information, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Note 16 of the Notes to Consolidated Financial Statements.

Sales and Marketing

      We market and sell our products to leading personal computer, Intel-based server, storage subsystem and consumer electronics manufacturers, distributors and retailers. Our representative offices are located throughout the United States and in Australia, People’s Republic of China, France, Germany, Great Britain, Hong Kong, India, Japan, Republic of Korea, Russia, Singapore, Switzerland, Taiwan and United Arab Emirates. We have formed multi-disciplined, dedicated account and channel teams focused on each current and targeted strategic personal computer, Intel-based server, storage subsystem and consumer electronics OEM, as well as regional distributor and retail accounts. These teams generally are comprised of representatives from our sales, marketing, engineering and quality organizations. Our senior management also takes an active role in our sales efforts. Dedicated field sales and technical support personnel are located in close proximity to the manufacturing facilities of each of our desktop computer manufacturer customers.

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      Our marketing and public relations functions are performed both internally and through outside firms. Public relations, direct marketing, worldwide packaging and marketing materials are focused and targeted to various end-user markets. We utilize both consumer media and trade publications. We have programs under which qualifying resellers are reimbursed for certain advertising expenditures. We also have invested in direct marketing and customer satisfaction programs. We maintain ongoing contact with end users through primary and secondary market research, focus groups, product registrations and technical support databases.

Backlog

      We generally sell standard products according to standard agreements or purchase order terms. Delivery dates are specified by purchase orders. Such orders may be subject to change, cancellation or rescheduling by the customer without significant penalties. The quantity actually purchased and shipment schedules are frequently revised to reflect changes in the customer’s needs. In addition, orders for our products are filled for several large customers from just-in-time inventory warehouses, and orders are not placed ahead of time on our order entry backlog system. Instead, we receive a periodic forecast of requirements from the customer. Upon shipment from the just-in-time warehouse, the customer is invoiced. In light of these factors, backlog reporting as of any particular date may not be indicative of our actual revenue for any succeeding period and, therefore, is not necessarily an accurate predictor of our future revenue.

Competition

      We compete primarily with manufacturers of 3.5-inch hard disk drives for desktop and Intel-based server computers and consumer electronics applications. Our competitors in the hard disk drive market include Fujitsu, Hitachi Global Storage Technologies, Samsung, Seagate Technology, and Western Digital. In 2005, according to IDC, we were the fourth largest provider of hard disk drives worldwide based on units shipped.

      We believe that the most important competitive factors in the hard disk drive market are breadth of product lines, introduction of competitive products as measured by storage capacity, performance, quality, price, time-to-market introduction, time-to-volume production, customer qualifications, reliability and technical service and support.

      The hard disk drive market is intensely competitive even during periods when demand is stable. Many of our competitors historically have had a number of significant advantages, including larger market shares, a broader array of product lines, preferred vendor status with customers, extensive name recognition and marketing power, and significantly greater financial, technical and manufacturing resources. Some of our competitors make many of their own components, which may provide them with benefits including lower costs. In addition, our competitors may also engage in business practices that could reduce the demand for our products. These practices could include lowering prices to gain market share, bundling products with other products to increase demand, or developing new technologies which would significantly reduce the cost of their products.

      Increasing competition could reduce the demand for our products and/or the prices of our products by introducing technologically more advanced or less expensive products, which could reduce our revenues. In addition, new competitors could emerge and rapidly capture market share. If we fail to compete successfully against current or future competitors, our business, financial condition and operating results will suffer.

Intellectual Property

      The Company indemnifies certain customers, distributors, suppliers, and subcontractors for attorney fees and damages and costs awarded against these parties in certain circumstances in which its products are alleged to infringe third party intellectual property rights, including patents, registered trademarks, or copyrights. The terms of its indemnification obligations are generally perpetual from the effective date of the agreement. In certain cases, there are limits on and exceptions to its potential liability for indemnification relating to intellectual property.

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      As of December 31, 2005, we had a portfolio of 820 U.S. patents and over 100 foreign patents in various jurisdictions related to hard disk drive products and technologies, and have additional patent applications pending in the United States and certain foreign countries. We have patent protection on certain aspects of our technology and also rely on trade secret, copyright and trademark laws, as well as contractual provisions to protect our proprietary rights. There can be no assurance that our protective measures will be adequate to protect our proprietary rights; that others, including competitors with substantially greater resources, have not developed or will not independently develop or otherwise acquire equivalent or superior technology; or that we will not be required to obtain licenses requiring us to pay royalties to the extent that our products may use the intellectual property of others, including, without limitation, our products that may also be subject to patents owned or licensed by others. There can be no assurance that any patents will be issued pursuant to our current or future patent applications, or that patents issued pursuant to such applications or any patents we own or have license to use will not be invalidated, circumvented or challenged. In the case of products offered in rapidly emerging markets, such as consumer electronics, our competitors may file patents more rapidly or in greater numbers, resulting in the issuance of patents that may result in unexpected infringement assertions against us. Moreover, there can be no assurance that the rights granted under any such patents will provide competitive advantages to us or be adequate to safeguard and maintain our proprietary rights.

      Litigation may be necessary to enforce patents issued or licensed to us, to protect trade secrets or know-how owned by us or to determine the enforceability, scope and validity of our proprietary rights or those of others. We could incur substantial costs in seeking enforcement of our issued or licensed patents against infringement or the unauthorized use of our trade secrets and proprietary know-how by others or in defending ourselves against claims of infringement by others, which could have a material adverse effect on our business, financial condition and results of operations. In addition, the laws of certain countries in which our products are manufactured and sold, including various countries in Asia, may not protect our products and intellectual property rights to the same extent as the laws of the United States, and there can be no assurance that such laws will be enforced in an effective manner. Any failure by us to enforce and protect our intellectual property rights could have a material adverse effect on our business, financial condition and results of operations. We are subject to existing claims relating to our intellectual property which are costly to defend and may harm our business. For further information, see the section entitled “Risk Factors.”

Employees

      As of December 31, 2005, we had 15,085 employees worldwide, including 1,576 in engineering, research and development; 330 in marketing, sales and customer technical support; 12,792 in manufacturing; and 387 in executive, general management and administration. As of December 31, 2005, we had 4,940 employees at our manufacturing facilities in Singapore, 1,866 employees at our manufacturing facilities in California, 6,038 employees at our manufacturing facilities in China and 161 employees at our foreign sales offices. None of our U.S. employees are currently represented by a labor organization. Our Singapore subsidiary has a three-year collective bargaining agreement with the United Workers of Electronics and Electrical Industries (“UWEEI”) beginning December 2004. We believe that our employee relations are good.

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Executive Officers

      The following table lists the names, ages, positions and offices held by, and a brief account of the business experience of, each executive officer of the Company as of February 2006. There are no family relationships between any director or executive officer of the Company. Executive officers serve at the discretion of the Board of Directors.

Name	Age		Position with the Company
Dr. C.S. Park		58	Chairman and Chief Executive Officer
Michael J. Wingert		45	President and Chief Operating Officer
Duston M. Williams		47	Executive Vice President, Finance and Chief Financial Officer
Fariba Danesh		47	Executive Vice President, Operations
Kurt Richarz		45	Senior Vice President, Worldwide Sales
David L. Beaver		52	Senior Vice President, Worldwide Materials and Chief Procurement Officer
William Sweeney		58	Vice President, General Counsel and Secretary

      Dr. C.S. Park has been our Chief Executive Officer since November 2004. Dr. Park has been Chairman of our Board of Directors since May 1998 and has served as a member of our Board of Directors since February 1994. Dr. Park served as Investment Partner and Senior Advisor at H & Q Asia Pacific, a private equity firm, from April 2004 until September 2004, and as a Managing Director for the firm from November 2002 to March 2004. Dr. Park served as President and Chief Executive Officer of Hynix Semiconductor, Inc. from March 2000 to May 2002, and from June 2000 to May 2002 he also served as its Chairman. Dr. Park served as Chairman of Hynix Semiconductor America Inc. from September 1996 to July 2002, and from September 1996 to March 2000 he also served as its President and Chief Executive Officer. From September 1996 to May 1998, Dr. Park served as Vice Chairman of our Board of Directors. Dr. Park served as our President and Chief Executive Officer from February 1995 until July 1996. From 1993 until his appointment as our President and Chief Executive Officer in 1995, he was Chairman, President and Chief Executive Officer of Axil Computer, Inc., a workstation computer manufacturer.

      Michael J. Wingert has been our President and Chief Operating Officer since November 2004. Mr. Wingert previously served at Cornice, Inc. as Chief Operating Officer since June 2004, as President and Chief Executive Officer since July 2004. Mr. Wingert served as our Executive Vice President/ General Manager, Server Products Group from November 2001 to June 2004. From November 1999 until November 2001, Mr. Wingert served as our Vice President, Desktop Engineering and became Senior Vice President, Engineering in April 2001. Before his promotion to Vice President, Desktop Engineering, he was our Vice President, Engineering for five years. Prior to joining us in 1994, Mr. Wingert held various senior management positions in product test and development at IBM.

      Duston M. Williams has been our Executive Vice President, Finance and Chief Financial Officer since December 2004. Mr. Williams previously served as Chief Financial Officer of Aruba Wireless Networks, a network infrastructure company, from 2003 to 2004, Chief Financial Officer of Rhapsody Networks, a storage networking provider (acquired by Brocade Communications Systems in 2003), from 2001 to 2003 and Chief Financial Officer of Netigy Corporation, a networking consulting company (acquired by ThruPoint Inc. in 2001), from 2000 to 2001. From 1986 to 1999, Mr. Williams served in a variety of accounting and finance positions at Western Digital Corporation, a maker of hard disk drives, including its Senior Vice President and Chief Financial Officer from 1996.

      Fariba Danesh has been our Executive Vice President, Operations since September 2004. Ms. Danesh served as Senior Vice President and Chief Operating Officer of Finisar Corporation, a provider of fiber optic subsystems and components and network test and monitoring systems which enable high-speed data communications, from April 2003 to September 2004. Ms. Danesh served as President and Chief Executive Officer of Genoa Corporation from June 2002 to April 2003, when Genoa was acquired by Finisar. From June 2000 to June 2002, she served as Genoa’s Senior Vice President, Operations. Prior to joining Genoa,

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Ms. Danesh was employed by Sanmina Corporation as Vice President, Manufacturing, from September 1999 to June 2000.

      Kurt Richarz has been our Senior Vice President, Worldwide Sales since February 2005. Mr. Richarz joined Maxtor in July 2002 as Vice President of Global Accounts. He became our Vice President of Worldwide Sales in April 2004. From 1990 until 2001, Mr. Richarz worked for Quantum Corporation in various capacities, most recently as Vice President of Sales from 1996 to 2001.

      David L. Beaver has been our Senior Vice President, Worldwide Materials and Chief Procurement Officer since November 2001. From May 1998 until November 2001, Mr. Beaver served as our Vice President, Worldwide Materials and became Senior Vice President, Worldwide Materials in April 2001. From March 1997 to May 1998, Mr. Beaver was Vice President of Far East Materials and Logistics in our Singapore factory. From 1994 to 1997, he was Director of Operations and Materials at EMASS, an E-systems data storage company. From 1991 to 1994, he was Director of Corporate Materials Procurement at SyQuest, a storage company. He has over 20 years high tech data storage business management experience.

      William O. Sweeney has been our Vice President, General Counsel and Secretary since May 2005. Previously, Mr. Sweeney served as Acting General Counsel from March 2004 and as Associate General Counsel since joining Maxtor in 1996. From 1989 to 1996, Mr. Sweeney was Associate General Counsel for J.D. Edwards, an enterprise application software company.

Available Information

      Our website address is http://www.maxtor.com. We file reports with the Securities and Exchange Commission (“SEC”), which we make available on our website free of charge. These reports include annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to such reports, each of which is provided on our website as soon as reasonably practicable after we electronically file such materials with or furnish them to the SEC. You can also read and copy any materials we file with the SEC at the SEC’s Public Reference Room at 450 Fifth Street, NW, Washington, DC 20549. You can obtain additional information about the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. In addition, the SEC maintains a website (http://www.sec.gov) that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC, including us.

Item 1A.      Risk Factors

Risks Related to Our Merger with Seagate Technology

Failure to complete the merger with Seagate Technology could materially and adversely affect our results of operations and our stock price.

      On December 20, 2005, we entered into a definitive merger agreement with Seagate Technology (“Seagate”). Consummation of the merger is subject to certain conditions, including antitrust approvals, stockholder approvals and a limited number of other closing conditions. We cannot assure you that these conditions will be met or waived, that the necessary approvals will be obtained, or that we will be able to successfully consummate the merger as currently contemplated under the merger agreement or at all. If the merger is not consummated:

•  the market price of our common stock may decline to the extent that the current market price includes a market assumption that the merger will be completed;

•  we will remain liable for significant transaction costs, including legal, accounting, financial advisory and other costs relating to the merger, and may not receive any termination fee from Seagate;

•  the deterioration of our business in the interim period may be significant and we may find it difficult to continue as a stand-alone entity;

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•  we may experience a negative reaction to the termination of the merger from our customers, suppliers, distributors or partners which may adversely impact our future operating results; and

•  under some circumstances, we may have to pay a termination fee to Seagate in the amount of $53 million or Seagate’s expenses.

      The occurrence of any of these events individually or in combination could have a material adverse effect on our results of operations and our stock price. In addition, if the merger agreement is terminated and our Board of Directors seeks another merger or business combination, we may not be able to find a party willing to pay a price equivalent to or more attractive than the price Seagate has agreed to pay.

Obtaining required approvals and satisfying closing conditions relating to the Seagate merger or other developments may delay or prevent completion of the merger.

      Completion of the merger with Seagate is conditioned upon Seagate and Maxtor obtaining required approvals and satisfying closing conditions, including:

•  approval by our stockholders of the merger agreement;

•  approval by the stockholders of Seagate of the issuance of its shares pursuant to the merger; and

•  Seagate and Maxtor obtaining necessary antitrust approvals under governmental authorities of the European Economic Area, Japan, South Korea and Taiwan.

      The requirement for certain governmental approvals could delay the completion of the merger for a significant period of time. No assurance can be given that these approvals will be obtained or that the required conditions to closing will be satisfied. In connection with the granting of these consents and authorizations, governmental authorities may impose conditions on completion of the merger or require changes to the terms of the merger. Such conditions or changes, if agreed to by the parties, may jeopardize or delay completion of the merger or may reduce the anticipated benefits of the merger.

      Under the terms of the merger agreement, Seagate and we are required to use our respective best efforts to obtain all requisite regulatory approvals. Even if all such approvals are obtained and the conditions are satisfied, no assurance can be given as to the terms, conditions and timing of these approvals. Any significant delay in obtaining required approvals and satisfying closing conditions, or other developments relating to the merger, may result in continued uncertainty for our customers, suppliers, distributors and partners, could cause continued distraction to management or could otherwise increase the risk of the merger not occurring.

Customer, supplier, distributor and partner uncertainty about the merger or general effects of the merger on our customer, supplier, distributor and partner relationships could harm us or the combined company, whether or not the merger is completed.

      Existing or potential customers of Seagate and Maxtor may, in response to the announcement, pendency or consummation of the merger, delay or defer their purchasing decisions. In addition, customers and prospective customers could choose not to purchase future products or to reduce or eliminate purchases of our current products because of doubts about the combined company’s ability to provide products in a satisfactory manner. In many instances, we and Seagate serve the same customers, and some of these customers may decide that it is desirable to have additional or different suppliers, reducing our share of the market.

      Furthermore, Seagate’s and our respective suppliers, distributors and partners may have concerns regarding uncertainty about their future relationship with the combined company and may seek to modify or terminate existing agreements or reduce or limit their relationship with us or with Seagate until or after the merger is completed. As a result, revenues that may have ordinarily been received by Seagate or Maxtor may be delayed or not earned at all, product development schedules may be adversely impacted, costs of components may increase and/or cost reductions that would ordinarily have been achieved might be delayed or not achieved at all, whether or not the merger is completed.

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Diversion of management attention to the merger and employee uncertainty regarding the merger could adversely affect our business, financial condition and operating results.

      The merger will require a significant amount of time and attention from our management, with transition planning for the merger expected to place a significant burden on our management and our internal resources until the merger is completed. The diversion of management attention away from normal operational matters and any difficulties encountered in the transition process could harm our business, financial condition and operating results. In addition, as a result of the merger, current and prospective Maxtor employees could experience uncertainty about their future roles within the combined company. Even though we have implemented a retention bonus program, this uncertainty may adversely affect our ability to retain or recruit key management, sales, marketing and technical personnel. Any failure to retain key personnel could have an adverse effect on us prior to the consummation of the merger or on the business of the combined company after completion of the merger.

Because our stockholders will receive a fixed ratio of 0.37 of a share of Seagate common stock for each share of Maxtor common stock that they own at the closing of the merger, if Seagate’s stock price decreases for any reason, our stockholders will receive less value for their Maxtor shares.

      At the closing of the merger, each share of Maxtor common stock will be converted in accordance with a fixed exchange ratio into the right to receive 0.37 of a share of Seagate common stock. Accordingly, the then current dollar value of Seagate common stock that our stockholders will receive upon the completion of the merger will depend entirely upon the market value of Seagate common stock at the time the merger is completed, which may be lower than the closing price of Seagate common stock on the last full trading day preceding the public announcement of the merger or the date of our annual meeting and Seagate’s extraordinary general meeting. Moreover, due to the existence of a number of closing conditions, including the receipt of required antitrust approvals, the completion of the merger may occur some time after approvals from Maxtor and Seagate stockholders have been obtained. The market price of Seagate common stock has experienced volatility in the past, and we cannot predict or give any assurances as to the market price of Seagate common stock at any time before or after the completion of the merger. Neither Maxtor nor Seagate may unilaterally terminate or renegotiate the merger agreement solely because of changes in the market price of Maxtor or Seagate common stock. Any reduction in the price of Seagate common stock will result in our stockholders receiving less value in the merger at closing.

The combined company may not realize the anticipated benefits from the merger.

      The merger involves the integration of two companies that have previously operated independently. We expect the merger to result in certain benefits for the combined company, including drive product innovations, cost savings and other financial and operating benefits. We cannot assure you, however, regarding when or the extent to which the combined company will be able to realize these benefits. This integration may also be difficult, unpredictable, and subject to delay because of possible cultural conflicts and different opinions on technical decisions and product roadmaps. Due to legal restrictions, we have conducted only limited planning regarding the integration of the two companies. Following the merger, the companies must integrate or, in some cases, replace, numerous systems, including those involving management information, purchasing, accounting and finance, sales, billing, employee benefits, payroll and regulatory compliance, many of which are dissimilar. Difficulties associated with integrating the two companies could have a material adverse effect on the combined company and the market price of Seagate common stock.

Under the terms of the 2.375% Convertible Senior Notes due 2012, our merger with Seagate Technology will trigger conversion rights that, if exercised, may have an adverse effect on the liquidity of the combined company.

      The closing of our merger with Seagate will give the holders of our 2.375% Convertible Senior Notes due 2012 the right to elect to convert their notes for a period of approximately 30 days. Because conversion of the 2.375% Convertible Senior Notes due 2012 must be settled in cash up to the lesser of (a) the outstanding principal amount of the notes being converted, and (b) the “conversion value” of the notes (which is calculated by multiplying the conversion rate then in effect by the market price of our common stock price at

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the time of conversion), the merger may have a negative effect on our liquidity if a significant amount of those outstanding notes are converted.

Risks Related to Our Business

We have a history of significant losses.

      We have a history of significant losses. In the last five fiscal years, we were profitable in only fiscal years 2000 and 2003. For the fiscal year ended December 31, 2005, our net loss was $43.3 million. As of December 31, 2005, we had an accumulated deficit of $1,838.5 million. We may experience losses in the future and may not be profitable for a full fiscal year.

The decline of average selling prices in the hard disk drive industry could cause our operating results to suffer and make it difficult for us to achieve or maintain profitability.

      It is very difficult to achieve and maintain profitability and revenue growth in the hard disk drive industry because the average selling price of a hard disk drive declines over its commercial life as a result of technological advances, productivity improvements and increases in supply. In addition, intense price competition among personal computer manufacturers and Intel-based server manufacturers may cause the price of hard disk drives to decline. As a result, the hard disk drive market tends to experience periods of excess capacity and intense price competition. Competitors’ attempts to liquidate excess inventories, restructure, or gain market share also tend to cause average selling prices to decline. Furthermore, longer product life-cycles have resulted in a decline in average selling prices that, in some cases, exceed the decline in cost of components over the longer product life-cycle. This excess capacity and intense price competition may cause us in future quarters to lower prices, which will have the effect of reducing margins, causing operating results to suffer and making it difficult for us to achieve or maintain profitability. If we are unable to lower the cost of producing our hard disk drives to be consistent with any decline of average selling prices, we will not be able to compete effectively and our operating results will suffer. Furthermore, a decline in average selling prices may result from end-of-period buying patterns where distributors and sub-distributors tend to make a majority of their purchases at the end of a fiscal quarter, aided by disparities between distribution pricing and OEM pricing greater than historical norms and pressure on disk drive manufacturers to sell significant units in the quarter. Due to these factors, forecasts may not be achieved, either because expected sales do not occur or because they occur at lower prices than expected or on terms that are less favorable to us. This increases the chances that our results could diverge from the expectations of investors and analysts, which could make our stock price more volatile.

Intense competition in the hard disk drive market could reduce the demand for our products or the prices of our products, which could adversely affect our operating results.

      The desktop computer market segment and the overall hard disk drive market are intensely competitive even during periods when demand is stable. We compete primarily with manufacturers of 3.5-inch hard disk drives, including Fujitsu, Hitachi Global Storage Technologies, Samsung, Seagate Technology and Western Digital. Many of our competitors historically have had a number of significant advantages, including larger market share, a broader product line, preferred vendor status with customers, extensive name recognition and marketing power, a lower cost structure, and/or significantly greater financial, technical and manufacturing resources. Some of our competitors make many of their own components, which may provide them with benefits including lower costs. Others may themselves or through affiliated entities produce complete computer or other systems that contain disk drives or other information storage products, enabling them to determine pricing for complete systems without regard to the margins on individual components. In addition, because components other than disk drives generally contribute a greater portion of the operating margin on a complete system than do disk drives, these manufacturers of complete systems do not necessarily need to realize a profit on the disk drives included in a system. Our competitors may also:

•  consolidate or establish strategic relationships to lower their product costs or to otherwise compete more effectively against us;

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•  lower their product prices to gain market share;

•  sell their products with other products to increase demand for their products;

•  develop new technology, which would significantly reduce the cost of their products;

•  get to the market with the next generation product faster or ramp more effectively; or

•  offer more products than we do and therefore enter into agreements with customers to supply hard disk drives as part of a larger supply agreement.

      Increasing competition could reduce the demand for our products and/or the prices of our products as a result of the introduction of technologically better and/or cheaper products, which could reduce our revenues. In addition, new competitors could emerge and rapidly capture market share. If we fail to compete successfully against current or future competitors, our business, financial condition and operating results will suffer.

If we fail to qualify as a supplier to computer manufacturers or their subcontractors, then these manufacturers or subcontractors may not purchase any units of an entire product line, which will have a significant adverse impact on our sales.

      A significant portion of our products is sold to desktop computer and Intel-based server manufacturers or to their subcontractors. These manufacturers select or qualify their hard disk drive suppliers, either directly or through their subcontractors, based on quality, storage capacity, performance and price. Manufacturers typically seek to qualify two or more suppliers for each hard disk drive product generation. To qualify consistently, and thus succeed in the desktop and Intel-based server hard disk drive industry, we must consistently be among the first-to-market with introduction and first-to-volume production at leading storage capacities per disk, offering competitive prices and high quality. Once a manufacturer or subcontractor has chosen its hard disk drive suppliers for a given desktop computer or Intel-based server product, it often will purchase hard disk drives from those suppliers for the commercial lifetime of that product line. It is, however, possible to fail to maintain a qualification due to quality or yield issues. If we miss a qualification opportunity or cease to be qualified due to yield or quality issues, we may not have another opportunity to do business with that manufacturer or subcontractor until it introduces its next generation of products. The effect of missing a product qualification opportunity is magnified by the limited number of high-volume manufacturers of personal computers and Intel-based servers. If we do not reach the market or deliver volume production in a timely manner, we may not qualify our products and may need to deliver lower margin, older products than required in order to meet our customers’ demands. In such cases, our business, financial condition and operating results would be adversely affected. In addition, continuing developments in technology cause a need for us to continuously manage product transitions, including a need to qualify new products or qualify improvements to existing products. Accordingly, if we are unable to manage a product transition effectively, including the introduction, production or qualification of any new products or product improvements, our business and results of operations could be negatively affected.

The loss of one or more significant customers or a decrease in their orders of our products would cause our revenues to decline.

      We sell most of our products to a limited number of customers. For the fiscal year ended December 31, 2005, two of our customers accounted for 10% or greater of our total revenue, and our top five customers accounted for approximately 40.2% of our revenue. We expect that a relatively small number of customers will continue to account for a significant portion of our revenue, and the proportion of our revenue from these customers could continue to increase in the future. These customers have a wide variety of suppliers to choose from and therefore can make substantial demands on us. Even if we successfully qualify a product for a given customer, the customer generally will not be obligated to purchase any minimum volume of product from us and generally will be able to terminate its relationship with us at any time. Our ability to maintain strong relationships with our principal customers is essential to our future performance. If we lose a key customer or if any of our key customers reduce their orders for our products or require us to reduce our prices before we are

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able to reduce costs, our business, financial condition and operating results could suffer. Mergers, acquisitions, consolidations or other significant transactions involving our significant customers may adversely affect our business and operating results.

If we do not expand into new hard drive markets, our revenues will suffer.

      To remain a significant supplier of hard disk drives to major manufacturers of personal computers, consumer electronics and Intel-based servers, we need to offer a broad range of hard disk drive products to our customers. Although almost all our current products are designed for the desktop computer and the Intel-based server markets, demand in these markets may shift to products we do not offer or volume demand may shift to other markets. Such markets may include laptop computers or handheld consumer products, which none of our products currently serve. We also do not offer a fibre channel product for our enterprise customers. Many other hard disk drive suppliers compete in these additional parts of the market, including Cornice, Inc., Fujitsu, Hitachi Global Storage Technologies, GS Magicstor Inc., Samsung, Seagate Technology, Toshiba and Western Digital. Because many of these competitors compete in a broader range of the market, they may not be as impacted by declines in demand or average selling prices in desktop products. Improvements in areal density and increases in sales of notebook computers are resulting in a shift to smaller form factor rigid disk drives for an expanding number of applications, including enterprise storage, personal computers and consumer electronic devices. In addition, non-disk drive storage technologies such as flash memories may create effective competition in these markets. We will need to successfully develop and manufacture new products that address additional hard disk drive markets to remain competitive in the hard disk drive industry. Although we are continuing our development efforts in the small form factor market there can be no assurance that we will successfully develop and introduce a small form factor product in a timely fashion. If we do not suitably adapt our technology and product offerings to successfully develop and introduce additional smaller form factor rigid disk drives, we may not be able to effectively compete and our revenues will suffer. Products using alternative technologies, such as optical storage, semiconductor memory and other storage technologies, may also compete with hard disk drive products in such markets.

Our efforts to improve operating efficiencies through restructuring activities may not be successful, and the actions we take to this end could limit our ability to compete effectively.

      We have taken, and continue to take, various actions to attempt to improve operating efficiencies at Maxtor through restructuring. These activities have included facility closures, facility transfers and significant personnel reductions. We continue to look at opportunities for further cost reductions, which may result in additional restructuring activities in the future. We cannot assure you that our efforts will result in the increased profitability, cost savings or other benefits that we expect. Many factors, including reduced sales volume and average selling prices, which have impacted gross margins in the past, and the addition of, or increase in, other operating expenses may offset some or all of our anticipated or estimated savings. Moreover, the reduction of personnel and closure and transfer of facilities may result in disruptions that affect our products and customer service. In addition, the transfer of manufacturing capacity of a product to a different facility frequently requires qualification of the new facility by some of our OEM customers. We cannot assure you that these activities and transfers will be implemented on a cost-effective basis without delays or disruption in our production and without adversely affecting our customer relationships and results of operations. Each of the above measures could have long-term adverse effects on our business by reducing our pool of technical talent, decreasing employee morale, disrupting production schedules or impacting the quality of products making it more difficult for us to respond to customers, limiting our ability to increase production quickly if and when the demand for our products increases and limiting our ability to hire and retain key personnel. These circumstances could adversely affect our business and operating results.

Because we are substantially dependent on desktop computer drive sales, a decrease in the demand for desktop computers could reduce demand for our products.

      Our revenue growth and profitability depend significantly on the overall demand for desktop computers and related products and services. Because we sell a significant portion of our products to the desktop segment

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of the personal computer industry, we will be affected more by changes in market conditions for desktop computers than a company with a broader range of products. End-user demand for the computer systems that contain our hard disk drives has historically been subject to rapid and unpredictable fluctuations. Demand in general for our products may be reduced by a shift to smaller form factor rigid disk drives or by the emergence of effective non-disk drive storage product competitors. Any decrease in the demand for desktop computers could reduce the demand for our products, harming our business, financial condition and operating results.

If we do not successfully introduce new products or avoid product quality problems, our revenues will suffer.

      While we continually develop new products, the success of our new product introductions is dependent on a number of factors, including market acceptance, our ability to manage the risks associated with product transitions, and the risk that our new products will have quality problems or other defects in the early stages of introduction that were not anticipated in the design of those products. In addition, quality problems may adversely impact our relationships with our major OEM customers, which in turn could adversely impact our sales to those customers of new products in the future. We cannot assure you that we will avoid technical or other difficulties that could delay or prevent the successful development, introduction or marketing of new hard disk drives. Any failure to successfully develop and introduce new products for our existing customers, or any quality problems with newly introduced products, could result in loss of customer business or require us to deliver older, lower margin products not targeted effectively to customer requirements, which in turn could adversely affect our business, financial condition and operating results.

If we do not expand into new technologies, our revenues will suffer.

      To remain a significant supplier of hard disk drives to major manufacturers of personal computers, consumer electronics and Intel-based servers, and to expand into supplying manufacturers of laptop computers or handheld consumer products, we may need to develop new technologies. Many other hard disk drives suppliers compete in the development of such new technologies, including Cornice, Inc., Fujitsu, Hitachi Global Storage Technologies, GS Magicstor Inc., Samsung, Seagate Technology, Toshiba and Western Digital, and they may be better funded or more advanced in their technological developments. Improvements in time to market, time to volume, and cost of goods may require development of a greater number of common design elements and components for use in multiple future products. There can be no assurance that we will successfully develop and introduce such technologies in a timely fashion. If we do not suitably develop such technologies, we may not be able to effectively compete and our revenues could suffer.

If we fail to develop and maintain relationships with our key distributors, if we experience problems associated with distribution channels, or if our key distributors favor our competitors’ products over ours, our operating results could suffer.

      We sell a significant amount of our hard disk drive products through a limited number of key distributors. If we fail to develop, cultivate and maintain relationships with our key distributors, or if these distributors are not successful in their sales efforts, sales of our products may decrease and our operating results could suffer. As our sales through these distribution channels continue to increase, we may experience problems typically associated with these distribution channels such as unstable pricing, increased return rates and other logistical difficulties. Our distributors also sell products manufactured by our competitors. If our distributors favor our competitors’ products for any reason, they may fail to market our products effectively or continue to devote the resources necessary to provide us with effective sales and, as a result, our operating results could suffer.

Our customers have adopted a subcontractor model that increases our credit risk and could result in an increase in our operating costs.

      Our significant OEM customers have a subcontractor model that requires us to contract directly with companies that provide manufacturing services for personal computer manufacturers. This exposes us to increased credit risk because these subcontractors are generally not as well capitalized as personal computer manufacturers, and our agreements with our customers may not permit us to increase our prices to

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compensate for this increased credit risk. Any credit losses would increase our operating costs, which could cause our operating results to suffer. Moreover, the subcontractor will often negotiate for lower prices than have been agreed with the OEM customer, resulting in reduced profits to us.

If we fail to match production with product demand or to manage inventory, our operating results could suffer.

      We base our inventory purchases and commitments on forecasts from our customers, who are not obligated to purchase the forecast amounts. If actual orders do not match our forecasts, or if any products become obsolete between order and delivery time, we may have excess or inadequate inventory of our products. In addition, our significant OEM customers have adopted build-to-order manufacturing models, just-in-time inventory management processes or customized product features that require us to maintain inventory at or near the customer’s production facility. These policies have complicated inventory management strategies that make it more difficult to match manufacturing plans with projected customer demand and cause us to carry inventory for more time and to incur additional costs to manage inventory which could cause our operating results to suffer. If we fail to manage inventory of older products as we or our competitors introduce new products with higher areal density we may have excess inventory. Excess inventory could materially adversely affect our operating results and cause our operating results to suffer.

Because we purchase a significant portion of our parts from a limited number of third party suppliers, we are subject to the risk that we may be unable to acquire quality components in a timely manner, and these component shortages could result in delays of product shipments and damage our business and operating results.

      We depend on a limited number of qualified suppliers for components and subassemblies, including recording heads, media and integrated circuits. Currently, we purchase recording heads from two sources, digital signal processors/controllers from one source and spin/servo integrated circuits from two sources. Our internal media manufacturing capability cannot supply all of our media needs, and therefore we still purchase a portion of our media from outside sources. The industry has been experiencing constraints in component supplies, particularly media and substrates. If one or more of our suppliers who provide sole or limited source components encounters business difficulties or ceases to sell components to us for any reason, or if our media production facilities encounter production difficulties, we could have immediate shortages of supply for those components. If we cannot obtain sufficient quantities of high-quality parts when needed, product shipments would be delayed and our business, financial condition and operating results could suffer. We cannot assure you that we will be able to obtain adequate supplies of critical components in a timely and economic manner, or at all. Our announced merger agreement with Seagate may make it more difficult to obtain supplies of some critical components at competitive prices or on customary terms as our suppliers evaluate their ongoing relationship with the combined company.

We purchase most of our components from third party suppliers, and may have higher costs or more supply chain risks than our competitors who are more vertically integrated.

      Unlike some of our competitors, except for a portion of our media, we do not manufacture any of the parts used in our products. Instead, our products incorporate parts and components designed by and purchased from third party suppliers. As a result, the success of our products depends on our ability to gain access to and effectively integrate parts and components that use leading-edge technology. To do so we must effectively manage our relationships with our strategic component suppliers. We must also effectively integrate different products from a variety of suppliers and manage difficult scheduling and delivery problems and in some cases we must incur higher delivery costs for components than incurred by our competitors.

      Some required parts may be periodically in short supply. As a result, we will have to allow for significant ordering lead times for some components. Furthermore, in the event that these suppliers cannot qualify to new leading-edge technology specifications, our ramp up of production for the new products will be delayed, reducing opportunities to lower component and manufacturing costs and lengthening product life cycles. In addition, we may have to pay significant cancellation charges to suppliers if we cancel orders for components

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because we reduce production due to market oversupply, reduced demand, transition to new products or technologies or for other reasons. We order the majority of our components on a purchase order basis and we have limited long-term volume purchase agreements with only some of our existing suppliers. If we are unable to successfully manage the access to and integration of parts obtained from third party suppliers, our business, financial condition and operating results could suffer.

If we have difficulties with the transition of manufacturing to China or a disaster occurs at one of our plants, our business, financial condition and operating results could suffer.

      Our Maxtor-owned facilities in Singapore and China are our only current sources of production for our hard disk drive products. We manufacture a majority of our media needs in California. Our new manufacturing facility in China is intended to provide us with a low-cost manufacturing facility. The China facility has ramped its production of one and two-platter desktop drives. In the fourth quarter of 2005, two-thirds of our desktop volume was produced in China and we expect to produce at approximately this volume throughout 2006. We are transitioning the manufacturing of more desktop products from Singapore to China during 2005. To successfully expand our China manufacturing operation, we need to recruit and hire a substantial number of employees, including both direct labor and key management personnel in China. Any delay or difficulty in qualifying our China facility’s production of various products with our customers, or any difficulties or delay in recruiting, hiring or training personnel in China, could interfere with the ramp in production at the facility, which could harm our business, financial condition and operating results. We have also consolidated our manufacturing in Singapore into one facility. Any difficulties or delays encountered in these transitions may adversely impact our business. In addition, a tsunami, flood, earthquake, political instability, act of terrorism or other disaster or condition that adversely affects our facilities or ability to manufacture our hard disk drive products could significantly harm our business, financial condition and operating results.

We are subject to risks related to product defects, which could subject us to warranty claims in excess of our warranty provision or which are greater than anticipated due to the unenforceability of liability limitations.

      Our products may contain defects. We generally warrant our products for one to five years. The standard warranties used by us and Quantum HDD contain limits on damages and exclusions of liability for consequential damages and for negligent or improper use of the products. We establish a warranty provision at the time of product shipment in an amount equal to estimated warranty expenses. We may incur additional operating expenses if these steps do not reflect the actual cost of resolving these issues, and if any resulting expenses are significant our business, financial condition and results of operations will suffer.

Our quarterly operating results have fluctuated significantly in the past and are likely to fluctuate in the future.

      Our future performance will depend on many factors, including:

•  the average selling price of our products;

•  fluctuations in the demand for our products as a result of the seasonal nature of the desktop computer industry and the markets for our customers’ products, as well as the overall economic environment;

•  market acceptance of our products;

•  our ability to qualify our products successfully with our customers;

•  changes in purchases by our primary customers, including the cancellation, rescheduling or deferment of orders;

•  changes in product and customer mix;

•  actions by our competitors, including announcements of new products or technological innovations;

•  our ability to execute future product development and production ramps effectively;

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•  the availability and efficient use of manufacturing capacity;

•  our ability to retain key personnel;

•  our inability to reduce a significant portion of our fixed costs due, in part, to ongoing capital expenditure requirements; and

•  our ability to procure and purchase critical components at competitive prices.

      Many of our expenses are relatively fixed and difficult to reduce or modify. The fixed nature of our operating expenses will magnify any adverse effect of a decrease in revenue on our operating results. Because of these and other factors, period to period comparisons of our historical results of operations are not a good predictor of our future performance. If our future operating results are below the expectations of stock market analysts, our stock price may decline. Our ability to predict demand for our products and our financial results for current and future periods may be affected by economic conditions. This may adversely affect both our ability to adjust production volumes and expenses and our ability to provide the financial markets with forward-looking information.

We face risks from our substantial international operations and sales.

      We conduct most of our manufacturing and testing operations and purchase a substantial portion of our key parts outside the United States. In particular, manufacturing operations for our products are concentrated in Singapore and China, where our principal manufacturing operations are located. Such concentration of operations in Singapore and China will likely magnify the effects on us of any disruptions or disasters relating to those countries. In addition, we also sell a significant portion of our products to foreign distributors and retailers. As a result, we will be dependent on revenue from international sales. Inherent risks relating to our overseas operations include:

•  difficulties with staffing and managing international operations;

•  transportation and supply chain disruptions and increased transportation expense as a result of epidemics, terrorist activity, acts of war or hostility, increased security and less developed infrastructure;

•  economic slowdown and/or downturn in foreign markets;

•  international currency fluctuations;

•  political and economic uncertainty caused by natural disasters such as tsunamis, earthquakes and hurricanes; epidemics; terrorism; or acts of war or hostility;

•  legislative and regulatory responses to terrorist activity such as increased restrictions on cross-border movement of products and technology;

•  legislative, regulatory, police, or civil responses to epidemics or other outbreaks of infectious diseases such as quarantines, factory closures, or increased restrictions on transportation or travel;

•  general strikes or other disruptions in working conditions;

•  labor shortages;

•  energy or fuel shortages or cost increases;

•  political instability;

•  changes in tariffs;

•  generally longer periods to collect receivables;

•  unexpected legislative or regulatory requirements;

•  reduced protection for intellectual property rights in some countries;

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•  significant unexpected duties or taxes or other adverse tax consequences;

•  difficulty in obtaining export licenses and other trade barriers;

•  increased transportation/shipping costs;

•  credit and access to capital issues faced by our international customers; and

•  compliance with European Union directives implementing strict mandates on electronic equipment waste and banning the use of certain materials in electronic manufacturing.

      The specific economic conditions in each country impact our international sales. For example, our international sales contracts are denominated primarily in U.S. dollars. Significant downward fluctuations in currency exchange rates against the U.S. dollar could result in higher product prices and/or declining margins and increased manufacturing costs. In addition, we attempt to manage the impact of foreign currency exchange rate changes by entering into short-term, foreign exchange contracts. If we do not effectively manage the risks associated with international operations and sales, our business, financial condition and operating results could suffer.

Our operations and prospects in China are subject to significant political, economic and legal uncertainties.

      Our new manufacturing plant in China began volume shipments in the second half of 2004. We also intend to expand our presence in the distribution channels serving China. Our business, financial condition and operating results may be adversely affected by changes in the political, social or economic environment in China. Under its current leadership, China has been pursuing economic reform policies, including the encouragement of private economic activity and greater economic decentralization. There can be no assurance, however, that the Chinese government will continue to pursue such policies or that such policies will not be significantly altered from time to time without notice. In addition, Chinese economic policies may fluctuate from time to time without notice and this fluctuation in policy may adversely impact our credit arrangements. Any changes in laws and regulations, or their interpretation, the imposition of surcharges or any material increase in Chinese tax rates, restrictions on currency conversion, imports and sources of supply, devaluations of currency or the nationalization or other expropriation of private enterprises could have a material adverse effect on our ability to conduct business and operate our manufacturing facility in China. Chinese policies toward economic liberalization and, in particular, policies affecting technology companies, foreign investment and other similar matters could change. In addition, our business and prospects are dependent upon agreements and regulatory approval with various entities controlled by Chinese governmental instrumentalities. Our operations and prospects in China would be materially and adversely affected by the failure of such governmental entities to grant necessary approvals or honor existing contracts. If breached, any such contract might be difficult to enforce in China.

      The legal system in China relating to corporate organization and governance, foreign investment, commerce, taxation and trade is both new and continually evolving, and there can be no certainty as to the application of its laws and regulations in particular instances. Our ability to enforce commercial claims or to resolve commercial disputes is unpredictable. If our business ventures in China are unsuccessful, or other adverse circumstances arise from these transactions, we face the risk that the parties to these ventures may seek ways to terminate the transactions, or may hinder or prevent us from accessing important financial and operational information regarding these ventures. The resolution of these matters may be subject to the exercise of considerable discretion by agencies of the Chinese government, and forces unrelated to the legal merits of a particular matter or dispute may influence their determination. Any rights we may have to specific performance, or to seek an injunction under Chinese law, in either of these cases, are severely limited, and without a means of recourse by virtue of the Chinese legal system, we may be unable to prevent these situations from occurring. The occurrence of any such events could have a material adverse effect on our business, financial condition and operating results. Further, our intellectual property protection measures may not be sufficient to prevent misappropriation of our technology in China. The Chinese legal system does not protect intellectual property rights to the same extent as the legal system of the United States and effective

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intellectual property enforcement may be unavailable or limited. If we are unable to adequately protect our proprietary information and technology in China, our business, financial condition and operating results could be materially adversely affected.

We may need additional capital in the future which may not be available on favorable terms or at all.

      Our business is capital intensive and we may need more capital in the future. Our future capital requirements will depend on many factors, including:

•  the rate of our sales growth;

•  the level of our profits or losses;

•  the timing and extent of our spending to expand manufacturing capacity, support facilities upgrades and product development efforts;

•  the timing and size of business or technology acquisitions;

•  the timing of introductions of new products and enhancements to our existing products; and

•  the length of product life cycles.

      If we require additional capital it is uncertain whether we will be able to obtain additional financing on favorable terms, if at all. Further, if we issue equity securities in connection with additional financing, our stockholders may experience dilution and/or the new equity securities may have rights, preferences or privileges senior to those of existing holders of common stock. If we cannot raise funds on acceptable terms, if and when needed, we may not be able to develop or enhance our products and services in a timely manner, take advantage of future opportunities or respond to competitive pressures or unanticipated requirements or may be forced to limit the number of products and services we offer, any of which could seriously harm our business.

The loss of key personnel or inability of our senior management team to work together effectively could harm our business.

      Our success depends upon the continued contributions of our executives and skilled employees, many of whom would be extremely difficult to replace. Like many other technology companies, we have implemented workforce reductions that in some cases resulted in the termination of skilled employees who have substantial knowledge of our business. Since November 2004, we have also undergone a number of changes in our management structure that included the departure of senior executives and appointment of our current senior management team. Because of these changes, our current senior executive team has not worked together as a group for a significant length of time. Additional turnover in senior management and any future workforce reductions may adversely affect the morale of, and our ability to retain, executives and skilled employees who have not been terminated, which may result in the loss of executives and skilled employees. The loss of the services of one or more of our executive officers or skilled employees could also affect our ability to successfully implement our business objectives which could slow the growth of our business and cause our operating results to decline. Moreover, if our new management team is unable to work together effectively to implement our strategies and manage our operations and accomplish our business objectives, our ability to grow our business and successfully meet operational challenges could be severely impaired. Although we have implemented retention measures in connection with our announced merger agreement with Seagate, the pending merger with Seagate may impact our ability to retain key executives. We do not have key person life insurance on any of our personnel.

      Worldwide competition for executives and skilled employees in the hard disk drive industry is extremely intense. If we are unable to retain existing employees or to hire and integrate new employees, our business, financial condition and operating results could suffer. In addition, companies in the hard disk drive industry and other sectors whose employees accept positions with competitors often claim that the hiring organization has engaged in unfair hiring practices. We may be the subject of such claims in the future as we seek to hire qualified personnel and we could incur substantial costs defending ourselves against those claims.

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We significantly increased our leverage as a result of the sale of convertible senior notes.

      In connection with our sale of the 2.375% Convertible Senior Notes in August 2005, we incurred $326 million of indebtedness that will mature in August 2012 (the “2005 Notes”). As of December 31, 2005, we also have approximately $135.7 million of outstanding indebtedness under our 6.8% Convertible Senior Notes due 2010 sold in May 2003 that will mature in April 2010 (the “2003 Notes”) and approximately $59.0 million of outstanding indebtedness under our 5.75% Convertible Subordinated Debentures due March 1, 2012 sold in March, 1987. We will require substantial amounts of cash to fund:

•  semi-annual interest payments on each series of notes;

•  payment at the respective maturities of each series of notes;

•  payment of the principal amount of the 2005 Notes upon conversion by the holders or upon demand by the holders following certain fundamental change events;

•  payment of the principal amount of the 2003 Notes upon conversion (if we elect to satisfy a conversion in whole or in part, with cash rather than shares of our common stock) or upon demand by the holders following certain change of control events; and

•  future capital expenditures, investments and acquisitions, payments on our leases and loans, and any increased working capital requirements.

      If we are unable to meet our cash requirements out of cash flows from operations or from otherwise available funds, we may need to obtain alternative financing, which may not be available on favorable terms or at all. Any failure by us to satisfy our obligations under the three series of notes or their respective indentures could cause a default under agreements governing our other indebtedness. The degree to which we are financially leveraged could materially and adversely affect our ability to obtain additional financing for working capital, acquisitions or other purposes and could make us more vulnerable to industry downturns and competitive pressures. In the absence of such financing, our ability to respond to changing business and economic conditions, to make future acquisitions, to absorb adverse operating results or to fund capital expenditures or increased working capital requirements could be significantly reduced. Our ability to meet our debt service obligations will be dependent upon our future performance, which will be subject to financial, business and other factors affecting our operations, some of which are beyond our control.

Under the terms of the 2.375% Convertible Senior Notes due 2012, events that we do not control will trigger conversion rights that, if exercised, may have an adverse effect on our liquidity.

      Because conversion of the 2.375% Convertible Senior Notes due 2012 must be settled in cash up to the lesser of (a) the outstanding principal amount of the notes being converted, and (b) the “conversion value” of the notes (which is calculated by multiplying the conversion rate then in effect by the market price of our common stock price at the time of conversion), events that trigger a right to convert may negatively affect our liquidity. In addition, the 2.375% Convertible Senior Notes due 2012 will be convertible, at the option of the holders, if the trading price of those notes is less than the applicable conversion value or, at any time during a fiscal quarter if, during the last 30 trading days of the immediately preceding fiscal quarter our common stock trades at a price in excess of 110% of the conversion price for 20 consecutive trading days. The 2.375% Convertible Senior Notes due 2012 will also be convertible at the time of our merger with Seagate Technology for approximately 30 days.

Any failure to adequately protect and enforce our intellectual property rights could harm our business.

      Our protection of our intellectual property is limited. For example, we have patent protection on only some of our technologies. We may not receive patents for our pending or future patent applications, and any patents that we own or that are issued to us may be invalidated, circumvented or challenged. Moreover, the rights granted under any such patents may not provide us with competitive advantages. In the case of products offered in rapidly emerging markets, such as consumer electronics, our competitors may file patents more rapidly or in greater numbers resulting in the issuance of patents that may result in unexpected infringement

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assertions against us. Finally, our competitors may develop or otherwise acquire equivalent or superior technology. We also rely on trade secret, copyright and trademark laws as well as the terms of our contracts to protect our proprietary rights. We may have to litigate to enforce patents issued or licensed to us, to protect trade secrets or know-how owned by us or to determine the enforceability, scope and validity of our proprietary rights and the proprietary rights of others. Trade secret protection is inherently difficult to maintain and rely upon, particularly given the extent and complexity of our supply chain and movement of technical employees to competitors.

      As we expand our branded business around the world, there may be jurisdictions in which there are trademark holders who seek to interrupt our export of products into those countries based on their trademark rights. Enforcing or defending our proprietary rights could be expensive and might not bring us timely and effective relief. We may have to obtain licenses of other parties’ intellectual property and pay royalties. If we are unable to obtain such licenses, we may have to stop production of our products or alter our products. In addition, the laws of certain countries in which we sell and manufacture our products, including various countries in Asia, may not protect our products and intellectual property rights to the same extent as the laws of the United States. Our remedies in these countries may be inadequate to protect our proprietary rights. Any failure to enforce and protect our intellectual property rights could harm our business, financial condition and operating results.

We are subject to existing claims relating to our intellectual property which are costly to defend and may harm our business.

      Prior to our acquisition of the Quantum HDD business, we, on the one hand, and Quantum and Matsushita-Kotobuki Electronics Industries, Ltd. (“MKE”), on the other hand, were sued by Papst Licensing, GmbH, a German corporation, for infringement of a number of patents that relate to hard disk drives. Papst’s complaint against Quantum and MKE was filed on July 30, 1998, and Papst’s complaint against Maxtor was filed on March 18, 1999. Both lawsuits, filed in the United States District Court for the Northern District of California, were transferred by the Judicial Panel on Multidistrict Litigation to the United States District Court for the Eastern District of Louisiana for coordinated pre-trial proceedings with other pending litigations involving the Papst patents (the “MDL Proceeding”). The matters will be transferred back to the District Court for the Northern District of California for trial. Papst’s infringement allegations are based on spindle motors that Maxtor and Quantum purchased from third party motor vendors, including MKE, and the use of such spindle motors in hard disk drives. We purchased the overwhelming majority of the spindle motors used in our hard disk drives from vendors that were licensed under the Papst patents. Quantum purchased many spindle motors used in its hard disk drives from vendors that were not licensed under the Papst patents, including MKE. As a result of our acquisition of the Quantum HDD business, we assumed Quantum’s potential liabilities to Papst arising from the patent infringement allegations Papst asserted against Quantum. We filed a motion to substitute Maxtor for Quantum in this litigation. The motion was denied by the Court presiding over the MDL Proceeding, without prejudice to being filed again in the future.

      In February 2002, Papst and MKE entered into an agreement to settle Papst’s pending patent infringement claims against MKE. That agreement includes a license of certain Papst patents to MKE, which might provide Quantum, and thus us, with additional defenses to Papst’s patent infringement claims.

      On April 15, 2002, the Judicial Panel on Multidistrict Litigation ordered a separation of claims and remand to the District of Columbia of certain claims between Papst and another party involved in the MDL Proceeding. By order entered June 4, 2002, the court stayed the MDL Proceeding pending resolution by the District of Columbia court of the remanded claims. These separated claims relating to the other party are currently proceeding in the District Court for the District of Columbia.

      The results of any litigation are inherently uncertain and Papst may assert other infringement claims relating to current patents, pending patent applications, and/or future patent applications or issued patents. Additionally, we cannot assure you we will be able to successfully defend ourselves against this or any other Papst lawsuit. Because the Papst complaints assert claims to an unspecified dollar amount of damages, and

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because we were at an early stage of discovery when the litigation was stayed, we are unable to determine the possible loss, if any, that we may incur as a result of an adverse judgment or a negotiated settlement with respect to claims against us. We made an estimate of the potential liability which might arise from the Papst claims against Quantum at the time of our acquisition of the Quantum HDD business. We have revised this estimate as a result of a related settlement with MKE and this estimate will be further revised as additional information becomes available. A favorable outcome for Papst in these lawsuits could result in the issuance of an injunction against us and our products and/or the payment of monetary damages equal to a reasonable royalty. In the case of a finding of a willful infringement, we also could be required to pay treble damages and Papst’s attorney’s fees. The litigation could result in significant diversion of time by our technical personnel, as well as substantial expenditures for future legal fees. Accordingly, although we cannot currently estimate whether there will be a loss, or the size of any loss, a litigation outcome favorable to Papst could have a material adverse effect on our business, financial condition and operating results. Management believes that it has valid defenses to the claims of Papst and is defending this matter vigorously.

We could be subject to environmental liabilities which could increase our expenses and harm our business, financial condition and results of operations.

      Because of the chemicals we use in our manufacturing and research operations, we are subject to a wide range of environmental protection regulations in the United States, Singapore, European Union and China. While we do not believe our operations to date have been harmed as a result of such laws, future regulations may increase our expenses and harm our business, financial condition and results of operations. For example, the January 2003 adoption by the European Union of the Waste Electrical and Electronic Equipment (“WEEE”) directive will alter the manner in which certain electronic equipment is handled in the European Union. Even if we are in compliance in all material respects with all present environmental regulations, in the United States, environmental regulations often require parties to fund remedial action regardless of fault. As a consequence, it is often difficult to estimate the future impact of environmental matters, including potential liabilities. If we have to make significant capital expenditures or pay significant expense in connection with future remedial actions or to continue to comply with applicable environmental laws, our business, financial condition and operating results could suffer.

Our customers are subject, and we are potentially subject, to new environmental legislation enacted by the European Union and, if we do not comply, our sales could be adversely impacted.

      The European Union has adopted two directives to facilitate the recycling of electrical and electronic equipment sold in the European Union. The first of these is the WEEE directive, which directs member states to enact laws, regulations, and administrative provisions to ensure that producers of specified electrical and electronic equipment are responsible for specified collection, recycling, treatment, and environmentally sound disposal of products placed on the market after August 13, 2005, and from products in use prior to that date that are being replaced. The European Union has also adopted the Restriction on the Use of Certain Hazardous Substances in Electrical and Electronic Equipment (“RoHS”) directive. The RoHS directive restricts the use of lead, mercury, and certain other substances in electrical and electronic products placed on the market in the European Union after July 1, 2006.

      To the extent that we are deemed to be producers of electrical and electrical equipment to which the WEEE directive applies, ensuring compliance with the directive could result in additional costs and disruption to operations and logistics and thus, could have a negative impact on our business, operations and financial condition. If we fail to timely provide RoHS compliant products, our European customers may refuse to purchase our products, and our business, financial condition and operating results could suffer. We will need to ensure that we can manufacture compliant products, and that we can be assured a supply of compliant components from suppliers. If similar laws and regulations are enacted in other regions where we have significant sales, it may further require us to reengineer our products to utilize components that are more environmentally compatible, and such reengineering and component substitution may result in additional costs to us.

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The market price of our common stock fluctuated substantially in the past and is likely to fluctuate in the future as a result of a number of factors, including the release of new products by us or our competitors, the loss or gain of significant customers or changes in stock market analysts’ estimates.

      The market price of our common stock and the number of shares traded each day have varied greatly. Such fluctuations may continue due to numerous factors, including:

•  quarterly fluctuations in operating results;

•  announcements of new products by us or our competitors such as products that address additional hard disk drive markets;

•  gains or losses of significant customers;

•  changes in stock market analysts’ estimates;

•  the presence of short-selling of our common stock;

•  sales of a high volume of shares of our common stock by our large stockholders;

•  events affecting other companies that the market deems comparable to us;

•  announcement of a material transaction, such as our proposed combination with Seagate Technology;

•  general conditions in the semiconductor and electronic systems industries; and

•  general economic conditions in the United States and abroad.

Decreased effectiveness of equity compensation could adversely affect our ability to attract and retain employees, and proposed changes in accounting for equity compensation could adversely affect earnings.

      We have historically used stock options and other forms of equity-related compensation as key components of our total employee compensation program in order to align employees’ interests with the interests of our stockholders, encourage employee retention, and provide competitive compensation packages. In recent periods, many of our employee stock options have had exercise prices in excess of our stock price, which could affect our ability to retain or attract present and prospective employees. In addition, the Financial Accounting Standards Board and other agencies have adopted changes to accounting principles generally accepted in the United States that will require Maxtor and other companies to record a charge to earnings for employee stock option grants and other equity incentives. Moreover, new regulations implemented by the New York Stock Exchange (“NYSE”) prohibiting NYSE member organizations from giving a proxy to vote on equity-compensation plans unless the beneficial owner of the shares has given voting instructions could make it more difficult for us to grant options to employees in the future. To the extent that new regulations make it more difficult or expensive to grant options to employees, we may incur increased compensation costs, change our equity compensation strategy or find it difficult to attract, retain and motivate employees, each of which could materially and adversely affect our business.

Anti-takeover provisions in our certificate of incorporation could discourage potential acquisition proposals or delay or prevent a change of control.

      We have a number of protective provisions in place designed to provide our Board of Directors with time to consider whether a hostile takeover is in our best interests and that of our stockholders. These provisions could discourage potential acquisition proposals and could delay or prevent a change in control of the Company and also could diminish the opportunities for a holder of our common stock to participate in tender offers, including offers at a price above the then-current market price for our common stock. These provisions also may inhibit fluctuations in our stock price that could result from takeover attempts.

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Provisions in the indentures governing our 6.80% Convertible Senior Notes due 2010 and our 2.375% Convertible Senior Notes due 2012 could discourage potential acquisitions or delay or prevent a change of control.

      Repurchase obligations triggered by events constituting a “change of control” in the indenture governing our 6.80% Convertible Senior Notes due 2010 and a “fundamental change” in the indenture governing our 2.375% Convertible Senior Notes due 2012 may in certain circumstances make more difficult or discourage an acquisition of Maxtor. For example, the fundamental change purchase feature of the 2.375% Convertible Senior Notes due 2012 may require Maxtor to repurchase the notes at the option of holders if the stock price is less than 105% of the conversion price when the fundamental change occurs. In addition, a merger or consolidation triggers a right to convert the 2.375% Convertible Senior Notes due 2012, which if exercised, must be settled all or in part in cash and this conversion right may delay or prevent a change of control.

Conversion of our 2.375% Convertible Senior Notes due 2012 or 6.80% Convertible Senior Notes 2012 will dilute the ownership interests of existing stockholders.

      If and to the extent we deliver shares of our common stock upon conversion of the 2.375% Convertible Senior Notes due 2012 or the 6.80% Convertible Senior Notes due 2010, the conversion of some or all of the notes will dilute the ownership interest of existing stockholders. Any sales in the public market of the common stock issuable upon such conversion could adversely affect prevailing market prices of our common stock.

Future Changes in Accounting and Taxation Standards or Practices

      A change in accounting standards or practices or a change in existing taxation rules or practices can have a significant effect on our reported results and may even affect our reporting of transactions completed before the change is effective. New accounting pronouncements and taxation rules and varying interpretations of accounting pronouncements and taxation practice have occurred and may occur in the future. Changes to existing rules or the questioning of current practices may adversely affect our reported financial results or the way we conduct business.

      For example, our adoption of SFAS No. 123(R) titled, “Share-Based Payment” in the first quarter of fiscal 2006 will require us to measure all stock-based compensation awards using fair value method and record such expense in our consolidated financial statements. This will have a material impact on our consolidated financial statements as reported under generally accepted accounting principles in the United States.

Item 1B. Unresolved Staff Comments

      None.

Item 2. Properties

      Our corporate headquarters, sales, marketing and advanced technology operations are located in a 776,000 square foot facility we lease in Milpitas, California. As of December 31, 2005, of the 776,000 square feet, approximately 427,000 support our ongoing operations and approximately 349,000 remain vacant. In January 2006, we entered into an agreement to sublease approximately 349,000 square feet of our facility leased in Milpitas, California that was previously vacant. We lease a 221,000 square foot facility in San Jose, California and a 183,000 square foot facility in Fremont, California, which we use for research and manufacturing of disk drive media.

      We also lease 477,000 square feet of engineering and pilot production operations as well as administrative, marketing and materials facilities in Longmont, Colorado. One of the Longmont facilities leases covering 27,000 square feet will terminate in March 2006 and will not be renewed or replaced, and the lease for 450,000 square feet will terminate in March 2016 and is renewable for five years.

      We own a facility with 672,000 square feet in Shrewsbury, Massachusetts housing design and customer engineering, as well as advanced technology. Approximately 189,000 square feet of our Shrewsbury facility is

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currently subleased. We recently sold the 180,000 square foot facility we owned in Louisville, Colorado. All of our other domestic facilities are leased.

      We also lease a 14,000 square foot facility in Rochester, MN which houses a firmware engineering group. This lease expires in August 2008 with a one, five year option to renew.

      Operations outside of the United States primarily consist of two manufacturing plants in Singapore, one located at Yishun Avenue that produces subassemblies and final assemblies for the Company’s hard disk drive products. The Yishun Avenue facility is a 426,000 square foot multi-story facility located on 368,000 square feet of leased land expiring in 2018. The other facility located at Ang Mo Kio Street is a 376,000 square foot multi story facility located on 192,000 square feet of leased land expiring in 2016. As of December 31, 2005, the Ang Mo Kio facility was under contract for sale. In February 2006, the contract for sale was consummated. The Yishun Avenue facility has an option to renew for 30 years. We also have a manufacturing facility located in the Suzhou Industrial Park in Suzhou, China. The building is owned and is approximately 800,000 square feet located on a parcel of leased land with a term until 2053.

      We also lease various sales and support facilities in Australia, the People’s Republic of China, France, Germany, Great Britain, Hong Kong, India, Ireland, Japan, the Republic of Korea, Russia, Scotland, Singapore, Switzerland, Taiwan, United Arab Emirates and the United States.

      The aggregate rent under all of our worldwide leases is currently approximately $27.1 million per annum. There can be no assurance that we will be able to obtain additional space to accommodate our future needs or dispose of excess space as required on reasonable terms.

Item 3. Legal Proceedings

      From time to time, the Company has been subject to litigation including the pending litigation described below. Because of the uncertainties related to both the amount and range of loss on the remaining pending litigation, the Company is unable to make a reasonable estimate of the liability that could result from an unfavorable outcome. As additional information becomes available, the Company will assess its potential liability and revise its estimates. Pending or future litigation could be costly, could cause the diversion of management’s attention and could upon resolution, have a material adverse effect on its business, results of operations, financial condition and cash flow.

      In particular, the Company is engaged in certain legal and administrative proceedings incidental to the Company’s normal business activities and believes that these matters will not have a material adverse effect on the Company’s financial position, results of operations or cash flow.

      Prior to Maxtor’s acquisition of the Quantum HDD business, the Company, on the one hand, and Quantum and Matsushita Kotobuki Electronics Industries, Ltd. (“MKE”), on the other hand, were sued by Papst Licensing, GmbH, a German corporation, for infringement of a number of patents that relate to hard disk drives. Papst’s complaint against Quantum and MKE was filed on July 30, 1998, and Papst’s complaint against Maxtor was filed on March 18, 1999. Both lawsuits, filed in the United States District Court for the Northern District of California, were transferred by the Judicial Panel on Multidistrict Litigation to the United States District Court for the Eastern District of Louisiana for coordinated pre-trial proceedings with other pending litigations involving the Papst patents (the “MDL Proceeding”). The matters will be transferred back to the District Court for the Northern District of California for trial. Papst’s infringement allegations are based on spindle motors that Maxtor and Quantum purchased from third party motor vendors, including MKE, and the use of such spindle motors in hard disk drives. The Company purchased the overwhelming majority of spindle motors used in our hard disk drives from vendors that were licensed under the Papst patents. Quantum purchased many spindle motors used in its hard disk drives from vendors that were not licensed under the Papst patents, including MKE. As a result of the Company’s acquisition of the Quantum HDD business, Maxtor assumed Quantum’s potential liabilities to Papst arising from the patent infringement allegations Papst asserted against Quantum. The Company filed a motion to substitute the Company for Quantum in this litigation. The motion was denied by the Court presiding over the MDL Proceeding, without prejudice to being filed again in the future.

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      In February 2002, Papst and MKE entered into an agreement to settle Papst’s pending patent infringement claims against MKE. That agreement includes a license of certain Papst patents to MKE which might provide Quantum, and thus the Company, with additional defenses to Papst’s patent infringement claims.

      On April 15, 2002, the Judicial Panel on Multidistrict Litigation ordered a separation of claims and remand to the District of Columbia of certain claims between Papst and another party involved in the MDL Proceeding. By order entered June 4, 2002, the court stayed the MDL Proceeding pending resolution by the District of Columbia court of the remanded claims. These separated claims relating to the other party are currently proceeding in the District Court for the District of Columbia.

      The results of any litigation are inherently uncertain and Papst may assert other infringement claims relating to current patents, pending patent applications, and/or future patent applications or issued patents. Additionally, the Company cannot assure it will be able to successfully defend itself against this or any other Papst lawsuit. Because the Papst complaints assert claims to an unspecified dollar amount of damages, and because the Company was at an early stage of discovery when the litigation was stayed, the Company is unable to determine the possible loss, if any, that the Company may incur as a result of an adverse judgment or a negotiated settlement with respect to the claims against us. The Company made an estimate of the potential liability which might arise from the Papst claims against Quantum at the time of the Company’s acquisition of the Quantum HDD business. The Company has revised this estimate as a result of a related settlement with MKE and this estimate will be further revised as additional information becomes available. A favorable outcome for Papst in these lawsuits could result in the issuance of an injunction against the Company and its products and/or the payment of monetary damages equal to a reasonable royalty. In the case of a finding of a willful infringement, the Company also could be required to pay treble damages and Papst’s attorney’s fees. The litigation could result in significant diversion of time by our technical personnel, as well as substantial expenditures for future legal fees. Accordingly, although the Company cannot currently estimate whether there will be a loss, or the size of any loss, a litigation outcome favorable to Papst could have a material adverse effect on our business, financial condition and operating results. The Company believes that the lawsuit is without merit and intends to vigorously defend it.

      On February 17, 2005, the Company and Dr. C.S. Park were sued in the Circuit Court of the City of St. Louis, State of Missouri by Craig A. Skinner, for himself and on behalf of a putative class of persons with similar alleged claims, for violations of Missouri’s Merchandising Practices Act and for breach of implied warranties related to alleged hard disk drive failures. The complaint requests unspecified damages, attorneys’ fees, and costs of suit. On July 1, 2005, the plaintiff voluntarily dismissed Dr. Park from the action without prejudice in light of a pending motion to dismiss for lack of personal jurisdiction filed by Dr. Park. The parties stipulated to a change of venue from the city to the county of St. Louis and, effective August 4, 2005, the case was transferred to the Circuit Court of St. Louis County, State of Missouri. The plaintiff filed an amended petition on November 15, 2005. The Company responded in the action on December 30, 2005 by filing a motion to dismiss the amended petition or alternatively for a more definite statement of the plaintiff’s claims. On February 14, 2006, the Court heard oral arguments on the motion to dismiss and took the matter under submission. The Company believes that the lawsuit is without merit and intends to vigorously defend it.

      On January 20, 2006, Theodore F. Vahl commenced a purported shareholder class action lawsuit in the Superior Court of the State of California, County of Santa Clara, against the Company, the Company’s Chairman and Chief Executive Officer, and certain members of the Company’s Board of Directors alleging that the defendants violated their fiduciary duties in connection with the proposed merger of the Company with Seagate Technology. The complaint seeks only equitable relief. The Company believes that the lawsuit is without merit and intends to vigorously defend it.

Item 4. Submission of Matters to a Vote of Security Holders

      No matters were submitted to a vote of our security holders during the fourth quarter of our fiscal year ended December 31, 2005.

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PART II

Item 5. Market for Registrant’s Common Equity and Related Stockholder Matters

      Our common stock is traded on the New York Stock Exchange under the symbol “MXO.” The table below sets forth the range of quarterly high and low sales prices for our common stock as reported by the New York Stock Exchange during fiscal years ended December 31, 2005 and December 25, 2004:

	High		Low
Fiscal 2005 Fourth Quarter		7.10		3.28
Fiscal 2005 Third Quarter		6.04		4.23
Fiscal 2005 Second Quarter		6.43		4.52
Fiscal 2005 First Quarter		5.95		4.30
Fiscal 2004 Fourth Quarter		5.84		2.89
Fiscal 2004 Third Quarter		6.68		3.57
Fiscal 2004 Second Quarter		8.53		6.50
Fiscal 2004 First Quarter		12.40		7.94

      As of February 15, 2006, there were 1,259 stockholders of record of our common stock including The Depository Trust Company, which holds shares of Maxtor common stock on behalf of an indeterminate number of beneficial owners.

Dividend Policy

      We have never paid cash dividends on our stock and do not anticipate paying cash dividends in the foreseeable future.

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Item 6. Selected Consolidated Financial Information

      The following table presents selected consolidated financial information for the periods indicated:

		Fiscal Year			Fiscal Year			Fiscal Year		Fiscal Year			Fiscal Year
		Ended			Ended			Ended		Ended			Ended
		December 29,			December 28,			December 27,		December 25,			December 31,
		2001(1)(2)(3)(4)			2002(1)(3)(5)			2003(1)(3)		2004(1)(6)			2005
		(In millions, except per share amounts)
Consolidated Statements of Operations Data:
Net revenues		$	3,765.5		$	3,779.5		$	4,086.4	$	3,796.3		$	3,890.2
Gross profit			362.5			392.2			695.8		367.2			430.9
Amortization of goodwill and other intangible assets			176.0			82.2			85.3		36.0			0.9
Purchased in-process research and development			95.2			—			—		—			—
Restructuring charges			—			9.5			—		33.2			18.6
Impairment charges			—			—			—		32.0			—
Total operating expenses			916.7			638.2			567.8		549.2			457.5
Income (loss) from operations			(554.2	)		(246.0	)		128.0		(182.0	)		(26.6	)
Income (loss) from continuing operations			(568.6	)		(262.4	)		98.9		(183.4	)		(43.3	)
Income (loss) from discontinued operations			(48.2	)		(73.5	)		2.2		—			—
Net income (loss)		$	(616.8	)	$	(335.9	)	$	101.1	$	(183.4	)	$	(43.3	)
Net income (loss) per share — basic
	Continuing operations	$	(2.75	)	$	(1.10	)	$	0.41	$	(0.74	)	$	(0.17	)
	Discontinued operations	$	(0.23	)	$	(0.31	)	$	0.01	$	—		$	—
Total		$	(2.98	)	$	(1.40	)*	$	0.42	$	(0.74	)	$	(0.17	)
Net income (loss) per share — diluted
	Continuing operations	$	(2.75	)	$	(1.10	)	$	0.39	$	(0.74	)	$	(0.17	)
	Discontinued operations	$	(0.23	)	$	(0.31	)	$	0.01	$	—		$	—
Total		$	(2.98	)	$	(1.40	)*	$	0.40	$	(0.74	)	$	(0.17	)
Balance Sheet Data:
Total assets		$	2,530.0		$	2,175.3		$	2,536.7	$	2,107.7		$	2,177.8
Long-term debt, net of current portion		$	244.5		$	206.3		$	355.8	$	382.6		$	575.8
Total stockholders’ equity		$	929.8		$	620.1		$	746.7	$	576.6		$	553.0

*	Does not add due to rounding
(1)	Certain items previously reported in specific financial statement captions have been reclassified to conform to the year ended December 31, 2005 presentation.
(2)	Includes operations of Quantum HDD since April 2, 2001 and of MMC since September 2, 2001.
(3)	In August 2002, the Company announced its decision to shut down the manufacturing and sales of its MaxAttachtm branded network attached storage products of NSG. The discontinuance of the NSG operations represents the abandonment of a component of an entity as defined in paragraph 47 of

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	Statement of Financial Accounting Standards No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” (“SFAS 144”). Accordingly, the Company’s financial statements have been presented to reflect Network Systems Group (“NSG”) as a discontinued operation for all periods presented.
(4)	During fiscal 2001, the Company expensed in-process research and development costs of $94.7 million as a result of the Company’s acquisition of Quantum HDD. Additionally, in connection with the acquisition of MMC in September 2001, the Company expensed in-process research and development costs of $0.5 million. The Company expensed these amounts because the acquired technology had not reached technological feasibility and had no future alternative uses.
(5)	Commencing in fiscal 2002, the Company adopted Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets” (“SFAS 142”). SFAS 142 requires, among other things, the discontinuance of goodwill amortization. In addition, the standard included provisions upon adoption for the reclassification of certain existing recognized intangibles as goodwill, reassessment of the useful lives of existing recognized intangibles, reclassification of certain intangibles out of previously reported goodwill and the testing for impairment of existing goodwill and other intangibles. As a result, the Company reclassified its existing acquired assembled workforce balance to goodwill, as it does not meet the separate recognition criterion according to SFAS 142. See Note 4 of Notes to Consolidated Financial Statements.
(6)	The Company completed its impairment analysis on indefinite lived intangible assets as of December 25, 2004 and as a result recorded an impairment charge of $24.2 million related to acquired intangibles from the acquisition of the Quantum HDD business. See Note 4 of Notes to Consolidated Financial Statements. Additionally, during the year ended December 25, 2004, the Company classified a building in Louisville, Colorado as held for sale in accordance with the requirements of SFAS 144, resulting in an impairment charge of $7.8 million. See Note 13 of Notes to Consolidated Financial Statements.

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

      The following discussion should be read in conjunction with Item 1: Business, Item 6: Selected Financial Information and Item 8: Consolidated Financial Statements and Supplementary Data.

      This report contains forward-looking statements within the meaning of the U.S. federal securities laws that involve risks and uncertainties. The statements contained in this report that are not purely historical, including, without limitation, statements regarding our expectations, beliefs, intentions or strategies regarding the future, are forward-looking statements. Examples of forward-looking statements in this report include statements regarding future revenue, gross profit, demand, average selling prices, cost improvements, capital expenditures, liquidity, depreciation and amortization charges, impacts of our restructuring, our indemnification obligations, the results of litigation, and development and product launch schedules. In this report, the words “anticipate,” “believe,” “expect,” “intend,” “may,” “will,” “should,” “could,” “would,” “project,” “plan,” “estimate,” “predict,” “potential,” “future,” “continue,” or similar expressions also identify forward-looking statements. These statements are only predictions. We make these forward-looking statements based upon information available on the date hereof, and we have no obligation (and expressly disclaim any such obligation) to update or alter any such forward-looking statements, whether as a result of new information, future events, or otherwise. Our actual results could differ materially from those anticipated in this report as a result of certain factors including, but not limited to, those set forth in the section entitled “Risk Factors” and elsewhere in this report.

Executive Overview

      Maxtor Corporation (“Maxtor,” “Company” or “we”) is a leading supplier of hard disk drives for desktop computers, Intel-based servers and consumer electronics applications. We sell to original equipment manufacturers (“OEMs”), distributors and retail customers worldwide. We manufacture our products in our factories in Singapore and China. We produce a majority of our required media and purchase the remainder of our components from third party suppliers.

      On December 20, 2005, we entered into a definitive agreement with Seagate Technology (“Seagate”) in which Seagate will acquire Maxtor in an all stock transaction. Under the terms of the agreement, which was unanimously approved by the boards of directors of both companies, Maxtor stockholders will receive 0.37 shares of Seagate common stock for each Maxtor share they own. When the transaction is completed, Maxtor stockholders will own approximately 16% of the combined company. The transaction was valued at approximately $1.9 billion at the time of its announcement on December 21, 2005. It is anticipated the transaction will be completed in the second half of 2006, subject to obtaining stockholder and regulatory approvals.

      At the beginning of 2005, we estimated that approximately 80% of our revenue would come from our desktop computer products. Desktop revenue accounted for approximately 75% of total revenue in 2005. The lower than anticipated revenue contribution is primarily attributable to delayed product introductions and product mix. Revenue from our Maxtor OneTouch^tm personal storage products (“branded products”) was 7% for 2005, in line with our expectations of approximately 6-8% of the total. Hard disk drives for Intel-based servers, which we refer to as “enterprise” products, were expected to represent approximately 13-15% of our revenue in 2005. Revenue from our enterprise products in 2005 was approximately 18% of total revenue, reflecting strong unit growth and favorable product mix.

      We began limited shipments of our 500 GB desktop drives in the fourth quarter of 2005. This later than expected ramp limited our ability to achieve a higher capacity mix and improved profitability in 2005. We expect our next-generation one and two-platter desktop drives, built on a 160 GB per platter platform, to begin initial shipments in the second quarter of 2006 and to grow in volume through the remainder of the year. In light of the recent expansion of flash storage into the consumer handheld market and our priority to improve our desktop operation, we canceled the introduction of our 1-inch form factor product in the fourth quarter of 2005. We continue to fund ongoing development for our enterprise and retail products.

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      We successfully executed our transition of the manufacture of one- and two-platter drives for desktop computers from Singapore to our China manufacturing facility during 2005 and two-thirds of our desktop disk drive products were manufactured in China in the fourth quarter. As previously announced in March 2005, we expect to reduce headcount in our Singapore manufacturing facility by up to 5,500 employees. During the year ended December 31, 2005, we incurred $16.4 million in severance-related charges in Singapore, of which $5.2 million remains outstanding at December 31, 2005. The Company expects to be substantially completed with this restructuring by the first quarter of 2006. In addition to the severance costs, we will also spend approximately $3.6 million in retention bonuses in Singapore related to this restructuring. We accrued for these retention bonuses in fiscal 2005 and we expect to pay them in fiscal year 2006. We believe the manufacturing transition to China provided a significant reduction in the labor and overhead per drive, resulting in an approximately one to one and a half percentage point improvement in gross margins of our desktop products. We will be taking further actions to enhance throughput and improve manufacturing efficiencies in 2006.

      Our internal media facility produces a majority of our current media needs. During 2005, the hard drive industry faced a tightness of media components that is expected to last into 2006. To ensure access to adequate media supply, we added internal capacity and expanded our relationship with external suppliers. We amended our agreement with Komag Inc. (“Komag”), our external media supplier, for incremental capacity to produce four million units of media per quarter, with initial volume expected in the second quarter of 2006. Maxtor has agreed to prepay for its media supply in an amount totaling $50 million. We will be paid back by a per disk payment credit. In light of our pending acquisition by Seagate, we are reevaluating our plans to move the majority of our internal media operation from the U.S. to Asia.

      To improve efficiency, in the first quarter of 2005 we undertook a reduction in headcount in the United States, eliminating approximately 125 positions in quality, supplier engineering and SG&A throughout 2005. We recorded a charge of $2.5 million associated with this reduction during 2005. We continue to fund our desktop, enterprise and retail businesses and related development efforts, resulting in incremental investment. In 2006 we believe that we can fund these additional activities, while keeping the quarterly expenses in the $110 million to $112 million range which approximate 11% to 12% of net revenues.

      We adopted a retention bonus program providing for up to $100 million in retention payments in connection with our agreement to merge with Seagate. The payments are payable 20% on the first business day after July 1, 2006 and 80% six months after closing, subject to earlier payment in certain circumstances. On February 16, 2006, the retention bonus plan was amended to provide that participants would be entitled to payments in the event of the involuntarily termination of their employment without cause prior to the payment dates.

      We believe that our existing cash and cash equivalents, short-term investments and capital resources together with cash generated from operations will be sufficient to fund our operations through at least the next twelve months. Capital expenditures in 2005 totaled $160.9 million. Capital expenditures in 2006 are estimated to be up to $275 million, with our primary focus on expanding our manufacturing capacity in Asia. Our cash conversion cycle, or the net total of days of sales outstanding plus days of sales in inventory less days of accounts payable outstanding, for 2005 was negative six days. Our cash conversion cycle target for 2006 is zero to negative five days.

      There are numerous risks to the successful execution of our business plans, including our ability to timely introduce and ramp our new products with the quality levels expected by our customers, achieve manufacturing efficiencies, procure the components we require, specifically heads and media from our suppliers in the quantities we need to meet demand and at competitive prices and develop a common architectural platform in the time projected. The Company faces competition, including increased competition in the sale of its products to the near-and mid-line storage market and the consumer electronics markets and expects continuing pressure on average selling prices. See “Risk Factors” for further information concerning risks to our business.

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Critical Accounting Policies and Estimates

      Our discussion and analysis of the Company’s financial condition and results of operations are based upon Maxtor’s consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates and the sensitivity of these estimates to deviations in the assumptions used in making them. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Historically, we have been reasonably accurate in our ability to make these estimates and judgments; however, significant changes in our technology, our customer base, the economy and other factors may result in material deviations between management’s estimates and actual results.

      An accounting policy is deemed to be critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time the estimate is made, if different estimates reasonably could have been used, or if changes in the estimate that are reasonably likely to occur could materially impact the financial statements. Management believes the following critical accounting policies reflect the significant estimates and assumptions used in the preparation of the Company’s consolidated financial statements:

•  revenue recognition;

•  sales returns, other sales allowances and allowance for doubtful accounts;

•  valuation of intangibles, long-lived assets and goodwill;

•  warranty;

•  inventory valuation;

•  income taxes; and

•  restructuring liabilities, litigation and other contingencies.

Revenue Recognition

      We derive our revenue from the sale of our products. As described below, significant management judgments and estimates must be made and used in connection with the revenue recognized in any accounting period with respect to the amount of reserves for sales returns, allowances and doubtful accounts. We have experienced minor deviations in these areas, and believe that we can reasonably estimate these amounts. Significant changes in our technology or the economy may result in greater deviations of actual results from management’s estimates in these areas, resulting in significant differences in the amount and timing of our revenue.

      In recognizing revenue in any period, we apply the provisions of Staff Accounting Bulletin 104, “Revenue Recognition.”

      We recognize revenue from the sale of our products when persuasive evidence of an arrangement exists, the product has been delivered, the fee is fixed and determinable and collection of the resulting receivable is reasonably assured; this generally occurs upon shipment.

      For all sales, we use either a binding purchase order or signed purchase agreement as evidence of an arrangement. Sales through our distributors are evidenced by a master agreement governing the relationship together with binding purchase orders on a transaction-by-transaction basis. Our arrangements generally do not include acceptance clauses.

      We assess collection based on a number of factors, including past transaction history with the customer and the credit worthiness of the customer.

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      Delivery generally occurs when product is delivered to a common carrier. Certain of our products are delivered on a free on board (“FOB”) destination basis. We defer our revenue associated with these transactions until the products are delivered to the customers’ premises.

      Sales to original equipment manufacturers (“OEMs”) are subject to agreements allowing limited rights of return and sales incentive programs. Sales incentive programs are typically related to an OEM’s level of purchases. Estimated reductions to revenue for sales incentive programs are accrued at the time the revenue is recorded. Returns from OEMs have not been material in any period as the Company’s principal OEM customers have adopted build-to-order manufacturing model or just-in-time inventory management processes which reduce the likelihood of product returns from these customers.

      Sales to distributors and retailers (“resellers”) are subject to agreements allowing limited rights of return, price protection, sales incentive programs and advertising. These programs are generally related to a reseller’s level of sales, order size or point of sale activity. We accrue the cost related to these programs as reductions to revenues at the time the revenue is recorded. These estimates are based primarily on estimated returns, future price erosion, customer sell-through levels and program participation. We have historically encountered little variability between our estimates and actual results. However, the accuracy of our estimates is dependent on our ability to predict future pricing, demand and supply in our markets. We believe that we generally have good visibility of these factors due to the short period to which the reserves relate (6-8 weeks) and our experience of doing business in these channels. Nevertheless, unforeseen adverse pricing conditions or supply actions by our competitors could impact the accuracy of our estimates and require adjustments to the reserve to reflect our actual and anticipated experience.

      Product returns are recorded in accordance with Statement of Financial Accounting Standards No. 48, “Revenue Recognition When Right of Return Exists” (“SFAS 48”). Resellers have limited rights of return, which allow them to return a percentage of the prior quarter’s purchases. Accordingly, revenue is not recognized with respect to those shipments that management estimates will be returned. We believe that these estimates are reasonably accurate due to the short time period during which our resellers can return products, the limitations placed on their right to make returns, our long history of conducting business directly with resellers, the nature of our historical relationships with resellers and the weekly reporting procedures through which we monitor inventory levels at resellers and sales to end-users.

Sales Returns, Other Sales Allowances and Allowance for Doubtful Accounts

      Our management must make estimates of potential future product returns related to current period product revenue. Management analyzes historical returns, current economic trends, and changes in customer demand when evaluating the adequacy of the sales returns and other allowances. Significant management judgments and estimates must be made and used in connection with establishing the sales returns and other sales allowances in any accounting period.

      We believe that these estimates are reasonably accurate due to the short time period during which our resellers can return products, the limitations placed on their right to make returns, our long history of conducting business with resellers on a sell-in basis, the nature of our historical relationships with resellers and the weekly reporting procedures through which we monitor inventory levels at resellers and sales to end-users. Nonetheless, material differences may result in the amount and timing of our revenue for any period if management’s judgments and estimates deviate significantly from actual experience in the period. The provision for sales returns and other sales allowances amounted to $88.5 million as of December 31, 2005. Included in this amount are reserves for anticipated revenue programs required to sell through the channel inventory on hand at the end of the period. In general, this reserve is based upon a forecast of the anticipated pricing and supply environment in the upcoming quarter. We believe that we generally have good visibility to these factors, due to the short period to which the reserves relate (six to eight weeks), and our experience of doing business in these channels. Nevertheless, unforeseen adverse pricing conditions or actions by our competitors could impact the accuracy of our estimates. If actual pricing differs from our estimates, we would be required to make an equivalent change in the reserve.

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      Similarly, our management must make estimates of the collectibility of our accounts receivables. When evaluating the adequacy of the allowance for doubtful accounts, management analyzes the accounts receivable and establishes a specific reserve based on expected collectibility. The specific reserve was $13.0 million as of December 31, 2005. If the financial condition of our customers were to deteriorate, resulting in an impairment of their ability to make payments, or if the actual bad debts differ from our estimate, we would be required to record an adjustment to the allowance.

Valuation of Intangibles, Long-Lived Assets and Goodwill

      We assess the impairment of identifiable intangibles, long-lived assets and goodwill annually and whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Factors we consider important which could trigger an impairment review include the following:

•  significant under-performance relative to expected historical or projected future operating results;

•  significant changes in the manner of our use of the acquired assets or the strategy for our overall business;

•  significant negative industry or economic trends;

•  significant decline in our stock price for a sustained period; and

•  our market capitalization relative to net book value.

      When we determine that the carrying value of intangibles and long-lived assets may not be recoverable based upon the existence of one or more of the above indicators of impairment, we measure the potential impairment based on a projected cash flow method. We measure the carrying value of our goodwill based on the market multiple approach. The market multiple approach is one of determining a level of revenue or earnings that is considered to be representative of the future performance of the Company, and multiplying this figure by an appropriate risk-adjusted multiple. This approach provides an indication of value for the security that corresponds with the particular earnings or revenue figure used in the approach (for example, a multiple of net income available to common stockholders would yield an indication of value for the common stock). In addition to revenue and net income, there are several different forms of earnings used in the market multiple approach (e.g. earnings, EBIT, and EBITDA), with each form isolating particular nuances of the Company’s operating performance.

      As required by SFAS 142, we completed our impairment analysis as of December 31, 2005 based on the market multiple approach using revenue. We found no instances of impairment of our recorded goodwill and accordingly no impairment was recorded.

      Net intangible assets, long-lived assets, and goodwill amounted to $848.2 million as of December 31, 2005. Although we have not experienced impairment of goodwill, should impairment be determined to have occurred, the change in the recorded goodwill could be substantial, thus having a material adverse effect on our results of operations. During the year ended December 25, 2004, we recorded an impairment charge of $24.2 million related to acquired intangibles. See Note 4 of the Notes to Consolidated Financial Statements for more information.

Warranty

      We provide for the estimated cost of product warranties at the time revenue is recognized. We generally warrant our products for a period of one to five years. Effective September 2004, we introduced a new warranty period for new sales extending the term to three or five years for certain products shipped to the distribution channel. Consistent with our existing accounting policies relating to product warranties, we revised our estimate of product warranties to reflect this new warranty period; this revised estimate is reflected in our results reported for the year ended December 25, 2004.

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      Our warranty obligation is primarily based on the following three elements:

      (1) Expected future return rate:

      We use proprietary statistical modeling software to help estimate the future failure rates by product. This statistical modeling software relies on historical product design/vintage data, field survival data and return data on the product and on similar products (early in the product life cycle). The Company has comprehensive processes in place to collect data from the design phase, in the factory during manufacturing and return data from the Company’s Enterprise Resource Planning (“ERP”) system. This statistical modeling software provides us with an estimate of the total return rates over the warranty life of the product. We continue to update this estimate each period as we collect additional field survival and return data on each product. While we believe that this statistical analysis provides us with a reasonable estimate of our future return rates, the estimate can be impacted by unpredicted field quality issues over the life of the individual products. Variability in the estimate is measured in the changes in estimate due to changes in the annual return rate and changes in estimate due to expirations. In fiscal year 2005 these changes amounted to $3.5 million and $0.8 million, respectively.

      (2) Cost to replace the drive or make the customer whole:

      This represents an estimate of the future cost of replacing or making the customer whole for each drive expected to be returned in the future. This estimate is based on the historical cost of fulfilling the obligation to the customer. We continue to revise this cost estimate as changes occur in the repair/recovery process.

      We have continued to experience significant reductions to this cost per unit estimate due to ongoing improvements to the repair/recovery process. In fiscal year 2005, the change in estimate due to the reduction in the estimated cost of future repair was $44.3 million. This was primarily the result of increased repair yields, which resulted in increased volume of refurbished units available for use as replacements or for disposal as refurbished product. We increased our focus on the process for the disposal of excess refurbished units in 2005 and significantly increased the recovery value in 2005; although we will continue to focus on this process in 2006, we do not expect to achieve the same level of improvement in 2006. We have also continued to benefit from improvements in the overall pricing structure with third party vendors as new repair facilities in Mexico and Hungary are optimized.

      (3) The product installed base (number of drives in the field):

      This is transactional in nature and is calculated based on shipment data extracted from the Company’s ERP system and represents the current “in-warranty” installed base. The impact of changes to the in-warranty installed base is reflected in the charges to operations number. For example, in fiscal year 2005 the Company increased its net charges to operations by $1.8 million as compared to fiscal year 2004. This increase was due to increased shipments in 2005 which more than offset improvements in the cost of repair and expected annual return rate.

      As new products are sold into the market, we must initially exercise considerable judgment in estimating the expected failure rates. This estimating process is based on our historical experience with similar products as well as design or assembly complexities specific to these new products.

      As outlined above, should actual experience of product returns or cost of repair differ from our estimates, revisions to the estimated warranty liability would be required and could have a material effect on our future results of operations.

      From time to time, we may be subject to additional costs related to non-standard warranty claims from our customers. If and when this occurs, we generally must make further judgments and estimates in establishing the related warranty liability. This estimating process is based on historical experience, communication with our customers and various assumptions that are believed to be reasonable under the circumstances. This additional warranty accrual would be recorded in the

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determination of net income in the period in which the additional cost was identified. In fiscal year 2005, the Company recorded additional costs of $21.4 million related to non-standard warranty claims from customers.

Inventory Valuation

      We value our inventory at the lower of cost (computed on a first-in, first-out basis) or market. We write down our inventory for estimated obsolescence or unmarketable inventory equal to the difference between the cost of inventory and the estimated market value based upon assumptions about future demand. Inventory write-downs were 8% and 5% of the gross inventory balances for the years ended 2005 and 2004, respectively. Our write-downs are influenced by our estimates of excess and obsolete inventory and shrinkage. These factors are in turn impacted by the number of products reaching end of life, the length of product life cycles, the volatility of the pricing environment for hard disk drives, changes in the Company’s cost structure and the location of inventory and timing of inventory count for each location. In addition, if economic, competitive, or other factors cause market conditions to be less favorable than those projected by management, additional inventory write-downs may be required which could have a material adverse effect on our future results of operations. We have occasionally experienced such write-downs in the past.

Income Taxes

      We account for income taxes in accordance with Statement of Financial Accounting Standard No. 109 (“SFAS 109”), “Accounting for Income Taxes.” As part of the process of preparing our consolidated financial statements we are required to estimate our income taxes in each of the jurisdictions in which we operate. This process involves estimating our actual current tax exposure together with assessing temporary differences resulting from differing treatment of items for tax and accounting purposes. These differences result in deferred tax assets and liabilities, which are included within our consolidated balance sheet. We must then assess the likelihood that our deferred tax assets will be recovered from future taxable income and, to the extent we believe that recovery is not likely, we must establish a valuation allowance. To the extent we establish a valuation allowance or increase this allowance in a period, we must include an expense within the tax provision in the statement of operations.

      Significant management judgment is required in determining our provision for income taxes, our deferred tax assets and liabilities and any valuation allowance recorded against our net deferred tax assets. We have recorded a valuation allowance of $311.2 million as of December 31, 2005, due to uncertainties related to our ability to utilize some of our deferred tax assets before they expire, primarily consisting of certain net operating losses carried forward. The valuation allowance is based on our estimates of taxable income by jurisdiction in which we operate and the period over which our deferred tax assets will be recoverable. In the event that actual results differ from these estimates or we adjust these estimates in future periods we may need to establish an additional valuation allowance which could materially impact our financial position and results of operations.

Restructuring

      The Company has engaged, and may continue to engage, in restructuring plans, which require management to utilize significant estimates related to expenses for severance and other employee separation costs, realizable values of assets made redundant or obsolete, lease cancellation and other exit costs. If the actual amounts differ from our estimates, the amount of the restructuring charges could be materially impacted. For a full description of our restructuring plans, refer to our discussions of restructuring in the Management’s Discussion and Analysis of Financial Condition and Results of Operations section and Note 12 of the Consolidated Financial Statements.

Litigation and Other Contingencies

      We account for litigation and contingencies in accordance with Statement of Financial Accounting Standards No. 5, “Accounting for Contingencies” (“SFAS 5”). SFAS No. 5 requires that we record an

39

estimated loss from a loss contingency when information available prior to issuance of our financial statements indicates that it is probable that an asset has been impaired or a liability has been incurred at the date of the financial statements and the amount of loss can be reasonably estimated. While we believe that our accruals for these matters are adequate, if the actual losses from loss contingencies or restructuring liabilities are significantly different than the estimated loss, our results of operations may be materially affected. We have been required to make such adjustments to these types of estimates in the past.

Results of Operations

      The following table sets forth consolidated statements of operations data for the three years ended December 27, 2003, December 25, 2004 and December 31, 2005, respectively, and the percent of revenue represented by the various items reported.

			Years Ended
			December 27,			December 25,			December 31,
			2003			2004			2005
			(In millions)
Consolidated Statements of Operations Data:
Net revenues			$	4,086.4		$	3,796.3		$	3,890.2
Cost of revenues				3,390.6			3,429.1			3,459.3
	Gross profit			695.8			367.2			430.9
Operating expenses:
	Research and development			348.3			317.6			293.5
	Selling, general and administrative			134.2			130.4			144.5
	Amortization of intangible assets			85.3			36.0			0.9
	Restructuring charge			—			33.2			18.6
	Impairment charge			—			32.0			—
		Total operating expenses		567.8			549.2			457.5
Income (loss) from operations				128.0			(182.0	)		(26.6	)
Interest expense				(30.2	)		(31.8	)		(34.4	)
Interest income				5.2			5.2			11.9
Income from litigation				—			24.8			—
Other gain (loss)				(0.6	)		0.1			7.9
Income (loss) from continuing operations before income taxes				102.4			(183.7	)		(41.2	)
Provision for (benefit from) income taxes				3.5			(0.3	)		2.1
Income (loss) from continuing operations				98.9			(183.4	)		(43.3	)
Income from discontinued operations				2.2			—			—
Net income (loss)			$	101.1		$	(183.4	)	$	(43.3	)

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			December 27,			December 25,			December 31,
			2003			2004			2005
As a Percentage of Revenue:
Net revenues				100.0	%		100.0	%		100.0	%
Cost of revenues				83.0			90.3			88.9
	Gross profit			17.0			9.7			11.1
Operating expenses:
	Research and development			8.5			8.5			7.6
	Selling, general and administrative			3.3			3.4			3.7
	Amortization of intangible assets			2.1			0.9			0.0
	Restructuring charge			0.0			0.9			0.5
	Impairment charge			0.0			0.8			0.0
		Total operating expenses		13.9			14.5			11.8
Income (loss) from operations				3.1			(4.8	)		(0.7	)
Interest expense				(0.7	)		(0.8	)		(0.9	)
Interest income				0.1			0.1			0.3
Income from litigation				0.0			0.7			0.0
Other gain (loss)				0.0			0.0			0.2
Income (loss) from continuing operations before income taxes				2.5			(4.8	)		(1.1	)
Provision for (benefit from) income taxes				0.0			0.0			0.1
Income (loss) from continuing operations				2.5			(4.8	)		(1.1	)
Income from discontinued operations				0.0			0.0			0.0
Net income (loss)				2.5	%		(4.8	)%		(1.1	)%

Fiscal Year 2005 Compared With Fiscal Year 2004

      Net Revenues. Revenue in the twelve months ended December 31, 2005 was $3,890.2 million. This represented an increase of 2.5% compared to $3,796.3 million in the corresponding period in fiscal 2004. Total shipments for the twelve months ended December 31, 2005 were 53.0 million units, which was 0.6 million units lower or down 1.2% as compared to the twelve months ended December 25, 2004. Revenue increased during the twelve months ended December 31, 2005 as a result of increased shipments of our higher margin enterprise and branded products, partially offset by decreased shipments of desktop products, which also resulted in the overall lower units shipped.

      Revenue from sales to OEMs represented 51.4% of revenue in the twelve months ended December 31, 2005 compared to 52.0% of revenue in the corresponding period in fiscal year 2004. In absolute dollars, sales to OEMs increased 1.2% during the twelve months ended December 31, 2005. The increase during the twelve month period was primarily the result of increased shipments of our enterprise products to major OEM customers, partially offset by reduced shipments of digital entertainment and desktop products to regional OEMs.

      Revenue from sales to the distribution channel in the twelve months ended December 31, 2005 represented 38.3% of revenue, compared to 39.4%, in the corresponding period in fiscal 2004. In absolute dollars, sales to the distribution channel decreased 0.3%, during the twelve months ended December 31, 2005.

      Revenue from sales to retail customers in the twelve months ended December 31, 2005 represented 10.3% of revenue, compared to 8.6% of revenue in the corresponding period in fiscal 2004. In absolute dollars, sales to the retail channel increased 23.1% during the twelve months ended December 31, 2005. The increase

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in retail sales as a percentage of revenue and in absolute dollars during the twelve month period was the result of increased shipments of our Maxtor branded products, partially offset by reduced shipments of our desktop products.

Net Revenues by Geography

	Twelve Months Ended
	December 31,			December 25,
	2005			2004			Change
As a Percentage of Net Revenues:
United States and Canada		32.0	%		32.1	%		(0.1	)%
Europe, Middle East and Africa		35.7	%		36.2	%		(0.5	)%
Asia Pacific and Japan		30.3	%		29.9	%		0.4	%
Other		2.0	%		1.8	%		0.2	%
Total		100.0	%		100.0	%

	Change Between
	2005 and 2004
Percentage Change in Absolute Dollars:
United States and Canada		2.3%
Europe, Middle East and Africa		1.0%
Asia Pacific and Japan		3.6%

      Revenue to the United States and Canada increased in absolute dollars during the twelve month period ended December 31, 2005 as a result of increased shipments of Maxtor branded products to retail customers and enterprise products to major OEM customers. This increase was partially offset by reduced shipments of digital entertainment products to regional OEM customers.

      Revenue to Europe, Middle East and Africa increased in absolute dollars during the twelve months ended December 31, 2005 as a result of increased shipments of Maxtor branded products to retail customers and enterprise products to major OEM customers. This increase was partially offset by reduced shipments of desktop products to regional distribution customers.

      Revenue to Asia and Japan increased in absolute dollars during the twelve months ended December 31, 2005 as a result of increased sales of our desktop and enterprise products to regional distribution and major OEM customers partially offset by a reduction in sales of desktop products to regional OEM customers.

      Sales to the top five customers represented 40.2% and 35.5% of revenue in fiscal years 2005 and 2004, respectively. Sales to each of two customers accounted for 10% or greater of our sales in 2005. None of our customers accounted for 10% or greater of our sales in 2004.

      Cost of Revenues; Gross Profit. Gross profit increased to $430.9 million in the twelve months ended December 31, 2005, compared to $367.2 million for the corresponding twelve months in fiscal year 2004. This represented an overall increase in gross profit of $63.7 million. As a percentage of revenue, gross profit increased to 11.1% in the twelve months ended December 31, 2005 from 9.7% in the corresponding twelve months of fiscal year 2004.

      The increase in gross profit, both as a percentage of revenue and actual dollars during the twelve months ended December 31, 2005, was due to the impact of an increase in product capacity mix of $263.0 million. This positive impact was offset by a decline in average selling prices (“ASP”) of $534.9 million. These two revenue related factors together accounted for a net decline in gross profit of $271.9 million.

      This decline was offset by favorable cost reductions to achieve the overall gross profit increase of $63.7 million. Included in the cost reductions of $335.6 million is $13.9 million due to favorable changes in estimates in our warranty reserve. This favorable change reflects continued improvements in the Company’s repair operations with higher drive recovery yields reducing the projected repair cost per unit.

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Operating Expenses

      Research and Development. (“R&D”). R&D expense in fiscal year 2005 was $293.5 million or 7.6% of revenue, compared to $317.6 million or 8.5% of revenue in fiscal year 2004. R&D expense decreased by $24.1 million, or 7.6% for fiscal year 2005 compared with fiscal year 2004. Technology support costs declined by $8.2 million as a result of in-sourcing our IT support function. Compensation decreased $7.5 million due to a reduction in headcount. Expensed parts decreased by $6.6 million, attributable to the inclusion of development costs in fiscal year 2004 related to product lines that were discontinued at the end of that year. The remaining decrease of $1.8 million was primarily due to lower depreciation as a result of decreased capital spending.

      Selling, General and Administrative (“SG&A”). SG&A expense in fiscal year 2005 was $144.5 million or 3.7% of revenue, compared to $130.4 million or 3.4% of revenue in fiscal year 2004. SG&A expense increased by $14.1 million or 10.8% for fiscal year 2005 compared to fiscal year 2004. Fiscal year 2004 included a favorable dispute settlement of $8.3 million related to the Quantum HDD business acquisition in fiscal year 2001. Expansion of Maxtor’s branded products resulted in increased marketing spend of $4.4 million. Bad debt expense increased by $4.9 million primarily due to changes in customer mix. Legal expenses decreased by $6.2 million due to specific litigation expenses in fiscal year 2004. The remaining $2.7 million increase was attributable to compensation and other expenses.

      Costs related to Pending Seagate Acquisition. We adopted a retention bonus program providing for up to $100 million in retention payments in connection with our agreement to merge with Seagate. The payments are payable 20% on the first business day after July 1, 2006 and 80% six months after closing, subject to earlier payment in certain circumstances. On February 16, 2006, the retention bonus plan was amended to provide that participants would be entitled to payments in the event of the involuntarily termination of their employment without cause prior to the payment dates.

      Restructuring and Impairment Charges. Restructuring charges for the year ended December 31, 2005 were $18.6 million or 0.5% of revenue, as compared to $65.2 million or 1.7% of revenue in 2004.

      On March 4, 2005, we determined to proceed with a reduction in force of up to 5,500 employees at our Singapore manufacturing operations and approximately 125 employees in the United States. The reduction in force in Singapore is a result of our previously announced transition of manufacturing for additional desktop products from our Singapore manufacturing operations to China and closure of one of our two plants in Singapore, scheduled to be completed by the first quarter of 2006. We had initially expected that approximately 2,500 positions would be reduced by attrition and the remainder by severance, which was changed to approximately 1,400 positions representing attrition and the remainder severance. This change in estimate, combined with a longer than expected actualized length of service, resulted in an additional accrual of $4.1 million in the third quarter of 2005. During the year ended December 31, 2005, we incurred $16.4 million in severance-related charges in Singapore, of which $5.2 million remains outstanding at December 31, 2005. We expect to be substantially completed with the restructuring in Singapore by the first quarter of 2006. During the year ended December 31, 2005, we also incurred $2.5 million in severance-related charges associated with the reduction in force in the United States, net of an adjustment of $(0.5) million recorded during the third quarter of 2005. This restructuring in the United States was completed in the fourth quarter of 2005.

      In September 2005, we terminated or notified for termination approximately 25 employees at our operations in Ireland as we consolidated our regional disk drive recovery operations for improved efficiency and customer service. We were substantially completed with this reduction in force in the fourth quarter of 2005. As of December 31, 2005, we had incurred a total of approximately $0.5 million in severance-related payments associated with this reduction in force and expects to pay approximately $0.2 million in the first quarter of 2006.

      In July 2004, we announced a reduction-in-force which affected approximately 377 employees in the United States and Singapore. During the first quarter of 2005, an adjustment of $(0.3) million was made to the associated restructuring liability. As of December 31, 2005, we were substantially completed with this

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restructuring. For the years ended December 25, 2004 and December 31, 2005, we incurred $12.9 million and $(0.3) million in severance expense related to this reduction in force, respectively.

      In connection with the 2001 acquisition of the hard drive business of Quantum HDD, we recorded a $45.3 million liability for estimated facility exit costs for the closure of three Quantum HDD offices and research and development facilities located in Milpitas, California, and two Quantum HDD office facilities located in Singapore. During the third quarter of 2004, in association with our restructuring activities, we recorded an additional $16.4 million liability due to a change in estimated lease obligations for two of the Quantum HDD acquired offices and research and development facilities located in California. This estimate was based upon the then comparable market rates for leases and anticipated dates for these properties to be subleased. The balance remaining in the facilities exit accrual is expected to be paid over several years, based on the underlying lease agreements. As of December 31, 2005, the outstanding balance related to this accrual was $37.3 million. In January 2006, we entered into an agreement to sublease certain buildings at our corporate main campus in Milpitas, California. These buildings were part of the facilities restructuring activity recorded in 2004. For further information on the restructuring, see Note 12 to the Consolidated Financial Statements. The sublease will result in a credit of approximately $11 million to our consolidated income statements in the first quarter of fiscal 2006.

      During the year ended December 28, 2002, we recorded a restructuring charge of $9.5 million associated with closure of one of our facilities located in California. The amount comprised $8.9 million of non-cancelable lease payments, which were expected to be paid over several years based on the underlying lease agreement, and the write-off of $0.6 million in leasehold improvements. We increased this restructuring accrual by $3.3 million due to a change in estimated lease obligations associated with our restructuring activities in the third quarter of 2004. This estimate was based upon the then comparable market rates for leases and anticipated dates for one of the properties to be subleased. As of December 31, 2005, the outstanding balance related to this accrual was $7.8 million. In the third quarter of 2004, we also recorded a $0.6 million liability in association with the closure of one of our facilities in Colorado. As of December 31, 2005, the outstanding balance related to this accrual was $0.2 million.

      During the year ended December 25, 2004, we recorded restructuring and impairment charges of $65.2 million, of which $33.2 million was in connection with our on-going restructuring activities announced in July 2004, $24.2 million was related to the impairment of intangible assets and $7.8 million of impairment charges related to asset held for sale.

      Amortization of Goodwill and Other Intangible Assets. Amortization expense of other intangible assets represents the amortization of customer list and other current products and technology arising from our acquisitions of the Quantum HDD business in April 2001 and MMC in September 2001. The net book value of these intangibles at December 31, 2005 was $0.6 million. Amortization expense of other intangible assets was $0.9 million for the year ended December 31, 2005, compared to $36.0 million in the corresponding period in fiscal year 2004.

      Amortization of other intangible assets is computed over the estimated useful lives of the respective assets, generally three to five years. The Company expects amortization expense on intangible assets to be $0.6 million in fiscal 2006, at which time the intangible assets will be fully amortized.

      As required by SFAS 142, we completed our impairment analysis as of December 31, 2005 for the purpose of the annual review. We found no instances of impairment of our recorded goodwill and accordingly no impairment was recorded.

      Interest Expense. Interest expense was $34.4 million and $31.8 million in fiscal years 2005 and 2004, respectively, or an increase of 8.2%. The increase was primarily due to the expensing of $1.9 million of unamortized issuance costs associated with the partial repurchase of the 6.8% convertible senior notes, amortization of issuance costs related to the 2.375% convertible senior notes and additional interest expense on the early repayment of mortgages. In addition, an increase in the interest rate on our line of credit for the manufacturing facility in China contributed to an increase in interest expense, partially offset by reduced

44

interest expense due to the partial repurchase of the 6.8% convertible senior notes and the termination of the asset securitization program in June 2005.

      Interest Income. Interest income was $11.9 million and $5.2 million in fiscal years 2005 and 2004, respectively. The increase was primarily due to increases in interest rates.

      Other Gain (Loss). Other gain (loss) was $7.9 million in 2005 compared to $0.1 million in 2004. The gain in 2005 was due to the sale of a long-lived asset held for sale for $5.8 million and the sale of equity securities of $2.2 million, partially offset by a loss of $0.1 million related to miscellaneous items. The gain in 2004 was attributable to gains from miscellaneous items.

      Provision for (Benefit from) Income Taxes. During 2005 and 2004, we recorded income tax provisions and (benefits) of $2.1 million and $(0.3) million, respectively. The provision for income taxes consists primarily of state and foreign taxes. Due to our net operating losses (“NOL”), NOL carry-forwards and favorable tax status in Singapore, Switzerland and China, we have not incurred any significant foreign, U.S. federal, state or local income taxes for the current or prior fiscal periods. We have not recorded a tax benefit associated with our loss carry-forward because of the uncertainty of realization.

      Pursuant to a “Tax Sharing and Indemnity Agreement” entered into in connection with the Company’s acquisition of Quantum HDD, Maxtor, as successor to Quantum HDD, and Quantum are allocated their share of Quantum’s income tax liability for periods before the Company’s acquisition of Quantum HDD, consistent with past practices and as if the Quantum HDD and Quantum DSS business divisions had been separate and independent corporations. To the extent that the income tax liability attributable to one business division is reduced by using NOLs and other tax attributes of the other business division, the business division utilizing the attributes must pay the other for the use of those attributes. We also agreed to indemnify Quantum for additional taxes related to the Quantum DSS business for all periods before Quantum’s issuance of tracking stock and additional taxes related to the Quantum HDD business for all periods prior to our acquisition of Quantum HDD. This indemnity was originally limited to the aggregate of $142.0 million plus 50% of any excess over $142.0 million, excluding any required gross up payments (the “Tax Indemnity”). As of December 31, 2005, the Company had paid $8.6 million under this tax indemnity. On December 23, 2004, as a result of certain favorable developments concerning Quantum’s potential liability subject to the Tax Indemnity, the Company and Quantum amended the Tax Sharing and Indemnity Agreement, as part of a Mutual General Release and Global Settlement Agreement. Under the amended terms of the Tax Sharing and Indemnity Agreement, our remaining Tax Indemnity liability is limited to $8.8 million for all tax claims.

      We purchased a $340 million insurance policy covering the risk that the separation of Quantum HDD from Quantum DSS could be determined to be subject to federal income tax or state income or franchise tax. Under the “Tax Sharing and Indemnity Agreement,” the Company agreed to indemnify Quantum for the amount of any tax payable by Quantum as a result of the separation of Quantum HDD from Quantum Corporation to the extent such tax is not covered by such insurance policy, unless imposition of the tax is the result of Quantum’s actions, or acquisitions of Quantum stock, after the transaction. The amount of the tax not covered by insurance could be substantial. In addition, if it is determined that Quantum owes federal or state tax as a result of the separation of Quantum HDD from Quantum Corporation, in connection with the Company’s acquisition of Quantum HDD, and the circumstances giving rise to the tax are covered by our indemnification obligations, the Company will be required to pay Quantum the amount of the tax at that time, whether or not reimbursement may be allowed under our tax insurance policy. We believe that any liability resulting from this indemnification is remote.

Fiscal Year 2004 Compared With Fiscal Year 2003

      Net Revenues. Revenue in the twelve months ended December 25, 2004 was $3,796.3 million. This represented a reduction of 7.1% when compared to $4,086.4 million in the corresponding period in fiscal 2003. Total shipments for the twelve months ended December 25, 2004 were 53.6 million units, which was 1.7 million units or 3.0% lower than in the twelve months ended December 27, 2003. Total units and revenue declined during the twelve months ended December 25, 2004 as a result of reduced shipments of our desktop products to personal computer OEM and distribution customers. Additionally, we experienced reduced

45

revenue from sales of our server products that was partially offset by growth in revenue of our digital entertainment and Maxtor OneTouch personal storage products.

      Revenue from sales to OEMs represented 52.0% of revenue in the twelve months ended December 25, 2004 compared to 50.5% of revenue in the corresponding period in fiscal year 2003. In absolute dollars, sales to OEMs decreased 4.3% during the twelve months ended December 25, 2004. The decrease was primarily the result of reduced shipments of desktop products to major personal computer OEM customers. This reduction was caused by product quality issues that resulted in lost sales opportunities at these customers. Additionally, we experienced reduced revenue from sales of our server products. This reduction was a result of supply constraints resulting from the transition from our Atlas 10K IV to our Atlas 10K V product. Although overall shipments of server products increased slightly, price erosion and a capacity mix for our server products which included a higher percentage of our Atlas 10K IV product led to a decrease in revenue. The decreases experienced in desktop and server revenue were partially offset by increased demand for our digital entertainment products at regional OEMs.

      Revenue from sales to the distribution channel and retail customers in the twelve months ended December 25, 2004 represented 48.0% of revenue, compared to 49.5% of revenue in the corresponding period in fiscal 2003.

      Revenue from sales to the distribution channel in the twelve months ended December 25, 2004 represented 39.4% of revenue, compared to 41.8% of revenue, in the corresponding period in fiscal 2003. In absolute dollars, sales to the distribution channel decreased 12.5%, during the twelve months ended December 25, 2004. The decrease was primarily the result of our strategy to mitigate price erosion and achieve a balanced supply environment regarding our desktop products. Although this strategy resulted in a more stable distribution environment at the end of the year, it had the adverse affect of reducing overall shipments to the distribution channel. We also experienced reduced revenue from sales of our server products. The decrease was primarily the result of limited product supply. The reduced supply was driven by the transition from our Atlas 10K IV to our Atlas 10K V product and our decision to allocate product to our OEM customers.

      Revenue from sales to retail customers in the twelve months ended December 25, 2004 represented 8.6% of revenue, compared to 7.7% of revenue in the corresponding period in fiscal 2003. In absolute dollars, sales to the retail channel increased 4.0%, during the twelve months ended December 25, 2004. The increase in retail sales as a percentage of revenue and in absolute dollars during the twelve month periods was the result of the increase in sales of our Maxtor OneTouch personal storage products.

      Domestic revenue in the twelve months ended December 25, 2004 represented 32.1% of total sales compared to 35.4% of total sales in the corresponding period in fiscal year 2003. Domestic revenue includes sales to the United States and Canada. The decrease in domestic revenue as a percentage of total revenue during the twelve months ended December 25, 2004 was a result of decreased shipments of desktop products to major personal computer OEM and distribution customers resulting from product quality issues and channel strategy, as previously discussed. Revenue from sales of our server products also decreased in the OEM and Distribution channels as a result of limited product supply driven by the transition from our Atlas 10K IV to our Atlas 10K V products. These reductions were partially offset by the increase in sales of our digital entertainment and Maxtor OneTouch personal storage products.

      International revenue in the twelve months ended December 25, 2004 represented 67.9% of total sales compared to 64.6% of total sales in the corresponding period in fiscal year 2003. In the twelve months ended December 25, 2004, international revenue was comprised of 53.3% Europe, Middle East and Africa, 44.1% Asia Pacific and Japan and 2.6% for Latin America and other regions. In the twelve months ended December 27, 2003, international revenue was comprised of 51.3% Europe, Middle East and Africa, 47.7% Asia Pacific and Japan and 1.0% for Latin America and other regions.

      Sales to Europe, Middle East and Africa in the twelve months ended December 25, 2004 and December 27, 2003 represented 36.2% and 33.1% of total revenue, respectively. In absolute dollars, sales to Europe, Middle East and Africa increased 1.4% during the twelve months ended December 25, 2004. The

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increase in European sales in absolute dollars during the twelve months ended December 25, 2004 was a result of increased demand for our Maxtor OneTouch personal storage product. This was partially offset by decreased shipments of desktop products to our major personal computer OEM and distribution customers.

      Sales to Asia Pacific and Japan in the twelve months ended December 25, 2004 and December 27, 2003 represented 30.8% and 29.9% of total revenue, respectively. In absolute dollars, sales to Asia Pacific and Japan decreased 9.8% during the twelve months ended December 25, 2004. The decrease in sales to Asia and Japan in absolute dollars during the twelve months ended December 25, 2004 was the result of reduced sales of our desktop products to regional OEM and distribution customers.

      Sales to Latin America and other regions in the twelve months ended December 25, 2004 and December 27, 2003 represented 1.8% and 0.6% of total revenue, respectively.

      Sales to the top five customers represented 35.5% and 38.9% of revenue in fiscal years 2004 and 2003, respectively. None of our customers accounted for 10% or greater of our sales in 2004. Sales to one customer were 11.0% of revenue in fiscal year 2003.

      Cost of Revenues; Gross Profit. Gross profit decreased to $367.2 million in the twelve months ended December 25, 2004, compared to $695.8 million for the corresponding twelve months in fiscal year 2003. This represented an overall decrease in gross profit of $328.6 million. As a percentage of revenue, gross profit decreased to 9.7% in the twelve months ended December 25, 2004 from 17.0% in the corresponding twelve months of fiscal year 2003. The decrease in gross profit was primarily due to the impact of the decline in average selling prices (“ASP”) of $856.7 million. This decline in ASP was partially offset by the impact of an increase in product capacity mix of $285.9 million, reflecting the shipment of a greater proportion of higher capacity products. These two factors together accounted for a net decline in gross profit of $570.8 million. The Company achieved product cost reductions to partially offset this revenue erosion. Net product cost reductions amounted to $242.2 million. Materials cost savings contributed $292.7 million of this improvement. However, favorable warranty reserve releases due to changes in estimate amounted to $13.3 million in the twelve months ended December 25, 2004, compared to $39.9 million in the twelve months ended December 27, 2003. The reserve release in 2003 primarily related to expirations of products acquired as part of the Quantum HDD acquisition. We have experienced significantly less variability on Maxtor products as is demonstrated by the lower release in 2004. In addition, we experienced some increases in manufacturing costs related to the ramp of our China facility and plant improvements at MMC.

Operating Expenses

      Research and Development. (“R&D”). R&D expense in fiscal year 2004 was $317.6 million or 8.4% of revenue, compared to $348.3 million or 8.5% of revenue in fiscal year 2003. R&D expense decreased by $30.7 million or 8.9% for fiscal year 2004 compared with fiscal year 2003. The decrease in R&D expense was primarily due to reductions in compensation of $32.8 million, depreciation of $4.9 million, equipment expense of $2.0 million, and decreases in our facilities and information technology departments of $1.8 million. These decreases were offset by a $10.3 million increase in expensed parts and services, and other expenses increased by $0.5 million.

      Selling, General and Administrative (“SG&A”). SG&A expense in fiscal year 2004 was $130.4 million or 3.4% of revenue, compared to $134.2 million or 3.3% of revenue in fiscal year 2003. SG&A expense decreased by $3.8 million or 2.8% for fiscal year 2004 compared to fiscal year 2003. The decrease in SG&A expense was primarily due to a favorable dispute settlement with Quantum of $8.3 million regarding transition services provided by Quantum and incurred following our fiscal year 2001 acquisition of the Quantum HDD business, reduced spending in our facilities and information technology departments of $4.9 million as a result of our expense reduction program, a decrease of $3.0 million related to compensation and related expenses, as well as a reduction in litigation expense of $2.0 million. The decreases were offset by an increase in services of $9.7 million primarily related to Sarbanes Oxley Section 404 compliance and $2.3 million related to sales and marketing expense, as well as $2.0 million reduction in offsetting rental income, and $0.4 million of other expenses.

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      Restructuring and Impairment Charges. During the year ended December 25, 2004, we recorded restructuring and impairment charges of $65.2 million, of which $33.2 million was in connection with our on-going restructuring activities announced in July 2004, $24.2 million was related to the impairment of intangible assets and $7.8 million of impairment charges related to asset held for sale.

      The restructuring charges of $33.2 million represent expenses incurred in connection with the reduction in force and evaluation of lease obligations that the Company had announced in July 2004. The charge comprised $20.3 million in facility-related charges mainly due to a change in estimated lease obligations primarily as a result of further deterioration in the Silicon Valley real estate market and $12.9 million in severance-related charges associated with our reduction in force of approximately 377 employees.

      During the year ended December 28, 2002, we recorded a restructuring charge of $9.5 million associated with the closure of one of our facilities located in California. The amount comprised $8.9 million of future non-cancelable lease payments, which were expected to be paid over several years based on the underlying lease agreement, and the write-off of $0.6 million in leasehold improvements. The restructuring accrual is included on the balance sheet within Accrued and other liabilities with the balance of $9.3 million after cash payments of $1.4 million during the twelve months ended December 25, 2004. We increased this restructuring accrual by $3.3 million associated with our restructuring activities in the third quarter of 2004. During the third quarter of 2004, we also recorded $16.4 million to increase a restructuring accrual previously recorded as part of the Quantum HDD merger and $0.6 million was recorded in association with the closure of one of our facilities in Colorado. These combined actions resulted in a net facility-related restructuring charge of $20.3 million for the twelve months ended December 25, 2004. The facilities-related restructuring accrual is included within the balance sheet captions of Accrued and other liabilities and Other liabilities with the balance of $51.4 million as of December 25, 2004.

      During the year ended December 25, 2004, the Company classified a building owned by Maxtor in Louisville, Colorado as held for sale in accordance with the requirements of SFAS 144, resulting in an impairment charge of $7.8 million. Asset held for sale amounted to $8.2 million representing the estimated realizable value of the building and is included within the balance sheet caption of Prepaid expenses and other. Prior to classification, the Company suspended depreciation of this building which was $0.4 million annually.

      Stock-based Compensation. On April 2, 2001, as part of the acquisition of Quantum HDD, we assumed the following options and restricted stock:

•  All Quantum HDD options and Quantum HDD restricted stock held by employees who accepted our offers of employment, or “transferred employees,” whether or not options or restricted stock had vested;

•  Vested Quantum HDD options and vested Quantum HDD restricted stock held by Quantum Corporation (“Quantum”) employees whose employment was terminated prior to the separation, or “former service providers;” and

•  Vested Quantum HDD restricted stock held by any other individual.

      In addition, we assumed vested Quantum HDD options held by Quantum employees who continued to provide services during a transitional period, or “transitional employees.” We assumed the outstanding options to purchase Quantum HDD common stock held by transferred employees and vested options to purchase Quantum HDD common stock held by former Quantum employees, consultants and transition employees and these options converted into options to purchase Maxtor common stock based on an exchange ratio of 1.52 shares of Maxtor common stock for each share of Quantum HDD common stock. Vested and unvested options for Quantum HDD common stock assumed in the merger represented options for 7,650,965 shares and 4,655,236 shares of Maxtor common stock, respectively.

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      Included in SG&A and R&D expense are charges for amortization of stock-based compensation resulting from both Maxtor options and options we issued to Quantum employees who joined Maxtor in connection with the merger on April 2, 2001. Stock-based compensation charges were as follows:

	Years Ended
	December 27,		December 25,
	2003		2004
	(In millions)
Research and development	$	0.7	$	0.2
Selling, general and administrative		0.2		—
Total stock-based compensation expense	$	0.9	$	0.2

      Amortization of Goodwill and Other Intangible Assets. Amortization of other intangible assets represents the amortization of customer list and other current products and technology, arising from our acquisitions of the Quantum HDD business in April 2001 and MMC in September 2001. The net book value of these intangibles at December 25, 2004 was $1.5 million. Amortization of other intangible assets was $36.0 million for the year ended December 25, 2004, compared to $85.3 million in the corresponding period in fiscal year 2003.

      Subsequent to the decision to shut down the manufacture and sales of NSG products, the Company wrote off goodwill related to the NSG operations of $32.3 million. As of December 25, 2004, goodwill amounted to $489.5 million.

      As required by SFAS 142, we completed our impairment analysis as of December 25, 2004 for the purpose of the annual review. We found no instances of impairment of our recorded goodwill and accordingly no impairment was recorded.

      Amortization of other intangible assets is computed over the estimated useful lives of the respective assets, generally three to five years. The Company expects amortization expense on intangible assets to be $0.9 million in fiscal 2005 and $0.6 million in fiscal 2006, at which time the intangible assets will be fully amortized.

      Interest Expense. Interest expense was $31.8 million and $30.2 million in fiscal years 2004 and 2003, respectively, or an increase of 5.3%. The increase was primarily due to the increased borrowing on the China loan facility of $0.8 million and the second EDB loan of $0.8 million. The increased interest on the $230 million convertible notes issued in May 2003 and the asset securitization in June 2004 were offset by the repayment of the Quantum 7% convertible bond in 2003 and the decrease of capital lease balances in 2004.

      As of December 25, 2004 and December 27, 2003, short-term borrowings were $82.6 million and $77.0 million, respectively, and long-term indebtedness outstanding was $382.6 million and $355.8 million, respectively.

      Interest Income. Interest income was $5.2 million in fiscal years 2004 and 2003, respectively.

      Income from Litigation Settlement. On April 28, 2004, in connection with our suit against Koninklijke Philips Electronics N.V. and several other Philips-related companies in the Superior Court of California, County of Santa Clara whereby the Company alleged that an integrated circuit chip supplied by Philips was defective and caused significant levels of failure of certain Quantum legacy products acquired as part of our acquisition of the Quantum HDD business, we entered into a settlement agreement with the other parties pursuant to which the parties dismissed the lawsuit with prejudice and we received a cash payment of $24.8 million, which was recorded as litigation settlement income in fiscal year 2004.

      Other Gain (Loss). Other gain (loss) was $0.1 million in 2004 as compared to $(0.6) million in 2003. The loss in 2003 was due to a $1.0 million loss on redemption of the pro rata portion of Quantum Corporation’s bonds offset by a $0.2 million gain in retirement of other bonds, a gain of $0.1 million from investments and a $0.1 million in other income.

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      Provision for (Benefit from) Income Taxes. During 2004 and 2003, we recorded income tax provisions and (benefits) of $(0.3) million and $3.5 million, respectively. The provision for income taxes consists primarily of state and foreign taxes. Due to our net operating losses (“NOL”), NOL carry-forwards and favorable tax status in Singapore, Switzerland and China, we have not incurred any significant foreign, U.S. federal, state or local income taxes for the current or prior fiscal periods. We have not recorded a tax benefit associated with our loss carry-forward because of the uncertainty of realization.

      Pursuant to a “Tax Sharing and Indemnity Agreement” entered into in connection with the Company’s acquisition of Quantum HDD, Maxtor, as successor to Quantum HDD, and Quantum are allocated their share of Quantum’s income tax liability for periods before the Company’s acquisition of Quantum HDD, consistent with past practices and as if the Quantum HDD and Quantum DSS business divisions had been separate and independent corporations. To the extent that the income tax liability attributable to one business division is reduced by using NOLs and other tax attributes of the other business division, the business division utilizing the attributes must pay the other for the use of those attributes. We also agreed to indemnify Quantum for additional taxes related to the Quantum DSS business for all periods before Quantum’s issuance of tracking stock and additional taxes related to the Quantum HDD business for all periods prior to our acquisition of Quantum HDD. This indemnity was originally limited to aggregate of $142.0 million plus 50% of any excess over $142.0 million, excluding any required gross up payments (the “Tax Indemnity”). As of December 25, 2004, the Company had paid $8.6 million under this tax indemnity. On December 23, 2004, as a result of certain favorable developments concerning Quantum’s potential liability subject to the Tax Indemnity, the Company and Quantum amended the Tax Sharing and Indemnity Agreement, as part of a Mutual General Release and Global Settlement Agreement. Under the amended terms of the Tax Sharing and Indemnity Agreement, our remaining Tax Indemnity liability was limited to $8.8 million for all tax claims other than the IRS audit of Quantum for the fiscal years ending March 31, 1997 through and including March 31, 1999.

      We purchased a $340 million insurance policy covering the risk that the separation of Quantum HDD from Quantum DSS could be determined to be subject to federal income tax or state income or franchise tax. Under the “Tax Sharing and Indemnity Agreement,” the Company agreed to indemnify Quantum for the amount of any tax payable by Quantum as a result of the separation of Quantum HDD from Quantum Corporation to the extent such tax is not covered by such insurance policy, unless imposition of the tax is the result of Quantum’s actions, or acquisitions of Quantum stock, after the transaction.

      Loss from Discontinued Operations. On August 15, 2002, we announced our decision to shut down our Network Systems Group (“NSG”) and cease the manufacturing and sale of our MaxAttach^tm branded network attached storage products. The discontinuance of our NSG operations represents the disposal of a component of an entity as defined in Statement of Financial Accounting Standards No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” (“SFAS 144”). The income from discontinued operations of $2.2 million for the year ended December 27, 2003 reflects the net impact of the favorable resolution of contingencies. There were no remaining assets or liabilities as of December 31, 2005.

Liquidity and Capital Resources

      As of December 31, 2005, we had $497.5 million in cash and cash equivalents, $16.1 million in restricted cash, and $67.7 million in unrestricted marketable securities for a combined total of $581.3 million. In comparison, as of December 25, 2004, we had $378.1 million in cash and cash equivalents, $24.5 million in restricted cash and $104.0 million in unrestricted marketable securities for a combined total of $506.6 million.

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The cash and cash equivalents balance increased $119.4 million and the combined balance increased by $74.7 million during 2005 due to activities in the following areas.

	Twelve Months Ended
	December 31,			December 25,
	2005			2004
	(In millions)
Net cash provided by (used in) operating activities	$	54.6		$	(5.2	)
Net cash used in investing activities	$	(66.1	)	$	(199.0	)
Net cash provided by financing activities	$	130.9		$	51.4
Net change in cash and cash equivalents	$	119.4		$	(152.8	)

      For the twelve month period ended December 31, 2005, although we incurred a net loss of $43.3 million, we generated $54.6 million in cash from operations primarily due to adjustments for non-cash items (mainly depreciation and amortization). Our uses of cash for net working capital included increases of inventories and other prepaid expenses and other assets. Net accounts receivable decreased $29.5 million from December 25, 2004 to December 31, 2005 primarily due to timing of customer payments. Other receivables decreased $18.9 million primarily due to decreased activity with a supplier for the manufacture of our products. Inventories were higher by $11.1 million as of December 31, 2005 compared to December 25, 2004 due to increased sales in 2005. Prepaid expenses and other assets increased $58.0 million primarily due to a prepayment of $37.5 million to an external media supplier during the year and approximately $12.1 million in vendor down payments. After considering property, plant and equipment financed by accounts payable, accounts payable decreased by $11.9 million in the twelve-month period due to lower deferment of payment for certain accounts payable and purchase compared to the prior year. Accrued expenses and other liabilities decreased by $43.8 million primarily due to reduced accrued warranty and payroll costs.

      We used $66.1 million in net cash from investing activities during the twelve-month period ended December 31, 2005. The major use of cash for investing activity was for property, plant and equipment of $160.8 million to support the manufacturing capacity added in China in 2005, partially offset by a sale of equipment of $25.2 million. Primary sources of cash generated from investing activities were sales and maturities (net of purchases) of marketable securities of $36.1 million, a decrease in restricted cash and marketable securities of $26.6 million primarily as a result of the repayment of the Singapore Economic Development Board loan, and proceeds from the sale of equity securities for $6.8 million.

      We generated $130.9 million in net cash for financing activities during the twelve-month period ended December 31, 2005. The major financing uses of cash were the repayment of $50.0 million of asset-backed borrowings in the second quarter of 2005 and the repurchase of $93.8 million of the Company’s 6.8% convertible senior notes due 2010. Other financing uses of cash included repayments of various debt and short-term borrowings of $27.4 million, early repayment of mortgages of $32.6 million, and capital lease obligations of $5.2 million. Primary sources of cash generated from financing activities were $317.8 million proceeds (net of issuance costs) from the 2.375% convertible senior notes due 2012 issued in August 2005 and $22.1 million in proceeds from the sale of shares pursuant to employee stock plans.

      We believe that our existing cash and cash equivalents, short-term investment and capital resources, together with cash generated from operations will be sufficient to fund our operations through at least the next twelve months. However, if we need additional working capital, there can be no assurance that such additional financing can be obtained, or that it will be available on satisfactory terms. Our ability to generate cash will depend on, among other things, demand in the hard disk drive market and pricing conditions.

      We expect to make continuing cash outlays from working capital for capital expenditures of up to $275 million in fiscal 2006 with our primary focus on expanding our manufacturing capacity in Asia.

      We expect to pay approximately $20 million from working capital in July 2006 for retention-related bonuses under a plan adopted in connection with our agreement to merge with Seagate.

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      At December 31, 2005 the Company held cash and marketable securities of approximately $311.9 million in foreign jurisdictions. We estimate that as of such date, repatriation of this amount would have resulted in a net tax liability of approximately $3.2 million after utilization of our available net operating losses.

Contractual Obligations

      Payments due under known contractual obligations as of December 31, 2005 are reflected in the following table (in thousands):

				Less Than						More Than
		Total		1 Year		1-3 Years		3-5 Years(1)(2)		5 Years(1)(2)
Long-term Debt		$	580,760	$	5,000	$	10,000	$	205,729	$	360,031
	Interest Payments		133,921		25,229		49,592		38,933		20,167
Capital Lease Obligations			881		868		10		3		—
	Interest Payments		14		13		1		—		—
Operating Leases(3)			269,894		41,805		78,088		68,907		81,094
Purchase Obligations(4)			831,904		828,611		3,293		—		—
Total		$	1,817,374	$	901,526	$	140,984	$	313,572	$	461,292

(1)	Does not include $73 million which may be borrowed under a facility in a U.S. dollar-denominated loan, to be secured by our facilities in Suzhou, China, drawable until April 2007, and repayable in eight semi-annual installments commencing October 2007; the borrowings under this facility bear interest at LIBOR plus 50 basis points (“bps”) to Libor plus 100 bps.
(2)	Does not include $17 million which we may be obligated to contribute to our China subsidiary to allow drawdown under the facilities described under footnote (1).
(3)	Includes future minimum annual rental commitments, including amounts accrued as restructuring liabilities as of December 31, 2005.
(4)	Purchase obligations are defined as contractual obligations for purchase of goods or services, which are enforceable and legally binding on the Company and that specify all significant terms, including fixed or minimum quantities to be purchased, fixed, minimum or variable price provisions and the approximate timing of the transaction. The expected timing of payment of the obligations set forth above is estimated based on current information. Timing of payments and actual amounts paid may be different depending on the time of receipt of goods or services or changes to agreed-upon amounts for some obligations.

      In May 2003, we sold $230 million in aggregate principal amount of 6.8% convertible senior notes due April 30, 2010 (the “2003 Notes”) to qualified institutional buyers pursuant to Rule 144A. The 2003 Notes are general unsecured obligations of the Company. The 2003 Notes are convertible into the Company’s common stock at an initial conversion rate of 81.5494 shares per $1,000 principal amount of the notes, or an aggregate of 11,068,619 shares, subject to adjustment in certain circumstances (equal to an initial conversion price of $12.2625 per share). The Company has the right to settle its conversion obligation with cash or common stock. The initial conversion price represented a 125% premium over the closing price of the Company’s common stock on May 1, 2003, which was $5.45 per share. Prior to May 5, 2008, the 2003 Notes will not be redeemable at the Company’s option. Beginning May 5, 2008, if the closing price of the Company’s common stock for 20 trading days within a period of 30 consecutive trading days ending on the trading day before the date of mailing of the redemption notice exceeds 130% of the conversion price in effect on such trading day, the Company may redeem the 2003 Notes in whole or in part, in cash, at a redemption price equal to 100% of the principal amount of the notes being redeemed plus any accrued and unpaid interest and accrued and unpaid liquidated damages, if any, to, but excluding, the redemption date. If, at any time, substantially all of the Company’s common stock is exchanged or acquired for consideration that does not consist entirely of common stock that is listed on a United States national securities exchange or approved for quotation on the NASDAQ National Market or similar system, the holders of the 2003 Notes have the right to require the Company to repurchase all or any portion of the notes at their face value plus accrued interest.

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As of December 31, 2005, the Company had approximately $135.7 million aggregate principal amount outstanding of the 6.8% convertible senior notes due 2010.

      In August 2005, we sold $326 million aggregate principal amount of 2.375% convertible senior notes due 2012 (the “2005 Notes”) to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended. The net proceeds were approximately $317.8 million, which was net of $8.2 million in legal, bank, accounting and printing expenses. Costs relating to the issuances of the 2005 Notes are being amortized over the term of the debt. A portion of the net proceeds from the offering were used to repurchase approximately $94.3 million principal amount of our 6.8% convertible senior notes due 2010 in open market transactions in August of 2005. The 2005 Notes are general unsecured obligations of the Company. The Company will pay interest semi-annually on February 15 and August 15 of each year, beginning February 15, 2006. Upon the occurrence of certain specified events the 2005 Notes are eligible for conversion, at the option of the holder into cash, and if applicable, shares of common stock at a conversion rate of 153.1089 shares of common stock per $1,000 principal amount of the notes, subject to adjustment in certain circumstances (equal to an initial conversion price of $6.53 per share). The initial conversion price represents a 123% premium over the closing price of the Company’s common stock on August 9, 2005, which was $5.31 per share. Upon conversion, the 2005 Notes are subject to “net cash” settlement whereby the Company will deliver cash for the lesser of the principal amount of the 2005 Notes being converted or the “conversion value” of the notes which is calculated by multiplying the conversion rate then in effect by the market price of the Company’s common stock price at the time of conversion. To the extent that the conversion value exceeds the principal amount of the 2005 Notes, the Company will, at its election, pay cash or issue shares of its common stock with a value equal to the value of such excess. If the 2005 Notes are surrendered for conversion, the Company may direct the conversion agent to surrender those notes to a financial institution selected by the Company for exchange, in lieu of conversion, into a number of shares of our common stock equal to the applicable conversion rate, plus cash for any fractional shares, or cash or a combination of cash and shares of our common stock in lieu thereof. The Company has reserved 49,913,501 shares of authorized common stock for issuance upon conversion of the 2005 Notes. The Company may redeem some or all of the 2005 Notes for cash at any time on or after August 20, 2010 at specified redemption prices, together with accrued and unpaid interest and liquidated damages, if any, but excluding the date fixed for redemption. Upon the occurrence of certain fundamental change events, the holders of the 2005 Notes have the right to require the Company to repurchase all or any portion of the notes at their face value plus accrued interest. Among other events that may trigger a conversion right, the 2005 Notes will be convertible, at the option of the holders, at any time during a fiscal quarter if, during the last 30 trading days of the immediately preceding fiscal quarter our common stock trades at a price in excess of 110% of the conversion price for 20 consecutive trading days. The 2005 Notes will also be convertible at the close of the proposed merger with Seagate for approximately 30 days.

      We have filed a shelf registration statement with the Securities and Exchange Commission for the resale of the 2005 Notes and the common stock issuable upon conversion of the notes, and this registration statement was declared effective on February 1, 2006. We have agreed to keep the shelf registration statement effective until two years after the latest date on which the Company issues notes in the offering. If we do not comply with these registration obligations, we will be required to pay liquidated damages to the holders of the 2005 Notes or the common stock issuable upon conversion of the notes.

      In connection with the repurchase of the $94.3 million aggregate principal amount of the outstanding 6.8% convertible senior notes due 2010, we recorded a loss of approximately $1.5 million for the early extinguishment of debt, which included $1.9 million in unamortized offering costs included in interest expense, offset by $0.4 million gain on redemption included in other gain (loss) on our consolidated statements of operations. The repurchase was accounted for under FASB No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities.” As of December 31, 2005, we had approximately $135.7 million aggregate principal amount outstanding of the 6.8% convertible senior notes due 2010.

      The 5.75% subordinated debentures due March 1, 2012 require semi-annual interest payments and annual sinking fund payments of $5.0 million or repurchases of $5.0 million in principal amount of debentures in lieu of sinking fund payments. The debentures are subordinated in right to payment to all senior indebtedness.

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      We have agreed to invest $200 million over a 5 year period beginning 2004 to establish a manufacturing facility in Suzhou, China, and we have utilized credit lines with the Bank of China for the construction and working capital requirements of this operation. The remainder of our commitment will be satisfied primarily with the transfer of manufacturing assets from Singapore or from our other manufacturing site. MTS has drawn down $60 million as of December 31, 2005. MTS is required to maintain a maximum liability to assets ratio (tested annually in December of each year) and minimum earnings to interest expense ratio (tested annually commencing in December 2005). MTS was in compliance with all covenants as of December 31, 2005. We do not expect to request further loans under this facility.

Recent Accounting Pronouncements

      In December 2004, the FASB issued SFAS No. 123(R), “Share-Based Payment” (“SFAS 123(R)”), which is a revision of SFAS 123, “Accounting for Stock Compensation” (“SFAS 123”), and supersedes APBO 25, and its related implementation guidance. SFAS 123(R) clarifies and expands SFAS 123’s guidance in several areas, including measuring fair value, classifying an award as equity or as a liability, and attributing compensation cost to reporting periods. Additionally, SFAS 123(R) amends FASB Statement No. 95, “Statement of Cash Flows,” to require that excess tax benefits be reported as a financing cash inflow rather than as reduction of taxes paid. Beginning with the Company’s first quarter of fiscal year 2006, it will be required to adopt SFAS 123(R), and will recognize share-based compensation costs in its results of operations. The Company currently provides pro forma disclosures under SFAS 123 reflecting the effects of share-based compensation costs on its results of operations in its notes to consolidated financial statements. See Note 1, Summary of Significant Accounting Policies — Stock-Based Compensation. Although such pro forma effects of applying SFAS 123 may be indicative of the effects of adopting SFAS 123(R), the provisions of these two statements differ in some important respects. The actual effects of adopting SFAS 123(R) will be dependent on numerous factors including, but not limited to, levels of share-based payments granted in the future and the timing thereof; the valuation model chosen by the Company to value stock-based awards; the assumed award forfeiture rate; the accounting policies adopted concerning the method of recognizing the fair value of awards over the service period; and the transition method chosen for adopting SFAS 123(R), which permits public companies to adopt its requirements using various methods, including the “modified prospective application method” and the “modified retrospective application method.” The Company plans to adopt SFAS 123(R) using the modified prospective application method. The Company expects that the adoption of SFAS 123(R) will have a material impact on its results of operations subsequent to adoption.

      In March 2005, the FASB issued Interpretation No. 47, “Accounting for Conditional Asset Retirement Obligations — an interpretation of FASB Statement No. 143” (“FIN 47”). FIN 47 clarifies that the term conditional asset retirement obligation as used in FASB Statement No. 143, “Accounting for Asset Retirement Obligations,” refers to a legal obligation to perform an asset retirement activity in which the timing and (or) method of settlement are conditional on a future event that may or may not be within the control of the entity. The obligation to perform the asset retirement activity is unconditional even though uncertainty exists about the timing and (or) method of settlement. Thus, the timing and (or) method of settlement may be conditional on a future event. Accordingly, an entity is required to recognize a liability for the fair value of a conditional asset retirement obligation if the fair value of the liability can be reasonably estimated. This Interpretation is effective no later than the end of fiscal years ending after December 15, 2005. The adoption of FIN 47 did not have a material impact on the Company’s financial position or results of operations.

      In May 2005, the FASB issued SFAS No. 154, “Accounting Changes and Error Corrections” (“SFAS 154”) which replaces Accounting Principles Board Opinions No. 20 “Accounting Changes” and SFAS No. 3, “Reporting Accounting Changes in Interim Financial Statements — An Amendment of APB Opinion No. 28.” SFAS 154 provides guidance on the accounting for and reporting of accounting changes and error corrections. It establishes retrospective application, or the latest practicable date, as the required method for reporting a change in accounting principle and the reporting of a correction of an error. SFAS 154 is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005 and is required to be adopted by the Company in the first quarter of fiscal 2006. The Company is currently evaluating the effect that the adoption of SFAS 154 will have on its consolidated results of operations and financial condition but does not expect it to have a material impact.

54

      In June 2005, the FASB issued final FSP FAS 143-1, “Accounting for Electronic Equipment Waste Obligations” (“FSP FAS 143-1”) to address the accounting for obligations associated with the European Union’s Directive 2002/96/ EC on Waste Electrical and Electronic Equipment (the “Directive”). The Directive, enacted in 2003, requires EU-member countries to adopt legislation to regulate the collection, treatment, recovery and environmentally sound disposal of electrical and electronic waste equipment. The Directive distinguishes between products put on the market after August 13, 2005 (“new waste”) and products put on the market on or before that date (“historical waste”). The FSP FAS 143-1 addresses the accounting for historical waste only and will be applied the later of the first reporting period ending after June 8, 2005 or the date of the adoption of the law by the applicable EU-member country. The adoption of FSP FAS 143-1 did not have a material impact on the Company’s financial position or results of operations.

      In September 2005, the Financial Accounting Standards Board (“FASB”) ratified Emerging Issues Task Force Issue No. 04-13, “Accounting for Purchases and Sales of Inventory with the Same Counterparty” (“EITF 04-13”). EITF 04-13 discusses whether inventory purchase and sales transactions with the same counterparty that are entered into in contemplation of one another should be combined and treated as a nonmonetary exchange and addresses (a) under what circumstances should two or more transactions with the same counterparty (counterparties) be viewed as a single nonmonetary transaction within the scope of APB Opinion No. 29, “Accounting for Nonmonetary Transactions” (“APB 29”) and Financial Accounting Standard No. 153, “Exchanges of Nonmonetary Assets, an Amendment of APB 29” (“FAS 153”) and (b) if nonmonetary transactions within the scope of APB 29 and FAS 153 involve inventory, are there any circumstances under which the transactions should be recognized at fair value. The pronouncement is effective for new inventory arrangements entered into, or modifications or renewals of existing inventory arrangements occurring in interim or annual reporting periods beginning after March 15, 2006. The Company does not expect that this pronouncement will have a material effect on its financial statements.

      In October 2005, the FASB issued FSP FAS 13-1, “Accounting for Rental Costs Incurred During a Construction Period” (“FSP FAS 13-1”) which requires companies to expense rental costs associated with ground or building operating leases that are incurred during the construction period. FSP FAS 13-1 is effective in the first reporting period beginning after December 15, 2005. The Company does not expect that this pronouncement will have a material effect on its financial statements.

55

SUPPLEMENTAL FINANCIAL INFORMATION

Unaudited Quarterly Results of Operations

	Three Months Ended
	March 27,		June 26,			September 25,			December 25,			April 2,			July 2,		October 1,			December 31,
	2004(1)		2004(1)(2)			2004(1)			2004(1)(3)(4)			2005(1)			2005		2005			2005
	(In thousands, except share and per share amounts)
Net revenues	$	1,019,688	$	818,254		$	927,204		$	1,031,182		$	1,069,601		$	924,729	$	926,485		$	969,422
Gross profit		153,760		72,483			58,221			82,703			116,404			121,793		102,877			89,839
Net income (loss)	$	8,730	$	(26,451	)	$	(95,146	)	$	(70,572	)	$	(20,161	)	$	9,444	$	(16,950	)	$	(15,665	)
Net income (loss) per share:
Basic	$	0.04	$	(0.11	)	$	(0.38	)	$	(0.28	)	$	(0.08	)	$	0.04	$	(0.07	)	$	(0.06	)
Diluted	$	0.03	$	(0.11	)	$	(0.38	)	$	(0.28	)	$	(0.08	)	$	0.04	$	(0.07	)	$	(0.06	)
Shares used in per share calculation:
Basic		246,590,255		247,367,176			248,728,113			250,026,784			251,595,181			253,310,023		253,668,613			254,114,823
Diluted		256,960,154		247,367,176			248,728,113			250,026,784			251,595,181			255,543,219		253,668,613			254,114,823

(1)	Certain items previously reported in specific financial statement captions have been reclassified to conform to the year ended December 31, 2005 presentation.
(2)	On April 28, 2004, in connection with our suit against Koninklijke Philips Electronics N.V. and several other Philips-related companies in the Superior Court of California, County of Santa Clara whereby the Company alleged that an integrated circuit chip supplied by Philips was defective and caused significant levels of failure of certain Quantum legacy products acquired as part of our acquisition of the Quantum HDD business, we entered into a settlement agreement with the other parties pursuant to which the parties dismissed the lawsuit with prejudice and the Company received a cash payment of $24.8 million, which was recorded as litigation settlement income in fiscal year 2004.
(3)	The Company completed its impairment analysis of indefinite lived intangible assets as of December 25, 2004 and as a result recorded an impairment charge of $24.2 million related to acquired intangibles from the acquisition of the Quantum HDD business.
(4)	During the year ended December 25, 2004, the Company classified a building owned by Maxtor in Louisville, Colorado as held for sale in accordance with the requirements of SFAS 144, resulting in an impairment charge of $7.8 million.

56

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Derivatives

      We enter into foreign exchange forward contracts to manage foreign currency exchange risk associated with our operations primarily in Singapore and Switzerland. The foreign exchange forward contracts we enter into generally have original maturities ranging from one to three months. We do not enter into foreign exchange forward contracts for trading purposes. We do not expect gains or losses on these contracts to have a material impact on our financial results. At December 31, 2005, we had no outstanding foreign exchange forward contracts.

Investments

      We maintain an investment portfolio of various holdings, types and maturities. We limit the amount of credit exposure to any one financial institution and restrict placement of these funds to financial institutions evaluated as highly credit worthy. These marketable securities are generally classified as available for sale and, consequently, are recorded on the balance sheet at fair value with unrealized gains or losses reported as a separate component of accumulated other comprehensive income. Part of this portfolio includes investments in bank issues, corporate bonds and commercial papers. For additional information, see Note 1 of the Notes to Consolidated Financial Statements.

      The following table presents the hypothetical changes in fair values in the financial instruments held at December 31, 2005 and December 25, 2004 that are sensitive to changes in interest rates. These instruments are not leveraged and are held for purposes other than trading. The hypothetical changes assume immediate shifts in the U.S. Treasury yield curve of plus or minus 50 basis points (“bps”), 100 bps, and 150 bps.

										Fair Value
										as of
										December 31,
	+150 bps			+100 bps			+50 bps			2005		-50 bps			-100 bps			-150 bps
	($000)
Financial Instruments	$	67,350		$	67,475		$	67,597		$	67,722	$	67,846		$	67,975		$	68,100
% Change		(0.55	)%		(0.36	)%		(0.18	)%				0.18	%		0.37	%		0.56	%

										Fair Value
										as of
										December 25,
	+150 bps			+100 bps			+50 bps			2004		-50 bps			-100 bps			-150 bps
	($000)
Financial Instruments	$	102,806		$	103,192		$	103,578		$	103,969	$	104,359		$	104,761		$	105,158
% Change		(1.12	)%		(0.75	)%		(0.38	)%				0.38	%		0.76	%		1.14	%

      We are exposed to certain equity price risks on our investments in equity securities. These equity securities are held for purposes other than trading. As of December 31, 2005, the fair market value of these equity securities was $2.2 million. The following table presents the hypothetical changes in fair value of the public equity investments that are sensitive to changes in the stock market as of December 31, 2005 and December 25, 2004. The modeling technique used measures the hypothetical change in fair value arising from selected hypothetical changes in the stock price. Stock price fluctuations of plus or minus 15 percent, plus or minus 25 percent, and plus or minus 50 percent were selected based on the probability of their occurrence. This estimate is not necessarily indicative of future performance, and actual results may differ. As of

57

January 6, 2006, we had liquidated our remaining equity securities and thus are no longer exposed to fluctuations in fair market value of these equity securities investments.

										Fair Value
										as of
	Valuation of Security Given X%									December 31,		Valuation of Security Given X%
	Decrease in the Security Price									2005		Increase in the Security Price
	($000)
Corporate equity investments	$	1,100		$	1,650		$	1,870		$	2,200	$	2,530		$	2,750		$	3,300
% Change		(50	)%		(25	)%		(15	)%				15	%		25	%		50	%

										Fair Value
										as of
	Valuation of Security Given X%									December 25,		Valuation of Security Given X%
	Decrease in the Security Price									2004		Increase in the Security Price
	($000)
Corporate equity investments	$	5,021		$	7,532		$	8,536		$	10,042	$	11,548		$	12,553		$	15,063
% Change		(50	)%		(25	)%		(15	)%				15	%		25	%		50	%

58

Item 8. Consolidated Financial Statements and Supplementary Data

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

	Page
Consolidated Financial Statements of Maxtor Corporation
Consolidated Balance Sheets — December 25, 2004 and December 31, 2005		60
Consolidated Statements of Operations — Fiscal years ended December 27, 2003, December 25, 2004 and December 31, 2005		61
Consolidated Statements of Stockholders’ Equity — Fiscal years ended December 27, 2003, December 25, 2004 and December 31, 2005		62
Consolidated Statements of Cash Flows — Fiscal years ended December 27, 2003, December 25, 2004 and December 31, 2005		63
Notes to Consolidated Financial Statements		64
Report of Independent Registered Public Accounting Firm		100

      Financial Statement Schedule:

      The following consolidated financial statement schedule of Maxtor Corporation is filed as part of this Report and should be read in conjunction with the Consolidated Financial Statements of Maxtor Corporation:

Schedule II Valuation and Qualifying Accounts 107

      Schedules not listed above have been omitted since they are not applicable or are not required or the information required to be set therein is included in the Consolidated Financial Statements or notes thereto.

59

MAXTOR CORPORATION

CONSOLIDATED BALANCE SHEETS

			December 25,			December 31,
			2004			2005
			(In thousands, except share and
			per share amounts)
ASSETS
Current assets:
	Cash and cash equivalents		$	378,065		$	497,509
	Marketable securities			103,969			67,722
	Restricted cash			24,561			16,055
	Accounts receivable, net of allowance of doubtful accounts of $8,228 at December 25, 2004 and $12,961 at December 31, 2005			425,528			396,077
	Other receivables			40,838			21,904
	Inventories			229,410			240,462
	Prepaid expenses and other			36,336			89,813
		Total current assets		1,238,707			1,329,542
Property, plant and equipment, net				347,934			335,336
Goodwill				489,482			489,482
Other intangible assets, net				1,450			580
Other assets				30,168			22,832
		Total assets	$	2,107,741		$	2,177,772
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
	Short-term borrowings, including current portion of long-term debt		$	82,561		$	5,868
	Accounts payable			674,947			677,288
	Accrued and other liabilities			324,369			300,758
		Total current liabilities		1,081,877			983,914
Long-term debt, net of current portion				382,570			575,773
Other liabilities				66,695			65,113
		Total liabilities		1,531,142			1,624,800
Commitments and contingencies (Note 9)
Stockholders’ equity:
	Preferred stock, $0.01 par value, 95,000,000 shares authorized; no shares issued or outstanding			—			—
	Common stock, $0.01 par value, 525,000,000 shares authorized; 263,413,578 shares issued and 250,167,840 shares outstanding at December 25, 2004 and 269,542,593 shares issued and 256,293,975 shares outstanding at December 31, 2005			2,634			2,695
Additional paid-in capital				2,429,551			2,451,946
Deferred stock-based compensation				—			—
Accumulated deficit				(1,795,183	)		(1,838,515	)
Cumulative other comprehensive income				4,536			1,795
Treasury stock (13,245,738 and 13,248,618 shares at December 25, 2004 and December 31, 2005, respectively) at cost				(64,939	)		(64,949	)
		Total stockholders’ equity		576,599			552,972
		Total liabilities and stockholders’ equity	$	2,107,741		$	2,177,772

The accompanying notes are an integral part of these financial statements.

60

MAXTOR CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

			Years Ended
			December 27,			December 25,			December 31,
			2003			2004			2005
			(In thousands, except share and per share amounts)
Net revenues			$	4,086,443		$	3,796,328		$	3,890,237
Cost of revenues				3,390,556			3,429,161			3,459,324
	Gross profit			695,887			367,167			430,913
Operating expenses:
	Research and development			348,421			317,573			293,559
	Selling, general and administrative			134,185			130,456			144,480
	Amortization of intangible assets			85,279			35,994			870
	Restructuring charges			—			33,197			18,625
	Impairment charges			—			31,951			—
		Total operating expenses		567,885			549,171			457,534
Income (loss) from operations				128,002			(182,004	)		(26,621	)
Interest expense				(30,144	)		(31,782	)		(34,384	)
Interest income				5,160			5,255			11,928
Income from litigation				—			24,750			—
Other gain (loss)				(613	)		81			7,898
Income (loss) from continuing operations before income taxes				102,405			(183,700	)		(41,179	)
Provision for (benefit from) income taxes				3,504			(261	)		2,153
Income (loss) from continuing operations				98,901			(183,439	)		(43,332	)
Income from discontinued operations				2,211			—			—
Net income (loss)			$	101,112		$	(183,439	)	$	(43,332	)
Net income (loss) per share — basic
Continuing operations			$	0.41		$	(0.74	)	$	(0.17	)
Discontinued operations			$	0.01		$	—		$	—
Total			$	0.42		$	(0.74	)	$	(0.17	)
Net income (loss) per share — diluted
Continuing operations			$	0.39		$	(0.74	)	$	(0.17	)
Discontinued operations			$	0.01		$	—		$	—
Total			$	0.40		$	(0.74	)	$	(0.17	)
Shares used in per share calculation
	— basic			243,022,694			247,671,870			253,177,580
	— diluted			251,135,683			247,671,870			253,177,580

The accompanying notes are an integral part of these financial statements.

61

MAXTOR CORPORATION

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

															Cumulative
		Common Stock				Additional			Deferred						Other						Total			Comprehensive
						Paid-In			Stock-Based			Accumulated			Comprehensive			Treasury			Stockholders’			Income
		Shares		Amount		Capital			Compensation			Deficit			Income			Stock			Equity			(Loss)
		(In thousands, except share amounts)
Balance, December 28, 2002			247,507,244	$	2,475	$	2,349,253		$	(1,193	)	$	(1,712,856	)	$	2,377		$	(20,000	)	$	620,056
Net income			—		—		—			—			101,112			—			—			101,112		$	101,112
Unrealized gain on investments in marketable debt and equity securities			—		—		—			—			—			8,427			—			8,427			8,427
	Comprehensive income																							$	109,539
Issuance of stock
Under stock option plan and related benefit plans			11,739,575		117		60,989			—			—			—			—			61,106
Stock-based compensation			—		—		(160	)		1,083			—			—			—			923
Treasury shares repurchased at cost			—		—		—			—			—			—			(44,939	)		(44,939	)
Balance, December 27, 2003			259,246,819		2,592		2,410,082			(110	)		(1,611,744	)		10,804			(64,939	)		746,685
Net loss			—		—		—			—			(183,439	)		—			—			(183,439	)	$	(183,439	)
Unrealized loss on investments in marketable debt and equity securities			—		—		—			—			—			(6,268	)		—			(6,268	)		(6,268	)
	Comprehensive loss																							$	(189,707	)
Issuance of stock under stock option plan and related benefit plans			4,166,759		42		19,343			—			—			—			—			19,385
Stock-based compensation			—		—		126			110			—			—			—			236
Balance, December 25, 2004			263,413,578		2,634		2,429,551			—			(1,795,183	)		4,536			(64,939	)		576,599
Net loss			—		—		—			—			(43,332	)		—			—			(43,332	)	$	(43,332	)
Unrealized loss on investments in marketable debt and equity securities			—		—		—			—			—			(2,741	)		—			(2,741	)		(2,741	)
	Comprehensive loss																							$	(46,073	)
Issuance of stock under stock option plan and related benefit plans			6,129,015		61		22,088			—			—			—			—			22,149
Stock-based compensation			—		—		307			—			—			—			—			307
Treasury shares, repurchased at cost			—		—		—			—			—			—			(10	)		(10	)
Balance, December 31, 2005			269,542,593	$	2,695	$	2,451,946		$	—		$	(1,838,515	)	$	1,795		$	(64,949	)	$	552,972

The accompanying notes are an integral part of these financial statements.

62

MAXTOR CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

				Years Ended
				December 27,			December 25,			December 31,
				2003			2004			2005
				(In thousands)
Cash Flows from Operating Activities:
Net income (loss) from continuing operations				$	98,901		$	(183,439	)	$	(43,332	)
Adjustments to reconcile net income (loss) from continuing operations to net cash provided by (used in) operating activities:
	Depreciation and amortization				156,639			146,020			152,669
	Amortization of intangible assets				85,279			35,994			870
	Amortization of bond issuance costs				691			1,045			439
	Write-off of unamortized issuance cost on convertible senior notes repurchase				—			—			1,875
	Intangible asset impairment				—			24,175			—
	Stock-based compensation expense				923			236			307
	Restructuring charge, net				—			24,502			18,625
	Loss on sale of property, plant and equipment				3,235			1,729			1,010
	Impairment of long-lived asset held for sale				—			7,776			—
	Loss on program cancellation				—			780			477
	Gain on retirement of bond				(163	)		—			(434	)
	Loss on redemption of pro rata portion of Quantum Corporation’s bond				951			—			—
	Gain on sale of equity investments				—			—			(1,913	)
	Other				—			—			376
	Change in assets and liabilities:
		Accounts receivable			(216,068	)		115,415			29,451
		Other receivables			825			(2,874	)		18,934
		Inventories			(42,466	)		(11,399	)		(11,052	)
		Prepaid expenses and other assets			10,667			10,475			(58,007	)
		Accounts payable			89,040			(54,021	)		(11,850	)
		Accrued and other liabilities			(28,389	)		(120,810	)		(43,801	)
			Net cash provided by (used in) operating activities from continuing operations		160,065			(4,396	)		54,644
			Net cash used in discontinued operations		(7,948	)		(798	)		—
			Net cash provided by (used in) operating activities		152,117			(5,194	)		54,644
Cash Flows from Investing Activities:
Proceeds from sale of property, plant and equipment					348			755			25,229
Purchase of property, plant and equipment					(131,876	)		(171,579	)		(160,850	)
Change in restricted assets					19,593			(8,983	)		26,605
Maturities and sales of marketable securities					55,953			57,969			93,704
Purchase of marketable securities					(56,911	)		(77,113	)		(57,597	)
Proceeds from sale of equity investments					—			—			6,777
			Net cash used in investing activities		(112,893	)		(198,951	)		(66,132	)
Cash Flows from Financing Activities:
Proceeds from issuance of debt, including short-term borrowings					259,428			54,655			—
Borrowings under convertible senior notes, net of issuance costs					—			—			317,849
Principal payments of debt including short-term borrowings					(107,148	)		(6,686	)		(27,428	)
Repayment of mortgages					(1,445	)		(1,582	)		(32,582	)
Repurchase of convertible senior notes					—			—			(93,837	)
Principal payments under capital lease obligations					(29,677	)		(14,126	)		(5,209	)
Purchase of treasury stock at cost					(44,939	)		—			(10	)
Net proceeds from receivable-backed borrowing					47,823			49,748			—
Repayment of receivable-backed borrowing					—			(50,000	)		(50,000	)
Proceeds from issuance of common stock from employee stock purchase plan and stock options exercised					61,106			19,385			22,149
			Net cash provided by financing activities		185,148			51,394			130,932
Net change in cash and cash equivalents					224,372			(152,751	)		119,444
Cash and cash equivalents at beginning of year					306,444			530,816			378,065
Cash and cash equivalents at end of year				$	530,816		$	378,065		$	497,509
Supplemental Disclosures of Cash Flow Information:
	Cash paid during the period for:
		Interest		$	28,805		$	28,154		$	20,980
		Income taxes		$	1,628		$	3,685		$	1,853
Schedule of Non-Cash Investing and Financing Activities:
	Purchase of property, plant and equipment financed by accounts payable			$	5,868		$	4,780		$	18,971
	Retirement of debt in exchange for bond redemption			$	5,000		$	5,000		$	5,000
	Change in unrealized gain (loss) on investments			$	8,427		$	(6,268	)	$	(2,741	)
	Purchase of property, plant and equipment financed by capital lease obligations			$	7,373		$	24		$	—

The accompanying notes are an integral part of these financial statements.

63

MAXTOR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Description of Business and Summary of Significant Accounting Policies

Description of Business

      Maxtor Corporation (“the Company” or “Maxtor”) is a supplier of hard disk drives for desktop, enterprise and consumer electronics applications. The Company sells products directly to leading manufacturers of desktop computer and server systems and consumer electronics devices, through key distributors and through the retail channel.

Basis of Presentation

      The accompanying consolidated financial statements include the accounts of Maxtor and its wholly-owned subsidiaries. All inter-company accounts and transactions have been eliminated.

      The Company shut down its Network Systems Group (“NSG”) in 2002. Accordingly, the Company’s financial statements have been presented to reflect NSG as a discontinued operation for all periods presented. Its operating results have been segregated and reported as discontinued operations in the accompanying consolidated statements of operations for the year ended December 27, 2003.

Fiscal Years

      The Company operates and reports financial results on a fiscal year of 52 or 53 weeks ending on the last Saturday of December in each year. Accordingly, fiscal year 2005 ended on December 31, 2005, fiscal year 2004 ended on December 25, 2004 and fiscal year 2003 ended on December 27, 2003. Fiscal year 2005 comprised 53 weeks and fiscal years 2003 and 2002 each comprised 52 weeks. All references to years in these Notes to Consolidated Financial Statements represent fiscal years unless otherwise noted.

Use of Estimates

      The preparation of consolidated financial statements in conformity with generally accepted accounting principles in the United States requires management to make estimates and assumptions that affect the amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and reported amounts of revenues and expenses during the reporting periods. Actual results may differ from those estimates and such differences could be material.

Cash and Cash Equivalents

      The Company considers all highly liquid investments with an original maturity of three months or less at time of purchase to be cash equivalents except restricted cash. Cash and cash equivalents include money market accounts, commercial paper and various deposit accounts. The carrying amount of cash and cash equivalents approximates fair value due to the short-term maturity of those assets.

Restricted Cash

      The Company’s restricted cash balance was $16.1 million at December 31, 2005. The total restricted amount was pledged as collateral for certain stand-by letters of credit issued by commercial banks. These amounts are reported in the Company’s consolidated balance sheets as current based on timing of when the cash and marketable securities can be contractually released.

Marketable Debt and Equity Securities

      The Company classifies its debt and equity investments as “available for sale” and records the available for sale investments at estimated fair value. Fair values are determined based on quoted market prices or pricing models using current market rates. The Company deems these investments to be available to meet

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MAXTOR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

current working capital requirements. Realized gains and losses on sales of all such investments are reported within the caption of “other gain (loss)” in the consolidated results of operations and computed using the specific identification method. Unrealized gains and losses on available-for-sale investments are reported as a separate component of stockholders’ equity. Gross realized gains and losses on sales of debt investments were not material in each year of the three-year period ended December 27, 2003, December 25, 2004 and December 31, 2005.

      The following is a summary of the Company’s investments (in thousands):

		December 25, 2004								December 31, 2005
				Accumulated								Accumulated
				Other								Other
		Amortized		Comprehensive				Estimated		Amortized		Comprehensive				Estimated
		Cost		Gains		Losses		Fair Value		Cost		Gains		Losses		Fair Value
Debt Investments:
	U.S. Treasury securities and obligations of U.S. government agencies	$	72,899	$	—	$	435	$	72,464	$	51,118	$	—	$	272	$	50,846
	U.S. corporate debt securities		21,734		—		39		21,695		9,221		—		16		9,205
	Asset backed securities		9,862		—		52		9,810		7,713		—		42		7,671
Mutual Funds			—		—		—		—		4,288		40		—		4,328
Money Market Funds			—		—		—		—		727		—		—		727
Investments in Equity Securities			4,980		5,062		—		10,042		115		2,085		—		2,200
Total Investments		$	109,475	$	5,062	$	526	$	114,011	$	73,182	$	2,125	$	330	$	74,977

      The following is a reconciliation of the Company’s investments to the balance sheet classifications at the end of fiscal years 2004 and 2005 (in thousands):

	2004		2005
Marketable securities	$	103,969	$	67,722
Investments in equity securities		10,042		2,200
Deferred compensation plan		—		5,055
Investments, at estimated fair value	$	114,011	$	74,977

      The mutual funds and money market funds represent assets of the deferred compensation plan which was included within the captions, “Other assets” and “Other liabilities” of the consolidated balance sheets. Investments in equity securities are included within the caption, “Prepaid expenses and other” of the consolidated balance sheets.

      The gross amortized cost and estimated fair value of the Company’s debt investments at December 31, 2005 by contractual maturity are shown below. Expected maturities will differ from contractual maturities because the issuers of the securities may have the right to prepay obligations without prepayment penalties.

	Gross
	Amortized		Fair
	Cost		Value
	(In thousands)
Due in one year or less	$	65,989	$	65,676
Due after one year through five years		2,063		2,046
	$	68,052	$	67,722

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MAXTOR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      The following table provides the breakdown of the Company’s short-term investments with unrealized losses at December 31, 2005 (in thousands):

		In Loss Position for				In Loss Position for
		Less Than 12 Months				More Than 12 Months				Total
				Gross				Gross				Gross
		Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
		Value		Losses		Value		Losses		Value		Losses
Debt Investments:
	U.S. Treasury securities and obligations of U.S. government agencies	$	48,800	$	255	$	2,046	$	17	$	50,846	$	272
	U.S. corporate debt securities		9,205		16		—		—		9,205		16
	Asset backed securities		7,671		42		—		—		7,671		42
Total Investments		$	65,676	$	313	$	2,046	$	17	$	67,722	$	330

      The Company reviews its investment portfolio monthly to identify and evaluate investments that have indications of possible impairment. Factors considered in determining whether a loss is temporary include credit quality and the Company’s ability and intent to hold the investment for a period of time sufficient to allow for any anticipated recovery in market value. If the credit quality of the investment does not meet the credit quality requirements of the Company’s investment policy, the Company will also consider additional factors such as the length of time and extent to which fair value has been less than the cost basis and the financial condition and near-term prospects of the investee. The gross unrealized losses associated with cash equivalents and short-term investments were primarily caused by an increase in interest rates during 2005. The Company has determined that the gross unrealized losses on cash equivalents and short-term investments at December 31, 2005 are temporary in nature because each investment meets the credit quality requirements of the Company’s investment policy and because the Company has the ability and the intent to hold these investments until they recover their unrealized losses, which may be until maturity.

Allowances for Bad Debts

      The Company maintains an allowance for uncollectible accounts receivable based upon expected collectibility. This reserve is established based upon historical trends, current economic conditions and an analysis of specific exposures.

Inventories

      Inventories are stated at the lower of cost (computed on a first-in, first-out basis) or market. The Company writes down its inventory for estimated obsolescence or excess inventory equal to the difference between the cost of inventory and the estimated market value based upon assumptions about future demand and market conditions.

Long-Lived Assets Held for Sale

      Long-lived assets are classified as held for sale when certain criteria are met, which include: management commitment to sell the assets; the availability of the assets for immediate sale in their present condition; an active program to locate buyers and other actions to sell the assets had been initiated and whether the sale of the asset is probable and their transfer is expected to qualify for recognition as a completed sale within one year.

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MAXTOR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      The Company measures long-lived assets to be disposed of by sale at the lower of the carrying amount or fair value less cost to sell. Fair value is determined using quoted market prices or the undiscounted anticipated cash flows.

Property, Plant and Equipment

      Property, plant and equipment are stated at cost and depreciated on a straight-line basis over the estimated useful lives of the assets, which generally range from three to five years, except for buildings, which are depreciated over thirty years. Assets under leasehold improvements are amortized over the shorter of the asset life or the remaining lease term. Upon disposal, the Company removes the asset and related accumulated depreciation from its records and recognizes the related gain or loss in results of operations.

      Repair and maintenance expenditures, which are not considered improvements and do not extend the useful life of property, plant and equipment, are expensed as incurred.

Goodwill and Other Intangible Assets

      Goodwill represents the excess of purchase price and acquisition costs over the fair value of net assets of businesses acquired. Other intangible assets represent existing technology amortized over their estimated useful lives ranging from three to five years. The Company reevaluates the periods of amortization continually to determine whether events and circumstances warrant renewed estimates of useful lives.

Impairment of Long-lived Assets, including Goodwill and Other Intangibles

      The Company assesses the impairment of its long-lived assets and other identifiable intangibles periodically in accordance with the provisions of Statement of Financial Accounting Standards No. 144, “Accounting for the Impairment and Disposal of Long-Lived Assets” (“SFAS 144”). The Company assesses the fair value of the assets based on the undiscounted future cash flow the assets are expected to generate and recognizes an impairment loss when estimated undiscounted future cash flow expected to result from the use of the asset plus net proceeds expected from disposition of the asset, if any, are less than the carrying value of the asset. When the Company identifies an impairment, the Company reduces the carrying amount of the asset to its estimated fair value based on a discounted cash flow approach or, when available and appropriate, to comparable market values.

      The Company also assesses the impairment of enterprise level goodwill in accordance with the provision of Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets” (“SFAS 142”). SFAS 142 prescribes a two-step process for impairment testing of goodwill. The first step, used to identify potential impairment, compares the fair value of a reporting unit with its carrying amount, including goodwill. An impairment review is performed annually or whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Factors considered important which could result in an impairment review include but are not limited to, significant underperformance relative to expected historical or projected future operating results, undiscounted cash flows are less than the carrying value, significant changes in the manner of use of the acquired assets or the strategy for the Company’s overall business, significant negative industry or economic trends, a significant decline in our stock price for a sustained period, and the Company’s market capitalization relative to net book value. The second step (if necessary,) measures the amount of impairment loss by comparing the implied fair value of reporting unit goodwill with the carrying amount of that goodwill. If the Company determines that the carrying value of goodwill may not be recoverable based upon the existence of one or more of the above indicators of impairment, the Company will measure any impairment based on the projected discounted cash flow method using a discount rate commensurate with the risk inherent to the Company’s current business model.

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MAXTOR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Product Warranty

      The Company generally warrants its products against defects in materials and workmanship for varying lengths of time. The Company records an accrual for estimated warranty costs when revenue is recognized. Warranty covers cost of repair or replacement of the hard drive and the warranty periods generally range from one to five years. The Company has comprehensive processes that it uses to estimate accruals for warranty exposure. The processes include specific detail on hard drives in the field by product type, estimated failure rates and costs to repair or replace. Although the Company believes it has the continued ability to reasonably estimate warranty expenses, unforeseeable changes in factors used to estimate the accrual for warranty could occur. These unforeseeable changes could cause a material change in the Company’s warranty accrual estimate. Such a change would be recorded in the period in which the change was identified.

      Effective September 2004, the Company announced the introduction of a new warranty period for sales commencing in September 2004 extending the term to three or five years for certain products shipped to the distribution channel. Consistent with the Company’s existing accounting policies relating to product warranties, the Company revised its estimate of product warranties for sales made after the institution of the new warranty period to reflect this new warranty period, which was reflected in its results reported for the year ended December 25, 2004.

Restructuring Liabilities, Litigation and Other Contingencies

      The Company accounts for its restructuring liabilities in connection with business combinations in accordance with Emerging Issues Task Force No. 95-3, “Recognition of Liabilities in Connection with a Purchase Business Combination” (“EITF 95-3”). EITF 95-3 requires that the Company record an estimated liability if the estimated costs are not associated with or are not incurred to generate revenues of the combined entity after the consummation date and they meet certain criteria defined within EITF 95-3. The Company accounts for its restructuring plans initiated after December 31, 2002 under Statement of Financial Accounting Standards No. 146, “Accounting for Costs Associated with Exist or Disposal Activities” (“SFAS 146”). The Company accounted for restructuring plans initiated in 2002 in accordance with Emerging Issues Task Force No. 94-3 (“EITF 94-3”), “Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring),” which requires the Company to record the liability resulting from estimated costs that are not associated with or do not benefit activities that will be continued. The Company accounts for litigation and contingencies in accordance with Statement of Financial Accounting Standard No. 5 (“SFAS 5”), “Accounting for Contingencies.” SFAS 5 requires that the Company record an estimated loss from a loss contingency when information available prior to issuance of the Company’s financial statements indicates that it is probable that an asset has been impaired or a liability has been incurred at the date of the financial statements and the amount of loss can be reasonably estimated.

Foreign Currency Translation

      The functional currency for all foreign operations is the U.S. dollar. As such, all material foreign exchange gains or losses are included in the determination of net income (loss). Net foreign exchange losses included in net income (loss) for the fiscal years ended December 27, 2003, December 25, 2004, and December 31, 2005 were immaterial.

Foreign Exchange Contracts

      Although the majority of the Company’s transactions are in U.S. dollars, the Company enters into currency forward contracts to manage foreign currency exchange risk associated with its operations primarily in Singapore dollars, Japanese Yen, and the Euro. The Company purchases short-term, forward exchange contracts to hedge the impact of foreign currency fluctuations on certain underlying assets, liabilities and

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MAXTOR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

commitments for operating expenses denominated in foreign currencies. The purpose of entering into these hedge transactions is to minimize the impact of foreign currency fluctuations on the results of operations. A majority of the increases or decreases in the Company’s local currency operating expenses are offset by gains and losses on the hedges. The contracts generally have maturity dates that do not exceed three months. The Company does not purchase short-term forward exchange contracts for trading purposes. There were no outstanding forward exchange contracts as of December 25, 2004 and December 31, 2005.

      The Company accounts for derivative instruments and for hedging activities in accordance with Statement of Financial Accounting Standard No. 133 (“SFAS 133”), “Accounting for Derivative Instruments and Hedging Activities.” Since the adoption of SFAS 133, the Company has elected not to designate these forward exchange contracts as accounting hedges and any changes in fair value have been recorded in the caption, “cost of revenues,” of the consolidated statements of operations. The net foreign exchange gain (loss) recorded in the financial statements were immaterial for the years ended December 27, 2003, December 25, 2004 and December 31, 2005.

Revenue Recognition

      The Company derives its revenue from the sale of products. As described below, significant management judgments and estimates must be made and used in connection with the revenue recognized in any accounting period with respect to the amount of reserves for sales returns, allowances and doubtful accounts. Material differences may result in the amount and timing of the Company’s revenue for any period if its management made different judgments or utilized different estimates.

      In recognizing revenue in any period, the Company applies the provisions of Staff Accounting Bulletin 104, “Revenue Recognition.”

      Revenue from sales of products is recognized when persuasive evidence of an arrangement exists, including a fixed price to the buyer, delivery has occurred and collectibility is reasonably assured; this generally occurs upon shipment.

      For all sales the Company uses either a binding purchase order or signed purchase agreement as evidence of an arrangement. Sales through its distributors are evidenced by a master agreement governing the relationship together with binding purchase orders on a transaction-by-transaction basis. The Company’s arrangements do not include acceptance clauses.

      The Company assesses collection based on a number of factors, including past transaction history with the customer and the credit worthiness of the customer. The Company generally does not request collateral from its customers.

      Delivery generally occurs when product is delivered to a common carrier. Certain of the Company’s products are delivered on an FOB destination basis. The Company defers the revenue associated with these transactions until the products are delivered to the customers’ premises.

      Sales to original equipment manufacturers (“OEMs”) are subject to agreements allowing limited rights of return and sales incentive programs. Sales incentive programs are typically related to an OEM’s level of purchases. Estimated reductions to revenue for sales incentive programs are provided at the time the revenue is recorded. Returns from OEMs have not been material in any period as the Company’s principal OEM customers have adopted build-to-order manufacturing model or just-in-time inventory management processes.

      Sales to distributors and retailers (“resellers”) are subject to agreements allowing limited rights of return, price protection, sales incentive programs and advertising. These programs are generally related to a reseller’s level of sales, order size or point of sale activity. The Company provides for these programs as deductions from revenues at the time the revenue is recorded based on estimated requirements. These estimates are based

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MAXTOR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

primarily on estimated future price erosion, customer sell-through levels and program participation. Such estimates are adjusted periodically to reflect actual and anticipated experience.

      Estimated product returns are provided in accordance with Statement of Financial Accounting Standard No. 48 (“SFAS 48”), “Revenue Recognition When Right of Return Exists.” Resellers have limited rights of return which allow them to return a percentage of the prior quarter’s purchases by these resellers. Accordingly, revenue is not recognized with respect to those shipments which management estimates will be returned. The Company believes that these estimates are reasonably accurate due to the short time period during which the Company’s resellers can return products, the limitations placed on their right to make returns, the Company’s long history of conducting business directly with resellers, the nature of the Company’s historical relationships with resellers and the weekly reporting procedures through which the Company monitors inventory levels at resellers and sales to end-users.

      The Company records costs related to shipping and handling of revenue in cost of revenues for all periods presented.

Research and Development Expense

      The Company is actively engaged in basic technology and applied research programs designed to develop new products and product applications. Research and development costs are charged to operations as incurred.

Advertising Expense

      The cost of advertising is expensed as incurred. For the years ended December 27, 2003, December 25, 2004, and December 31, 2005, advertising costs totaled $2.4 million, $2.1 million and $3.3 million, respectively. Advertising and other marketing development costs incurred by the Company’s customers and funded by the Company through purchase volume rebates are accounted for as a reduction of the revenue associated with such customers.

Accounting for Income Taxes

      The Company accounts for income taxes under the liability method. Under the liability method, deferred tax assets and liabilities are determined based on differences between financial reporting and tax basis of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. The Company is required to adjust its deferred tax assets and liabilities in the period when tax rates or the provisions of the income tax laws change. Valuation allowances are established to reduce deferred tax assets to the amounts expected to be realized.

Stock-Based Compensation

      In December 2004, the Financial Accounting Standards Board issued Statement of Financial Accounting Standard No. 123, “Share-Based Payment (Revised 2004)” (“SFAS 123(R)”). SFAS 123(R) requires the Company to measure all employee stock-based compensation awards using a fair value based method and record such expense in its consolidated financial statements if the requisite service to earn the award is provided. Until the Company adopts SFAS 123(R) in the first quarter of fiscal 2006, the Company will continue to use the intrinsic value method for its stock option plans under APB Opinion No. 25, “Accounting for Stock Issued to Employees” (“APBO 25”), and related interpretations in accounting for employee stock options. The alternative fair-value accounting methods provided under SFAS 123 require the use of option valuation models, such as the Black-Scholes option-pricing model used by the Company.

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MAXTOR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      The pro forma information under SFAS 123, as amended by Statement of Financial Accounting Standard No. 148, “Accounting for Stock-Based Compensation — Transition and Disclosure — an amendment of SFAS 123” (“SFAS 148”) is as follows (in thousands, except per share data):

		Years Ended
		December 27,		December 25,			December 31,
		2003		2004			2005
Net income (loss), as reported		$	101,112	$	(183,439	)	$	(43,332	)
Add: Stock-based employee compensation expense included in net income (loss)			923		236			307
Deduct: Total stock-based employee compensation expense determined under fair value method for all awards			27,913		22,664			16,715
	Pro forma net income (loss)	$	74,122	$	(205,867	)	$	(59,740	)
Net income (loss) per share
	As reported — basic	$	0.42	$	(0.74	)	$	(0.17	)
	Pro forma — basic	$	0.31	$	(0.83	)	$	(0.24	)
	As reported — diluted	$	0.40	$	(0.74	)	$	(0.17	)
	Pro forma — diluted	$	0.30	$	(0.83	)	$	(0.24	)

      For further information on assumptions used in determining the fair value of stock option grants, see Note 10 of the Notes to Consolidated Financial Statements.

Earnings Per Share

      Earnings per share has been computed in accordance with Statement of Financial Accounting Standards No. 128, “Earnings per Share” (“SFAS 128”). Basic earnings per share is computed using the weighted average common shares outstanding during the year. Diluted earnings per share is computed using the weighted average common shares and potentially dilutive securities outstanding during the year. Potentially dilutive securities are excluded from the computation of diluted net loss per share for those years presented in which their effect would be anti-dilutive due to the Company’s net losses. The diluted earnings per share also excludes shares related to its convertible debt in accordance with EITF Issue No. 04-8, “The Effect of Contingently Convertible Debt on Diluted Earnings Per Share.”

Comprehensive Income (Loss)

      Comprehensive income (loss), as presented on the consolidated statements of stockholder’s equity, includes net income (loss) plus components of other comprehensive income (loss). Other comprehensive

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MAXTOR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

income (loss) at December 25, 2004 and December 31, 2005 consists of changes in unrealized gains or losses on available-for-sale marketable debt and equity securities.

	Years Ended
	December 27,		December 25,			December 31,
	2003		2004			2005
Net income (loss)	$	101,112	$	(183,439	)	$	(43,332	)
Unrealized gain (loss) on investments in debt and equity securities		8,567		(6,234	)		(869	)
Less: reclassification adjustment for realized gain (loss) included in net income (loss)		140		34			1,872
Comprehensive income (loss)	$	109,539	$	(189,707	)	$	(46,073	)

Reclassifications

      Certain reclassifications have been made to prior year balances to conform to current year classifications.

Recent Accounting Pronouncements

      In December 2004, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 123(R), “Share-Based Payment” (“SFAS 123(R)”), which is a revision of SFAS 123, “Accounting for Stock Compensation” (“SFAS 123”), and supersedes APBO 25, and its related implementation guidance. SFAS 123(R) clarifies and expands SFAS 123’s guidance in several areas, including measuring fair value, classifying an award as equity or as a liability, and attributing compensation cost to reporting periods. Additionally, SFAS 123(R) amends FASB Statement No. 95, “Statement of Cash Flows,” to require that excess tax benefits be reported as a financing cash inflow rather than as reduction of taxes paid. Beginning with the Company’s first quarter of fiscal year 2006, it will be required to adopt SFAS 123(R), and will recognize share-based compensation costs in its results of operations. The Company currently provides pro forma disclosures under SFAS 123 reflecting the effects of share-based compensation costs on its results of operations in its notes to consolidated financial statements. See Note 1, Summary of Significant Accounting Policies — Stock-Based Compensation. Although such pro forma effects of applying SFAS 123 may be indicative of the effects of adopting SFAS 123(R), the provisions of these two statements differ in some important respects. The actual effects of adopting SFAS 123(R) will be dependent on numerous factors including, but not limited to, levels of share-based payments granted in the future and the timing thereof; the valuation model chosen by the Company to value stock-based awards; the assumed award forfeiture rate; the accounting policies adopted concerning the method of recognizing the fair value of awards over the service period; and the transition method chosen for adopting SFAS 123(R), which permits public companies to adopt its requirements using various methods, including the “modified prospective application method” and the “modified retrospective application method.” The Company plans to adopt SFAS 123(R) using the modified prospective application method. The Company expects that the adoption of SFAS 123(R) will have a material impact on its results of operations subsequent to adoption.

      In March 2005, the FASB issued Interpretation No. 47, “Accounting for Conditional Asset Retirement Obligations — an interpretation of FASB Statement No. 143” (“FIN 47”). FIN 47 clarifies that the term conditional asset retirement obligation as used in FASB Statement No. 143, “Accounting for Asset Retirement Obligations,” refers to a legal obligation to perform an asset retirement activity in which the timing and (or) method of settlement are conditional on a future event that may or may not be within the control of the entity. The obligation to perform the asset retirement activity is unconditional even though uncertainty exists about the timing and (or) method of settlement. Thus, the timing and (or) method of settlement may be conditional on a future event. Accordingly, an entity is required to recognize a liability for the fair value of a

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MAXTOR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

conditional asset retirement obligation if the fair value of the liability can be reasonably estimated. This Interpretation is effective no later than the end of fiscal years ending after December 15, 2005. The adoption of FIN 47 did not have a material impact on the Company’s financial position or results of operations.

      In May 2005, the FASB issued SFAS No. 154, “Accounting Changes and Error Corrections” (“SFAS 154”) which replaces Accounting Principles Board Opinions No. 20 “Accounting Changes” and SFAS No. 3, “Reporting Accounting Changes in Interim Financial Statements — An Amendment of APB Opinion No. 28.” SFAS 154 provides guidance on the accounting for and reporting of accounting changes and error corrections. It establishes retrospective application, or the latest practicable date, as the required method for reporting a change in accounting principle and the reporting of a correction of an error. SFAS 154 is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005 and is required to be adopted by the Company in the first quarter of fiscal 2006. The Company is currently evaluating the effect that the adoption of SFAS 154 will have on its consolidated results of operations and financial condition but does not expect it to have a material impact.

      In June 2005, the FASB issued final FSP FAS 143-1, “Accounting for Electronic Equipment Waste Obligations” (“FSP FAS 143-1”) to address the accounting for obligations associated with the European Union’s Directive 2002/96/ EC on Waste Electrical and Electronic Equipment (the “Directive”). The Directive, enacted in 2003, requires EU-member countries to adopt legislation to regulate the collection, treatment, recovery and environmentally sound disposal of electrical and electronic waste equipment. The Directive distinguishes between products put on the market after August 13, 2005 (“new waste”) and products put on the market on or before that date (“historical waste”). The FSP FAS 143-1 addresses the accounting for historical waste only and will be applied the later of the first reporting period ending after June 8, 2005 or the date of the adoption of the law by the applicable EU-member country. The adoption of FSP FAS 143-1 did not have a material impact on the Company’s financial position or results of operations.

      In September 2005, the FASB ratified Emerging Issues Task Force Issue No. 04-13, “Accounting for Purchases and Sales of Inventory with the Same Counterparty” (“EITF 04-13”). EITF 04-13 discusses whether inventory purchase and sales transactions with the same counterparty that are entered into in contemplation of one another should be combined and treated as a nonmonetary exchange and addresses (a) under what circumstances should two or more transactions with the same counterparty (counterparties) be viewed as a single nonmonetary transaction within the scope of APB Opinion No. 29, “Accounting for Nonmonetary Transactions” (“APB 29”) and Financial Accounting Standard No. 153, “Exchanges of Nonmonetary Assets, an Amendment of APB 29” (“FAS 153”) and (b) if nonmonetary transactions within the scope of APB 29 and FAS 153 involve inventory, are there any circumstances under which the transactions should be recognized at fair value. The pronouncement is effective for new inventory arrangements entered into, or modifications or renewals of existing inventory arrangements occurring in interim or annual reporting periods beginning after March 15, 2006. The Company does not expect that this pronouncement will have a material effect on its financial statements.

      In October 2005, the FASB issued FSP FAS 13-1, “Accounting for Rental Costs Incurred During a Construction Period” (“FSP FAS 13-1”) which requires companies to expense rental costs associated with ground or building operating leases that are incurred during the construction period. FSP FAS 13-1 is effective in first reporting period beginning after December 15, 2005. The Company does not expect that this pronouncement will have a material effect on its financial statements.

2. Certain Risks and Concentrations

      The Company’s net revenues are derived from the sale of its hard disk drive products. The markets in which the Company competes are highly competitive and rapidly changing. Significant technological changes, changes in customer requirements, or the emergence of competitive products with new capabilities or technologies could adversely affect operating results. The Company has historically derived substantially all of

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its net revenues from the hard disk drive products. As a result of this revenue concentration, the Company’s business could be harmed by a decline in demand for, or in the prices of, these products as a result of, among other factors, any change in pricing model, a maturation in the markets for these products, increased price competition or a failure by the Company to keep up with technological change.

      The Company sells a significant amount of its products through intermediaries such as distributors. Revenue from sales to distributors represented 41.8%, 39.4% and 38.3% of total net revenues in the years ended December 27, 2003, December 25, 2004 and December 31, 2005, respectively. The Company’s distributor agreements may be terminated by either party without cause. If one of the Company’s significant distributors terminates its distribution agreement, the Company could experience a significant interruption in the distribution of its products.

      The Company’s distributors may sell other vendor’s products that are complementary to, or compete with, its products. While the Company encourages its distributors to focus on the Company’s products through market and support programs, these distributors may give greater priority to products of other suppliers, including competitors.

      Financial instruments which potentially subject Maxtor to concentrations of credit risk consist primarily of accounts receivable, cash equivalents, restricted cash and marketable securities. The Company has cash equivalents and marketable securities policies that limit the amount of credit exposure to any one financial institution and restricts placement of these funds to financial institutions evaluated as highly credit worthy. Maxtor’s products are sold worldwide to OEMs, distributors, and retailers. Sales to each of two customers were over 10% of revenue in fiscal year 2005. No customers represented over 10% of revenue in fiscal year 2004. Sales to one customer were 11.0% of revenue in fiscal year 2003. Concentration of credit risk with respect to the Company’s trade receivables is limited by an ongoing credit evaluation process and the geographical dispersion of sales transactions. Therefore, collateral is generally not required from the Company’s customers. The allowance for doubtful accounts is based upon the expected collectibility of all accounts receivable. If the customers fail to perform their obligations to the Company, such failures would have adverse effects upon Maxtor’s financial position, results of operations, and cash flows.

      Certain of the raw materials used by the Company in the manufacture of its products are available from a limited number of suppliers. Shortages could occur in these essential materials due to an interruption of supply or increased demand in the industry. If the Company were unable to procure certain of such materials, it would be required to reduce its manufacturing operations, which could have a material adverse effect on its results of operations.

      For the year ended December 31, 2005, the Company had a loss from operations of $43.3 million. As of December 31, 2005, the Company had an accumulated deficit of $1,838.5 million. The Company operates in a highly competitive market characterized by rapidly changing technology. The Company intends to incur significant expenses to continue to develop and promote new products as well as to support existing product sales. Failure to generate sufficient revenues from new and existing products may require the Company to delay, scale back or eliminate certain research and development or marketing programs.

      The Company believes that cash, cash equivalents and marketable securities will be sufficient to meet its needs for operations and working capital requirements through fiscal 2006. If the Company needs additional capital, there can be no assurance that such additional financing will be available on acceptable terms, or at all.

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3. Balance Sheet Details

		December 25,			December 31,
		2004			2005
		(In thousands)
Inventories:
	Raw materials	$	79,904		$	55,400
	Work-in-process		49,313			53,118
	Finished goods		100,193			131,944
		$	229,410		$	240,462
Prepaid expenses and other:
	Prepayment to supplier	$	—		$	37,500
	Supplier payment		—			12,500
	Vendor down payment		—			12,062
	Prepaid expenses		11,913			8,959
	Long-lived assets held for sale		8,200			8,047
	Investments in equity securities, at fair value		10,042			2,200
	Other		6,181			8,545
		$	36,336		$	89,813
Property, plant and equipment, at cost:
	Buildings	$	155,172		$	139,009
	Machinery and equipment		659,324			607,339
	Software		86,014			85,154
	Furniture and fixtures		27,604			29,522
	Leasehold improvements		91,571			90,090
		$	1,019,685		$	951,114
Less accumulated depreciation and amortization			(671,751	)		(615,778	)
Property, plant and equipment, net		$	347,934		$	335,336
Accrued and other liabilities:
	Accrued warranty	$	185,940		$	161,464
	Accrued payroll and payroll-related expenses		59,524			51,928
	Accrued supplier payment		—			12,500
	Restructuring liabilities, short-term		9,707			13,296
	Income taxes payable		7,605			8,225
	Bond interest payable		3,856			5,592
	Accrued expenses		57,737			47,753
		$	324,369		$	300,758
Other liabilities:
	Tax indemnification liability	$	8,760		$	8,760
	Restructuring liabilities, long-term		43,911			37,264
	Other		14,024			19,089
		$	66,695		$	65,113

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MAXTOR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      Depreciation and amortization expense of property, plant and equipment for the years ended December 27, 2003, December 25, 2004 and December 31, 2005 was $156.6 million, $146.0 million and $152.7 million, respectively. Total property, plant and equipment recorded under capital leases was $15.6 million and $3.3 million, as of December 25, 2004 and December 31, 2005, respectively. Total accumulated depreciation under capital leases was $8.9 million and $2.7 million as of December 25, 2004 and December 31, 2005, respectively.

4. Goodwill and Other Intangible Assets

      SFAS 142 requires goodwill to be tested for impairment under certain circumstances, written down when impaired, and requires purchased intangible assets other than goodwill to be amortized over their useful lives unless these lives are determined to be indefinite. Goodwill and indefinite lived intangible assets are subject to an impairment test at least annually.

      Purchased other intangible assets are carried at cost less accumulated amortization. Amortization is computed over the estimated useful lives of the respective assets, generally three to five years. The Company expects amortization expense on purchased other intangible assets to be $0.6 million in fiscal 2006, at which time purchased other intangible assets will be fully amortized. Amortization expense of other intangible assets was $85.3 million, $36.0 million and $0.9 million for the years ended December 27, 2003, December 25, 2004 and December 31, 2005, respectively.

					December 25, 2004										December 31, 2005
			Useful		Gross										Gross
			Life		Carrying		Accumulated			Asset					Carrying		Accumulated			Asset
			(Years)		Amount		Amortization			Impairment			Net		Amount		Amortization			Impairment			Net
					(In thousands)										(In thousands)
Goodwill					$	489,482		—			—		$	489,482	$	489,482		—			—		$	489,482
Quantum HDD
Existing Technology
	Core technology			5	$	96,700	$	(72,525	)	$	(24,175	)	$	—	$	96,700	$	(72,525	)	$	(24,175	)	$	—
	Consumer electronics			3		8,900		(8,900	)		—			—		8,900		(8,900	)		—			—
		High-end		3		75,500		(75,500	)		—			—		75,500		(75,500	)		—			—
		Desktop		3		105,000		(105,000	)		—			—		105,000		(105,000	)		—			—
MMC Technology
	Existing technology			5		4,350		(2,900	)		—			1,450		4,350		(3,770	)		—			580
Total other intangible assets					$	290,450	$	(264,825	)	$	(24,175	)	$	1,450	$	290,450	$	(265,695	)	$	(24,175	)	$	580

      At the time of the Company’s acquisition of the Quantum HDD business in April 2001, the Company agreed to indemnify Quantum for additional taxes related to the Quantum DSS business for all periods before Quantum’s issuance of tracking stock and additional taxes related to the Quantum HDD business for all periods prior to the Company’s acquisition. This indemnity was originally limited to aggregate of $142.0 million plus 50% of any excess over $142.0 million, excluding any required gross up payments (the “Tax Indemnity). During the year ended December 25, 2004, the Company and Quantum entered into a Mutual General Release and Global Settlement Agreement (“Agreement”) as a result of certain favorable developments concerning Quantum’s potential liability subject to the Tax Indemnity. See Note 8 of the Notes to Consolidated Financial Statements for further information on the Tax Indemnity. As a result, the Company reduced its tax related liabilities by $139.0 million of which $124.6 million related to the tax indemnification and $14.4 million of other taxes payable related to the Agreement. Correspondingly, the Company reduced goodwill by $139.0 million during the year ended December 25, 2004.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      During 2004, gross margins declined from 15.2% in the first quarter to 6.4% in the third quarter. The primary driver for the decline was the erosion of average selling price. The Company expected profitability to improve in the fourth quarter of fiscal 2004 based on seasonal trends; however, the improvement was less than expected. During the fourth quarter, the Board of Directors determined that a change in direction was required and hired a management team to review product lines, manufacturing strategy and overall cost competitiveness, resulting in a new operating plan for the Company in December 2004. The reduced gross margin levels experienced during the fourth quarter of 2004 and projected for 2005 triggered an impairment review of the Company’s long-lived assets. The Company completed its impairment analysis as of December 25, 2004 and as a result recorded an impairment charge of $24.2 million related to acquired intangibles from the acquisition of the Quantum HDD business.

      The Company values the carrying value of the goodwill based on the market multiple method. The market multiple approach is one of determining a level of revenue or earnings that is considered to be representative of the future performance of the Company, and multiplying this figure by an appropriate risk-adjusted multiple. This approach provides an indication of value for the security that corresponds with the particular earnings or revenue figure used in the approach (for example, a multiple of net income available to common stockholders would yield an indication of value for the common stock). In addition to revenue and net income, there are several different forms of earnings used in the market multiple approach (e.g., earnings, EBIT, and EBITDA), with each form isolating particular nuances of the Company’s operating performance. The Company’s annual goodwill impairment analysis, which was performed based on the market multiple approach using revenue during the fourth quarter of fiscal 2005, did not result in an impairment charge.

5. Short-term Borrowings and Long-term Debt

      Short-term borrowings and long-term debt consist of the following (in thousands):

	December 25,			December 31,
	2004			2005
6.8% Convertible Senior Notes due April 30, 2010	$	230,000		$	135,729
5.75% Subordinated Debentures due March 1, 2012		59,311			59,031
2.375% Convertible Senior Notes due August 15, 2012		—			326,000
Economic Development Board of Singapore Loans		27,148			—
Manufacturing facility Loan, Suzhou China		60,000			60,000
Mortgages		32,582			—
Equipment Loans and Capital Leases		6,090			881
Receivables-backed Borrowings		50,000			—
		465,131			581,641
Less amounts due within one year		(82,561	)		(5,868	)
	$	382,570		$	575,773

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MAXTOR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      Future aggregate maturities as of December 31, 2005 are as follows:

Fiscal Year Ending
	(In thousands)
2006	$	5,868
2007		5,005
2008		5,005
2009		65,003
2010		140,729
Thereafter		360,031
Total	$	581,641

      On May 7, 2003, the Company sold $230 million in aggregate principal amount of 6.8% convertible senior notes due 2010 to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended. The notes bear interest at a rate of 6.8% per annum and are convertible into the common stock at a conversion rate of 81.5494 shares per $1,000 principal amount of the notes, or an aggregate of 11,068,619 shares, subject to adjustment in certain circumstances (equal to an initial conversion price of $12.2625 per share). The initial conversion price represents a 125% premium over the closing price of the common stock on May 1, 2003, which was $5.45 per share. The notes and underlying stock have been registered for resale with the Securities and Exchange Commission.

      The Company may not redeem the notes prior to May 5, 2008. Thereafter, the Company may redeem the notes at 100% of their principal amount, plus accrued and unpaid interest, if the closing price of the common stock for 20 trading days within a period of 30 consecutive trading days ending on the trading day before the date of the mailing of the redemption notice exceeds 130% of the conversion price on such trading day. If, at any time, substantially all of the common stock is exchanged or acquired for consideration that does not consist entirely of common stock that is listed on a United States national securities exchange or approved for quotation on the NASDAQ National Market or similar system, the holders of the notes have the right to require the Company to repurchase all or any portion of the notes at their face value plus accrued interest. As of December 31, 2005, the Company had approximately $135.7 million aggregate principal amount outstanding of the 6.8% convertible senior notes due 2010.

      The 5.75% subordinated debentures due March 1, 2012 require semi-annual interest payments and annual sinking fund payments of $5.0 million or repurchases of $5.0 million in principal amount of debentures in lieu of sinking fund payments. The debentures are subordinated in right to payment to all senior indebtedness.

      In August 2005, the Company sold $326 million aggregate principal amount of 2.375% convertible senior notes due 2012 (the “2005 Notes”) to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended (“144A”). The net proceeds to the Company were approximately $317.8 million, which was net of $8.2 million in legal, bank, accounting and printing expenses. Costs relating to the issuances of these notes are being amortized over the term of the debt. A portion of the net proceeds from the offering were used to repurchase approximately $94.3 million principal amount of the Company’s 6.8% convertible senior notes due 2010 in open market transactions in August 2005. The 2005 Notes are general unsecured obligations of the Company. The Company will pay interest semi-annually on February 15 and August 15 of each year, beginning February 15, 2006. Upon the occurrence of certain specified events the 2005 Notes are eligible for conversion, at the option of the holder into cash, and if applicable, shares of common stock at a conversion rate of 153.1089 shares of common stock per $1,000 principal amount of the 2005 Notes, subject to adjustment in certain circumstances (equal to an initial conversion price of $6.53 per share). The initial conversion price represents a 123% premium over the closing price of the Company’s common stock on August 9, 2005, which was $5.31 per share. Upon conversion, the 2005 Notes are subject to

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“net cash” settlement whereby the Company will deliver cash for the lesser of the principal amount of the notes being converted or the “conversion value” of the notes which is calculated by multiplying the conversion rate then in effect by the market price of the Company’s common stock price at the time of conversion. To the extent that the conversion value exceeds the principal amount of the 2005 Notes, the Company will, at its election, pay cash or issue shares of its common stock with a value equal to the value of such excess. If the 2005 Notes are surrendered for conversion, the Company may direct the conversion agent to surrender those notes to a financial institution selected by the Company for exchange, in lieu of conversion, into a number of shares of our common stock equal to the applicable conversion rate, plus cash for any fractional shares, or cash or a combination of cash and shares of our common stock in lieu thereof. The Company has reserved 49,913,501 shares of authorized common stock for issuance upon conversion of the 2005 Notes. The Company may redeem some or all of the 2005 Notes for cash at any time on or after August 20, 2010 at specified redemption prices, together with accrued and unpaid interest and liquidated damages, if any, but excluding the date fixed for redemption. Upon the occurrence of certain fundamental change events, the holders of the 2005 Notes have the right to require the Company to repurchase all or any portion of the 2005 Notes at their face value plus accrued interest. Among other events that may trigger a conversion right, the 2005 Notes will be convertible, at the option of the holders, at any time during a fiscal quarter if, during the last 30 trading days of the immediately preceding fiscal quarter our common stock trades at a price in excess of 110% of the conversion price for 20 consecutive trading days. The 2005 Notes will also be convertible at the close of the pending acquisition by Seagate for approximately 30 days.

      The Company filed a shelf registration statement with the Securities and Exchange Commission for the resale of the 2005 Notes and the common stock issuable upon conversion of the notes, and this registration statement was declared effective on February 1, 2006. The Company agreed to keep the shelf registration statement effective for two years after the latest date on which the Company issued notes in the offering. If the Company does not comply with these registration obligations, the Company will be required to pay liquidated damages to the holders of the 2005 Notes or the common stock issuable upon conversion of the notes.

      On June 24, 2004, the Company entered into a one-year receivable-backed borrowing arrangement of up to $100 million with one financial institution collateralized by all United States and Canadian accounts receivable. In the arrangement the Company used a special purpose subsidiary to purchase and hold all of its United States and Canadian accounts receivable. This special purpose subsidiary had borrowing authority up to $100 million based upon eligible United States and Canadian accounts receivable. The special purpose subsidiary was consolidated for financial reporting purposes. The transactions under the arrangement were accounted for as short term borrowings. This facility was voluntarily terminated without penalty upon repayment of its outstanding balance of $50.0 million on June 17, 2005.

      In December 2004, the liquidity covenant and covenant regarding the ratio of operating income (loss) before depreciation and amortization to long-term debt were amended in order to assure compliance based on actual and projected operating results. On February 7, 2005, the Company reported to the lender that, as of January 31, 2005, it was not in compliance with a financial covenant under the facility setting a maximum amount for the ratio of dilution-to-liquidation of our accounts receivable. The dilution-to-liquidation ratio compares the amount of returns, discounts, credits, offsets, and other reductions to the Company’s existing accounts receivable to collections on accounts receivable over specified periods of time. On February 11, 2005, the Company entered into an agreement with the lender providing that it would temporarily forbear from exercising rights and remedies available to it as a result of the occurrence of the early amortization event under the facility caused by the Company’s noncompliance with this covenant as of January 31, 2005. On March 4, 2005, the Company and the lender entered into a second amendment to the facility documents providing that the lender will permanently forbear from exercising rights and remedies as a result of that early amortization event, and providing for an increase to the permitted maximum level of the dilution-to-liquidation ratio. In connection with the second amendment, the Company and the lender also agreed to increase the annual interest rate under the facility by 0.75%, to LIBOR plus 3.75%, during any period when the dilution-to-

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MAXTOR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

liquidation ratio exceeds the pre-amendment level. As a result, the Company was in compliance with all operational and financial covenants under the facility.

      In April 2003, the Company obtained credit lines with the Bank of China to be used for the construction and working capital requirements of the manufacturing facility being established in Suzhou, China. These lines of credit are U.S.-dollar-denominated and are drawable until April 2007. Maxtor Technology Suzhou (“MTS”) has drawn down $60 million as of October 1, 2005, consisting of the plant construction loan in the amount of $30 million made available by the Bank of China to MTS in October 2003, and a project loan in the amount of $30 million made available by the Bank of China to MTS in August 2004. Borrowings under these lines of credit are collateralized by the Company’s facilities in Suzhou, China. The interest rate on the plant construction loan is LIBOR plus 50 basis points (subject to adjustment to 60 basis points), with the borrowings repayable in two installment payments of $15 million in October 2008 and April 2009, respectively. The interest rate on the project loan is LIBOR plus 100 basis points, and the borrowing is repayable in August 2009. Both the construction loan and the project loan require the Company to make semi-annual payments of interest and require MTS to maintain financial covenants, including a maximum liability to assets ratio and a minimum earnings to interest expense ratio, the first ratio to be tested annually commencing in December 2004 and the latter ratio to be tested annually commencing in December 2005. MTS was in compliance with all covenants as of December 31, 2005 and December 25, 2004. In connection with the funding of the new project loan, the parent company of MTS, Maxtor International Sàrl, Switzerland, agreed to guaranty MTS’ obligations under both the construction loan and the project loan. The Company does not expect to draw down any further funding under this facility.

      In September 1999, Maxtor Peripherals (S) Pte Ltd. (“MPS”) entered into a four-year Singapore dollar denominated loan agreement with the Economic Development Board of Singapore (the “Board”), which was amortized in seven equal semi-annual installments ending March 2004. This loan was paid in full.

      In September 2003, Maxtor Peripherals (S) Pte Ltd. (“MPS”) entered into a four-year 52 million Singapore dollar loan agreement with the Economic Development Board of Singapore at 4.25% that was amortized in seven equal semi-annual installments ending December 2007. On March 31, 2005, the Company elected to prepay, in full, the $27.1 million outstanding balance of this loan.

      In connection with the acquisition of the hard drive business of Quantum Corporation (“Quantum HDD”), the Company acquired real estate and related mortgage obligations. The term of the mortgages is ten years, at an interest rate of 9.2%, with monthly payments based on a twenty-year amortization schedule and a balloon payment at the end of the 10-year term, which is September 2006. The outstanding balance was repaid in full on September 28, 2005.

      As of December 31, 2005, the Company had capital leases totaling $0.9 million. These capital leases have maturity dates through August 2009 and interest rates averaging 7.3%.

6. Financial Instruments

Fair Value Disclosures

      The fair values of financial instruments, including cash and cash equivalents, accounts receivable and accounts payable approximate carrying values because of their short maturities. The Company’s marketable debt and equity securities are carried at quoted market prices. The fair values of the Company’s 2.375% convertible senior notes are based on the bid price of the last trade date for the fiscal year ended December 31, 2005; the 6.8% convertible senior notes are based on the bid price of the last trade date for the fiscal year ended December 25, 2004 and December 31, 2005; and the 5.75% subordinated debentures are based on the bid price of the last trade date for the fiscal years ended December 25, 2004 and December 31, 2005. For the fiscal year ended December 25, 2004, the fair value of the Company’s mortgages was based on the estimated

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present value of the remaining payments, utilizing risk-adjusted market interest rates of similar instruments at the balance sheet date.

      The carrying values and estimated fair values of the Company’s financial instruments are as follows (in thousands):

	December 25, 2004				December 31, 2005
	Carrying		Estimated		Carrying		Estimated
	Amount		Fair Value		Amount		Fair Value
2.375% Convertible Senior Notes	$	—	$	—	$	326,000	$	397,720
6.8% Convertible Senior Notes		230,000		232,587		135,279		139,801
5.75% Subordinated Debentures		59,311		51,007		59,031		53,128
Manufacturing Facility Loan — Suzhou, China		60,000		60,000		60,000		60,000
Mortgages		32,582		32,391		—		—
Economic Development Board of Singapore Loan		27,148		27,148		—		—
Receivable-backed Borrowing		50,000		50,000		—		—

7. Guarantees

Intellectual Property Indemnification Obligations

      The Company indemnifies certain customers, distributors, suppliers, and subcontractors for attorney fees and damages and costs awarded against these parties in certain circumstances in which its products are alleged to infringe third party intellectual property rights, including patents, registered trademarks, or copyrights. The terms of its indemnification obligations are generally perpetual from the effective date of the agreement. In certain cases, there are limits on and exceptions to its potential liability for indemnification relating to intellectual property infringement claims. It is not possible to determine the maximum potential amount under these indemnification agreements due to the limited history of prior indemnification claims and the unique facts and circumstances involved in each particular agreement. Such indemnification agreements may not be subject to maximum loss clauses. Historically, the Company has not incurred material costs as a result of obligations under these agreements. However, there can be no assurances that the Company will not have any future financial exposure under those indemnification obligations.

Accrued Warranty

      The Company generally warrants its products against defects in materials and workmanship for varying lengths of time. The Company records an accrual for estimated warranty costs when revenue is recognized. Warranty covers cost of repair of the hard drive and the warranty periods generally range from one to five years. The Company has comprehensive processes that it uses to estimate accruals for warranty exposure. The processes include specific detail on hard drives in the field by product type, estimated failure rates and costs to repair or replace. Although the Company believes it has the continued ability to reasonably estimate warranty expenses, unforeseeable changes in factors used to estimate the accrual for warranty could occur. These unforeseeable changes could cause a material change in the Company’s warranty accrual estimate. Such a change would be recorded in the period in which the change was identified. Effective September 2004, the Company announced the introduction of a new warranty period for sales made beginning September 2004, extending the term to three or five years for products shipped to the distribution channel.

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MAXTOR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      Changes in the Company’s product warranty liability during the twelve month periods ended December 25, 2004 and December 31, 2005 were as follows (in thousands):

	Years Ended
	December 25,			December 31,
	2004			2005
Balance at beginning of period	$	209,426		$	185,940
Charges to operations		180,032			181,821
Settlements(1)		(190,208	)		(179,104	)
Changes in estimates(2)		(13,310	)		(27,193	)
Balance at end of period	$	185,940		$	161,464

(1)	Represents aggregate reductions in the liability for payments made (in cash or in kind) under the warranty.
(2)	Comprises changes in the estimated cost of repair; changes in expected return rates; changes due to product expirations and changes in estimates related to specific non-standard claims received from customers.

      The warranty liability decreased by $24.5 million in the twelve month period ended December 31, 2005. The decrease in the warranty liability is primarily attributed to a change in estimate of $27.2 million. This change in estimate is comprised of $44.3 million reduction in the estimated cost of future repair, $3.5 million reduction due to changes in the expected future return rate and $0.8 million reduction due to product expirations. These reductions of $48.6 million were partially offset by increases in the warranty liability due to specific claims received from customers of $21.4 million.

      Settlements in the period amounted to $179.1 million and represented the costs of processing current quarter returns of $163.1 million and payments made against specific customer claims of $16.0 million. Charges to operations of $181.8 million, which represents expected warranty costs associated with products shipped in the period, exceeded settlements by $2.7 million.

      In the comparable twelve month period ended December 25, 2004, the warranty liability decreased by $23.5 million. The decrease in the warranty liability was primarily attributed to a change in estimate of $13.3 million. This change in estimate is comprised of $8.0 million reduction in the estimated cost of future repair, $4.7 million reduction due to product expirations and $0.6 million reduction due to changes in the expected future return rate.

      Settlements in the period amounted to $190.2 million and represented the costs of processing current quarter returns. Settlements exceeded charges to operations of $180.0 million which represented the expected warranty costs associated with products shipped in the period by $10.1 million.

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8. Income Taxes

      The provision for income taxes consists of the following:

			Years Ended
			December 27,		December 25,			December 31,
			2003		2004			2005
			(In thousands)
Current:
	U.S.		$	2,477	$	(1,152	)	$	415
	Foreign			1,027		891			1,738
		Total	$	3,504	$	(261	)	$	2,153

      Income (loss) before provision for income taxes consists of the following:

		Years Ended
		December 27,			December 25,			December 31,
		2003			2004			2005
		(In thousands)
U.S.		$	(56,895	)	$	(221,641	)	$	(101,965	)
Foreign			161,511			37,941			60,786
	Total	$	104,616		$	(183,700	)	$	(41,179	)

      A substantial portion of sales and manufacturing operations are in Switzerland, Singapore and China and operate under various tax holidays and tax incentive programs which will expire in whole or in part during fiscal years 2007 through 2014. Certain of the holidays may be extended if specific conditions are met. The net impact of these tax holidays and tax incentive programs was to decrease the Company’s net loss by approximately $26 million in fiscal year 2005 ($0.10 per share, diluted), to decrease the Company’s net loss by approximately $25 million ($0.10 per share, diluted) in fiscal year 2004, and to increase the Company’s net income by approximately $26 million ($0.10 per share, diluted) in fiscal year 2003.

      The American Jobs Creation Act the (“Act”) was signed into effect on October 22, 2004. The Act includes a provision which encourages companies to reinvest foreign earnings in the U.S. by temporarily making certain dividends received by a U.S. corporation from controlled foreign corporations eligible for an 85% dividends-received deduction. The Company did not recognize amounts under the repatriation provision and accordingly, there has been no effect on income tax expense (or benefit) included in these financial statements.

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      The provision for income taxes differs from the amount computed by applying the U.S. statutory rate of 35% to the income (loss) before income taxes for the years ended December 27, 2003, December 25, 2004 and December 31, 2005. The principal reasons for this difference are as follows:

		Years Ended
		December 27,			December 25,			December 31,
		2003			2004			2005
		(In thousands)
Income tax expense (benefit) at U.S. statutory rate		$	36,436		$	(64,374	)	$	(14,413	)
State tax			1,212			491			413
Losses not providing current tax benefit			—			63,043			12,911
Utilization of NOL carryforward			(35,370	)		—			—
Foreign earnings subject to U.S. tax			1,050			1,239			2,427
Other			176			(660	)		815
	Total	$	3,504		$	(261	)	$	2,153

      Deferred income taxes reflect the tax effect of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The significant components of the Company’s deferred tax assets and liabilities are as follows (in thousands):

			December 25,			December 31,
			2004			2005
Deferred tax assets:
	Inventory reserves and accruals		$	2,601		$	3,907
	Depreciation			34,795			32,134
	Sales related reserves			35,970			18,467
	Net operating loss carry-forwards			422,088			485,445
	Tax credit carry-forwards			59,032			61,179
	Capitalized research and development			22,671			13,056
	Restructuring allowance			3,803			3,104
	Acquisition related items			18,738			17,395
	Other			27,397			31,950
		Total deferred tax assets		627,095			666,637
Valuation allowance for deferred tax assets				(315,864	)		(311,167	)
Net deferred tax assets			$	311,231		$	355,470
Deferred tax liabilities:
	Unremitted earnings of certain foreign entities			309,481			354,778
	Unrealized gain (loss) on investments in equity securities			1,750			692
		Total deferred tax liabilities		311,231			355,470
Net deferred tax liabilities			$	—		$	—

      The Company determines deferred taxes for each of its tax-paying jurisdictions where a history of earnings has not been established. The taxable earnings in these tax jurisdictions are also subject to volatility. Therefore, the Company believes a valuation allowance is needed to reduce the deferred tax asset to an amount that is “more likely than not” to be realized. During the years ended December 27, 2003, December 25, 2004 and December 31, 2005, the valuation allowance for deferred tax assets, decreased by

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$5.8 million, increased by $134.7 million and decreased by $4.7 million, respectively. The decrease in valuation allowance during 2005 was primarily due to net operating loss carry-forwards not estimated to have future benefits.

      As of December 31, 2005, for federal income tax purposes, the Company had net operating loss carry-forwards of $1,318 million and tax credit carry-forwards of approximately $44.0 million, which will expire beginning in fiscal years 2008 and 2006, respectively. To the extent that net operating loss carry-forwards, when realized, relate to stock option deductions, the resulting benefits will be credited to stockholders’ equity. However, no tax benefits were recorded to stockholders’ equity in 2005, 2004 and 2003 because their realization was not believed to be “more likely than not.” Benefits which may be recognized in the future related to stock option deductions are approximately $19.6 million. Certain changes in stock ownership can result in a limitation on the amount of net operating loss and tax credit carry-overs that can be utilized each year. The Company determined it had undergone such an ownership change during 2001. Consequently, utilization of approximately $351.2 million of net operating loss carry-forward and the deduction equivalent of approximately $17.4 million of tax credit carry-forward will be limited to approximately $16.0 million per year from a prior ownership change in 1998. Also, approximately $244.3 million of net operating loss carry-forward and the deduction equivalent of approximately $2.9 million of tax credit carry forward will be limited to approximately $42.0 million per year from the change of ownership resulting from the Quantum HDD acquisition.

      Pursuant to a “Tax Sharing and Indemnity Agreement” entered into in connection with the Company’s acquisition of Quantum HDD, Maxtor, as successor to Quantum HDD, and Quantum are allocated their share of Quantum’s income tax liability for periods before the Company’s acquisition of Quantum HDD, consistent with past practices and as if the Quantum HDD and Quantum DSS business divisions had been separate and independent corporations. To the extent that the income tax liability attributable to one business division is reduced by using NOLs and other tax attributes of the other business division, the business division utilizing the attributes must pay the other for the use of those attributes. We also agreed to indemnify Quantum for additional taxes related to the Quantum DSS business for all periods before Quantum’s issuance of tracking stock and additional taxes related to the Quantum HDD business for all periods prior to our acquisition of Quantum HDD. This indemnity was originally limited to the aggregate of $142.0 million plus 50% of any excess over $142.0 million, excluding any required gross up payments (the “Tax Indemnity”). As of December 31, 2005, the Company had paid $8.6 million under this tax indemnity. On December 23, 2004, as a result of certain favorable developments concerning Quantum’s potential liability subject to the Tax Indemnity, the Company and Quantum amended the Tax Sharing and Indemnity Agreement, as part of a Mutual General Release and Global Settlement Agreement. Under the amended terms of the Tax Sharing and Indemnity Agreement, our remaining Tax Indemnity liability is limited to $8.8 million for all tax claims.

      The Company purchased a $340 million insurance policy covering the risk that the split-off of Quantum HDD from Quantum DSS could be determined to be subject to federal income tax or state income or franchise tax. Under the Tax Sharing and Indemnity Agreement, the Company agreed to indemnify Quantum for the amount of any tax payable by Quantum as a result of the split-off to the extent such tax is not covered by such insurance policy, unless imposition of the tax is the result of Quantum’s actions, or acquisitions of Quantum stock, after the split-off. The amount of the tax not covered by insurance could be substantial. In addition, if it is determined that Quantum owes federal or state tax as a result of the split-off and the circumstances giving rise to the tax are covered by the Company’s indemnification obligations, the Company will be required to pay Quantum the amount of the tax at that time, whether or not reimbursement may be allowed under the Company’s tax insurance policy. The Company believes that any obligation resulting from this indemnification is remote.

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MAXTOR CORPORATION

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9. Commitments and Contingencies

Leases

      The Company leases certain of its facilities and equipment under non-cancelable operating lease arrangements. Certain leases include rental escalation clauses and renewal options. If the Company’s obligations under its long-term debt arrangements are accelerated due to an event of default, the landlords under these leases may have the right to exercise various remedies under the related leases, including assertion of claims for accelerated rents. The Company is also required to make additional payments to landlords for common costs of operating and maintaining the facilities.

      The Company subleases certain of the leased facilities to third party tenants. Future annual minimum lease payments under noncancelable operating leases and future rental income under noncancelable subleases having initial or remaining lease terms in excess of one year at December 31, 2005 were as follows (in thousands):

	Non-Cancelable		Non-Cancelable
Fiscal Year Ending	Operating Leases		Subleases			Net Payments
2006	$	41,805	$	(2,795	)	$	39,010
2007		40,504		(1,285	)		39,219
2008		37,584		(1,306	)		36,278
2009		37,244		(1,329	)		35,915
2010		31,663		(1,352	)		30,311
Thereafter		81,094		(3,958	)		77,136
Total	$	269,894	$	(12,025	)	$	257,869

      Rental expense was approximately $29.1 million, $30.2 million, and $27.1 million for fiscal years 2003, 2004 and 2005, respectively. Sublease income recognized was approximately $10.2 million, $8.0 million, and $8.2 million for fiscal years 2003, 2004 and 2005, respectively.

      The future minimum annual lease payments on capital leases as of December 31, 2005 are as follows (in thousands):

	December 31,
Fiscal Year Ending	2005
2006	$	881
2007		6
Thereafter		8
Total minimum lease payments	$	895
Imputed interest		(14	)
Present value of minimum lease payments		881
Current portion		(868	)
Non-current portion	$	13

Investment Commitment

      The Company has agreed to invest $200.0 million over the next five years beginning 2004 to establish a manufacturing facility in Suzhou, China. As of December 31, 2005, the Company has invested $100.0 million and intends to complete the investment in the remaining three years.

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MAXTOR CORPORATION

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Legal Proceedings

      From time to time, the Company has been subject to litigation including the pending litigation described below. Because of the uncertainties related to both the amount and range of loss on the remaining pending litigation, the Company is unable to make a reasonable estimate of the liability that could result from an unfavorable outcome. As additional information becomes available, the Company will assess its potential liability and revise its estimates. Pending or future litigation could be costly, could cause the diversion of management’s attention and could upon resolution, have a material adverse effect on its business, results of operations, financial condition and cash flow.

      In particular, the Company is engaged in certain legal and administrative proceedings incidental to the Company’s normal business activities and believes that these matters will not have a material adverse effect on the Company’s financial position, results of operations or cash flow.

      Prior to Maxtor’s acquisition of the Quantum HDD business, the Company, on the one hand, and Quantum and Matsushita Kotobuki Electronics Industries, Ltd. (“MKE”), on the other hand, were sued by Papst Licensing, GmbH, a German corporation, for infringement of a number of patents that relate to hard disk drives. Papst’s complaint against Quantum and MKE was filed on July 30, 1998, and Papst’s complaint against Maxtor was filed on March 18, 1999. Both lawsuits, filed in the United States District Court for the Northern District of California, were transferred by the Judicial Panel on Multidistrict Litigation to the United States District Court for the Eastern District of Louisiana for coordinated pre-trial proceedings with other pending litigations involving the Papst patents (the “MDL Proceeding”). The matters will be transferred back to the District Court for the Northern District of California for trial. Papst’s infringement allegations are based on spindle motors that Maxtor and Quantum purchased from third party motor vendors, including MKE, and the use of such spindle motors in hard disk drives. The Company purchased the overwhelming majority of spindle motors used in our hard disk drives from vendors that were licensed under the Papst patents. Quantum purchased many spindle motors used in its hard disk drives from vendors that were not licensed under the Papst patents, including MKE. As a result of the Company’s acquisition of the Quantum HDD business, Maxtor assumed Quantum’s potential liabilities to Papst arising from the patent infringement allegations Papst asserted against Quantum. The Company filed a motion to substitute the Company for Quantum in this litigation. The motion was denied by the Court presiding over the MDL Proceeding, without prejudice to being filed again in the future.

      In February 2002, Papst and MKE entered into an agreement to settle Papst’s pending patent infringement claims against MKE. That agreement includes a license of certain Papst patents to MKE which might provide Quantum, and thus the Company, with additional defenses to Papst’s patent infringement claims.

      On April 15, 2002, the Judicial Panel on Multidistrict Litigation ordered a separation of claims and remand to the District of Columbia of certain claims between Papst and another party involved in the MDL Proceeding. By order entered June 4, 2002, the court stayed the MDL Proceeding pending resolution by the District of Columbia court of the remanded claims. These separated claims relating to the other party are currently proceeding in the District Court for the District of Columbia.

      The results of any litigation are inherently uncertain and Papst may assert other infringement claims relating to current patents, pending patent applications, and/or future patent applications or issued patents. Additionally, the Company cannot assure it will be able to successfully defend itself against this or any other Papst lawsuit. Because the Papst complaints assert claims to an unspecified dollar amount of damages, and because the Company was at an early stage of discovery when the litigation was stayed, the Company is unable to determine the possible loss, if any, that the Company may incur as a result of an adverse judgment or a negotiated settlement with respect to the claims against us. The Company made an estimate of the potential liability which might arise from the Papst claims against Quantum at the time of the Company’s acquisition of

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the Quantum HDD business. The Company has revised this estimate as a result of a related settlement with MKE and this estimate will be further revised as additional information becomes available. A favorable outcome for Papst in these lawsuits could result in the issuance of an injunction against the Company and its products and/or the payment of monetary damages equal to a reasonable royalty. In the case of a finding of a willful infringement, the Company also could be required to pay treble damages and Papst’s attorney’s fees. The litigation could result in significant diversion of time by our technical personnel, as well as substantial expenditures for future legal fees. Accordingly, although the Company cannot currently estimate whether there will be a loss, or the size of any loss, a litigation outcome favorable to Papst could have a material adverse effect on our business, financial condition and operating results. The Company believes that the lawsuit is without merit and intends to vigorously defend it.

      On February 17, 2005, the Company and the Chairman were sued in the Circuit Court of the City of St. Louis, State of Missouri by Craig A. Skinner, for himself and on behalf of a putative class of persons with similar alleged claims, for violations of Missouri’s Merchandising Practices Act and for breach of implied warranties related to alleged hard disk drive failures. The complaint requests unspecified damages, attorneys’ fees, and costs of suit. On July 1, 2005, the plaintiff voluntarily dismissed the Chairman from the action without prejudice in light of a pending motion to dismiss for lack of personal jurisdiction filed by the Chairman. The parties stipulated to a change of venue from the city to the county of St. Louis and, effective August 4, 2005, the case was transferred to the Circuit Court of St. Louis County, State of Missouri. The plaintiff filed an amended petition on November 15, 2005. The Company responded in the action on December 30, 2005 by filing a motion to dismiss the amended petition or alternatively for a more definite statement of the plaintiff’s claims. The Company believes that the lawsuit is without merit and intends to vigorously defend it.

      On January 20, 2006, Theodore F. Vahl commenced a purported shareholder class action lawsuit in the Superior Court of the State of California, County of Santa Clara, against the Company, the Company’s Chairman and Chief Executive Officer, and certain members of the Company’s Board of Directors alleging that the defendants violated their fiduciary duties in connection with the proposed merger of the Company with Seagate Technology. The complaint seeks only equitable relief. On February 14, 2006, the court heard oral arguments on the motion to dismiss and took the matter under submission. The Company believes that the lawsuit is without merit and intends to vigorously defend it.

10. Stockholders’ Equity

Treasury Stock

      On October 9, 2001, Hynix sold 23,329,843 shares of Maxtor common stock in a registered public offering. Maxtor did not receive any proceeds from Hynix’s sale of Maxtor stock to the public. In addition, at the same time and on the same terms as Hynix’s sale of Maxtor stock to the public, Maxtor repurchased 5.0 million shares from Hynix an aggregate purchase price of $20.0 million. These repurchased shares are being held as treasury shares.

      In connection with the sale of 6.8% convertible senior notes due 2010, on May 7, 2003, the Company also repurchased from an affiliate of one of the initial purchasers of the Notes 8,245,738 shares of its common stock for an aggregate purchase price of $44.9 million, or $5.45 per share, the closing price of our common stock on May 1, 2003, plus commissions.

Restricted Stock Plan

      On May 29, 1998, the Company adopted the 1998 Restricted Stock Plan, which provides for awards of shares of common stock to certain executive employees. Restricted stock awarded under this plan vests three years from the date of grant and is subject to forfeiture in the event of termination of employment with the

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Company prior to vesting. Compensation cost based on fair market value of the Company’s stock at the date of grant is reported as compensation expense on a ratable basis over the vesting periods. There was no compensation expense recorded in connection with the Restricted Stock Plan for the years ended December 27, 2003, December 25, 2004, and December 31, 2005.

      The Company also grants awards of restricted stock pursuant to the Amended and Restated 1996 Stock Option Plan. See “1996 Stock Plan” below for further information.

Employee Stock Purchase Plan

      The Company adopted the 1998 Employee Stock Purchase Plan (the “Purchase Plan”) and issued 3.3 million, 3.2 million and 3.8 million shares pursuant to the Purchase Plan for the years ended December 27, 2003, December 25, 2004 and December 31, 2005, respectively. The Purchase Plan permits eligible employees to purchase Maxtor’s common stock at a discount, but only through accumulated payroll deductions, during six-month offering periods. Participants purchase shares on the last day of each offering period. In general, the price at which shares are purchased under the Purchase Plan is equal to 85% of the lower of the fair market value of a share of common stock on (a) the first day of the offering period, or (b) the purchase date. Offering periods of the Purchase Plan generally begin on February 16 and August 16 of each year. As of December 31, 2005, 24 million shares were reserved under this Purchase Plan.

1996 Stock Plan

      The Company grants options and awards of restricted stock pursuant to the Amended and Restated 1996 Stock Option Plan (the “1996 Plan”), which was approved by the Board of Directors in May 1996, and amended by Maxtor’s stockholders at the 1999 Annual Meeting of Stockholders. Options under the 1996 Plan expire ten years from the date of grant. Restricted stock vests in one or more installments over a number of years. The 1996 Plan generally provides for the grant of non-qualified stock options and incentive stock options to eligible employees, consultants, affiliates and directors, as determined by the Board of Directors, and incentive stock options to Maxtor employees at a price not less than the fair market value at the date of grant. The 1996 Plan also provides for the grant of restricted stock to eligible employees. The Board of Directors or an executive committee appointed by the Board also approves other terms such as number of shares granted and exercisability thereof. Options granted under the 1996 Plan vest over a four-year period with 25% vesting at the first anniversary date of the vest date and 6.25% each quarter thereafter. Restricted stock grants vest in one or more installments over a period of years, and are subject to forfeiture if employment is terminated prior to the time the shares become fully vested and non-forfeitable. The Company reserved no additional shares for issuance under the 1996 Plan during 2003, 2004 and 2005. As of December 31, 2005, 39,975,685 shares were reserved under the 1996 Plan. As of May 13, 2005 no additional options or awards will be issued under the 1996 Plan. As of May 13, 2005, the 8.0 million shares available for grant, including any future forfeitures, were rolled into the 2005 Performance Incentive Plan, as described below.

      During 2003, 2004 and 2005, the Company granted zero, 29,669, and 142,000 shares of restricted common stock, respectively, under the 1996 Plan. The Company recorded compensation expense of $(0.2) million, $0.1 million, and $0.1 million in 2003, 2004, and 2005, respectively.

2005 Performance Incentive Plan

      On May 13, 2005, the Company adopted the 2005 Performance Incentive Plan (“2005 Plan”). The 2005 Plan generally provides for the grant of non-qualified stock options and incentive stock options to eligible employees, consultants, affiliates and directors, as determined by the Board of Directors or the executive committee appointed by the Board. The 2005 Plan also provides for the grant of restricted stock to eligible employees. The Board of Directors or an executive committee appointed by the Board approves terms such as number of shares granted and exercisability thereof. Options granted under the 2005 Plan vest over a four-year

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period with 25% vesting at the first anniversary date of the vest date and 6.25% each quarter thereafter. Restricted stock grants vest in one or more installments over a period of years, and are subject to forfeiture if employment is terminated prior to the time the shares become fully vested and non-forfeitable. The 2005 Plan also provides for the issuance of stock appreciation rights, restricted stock units, performance awards and cash-based awards and other stock-based awards. As of December 31, 2005, 22 million shares were reserved for issuance under the 2005 Plan.

      During 2005, the Company granted 210,000 shares of restricted common stock under the 2005 Plan. The Company recorded compensation expense of $0.2 million in 2005 related to this plan.

Quantum HDD Merger Plan

      On April 2, 2001, as part of the Quantum HDD acquisition, the Company assumed all vested and unvested Quantum HDD options held by employees who accepted offers of employment with Maxtor, whether or not options or restricted stock have vested. The Company also assumed all vested Quantum HDD options held by Quantum employees whose employment was terminated prior to separation. In addition, Maxtor assumed vested Quantum HDD options held by Quantum employees who continued to provide services during a transitional period. The outstanding options to purchase Quantum HDD common stock held by transferred employees and vested options to purchase Quantum HDD common stock held by former Quantum employees, consultants and transition employees were assumed by Maxtor and converted into options to purchase Maxtor common stock according to the exchange ratio of 1.52 shares of Maxtor common stock for each share of Quantum HDD common stock. In connection with the Quantum HDD acquisition, the Company established a reserve of 12,785,328 shares of common stock for the assumption of Quantum HDD options to purchase Maxtor common stock. Vested and unvested options for Quantum HDD common stock assumed in the merger represented options for 7,650,965 shares and 4,655,236 shares of Maxtor common stock, respectively. The intrinsic value of the 4,655,236 unvested options was determined to be $3.4 million, using the intrinsic value methodology in accordance with Emerging Issues Task Force No. 00-23 “Issues Related to the Accounting for Stock Based Compensation under APB Opinion No. 25” and “FIN 44.” As of December 31, 2005, 1,592,778 options were outstanding under the Quantum HDD merger plan.

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      The following table summarizes option activity through December 31, 2005:

					Options Outstanding
		Shares						Weighted Average
		Available for						Exercise Price
		Grant			Shares			per Share
Balance as of December 28, 2002			9,487,229			31,575,054		$	6.35
	Options granted		(7,064,793	)		7,064,793			5.81
	Options exercised		—			(8,430,526	)		5.59
	Options canceled — 1996 stock option plan		3,081,477			(3,081,477	)		6.19
	Options canceled — Quantum assumed options		—			(304,383	)		6.85
	Restricted stock canceled		20,000			—			—
Balance as of December 27, 2003			5,523,913			26,823,461		$	6.46
	Options granted		(4,832,200	)		4,832,200			5.83
	Restricted stock granted		(29,669	)		—			—
	Options exercised		—			(960,821	)		4.57
	Options canceled — 1996 stock option plan		4,342,079			(4,342,079	)		6.66
	Options canceled — Quantum assumed options		—			(130,107	)		6.45
	Restricted stock canceled		—			—			—
Balance as of December 25, 2004			5,004,123			26,222,654		$	6.36
	2005 Plan		22,000,000			—
	Options granted		(8,725,238	)		8,725,238			5.03
	Restricted stock granted		(352,000	)		—			—
	Options exercised		—			(2,051,415	)		4.46
	Options canceled — 1996 stock option plan		8,095,915			(8,095,915	)		7.10
	Options canceled — Quantum assumed options		—			(189,001	)		6.51
	Restricted stock canceled		40,000			—			—
Balance as of December 31, 2005			26,062,800			24,611,561		$	5.80

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      The following table summarizes information for stock options outstanding and exercisable as of December 31, 2005:

	Options Outstanding						Options Exercisable
			Weighted
			Average		Weighted				Weighted
			Remaining		Average				Average
	Number		Contractual		Exercise		Number		Exercise
Range of Exercise Price	Outstanding		Life		Price		Outstanding		Price
$1.4316 - $   3.58		2,521,457		6.29	$	3.51		2,135,811	$	3.53
$3.6233 - $   4.36		2,734,322		8.35		3.97		989,944		3.89
$  4.38 - $   5.33		10,278,989		8.11		4.92		3,208,782		4.83
$  5.37 - $   6.00		3,022,912		6.70		5.74		1,167,253		5.84
$6.0625 - $ 7.8125		3,627,727		4.62		7.35		3,426,484		7.39
$  7.92 - $   9.00		306,816		6.78		8.41		202,794		8.43
$  9.18 - $  11.00		586,155		7.05		9.92		367,926		10.00
$ 11.31 - $13.1875		1,411,566		3.45		13.00		1,337,496		13.04
$ 13.25 - $15.0625		97,617		6.22		13.91		69,417		14.02
$16.875 - $19.3113		24,000		3.09		16.90		24,000		16.90
		24,611,561		6.94	$	5.80		12,929,907	$	6.44

      For information on the pro forma net income (loss) for Maxtor’s stock options and employee stock purchase plan, see Note 1 of the Notes to Consolidated Financial Statements.

      The fair value of option grants has been estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions:

	Years Ended
	December 27,			December 25,			December 31,
	2003			2004			2005
Risk-free interest rate		3.17	%		3.28	%		3.97	%
Weighted average expected life		4.5 years			4.5 years			4.5 years
Volatility		73	%		75	%		73	%
Dividend yield		—			—			—

      The fair value of employee stock purchase plan option grants has been estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions:

	Years Ended
	December 27,			December 25,			December 31,
	2003			2004			2005
Risk-free interest rate		1.08	%		2.06	%		3.50	%
Weighted average expected life		0.5 years			0.5 years			0.5 years
Volatility		73	%		75	%		70	%
Dividend yield		—			—			—

      No dividend yield is assumed as the Company has not paid dividends and has no plans to do so.

      SFAS No. 123 requires the use of option pricing models that were not developed for use in valuing employee stock options. The Black-Scholes option pricing model was developed for use in estimating the fair value of short-lived exchange-traded options that have no vesting restrictions and are fully transferable. The Company’s employee stock options have characteristics significantly different from those of traded options. In

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

addition, option pricing models require the input of highly subjective assumptions, including the option’s expected life and the price volatility of the underlying stock, and changes in the subjective input assumptions can materially affect the fair value estimate of employee stock options.

      The weighted average grant-date fair values of options granted to employees during the years ended December 27, 2003, December 25, 2004, and December 31, 2005 were $3.56, $5.83 and $5.03 respectively. The weighted average grant-date fair values of restricted stock granted to employees during the years ended December 27, 2003, December 25, 2004 and December 31, 2005 were zero, $5.29 and $4.90 respectively.

11. Discontinued Operations

      On August 15, 2002, the Company announced its decision to shut down the manufacturing and sales of its MaxAttach^tm branded network attached storage products of NSG. The discontinuance of the NSG operations represents the abandonment of a component of an entity as defined in paragraph 47 of SFAS 144. The income from discontinued operations of $2.2 million for the year ended December 27, 2003 reflects the net impact of the favorable resolution of contingencies. There were no remaining assets or liabilities as of December 31, 2005.

12. Restructuring

      In connection with the 2001 acquisition of the hard drive business of Quantum HDD, the Company recorded a $45.3 million liability for estimated facility exit costs for the closure of three Quantum HDD offices and research and development facilities located in Milpitas, California, and two Quantum HDD office facilities located in Singapore. During the three months ended September 25, 2004, in association with the Company’s restructuring activities, the Company recorded an additional $16.4 million liability due to a change in estimated lease obligations for two of the Quantum HDD acquired offices and research and development facilities located in California. This estimate was based upon the then comparable market rates for leases and anticipated dates for these properties to be subleased. The balance remaining in the facilities exit accrual is expected to be paid over several years, based on the underlying lease agreements. As of December 31, 2005, the outstanding balance related to this accrual was $37.3 million.

      During the year ended December 28, 2002, the Company recorded a restructuring charge of $9.5 million associated with closure of one of its facilities located in California. The amount comprised $8.9 million of non-cancelable lease payments, which were expected to be paid over several years based on the underlying lease agreement, and the write-off of $0.6 million in leasehold improvements. The Company increased this restructuring accrual by $3.3 million due to a change in estimated lease obligations associated with its restructuring activities in the three months ended September 25, 2004. This estimate is based upon the then comparable market rates for leases and anticipated dates for one of the properties to be subleased. As of December 31, 2005, the outstanding balance related to this accrual was $7.8 million. During the three months ended September 25, 2004, the Company also recorded a $0.6 million liability in association with the closure of one of its facilities in Colorado. As of December 31, 2005, the outstanding balance related to the closure of the Colorado facility was $0.2 million.

      In July 2004, the Company announced a reduction-in-force which affected approximately 377 employees in the United States and Singapore. During the three months ended April 2, 2005, an adjustment of $(0.3) million was made to the associated restructuring liability. As of July 2, 2005, the Company was substantially completed with this restructuring. For the years ended December 25, 2004 and December 31, 2005, the Company incurred $12.9 million and $(0.3) million, respectively, in severance expense related to this reduction in force. As of December 31, 2005, the outstanding balance related to this accrual was $47 thousand.

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MAXTOR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      In March 2005, the Company initiated a planned reduction-in-force of up to 5,500 employees in its Singapore manufacturing operations and approximately 125 employees in the United States. The reduction in force was the result of the Company’s transition of manufacturing for certain products from its Singapore manufacturing operations to China and closure of one of its two Singapore plants, scheduled to be completed by the first quarter of 2006. As of October 1, 2005, the Company revised its estimates due to lower than expected attrition and longer actualized length of service. The Company had initially expected that approximately 2,500 positions will be reduced by attrition and the remainder by severance, which was changed to approximately 1,400 positions representing attrition and the remainder severance. Accordingly, the Company recorded an adjustment of $4.1 million during the quarter ended October 1, 2005 resulting from the change. During the year ended December 31, 2005, the Company incurred $16.4 million in severance-related charges in Singapore, of which $5.2 million remains outstanding at December 31, 2005. The Company expects to be substantially completed with the restructuring in Singapore by the first quarter of 2006. During the year ended December 31, 2005, the Company incurred $2.5 million in severance-related charges associated with the Company’s reduction in force in the United States, net of an adjustment of $(0.5) million recorded during the third quarter of 2005. This restructuring in the United States was completed in the fourth quarter of 2005.

      In September 2005, the Company terminated or notified for termination approximately 25 employees at its operations in Ireland as the Company consolidated its regional disk drive recovery operations for improved efficiency and customer service. The Company was substantially completed with this reduction in force in the fourth quarter of 2005. As of December 31, 2005, the Company had incurred a total of approximately $0.5 million in severance-related payments associated with this reduction in force and expects to pay approximately $0.2 million in the first quarter of 2006.

      The facilities-related restructuring accrual is included within the balance sheet captions of Accrued and other liabilities and Other liabilities. The following table summarizes the activity related to the severance and facilities-related restructuring costs as of December 31, 2005:

		Facilities-			Severance and
		Related			Benefits			Total
		(In millions)
Provision at April 1, 2001		$	45.3		$	—		$	45.3
Amounts paid			(0.9	)		—			(0.9	)
Balance at December 29, 2001			44.4			—			44.4
Amounts paid			(4.5	)		—			(4.5	)
2002 accrual			8.9			—			8.9
Balance at December 28, 2002			48.8			—			48.8
	Amounts paid		(10.0	)		—			(10.0	)
Balance at December 27, 2003			38.8			—			38.8
	Amounts paid		(7.8	)		(10.7	)		(18.5	)
	Accruals		20.3			12.9			33.2
Balance at December 25, 2004			51.3			2.2			53.5
	Amounts paid		(6.0	)		(15.6	)		(21.6	)
	Adjustments		—			3.3			3.3
	Accruals		—			15.3			15.3
Balance at December 31, 2005		$	45.3		$	5.2		$	50.5

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MAXTOR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

13. Long-Lived Assets Held for Sale

      During the year ended December 25, 2004, the Company classified a building in Louisville, Colorado as held for sale in accordance with the requirements of SFAS 144, resulting in an impairment charge of $7.8 million. The Company’s asset held for sale amounted to $8.2 million representing the estimated realizable value of the building and is included within the balance sheet caption of “Prepaid expenses and other.” Prior to classification, the Company suspended depreciation of this building which was $0.4 million annually. In the third quarter of 2005, this balance increased to $8.8 million, reflecting an accrual of $0.5 million for leasehold improvement commitments to tenants of this property. In October 2005, the Company sold the property for net proceeds of approximately $14 million. A net gain of $5.8 million was recognized for this sale, and was included in income statement caption of “Other Gain (Loss).”

      In December 2005, the Company classified a building in Singapore as held for sale in accordance with the requirements of SFAS 144. The property was recorded at its net book value of $8.0 million, which represents the lower of the net book value and its estimated realizable value, and was included within the balance sheet caption of “Prepaid expenses and other.” Since such classification at December 31, 2005, the Company has suspended depreciation of this building which was $1.3 million annually. The property was subsequently sold in February 2006.

14. Other Gain (Loss)

      Other gain (loss) for the three years ended December 27, 2003, December 25, 2004 and December 31, 2005 was as follows:

	December 27,			December 25,		December 31,
	2003			2004		2005
	(In thousands)
Sale of long-lived asset held for sale	$	—		$	—	$	5,848
Sale of equity securities		—			—		2,180
Redemption of the pro rata portion of Quantum Corporation’s bonds		(958	)		—		—
Other		345			81		(130	)
Total	$	(613	)	$	81	$	7,898

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MAXTOR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

15. Earnings Per Share

      In accordance with SFAS 128, “Earnings per Share,” the following sets forth the computation of basic and diluted earnings per share (in thousands, except share and per share amounts):

		Years Ended
		December 27,		December 25,			December 31,
		2003		2004			2005
Numerator — Basic and Diluted
Income (loss) from continuing operations		$	98,901	$	(183,439	)	$	(43,332	)
Income from discontinued operations		$	2,211	$	—		$	—
Net income (loss)		$	101,112	$	(183,439	)	$	(43,332	)
Net income (loss) available to common stockholders		$	101,112	$	(183,439	)	$	(43,332	)
Denominator
Basic weighted average common shares outstanding			243,022,694		247,671,870			253,177,580
Effect of dilutive securities:
	Common stock options		8,044,949		—			—
	Restricted shares subject to repurchase		68,040		—			—
Diluted weighted average common shares			251,135,683		247,671,870			253,177,580
Net income (loss) per share — basic
Continuing operations		$	0.41	$	(0.74	)	$	(0.17	)
Discontinued operations		$	0.01	$	—		$	—
Total		$	0.42	$	(0.74	)	$	(0.17	)
Net income (loss) per share — diluted
Continuing operations		$	0.39	$	(0.74	)	$	(0.17	)
Discontinued operations		$	0.01	$	—		$	—
Total		$	0.40	$	(0.74	)	$	(0.17	)

      The following table sets forth potential shares of common stock that are not included in the diluted net loss per share calculation above because to do so would be anti-dilutive for the periods presented (in thousands):

		Years Ended
		December 27,		December 25,		December 31,
		2003		2004		2005
Stock options outstanding:
	In-the-money options		—		4,340		1,571
	Out-of-the-money options		3,111		12,032		13,266
Unvested common shares subject to repurchase			—		11		163
6.8% Convertible Senior Notes due 2010			11,723		18,756		15,873
2.375% Convertible Senior Notes due 2012			—		—		1,102
	Total potential shares of common stock excluded from the computation of earnings per share		14,834		35,139		31,975

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MAXTOR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      The computation of diluted earnings (loss) per share excludes the impact of the conversion of the 6.8% convertible senior notes, as the impact of adding back to income the after tax interest expense associated with the convertible senior notes, and including the impact of the common shares to be issued, would be anti-dilutive in the periods presented. For the year ended December 31, 2005, no common shares issuable under the terms of the 2.375% convertible senior notes that the Company issued in August 2005 have been included in potential common shares as the conversion of the notes is subject to certain contingencies that were not met as of December 31, 2005.

      For the years ended December 27, 2004 and December 31, 2005, stock options outstanding with an exercise price lower than the Company’s average stock price for the periods presented (“In-the-money options”) are excluded from the calculation of diluted net loss per share since the effect would have been anti-dilutive due to the net loss. Stock options outstanding with an exercise price higher than the Company’s average stock price for the periods presented (“Out-of-the-money options”) are excluded from the calculation of diluted net income (loss) per share since the effect would have been anti-dilutive under the treasury stock method.

16. Segment and Major Customers Information

      In evaluating its segments in accordance with Statement of Financial Accounting Standards No. 131, “Disclosure about Segments of an Enterprise and Related Information,” the Company gave consideration to the Chief Executive Officer’s review of financial information and the organizational structure of the Company’s management. Based on this review, the Company concluded that, at the present time, resources are allocated and other financial decisions are made based, primarily, on consolidated financial information. Accordingly, the Company has determined that it operates in one segment, which is the manufacture and distribution of hard disk drives for desktop, enterprise and consumer electronics applications.

      The Company conducts its business globally and is managed geographically. Revenue is attributable to the geographical area based on the location of the customers. Revenue by destination and long-lived asset information by geographic area for each of the three years is presented in the following table:

	Year Ended				Year Ended				Year Ended
	December 27, 2003				December 25, 2004				December 31, 2005
			Long-Lived				Long-Lived				Long-Lived
	Revenue		Assets		Revenue		Assets		Revenue		Assets
	(In thousands)
United States	$	1,375,663	$	916,401	$	1,205,724	$	696,317	$	1,200,339	$	680,833
Asia Pacific and Japan		1,259,801		129,380		1,136,769		172,002		1,178,055		166,769
Europe, Middle East and Africa		1,354,421		731		1,373,806		444		1,388,017		628
Latin America and other		96,558		157		80,029		271		123,826		—
Total	$	4,086,443	$	1,046,669	$	3,796,328	$	869,034	$	3,890,237	$	848,230

      Long-lived assets located within the United States consist primarily of goodwill and other intangible assets. Long-lived assets located outside the United States consist primarily of the Company’s manufacturing operations located in Singapore and China.

      Sales to computer equipment manufacturers represented 50.5%, 52.0% and 51.4% of total revenue for the fiscal years 2003, 2004 and 2005, respectively. Sales to distribution channel and retail customers represented 49.5%, 48.0% and 48.6% in fiscal years 2003, 2004 and 2005, respectively. Sales to each of two customers were over 10% of revenue in fiscal year 2005. No customers represented over 10% of revenue in fiscal year 2004. Sales to one customer were 11.0% of revenue in fiscal year 2003.

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MAXTOR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

17. Employee Benefit Plans

401(k) Plan

      The Company maintains a retirement and deferred savings plan for its employees (the “401(k) Plan”) which is intended to qualify as a tax-qualified plan under the Code. The 401(k) Plan is a profit sharing plan which is intended to qualify under section 401(a) of the Internal Revenue Code of 1986, as amended, which includes a cash or deferred arrangement intended to satisfy the requirements of Code section 401(k). The 401(k) Plan has been amended from time to time to comply with applicable laws and regulations. Under the 401(k) Plan, in addition to the Company match, the Company may make discretionary contributions. The Company’s contributions to the 401(k) Plan, for the years ended December 27, 2003, December 25, 2004 and December 31, 2005, were $5.7 million, $6.2 million and $4.0 million, respectively. All amounts contributed by participants and the Company, along with earnings on such contributions are fully vested at all times.

Deferred Compensation Plan

      The Company has a deferred compensation plan for the benefit of eligible employees which is designed to permit certain discretionary employer contributions, in excess of the tax limits applicable to the 401(k) plan and to permit employee deferrals in excess of certain tax limits. Company assets earmarked to pay benefits under the plan are held by a rabbi trust. The Company has adopted the provisions of EITF No. 97-14, “Accounting for Deferred Compensation Arrangements Where Amounts Earned are Held in a Rabbi Trust and Invested” (“EITF 97-14”). Under EITF 97-14, the assets and liabilities of a rabbi trust must be accounted for as if they are assets and liabilities of the Company. At December 25, 2004 and December 31, 2005, the deferred compensation amounts related to the rabbi trust were zero and approximately $5.1 million, respectively, and are included in Other assets and Other liabilities on the consolidated balance sheets.

18. Litigation Settlement

      In 2004, in connection with the Company’s suit against Koninklijke Philips Electronics N.V. and several other Philips-related companies in the Superior Court of California, County of Santa Clara whereby the Company alleged that an integrated circuit chip supplied by Philips was defective and caused significant levels of failure of certain Quantum legacy products acquired as part of the Company’s acquisition of the Quantum HDD business, the Company entered into a settlement agreement with the other parties pursuant to which the parties dismissed the lawsuit with prejudice and the Company received a cash payment of $24.8 million, which was recorded as litigation settlement income in the year ended December 25, 2004.

19. Rescission Offer

      On October 31, 2005, the Company commenced a registered rescission offer to repurchase up to 4,275,668 shares of its common stock from persons who purchased those shares from the Company’s 1998 Employee Stock Purchase Plan (“ESPP”) that may not have been exempt from registration or qualification under the Securities Act of 1933, as amended (the “Securities Act”). The registered rescission offer was made to persons that purchased common stock from the Company’s ESPP on August 16, 2004 and February 15, 2005. The rescission offer was intended to address federal securities law compliance issues by allowing holders of shares covered by the rescission offer to sell those securities back to the Company at the original purchase price, plus eight percent interest. A total of eight holders accepted the rescission offer for an aggregate of 2,800 shares of the Company’s common stock with an approximate value of $10,000 prior to the expiration of the rescission offer on November 30, 2005. Generally, the federal statute of limitation for non-compliance with the requirement to register securities under the Securities Act is one year, which for purposes of the Company’s failure to register securities offered or sold by its ESPP in fiscal years 2004 and 2005, expired on February 15, 2006.

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MAXTOR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

20. Merger with Seagate Technology

      On December 20, 2005, the Company entered a definitive agreement with Seagate Technology (“Seagate”), whereby Seagate will acquire Maxtor in a stock for stock merger transaction. Under the terms of the merger agreement, which was unanimously approved by the boards of directors of both companies, Maxtor stockholders will receive 0.37 shares of Seagate common stock for each Maxtor share they own. When the transaction is completed, Maxtor stockholders will own approximately 16% of the combined company. The transaction was valued at approximately $1.9 billion at the time of its announcement on December 21, 2005. Maxtor’s existing convertible debt will be assumed by Seagate with the conversion price adjusted for the 0.37 exchange ratio. Giving effect to the pending merger transaction, each of Maxtor’s 6.8% Convertible Senior Notes will be adjusted to have the right to convert into 30.17 Seagate shares at a conversion price of $33.14; each of Maxtor’s 2.375% Convertible Senior Notes will be adjusted to have the right to convert into 56.65 Seagate shares at a conversion price of $17.65. As part of the Company’s retention bonus program to retain its employees affected by the merger transaction, as provided in the merger agreement, the retention bonus program includes inter alia, a bonus program that provides for an aggregate of up to $100 million bonus payments to approximately 75% of the Company exempt worldwide workforce. Subject to continued employment through the applicable payment dates, 20% of each participant’s bonus would be payable upon the earlier of July 1, 2006 or the consummation of change in control. The remaining 80% of the bonus would be payable on the date six months after consummation of a change in control. The retention bonus plan was amended effective February 16, 2006, to provide that participants will be entitled to the payments upon involuntary termination of employment without cause prior to the payment dates. The Company expects the transaction will be completed in the second half of 2006, subject to stockholder approval and regulatory approvals. There is a termination fee of $300 million payable to Maxtor under certain conditions.

      The foregoing description of the merger transaction is qualified in its entirety by reference to the full text of the merger agreement that has been filed with the Securities and Exchange Commission.

21. Subsequent Event

      In January 2006, the Company entered into an agreement to sublease certain buildings at the Company’s corporate main campus in Milpitas, California to a subtenant. The future minimum annual lease payments for these buildings were related to the facilities in restructuring, assumed as part of Quantum’s acquisition in 2001, and recorded in the restructuring accrual on the Company’s consolidated balance sheets. See Note 12 to the Consolidated Financial Statements. The effect of the sublease arrangement will be approximately an $11 million credit to the Company’s restructuring expense on the consolidated income statements in first quarter of fiscal 2006 in accordance with provisions of EITF 95-3, “Recognition of Liabilities in Connection with a Purchase Business Combination.”

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of Maxtor Corporation:

      We have completed integrated audits of Maxtor Corporation’s 2005 and 2004 consolidated financial statements and of its internal control over financial reporting as of December 31, 2005, and an audit of its 2003 consolidated financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Our opinions, based on our audits, are presented below.

Consolidated financial statements and financial statement schedule

      In our opinion, the consolidated financial statements listed in the accompanying index present fairly, in all material respects, the financial position of Maxtor Corporation and its subsidiaries at December 31, 2005 and December 25, 2004 and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2005 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the accompanying index presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statement. These financial statements and financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. We conducted our audits of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit of financial statements includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

Internal control over financial reporting

      Also, in our opinion, management’s assessment, included in Management’s Report on Assessment of Internal Control Over Financial Reporting appearing under Item 9A, that the Company maintained effective internal control over financial reporting as of December 31, 2005 based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) is fairly stated, in all material respects, based on those criteria. Furthermore, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2005, based on criteria established in Internal Control — Integrated Framework issued by the COSO. The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express opinions on management’s assessment and on the effectiveness of the Company’s internal control over financial reporting based on our audit. We conducted our audit of internal control over financial reporting in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. An audit of internal control over financial reporting includes obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we consider necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinions.

      A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation

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of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

      Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

PricewaterhouseCoopers LLP

San Jose, California

February 21, 2006

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Item 9. Changes In and Disagreements with Accountants on Accounting and Financial Disclosure

      None.

Item 9A. Controls and Procedures

Management’s Report on Assessment of Internal Control Over Financial Reporting

      Management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The Company’s internal control over financial reporting consists of policies and procedures that are designed and operated to provide reasonable assurance about the reliability of the Company’s financial reporting and its process for preparing financial statements in accordance with generally accepted accounting principles (“GAAP”). Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate.

      Management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2005. In making this assessment, management used the criteria described in Internal Control — Integrated Framework issued by The Committee of Sponsoring Organizations of the Treadway Commission. Based on the results of this assessment, management (including our chief executive officer and our chief financial officer) has concluded that, as of December 31, 2005, our internal control over financial reporting was effective.

      Management’s assessment of the effectiveness of the Company’s internal control over financial reporting as of December 31, 2005 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report which appears herein.

Remediation of Material Weakness

      As of December 25, 2004, we identified a material weakness in internal control over financial reporting related to the application of GAAP to the accounting for complex, non-routine transactions (purchase accounting entries relating to deferred taxes, goodwill and leases, and severance and facility accruals in connection with the establishment of restructuring reserves):

•  Lack of accounting personnel with sufficient skills and experience to ensure the accounting for complex, non-routine transactions is in compliance with GAAP; and

•  Insufficient formalized procedures to assure that complex, non-routine transactions are reviewed by management or accounting personnel with technical accounting expertise

      For additional information relating to the control deficiencies that resulted in the material weakness described above, please see the discussion under “Item 9A. Controls and Procedures — Management Report on Internal Control Over Financial Reporting” and “Item 4. Controls and Procedures” contained in our reports on Form 10-K/A for the fiscal year ended December 25, 2004 and Form 10-Q for the period ended October 1, 2005, respectively.

      During 2005, we implemented a number of remediation measures to address the material weakness described above. As described in our Form 10-K/A for fiscal year 2004, the Company’s remediation plans included:

•  Supplementing the Company’s staff with additional accounting personnel and outside contractors with the technical accounting expertise necessary to evaluate and document complex, non-routine transactions,

•  Reorganizing the accounting and finance department, and

102

•  Revising processes and procedures to assure the review by senior management of the accounting and related documentation for complex, non-routine transactions (purchase accounting entries relating to deferred taxes, goodwill and leases, and severance and facility accruals in connection with the establishment of restructuring reserves).

      The Company completed its remediation plans as described below:

•  During the quarter ended December 25, 2004, the Company filled the then vacant position of Chief Financial Officer and appointed an Operations Controller to provide leadership and review in the accounting function. The Company also established the previously outsourced internal audit function in-house, led by a senior executive.

•  During the first quarter of 2005, the Company appointed a Corporate Controller and Principal Accounting Officer to replace the former Corporate Controller who resigned. The Company also effected a reorganization of its accounting and finance department and implemented revised policies and procedures to ensure early involvement and adequate evaluation of complex, non-routine transactions (any purchase accounting entries relating to deferred taxes, goodwill and leases, and severance and facility accruals in connection with the establishment of restructuring reserves) by accounting personnel with technical expertise and review by senior management of the results of the accounting evaluation and documentation.

•  In the second quarter of 2005, the Company continued to enhance its accounting staffing, including the hiring of key accounting personnel with requisite technical accounting expertise. The addition of the accounting staff in the second quarter of 2005 completed the planned remediation steps.

•  In the third and fourth quarters of 2005, the Company continued to monitor the effectiveness of these remediation measures.

Changes in Internal Control Over Financial Reporting

      While the planned remediation steps were designed and in place by the end of the second quarter of 2005, management continued to evaluate the operating effectiveness through the end of fiscal year 2005 when it was concluded that the Company’s internal control over financial reporting was sufficiently mature to support an assessment that the controls were effective. There were no changes in our internal control over financial reporting during the quarter ended December 31, 2005 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Evaluation of Effectiveness of Disclosure Controls and Procedures

      Under the supervision and with the participation of our management, including our chief executive officer and our chief financial officer, we evaluated the effectiveness of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) promulgated under the Exchange Act. Based on that evaluation, our chief executive officer and our chief financial officer concluded that our disclosure controls and procedures were effective as of December 31, 2005. The evaluation considered the procedures designed to ensure that information required to be disclosed by us in the reports filed or submitted by us under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and communicated to our management as appropriate to allow timely decisions regarding required disclosure.

Item 9B. Other Information

      On February 10, 2006, Maxtor Corporation’s Compensation Committee approved the 2006 Annual Incentive Plan (the “2006 AIP”), consistent with the Committee’s past practices, and conditioned on and subject to the consent of Seagate Technology (“Seagate”), as required under the Agreement and Plan of Merger by and among Seagate, MD Merger Corporation and Maxtor dated as of December 20, 2006 (the “Merger Agreement”). Seagate consented to the adoption of the 2006 AIP as of February 16, 2006 and the 2006 AIP took effect as of that date.

103

      The 2006 AIP applies to all Maxtor employees world-wide. The objectives of the 2006 AIP established by the Compensation Committee are to drive Maxtor’s profitability, set direction in the event the Seagate merger is terminated, align individual performance objectives with successful achievement of Maxtor financial goals and initiatives and provide reward opportunities consistent and competitive with the data storage/computer peripheral industry. Payout is conditioned on the Merger Agreement being terminated, and Maxtor achieving a minimum amount of pre-tax net income for fiscal year 2006. Employees must remain employed through the payout date.

      A participant in the 2006 AIP will be eligible for a payment if the Company achieves the performance goals established by the Compensation Committee for fiscal 2006 based on pre-tax net income. A range of bonuses may be paid based on achievement of a range of pre-tax net income, with the total bonus opportunity tied to the amount of pre-tax net income achieved. The total bonus pool is based on a percentage of total pretax net income achieved, and each participant’s bonus opportunity is prorated based on the Company’s achievement of pre-tax income between the minimum and maximum pre-tax net income targets, with the participant’s individual bonus opportunity as an established percentage of base salary, and also subject to the participant’s performance rating. Pre-tax net income achieved beyond the 100% target will result in bonuses beyond the 100% payout up to a maximum stretch target. The Committee must determine the level of performance target met and authorize payout. There will be no payout under the 2006 AIP if the merger with Seagate is consummated.

      Participants in the Company’s 2006 AIP includes the following executive officers at the indicated target bonus levels, if the 100% target payout is achieved: C.S. Park ($700,000), Michael J. Wingert ($600,000); Duston M. Williams ($270,000); Kurt Richarz ($162,500); and Fariba Danesh ($240,000).

      Also on February 10, 2006, Maxtor’s Compensation Committee approved an amendment to the Retention Bonus Program (the “Retention Bonus Program”) to provide that in the event of a participant’s involuntary termination other than for cause by Maxtor prior to the merger, such participant shall be entitled to receive any payments otherwise payable to such participant under the Retention Bonus Program as if such participant had continued employment in good standing with Maxtor through the applicable payment date, subject to and consistent with the other terms of the Retention Bonus Program. Seagate consented to this amendment of the Retention Bonus Program on February 16, 2006.

      Copies of the 2006 AIP and the Retention Bonus Program, as amended through the date hereof, are included as Exhibits 10.62 and 10.59, respectively.

PART III

Item 10. Directors and Executive Officers of the Registrant

      The information required by this item with respect to identification of directors is incorporated by reference to the information contained in the section captioned “Election of Directors” in the Proxy Statement. For information with respect to our executive officers, see “Executive Officers” at the end of Part I, Item 1 of this report. Information with respect to Items 405 and 406 of Regulation S-K is incorporated by reference to the information contained in the sections captioned “Section 16(a) Beneficial Ownership Reporting Compliance” and “Proposal No. Two, Election of Directions — Corporate Governance and Board Committees” in the Proxy Statement.

Item 11. Executive Compensation

      The information required by this Item is incorporated herein by reference to the information contained in the section captioned “Executive Compensation and Other Matters” in the Proxy Statement.

104

Item 12. Security Ownership of Certain Beneficial Owners and Management

      The information required by this Item is incorporated herein by reference to the information contained in the section captioned “Stock Ownership of Certain Beneficial Owners and Management” in the Proxy Statement.

Item 13. Certain Relationships and Related Transactions

      The information required by this Item is incorporated herein by reference to the information contained in the section captioned “Executive Compensation and Other Matters” in the Proxy Statement.

Item 14. Principal Accounting Fees and Services

      The information required by this Item is incorporated herein by reference to the information contained in the section captioned “Ratification of Engagement of Independent Registered Public Accounting Firm” in the Proxy Statement.

PART IV

Item 15. Exhibits, Financial Statement Schedules

      (a) The following documents are filed as part of this report:

      (1)-(2) Financial Statements and Financial Statement Schedules — See Index to Consolidated Financial Statements under Item 8 on page 59 of this report.

      (3) Exhibits. See Index to Exhibits on pages 108 to 112 hereof.

105

SIGNATURES

      Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Milpitas, State of California, on the 21st day of February, 2006.

MAXTOR CORPORATION
(Registrant)

By:  /s/ C.S. PARK

Dr. C.S. Park

Chairman and Chief Executive Officer

      Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Signature	Title	Date
/s/ C.S. Park Dr. C.S. Park	Chairman and Chief Executive Officer (Principal Executive Officer)	February 21, 2006
/s/ Duston M. Williams Duston M. Williams	Executive Vice President and Chief Financial Officer (Principal Financial Officer)	February 21, 2006
/s/ Kimberly Alexy Kimberly Alexy	Director	February 21, 2006
/s/ Richard E. Allen Richard E. Allen	Director	February 21, 2006
/s/ Charles M. Boesenberg Charles M. Boesenberg	Director	February 21, 2006
/s/ Michael R. Cannon Michael R. Cannon	Director	February 21, 2006
/s/ Charles F. Christ Charles F. Christ	Director	February 21, 2006
/s/ Charles Hill Charles Hill	Director	February 21, 2006
/s/ Gregory E. Myers Gregory E. Myers	Director	February 21, 2006
/s/ Nancy Bush Nancy Bush	Vice President, Corporate Controller (Principal Accounting Officer)	February 21, 2006

106

MAXTOR CORPORATION

SCHEDULE II — VALUATION AND QUALIFYING ACCOUNTS

		Balance at		Additions Charged						Balance at
		Beginning		to Cost and						End of
Fiscal Year Ended		of Period		Expenses			Deductions(1)(2)			Period
		(In thousands)
2005
	Allowance for doubtful accounts	$	8,228	$	4,520		$	(213	)	$	12,961
	Revenue reserves	$	85,315	$	351,400		$	348,240		$	88,475
	Valuation allowance for deferred tax assets	$	315,864	$	(4,697	)	$	—		$	311,167
2004
	Allowance for doubtful accounts	$	11,220	$	(433	)	$	2,559		$	8,228
	Revenue reserves	$	82,809	$	398,486		$	395,980		$	85,315
	Valuation allowance for deferred tax assets	$	181,177	$	134,687		$	—		$	315,864
2003
	Allowance for doubtful accounts	$	18,320	$	(2,000	)	$	5,100		$	11,220
	Revenue reserves	$	82,878	$	525,329		$	525,398		$	82,809
	Valuation allowance for deferred tax assets	$	186,980	$	(5,803	)	$	—		$	181,177

(1)	Deductions for allowance for doubtful accounts represent recoveries of previously reserved balances and write-offs of fully reserved balances for which collection efforts have been exhausted.
(2)	Deductions for revenue reserves represent actual returns and allowances.

107

INDEX TO EXHIBITS

Exhibit
Number			Description
	2	.1(29)	Agreement and Plan of Merger, dated as of December 20, 2005, by and among Seagate, MD Merger Corporation and Maxtor Corporation.
	3	.1(5)	Restated Certificate of Incorporation of Registrant.
	3	.2	Amended and Restated Bylaws of Registrant, dated February 18, 2005.
	4	.1(11)	Indenture between Registrant and U.S. Bank National Association, dated as of May 7, 2003.
	4	.2(11)	Resale Registration Rights Agreement between Registrant, Banc of America Securities LLC and Merrill Lynch, Pierce, Fenner & Smith Incorporated, dated as of May 7, 2003.
	4	.3(28)	Indenture between Maxtor Corporation and U.S. Bank National Association, dated August 15, 2005.
	4	.4(28)	Registration Rights Agreement among Maxtor Corporation, Citigroup Global Markets Inc., Merrill Lynch, Pierce Fenner & Smith Incorporated and Goldman Sachs and Co., dated August 15, 2005.
	10	.1(1)	Form of Indemnification Agreement between Registrant and Registrant’s directors and officers.**
	10	.2(1)	Indenture dated as of March 1, 1987 between Registrant and Security Pacific National Bank, as Trustee.
	10	.3(1)	Land Lease between Housing Development Board and Maxtor Singapore Limited dated as of March 8, 1991.
	10	.4(2)	1998 Restricted Stock Plan.**
	10	.5(2)	Form of Restricted Stock Grant Agreement.**
	10	.6(3)	Lease Agreement for Premises Located at 2452 Clover Basin Drive, Longmont, Colorado, between Registrant, as Tenant, and Pratt Land Limited Liability Company, as Landlord, dated October 28, 1999.
	10	.7(4)	Form of Tax Opinion Insurance Policy.
	10	.8(6)	Separation and Redemption Agreement dated as of April 2, 2001 among Quantum Corporation, Insula Corporation and Registrant.
	10	.9(6)	Tax Sharing and Indemnity Agreement dated as of April 2, 2001 among Quantum Corporation, Insula Corporation and Registrant.
	10	.10(6)	Intellectual Property Agreement dated as of April 2, 2001 by and between Quantum Corporation and Insula Corporation.
	10	.11(6)	Indemnification Agreement dated as of April 2, 2001 among Quantum Corporation, Insula Corporation and Registrant.
	10	.12(6)	Real Estate Matters Agreement dated as of April 2, 2001 among Quantum Corporation, Insula Corporation and Registrant.
	10	.13(6)	General Assignment and Assumption Agreement dated as of April 2, 2001 among Quantum Corporation, Insula Corporation and Registrant.
	10	.14(7)	Form of Tax Opinion Insurance Policy Rider.
	10	.15(8)	Lease Amendment and Novation Agreement made as of August 31, 2001, by and between FortuneFirst, LLC, Hynix Semiconductor America Inc., and MMC Technology, Inc.
	10	.16(9)	Maxtor Corporation Amended and Restated 1996 Stock Option Plan.**
	10	.17(9)	Standard Volume Purchase Agreement between Registrant, Agere Systems, Inc., and Agere Systems Singapore Pte. Ltd., effective as of January 1, 2002.*
	10	.18(10)	Master Financing Agreement between Maxtor Technology (Suzhou) Co., Ltd., Bank of China Suzhou Branch and Bank of China Suzhou Industrial Park Sub-branch, dated as of April 15, 2003.
	10	.19(10)	Contract for Transfer of the Right to the Use of Land in Respect to 222,700.82 Square meters of Land Located at Su Hong Dong Road, Suzhou Industrial Park between China-Singapore Suzhou Industrial Park Development Co., and Maxtor Technology (Suzhou Co., Ltd., dated as of February 12, 2003.

108

Exhibit
Number			Description
	10	.20(12)	Letter of Guarantee from Oversea-Chinese Banking Corporation Limited to Maxtor Peripherals (S) Pte Ltd, dated July 29, 2003.
	10	.21(12)	Form of Amendment of Restricted Stock Unit Award Agreement between Registrant and David L. Beaver (50,000 Restricted Stock Units) dated as of September 2, 2003.**
	10	.22(12)	Loan Agreement between Maxtor Peripherals (S) Pte Ltd and the Singapore Economic Development Board, dated September 3, 2003.
	10	.23(14)	Supplementary Agreement on Amendment of Foreign Exchange Loan Contract between Maxtor Technology (Suzhou) Co., Ltd. and Bank of China SIP Sub-branch, dated March 24, 2004.
	10	.24(15)	U.S. $100,000,000 Receivables Loan and Security Agreement dated as of June 24, 2004 among Maxtor Receivables LLC, Maxtor Corporation, Merrill Lynch Commercial Finance Corp. and U.S. Bank National Association.
	10	.25(15)	Purchase and Contribution Agreement dated as of June 24, 2004 between Maxtor Corporation and Maxtor Receivables LLC.
	10	.26(24)	First Amendment Agreement to the Receivables Loan and Security Agreement dated December 22, 2004 among Maxtor Receivables LLC, Maxtor Corporation, Merrill Lynch Commercial Finance Corp. and U.S. Bank National Association.
	10	.27(24)	Second Amendment Agreement to the Receivables Loan and Security Agreement dated March 4, 2005 among Maxtor Receivables LLC, Maxtor Corporation, Merrill Lynch Commercial Finance Corp. and U.S. Bank National Association.
	10	.28(15)	Amendment No. 1 to Maxtor Standard Volume Purchase Agreement dated as of July 1, 2004 between Maxtor Corporation and Agere Systems Inc.*
	10	.29(15)	Agreement dated as of July 19, 2004 between Maxtor Corporation and Mr. Phillip C. Duncan.**
	10	.30(15)	Employment Offer Letter dated as of July 19, 2004 from Maxtor Corporation to Mr. John Viera.**
	10	.31(16)	Employment Offer Letter dated as of August 23, 2004 from Maxtor Corporation to Mr. Michael A. Bless.**
	10	.32(17)	Employment Offer Letter dated as of September 30, 2004 from Maxtor Corporation to Ms. Fariba Danesh.**
	10	.33(18)	Foreign Exchange Loan Agreement No. YZDZ (2003) NO. 197 between Maxtor Technology (Suzhou) Co., Ltd. and Bank of China Suzhou Industrial Park Sub-branch, dated October 10, 2003.
	10	.34(18)	Letter of Guarantee by Maxtor International S.à r.l. to and for the benefit of Bank of China Suzhou Branch regarding Foreign Exchange Loan Agreement No. YZDZ (2003) NO. 197 made as of August 16, 2004.
	10	.35(18)	Foreign Exchange Loan Agreement No. YZDZ (2004) NO. 089 between Maxtor Technology (Suzhou) Co., Ltd. and Bank of China Suzhou Industrial Park Sub-branch, dated August 16, 2004.
	10	.36(18)	Letter of Guarantee by Maxtor International S.à r.l. to and for the benefit of Bank of China Suzhou Branch regarding Foreign Exchange Loan Agreement No. YZDZ (2004) NO. 089 made as of August 16, 2004.
	10	.37(19)	Employment Offer Letter dated as of November 12, 2004 from Maxtor Corporation to Dr. C.S. Park.**
	10	.38(20)	Employment Offer Letter dated as of November 17, 2004 from Maxtor Corporation to Mr. Michael J. Wingert.**
	10	.39(21)	Employment Offer Letter dated as of December 3, 2004 from Maxtor Corporation to Mr. Duston M. Williams.**
	10	.40(22)	Amendment to the Employment Offer Letter dated as of February 7, 2004 from Maxtor Corporation to Dr. C.S. Park.**
	10	.41(23)	Amendment to the Employment Offer Letter dated as of February 7, 2004 from Maxtor Corporation to Mr. Michael J. Wingert.**

109

Exhibit
Number			Description
	10	.42(23)	Employment Offer Letter dated as of February 18, 2005 from Maxtor Corporation to Mr. Kurt Richarz.**
	10	.43(24)	Mutual General Release and Global Settlement Agreement between Registrants and Quantum Corporation dated as of December 23, 2004.
	10	.44(24)	Forbearance Agreement by and among Maxtor Receivables LLC, Maxtor Corporation and Merrill Lynch Commercial Finance Corporation, dated as of February 11, 2005.
	10	.45(25)	Amended and Restated Executive Deferred Compensation Plan, effective January 1, 2005.**
	10	.46(25)	Executive Retention and Severance Plan adopted October 30, 2003, amended and restated effective March 7, 2005, including forms of: (i) Agreement to Participate, (ii) General Release of Claims, and (iii) Restrictive Covenants Agreement.**
	10	.47(25)	Forms of Agreement to Participate in the Maxtor Corporation Executive Retention and Severance Plan, effective March 14, 2005, by: (i) Dr. C. S. Park; (ii) Michael J. Wingert; (iii) Duston M. Williams; (iv) Fariba Danesh; (v) David Beaver; and (vi) Kurt Richarz.**
	10	.48(25)	Restricted Stock Unit Plan, as amended and restated through March 7, 2005, including forms of:(i) Standard Form of Award Agreement and (ii) Designation of Beneficiary.**
	10	.49(25)	Forms of Restated Restricted Stock Unit Award Agreement, effective March 14, 2005, by: (i) Dr. C. S. Park; (ii) Michael J. Wingert; (iii) Duston M. Williams; (iv) Fariba Danesh; (v) David Beaver; and (vi) Kurt Richarz.**
	10	.50(25)	Form of Nonstatutory Stock Option Agreement under the Maxtor Corporation Amended and Restated 1996 Stock Option Plan.**
	10	.51(12)	Form of Restricted Stock Unit Award Agreement between Registrant and Fariba Danesh (45,000 Restricted Stock Units), dated as of September 30, 2004.**
	10	.52(13)	Form of Executive Retention and Severance Participation Agreement between Registrant and Fariba Danesh, dated as of September 30, 2004.**
	10	.53(1)	Form of Indemnification Agreement between Registrant and Fariba Danesh, dated as of September 30, 2004.
	10	.54(26)	1998 Employee Stock Purchase Plan, as amended by the Board of Directors through March 7, 2005**
	10	.55(27)	2005 Performance Incentive Plan effective May 13, 2005, including forms of: (i) Restricted Stock Agreement for Section 16 Insiders; (ii) Restricted Stock Agreement for Non-Section 16 Insiders; (iii) Restricted Stock Units Agreement for Non-US Participants; (iv) Restricted Stock Units Agreement for US Participants; (v) Restricted Stock Units Agreement for Section 16 Insiders; (vi) Stock Option Agreement; (vii) Stock Option Agreement for Non-US Participants; (viii) Notice of Grant of Stock Option for Non-US Participants; (ix) Notice of Grant of Stock Option; (x) Notice of Grant of Restricted Stock; (xi) Notice of Grant of Restricted Stock Units for Non-US Participants; and (xii) Notice of Grant of Restricted Stock Units.**
	10	.56(27)	Supply Agreement dated October 6, 2003 between Maxtor Corporation and Komag, Inc. as amended by Addendum to Business Agreement dated July 8, 2005.*
	10	.57(28)	US $300,000,000 Purchase Agreement between Maxtor Corporation and Citigroup Global Markets Inc. as Representative of the several Initial Purchasers dated as of August 9, 2005, as amended by Amendment to Purchase Agreement dated as of August 26, 2005.
	10	.58(29)	Form of Voting Agreement, dated December 20, 2005, by and among Maxtor Corporation and the persons listed on Schedule I thereto.
	10	.59	Retention Bonus Program, as amended.**
	10	.60	Executive Incentive Program in which the following executive officers at the indicated maximum target bonus levels may participate: Michael J. Wingert ($300,000); Duston M. Williams ($250,000); Kurt Richarz ($250,000); and Fariba Danesh ($250,000).**

110

Exhibit
Number			Description
	10	.61	Lease Agreements made between Quantum Corporation, John Arrillaga, Trustee, or his Successor Trustee, UTA dated July 7, 1977 and Richard T. Peery, Trustee, or his Successor Trustee, UTA dated July 7, 1997 for the following properties located in Milpitas, California: (i) Building 1, located at the corner of Bellew Drive and Magnolia Drive, made October 31, 1989, as amended, (ii) Building 2, located at the corner of Bellew Drive and McCarthy Boulevard made October 31, 1989, as amended, (iii) Building 3, located at 900 Sumac Drive, made April 10, 1992, as amended, (iv) Building 4, located at 1000 Sumac Drive, made September 17, 1990, as amended, (v) Building 5, located at 100 Sumac Drive, made March 23, 1994, as amended and (vi) Building 6, located at Sumac Drive, made April 16, 1997, as amended.
	10	.62	2006 Annual Incentive Plan, in which the following executive officers at the indicated target bonus levels, if the 100% target payout is achieved, may participate: C.S. Park ($700,000); Michael J. Wingert ($600,000); Duston M. Williams ($270,000); Kurt Richarz ($162,500); and Fariba Danesh ($240,000).**
	12	.1	Statement regarding Computation of Ratios.
	21	.1	List of Subsidiaries.
	23	.1	Consent of PricewaterhouseCoopers LLP.
	31	.1	Certification of Dr. C.S. Park, Chairman and Chief Executive Officer of Registrant pursuant to Rule 13a-14 adopted under the Securities Exchange Act of 1934, as amended, and Section 302 of the Sarbanes-Oxley Act of 2002.
	31	.2	Certification of Duston M. Williams, Executive Vice President, Finance and Chief Financial Officer of Registrant pursuant to Rule 13a-14 adopted under the Securities Exchange Act of 1934, as amended, and Section 302 of the Sarbanes-Oxley Act of 2002.
	32	.1	Certification of Dr. C.S. Park, Chairman and Chief Executive Officer of Registrant furnished pursuant to 18 U.S.C. § 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
	32	.2	Certification of Duston M. Williams, Executive Vice President, Finance and Chief Financial Officer of Registrant furnished pursuant to 18 U.S.C. § 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

* This exhibit (or portions thereof) has been filed separately with the Commission pursuant to an application for confidential treatment. The confidential portions of this Exhibit have been omitted and are marked by an asterisk.

** Management contract, or compensatory plan or arrangement.

(1)	Incorporated by reference to exhibits to registration statement on Form S-1, SEC file No. 333-56099, filed on June 5, 1998.
(2)	Incorporated by reference to exhibits to registration statement on Form S-1/ A, SEC file No. 333-56099, filed on June 29, 1998.
(3)	Incorporated by reference to exhibits of Form 10-K filed March 29, 2000.
(4)	Incorporated by reference to exhibits of registration statement on Form S-4/ A filed January 23, 2001.
(5)	Incorporated by reference to Exhibit A of Exhibit 3.1 of Form 8-K filed April 17, 2001.
(6)	Incorporated by reference to exhibits of Form 8-K filed April 17, 2001.
(7)	Incorporated by reference to exhibits to registration statement on Form S-3, File No. 333-61770, filed May 29, 2001.
(8)	Incorporated by reference to exhibits of Form 10-Q filed November 13, 2001.
(9)	Incorporated by reference to exhibits of Form 10-K filed March 28, 2003.

(10)	Incorporated by reference to exhibits of Form 10-Q filed May 13, 2003.
(11)	Incorporated by reference to exhibits of Form 10-Q filed August 12, 2003.
(12)	Incorporated by reference to exhibits of Form 10-Q filed November 12, 2003.

111

(13)	Incorporated by reference to exhibits of Form 10-K filed March 11, 2004.
(14)	Incorporated by reference to exhibits of Form 10-Q filed May 5, 2004.
(15)	Incorporated by reference to exhibits of Form 10-Q filed August 2, 2004.
(16)	Incorporated by reference to exhibits of Form 8-K filed August 24, 2004.
(17)	Incorporated by reference to exhibits of Form 8-K filed October 4, 2004.
(18)	Incorporated by reference to exhibits of Form 10-Q filed November 4, 2004.
(19)	Incorporated by reference to exhibits of Form 8-K filed November 18, 2004.
(20)	Incorporated by reference to exhibits of Form 8-K filed November 23, 2004.
(21)	Incorporated by reference to exhibits of Form 8-K filed December 9, 2004.
(22)	Incorporated by reference to exhibits of Form 8-K filed February 11, 2005.
(23)	Incorporated by reference to exhibits of Form 8-K filed February 25, 2005.
(24)	Incorporated by reference to exhibits of Form 10-K filed March 10, 2005.
(25)	Incorporated by reference to exhibits of Form 10-Q filed May 13, 2005.
(26)	Incorporated by reference to exhibit of Form 8-K filed May 19, 2005.
(27)	Incorporated by reference to exhibits of Form 10-Q filed August 4, 2005.
(28)	Incorporated by reference to exhibits of Form 10-Q filed November 4, 2005.
(29)	Incorporated by reference to exhibits of Form 8-K filed December 22, 2005.

112 EX-3.2 2 f17527exv3w2.htm EXHIBIT 3.2

EXHIBIT 3.2

MAXTOR CORPORATION,
a Delaware Corporation
AMENDED AND RESTATED BYLAWS

ARTICLE 1

STOCKHOLDERS

     Section 1. Annual Meeting. An annual meeting of the stockholders for the election of directors to succeed those whose terms expire and for the transaction of such other business as may properly come before the meeting, shall be held at such place, on such date, and at such time as the Board of Directors shall each year fix, which date shall be within thirteen months subsequent to the last annual meeting of stockholders, or if no such meeting has been held, the date of incorporation.

     Section 2. Special Meetings. Special meetings of the stockholders, for any purpose or purposes prescribed in the notice of the meeting, may be called only by (i) the Board of Directors, (ii) the Chairman of the Board or (iii) the Chief Executive Officer of the Corporation, and shall be held at such place, on such date, and at such time as they or he or she shall fix. Business transacted at special meetings shall be confined to the purpose or purposes stated in the notice of the meeting. In the event a special meeting is rightfully called by a person other than the Board of Directors, the Board shall cooperate in causing the meeting to be properly noticed and the matter as to which the meeting was called to be properly brought before the meeting.

     Section 3. Notice of Meetings. Written notice of the place, date, and time of all meetings of the stockholders shall be given, not less than ten (10) nor more than sixty (60) days before the date on which the meeting is to be held, to each stockholder entitled to vote at such meeting, except as otherwise provided herein or required by law (meaning, here and hereinafter, as required from time to time by the Delaware General Corporation Law or the Certificate of Incorporation of the Corporation, as amended from time to time). The notices of all meetings shall state the place, date and hour of the meeting. The notice of a special meeting shall state, in addition, the purpose or purposes for which the meeting is called. If mailed, notice is given when deposited in the United States mail, postage prepaid, directed to the stockholder at his address as it appears on the records of the corporation.

     When a meeting is adjourned to another place, date or time, written notice need not be given of the adjourned meeting if the place, date and time thereof are announced at the meeting at which the adjournment is taken; provided, however, that if the date of any adjourned meeting is more than thirty (30) days after the date for which the meeting was originally noticed, or if a new record date is fixed for the adjourned meeting, written notice of the place, date, and time of the adjourned meeting shall be given in conformity herewith. At any adjourned meeting, any business may be transacted which might have been transacted at the original meeting.

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     Section 4. Quorum. At any meeting of the stockholders, the holders of a majority of all of the shares of the stock entitled to vote at the meeting, present in person or by proxy, shall constitute a quorum for all purposes, unless or except to the extent that the presence of a larger number may be required by law.

     If a quorum shall fail to attend any meeting, the chairman of the meeting or the holders of a majority of the shares of stock entitled to vote who are present, in person or by proxy, may adjourn the meeting to another place, date, or time.

     If a notice of any adjourned special meeting of stockholders is sent to all stockholders entitled to vote thereat, stating that it will be held with those present constituting a quorum, then except as otherwise required by law, those present at such adjourned meeting shall constitute a quorum, and all matters shall be determined by a majority of the votes cast at such meeting.

     Section 5. Conduct of Stockholders’ Meeting. At every meeting of the stockholders, the Chairman of the Board, if there is such an officer, or if not, the person appointed by the Board of Directors, shall act as Chairman. The Secretary of the corporation or a person designated by the Chairman of the meeting shall act as Secretary of the meeting. Unless otherwise approved by the Chairman of the meeting, attendance at the stockholders’ meeting is restricted to stockholders of record, persons authorized in accordance with Section 7 of these Bylaws to act by proxy, and officers of the corporation.

     The Chairman of the meeting shall call the meeting to order, establish the agenda, and conduct the business of the meeting in accordance therewith or, at the Chairman’s discretion, it may be conducted otherwise in accordance with the wishes of the stockholders in attendance. The date and time of the opening and closing of the polls for each matter upon which the stockholders will vote at the meeting shall be announced at the meeting.

     The Chairman shall also conduct the meeting in an orderly manner, rule on the precedence of, and procedure on, motions and other procedural matters, and exercise discretion with respect to such procedural matters with fairness and good faith toward all those entitled to take part. The Chairman may impose reasonable limits on the amount of time taken up at the meeting on discussion in general or on remarks by any one stockholder. Should any person in attendance become unruly or obstruct the meeting proceedings, the Chairman shall have the power to have such person removed from the meeting. Notwithstanding anything in the Bylaws to the contrary, no business shall be conducted at a meeting except in accordance with the procedures set forth in this Section 5 and Section 6 below. The Chairman of a meeting may determine and declare to the meeting that any proposed item of business was not brought before the meeting in accordance with the provisions of this Section 5 and Section 6, and if he should so determine, he shall so declare to the meeting and any such business not properly brought before the meeting shall not be transacted.

     Section 6. Notice of Stockholder Business. At any meeting of the stockholders, only such business shall be conducted as shall have been properly brought before the meeting. To be properly brought before a meeting, business must be (a) specified in the notice of meeting (or any supplement thereto) given by or at the direction of the Board of Directors, (b) properly brought before the meeting by or at the direction of the Board of Directors, or (c) properly brought

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before an annual meeting by a stockholder. For business to be properly brought before an annual meeting by a stockholder, it must be a proper matter for stockholder action under Delaware General Corporate Law, and the stockholder must have given timely notice thereof in writing to the Secretary of the Corporation. To be timely, a stockholder proposal to be presented at an annual meeting shall be received at the Corporation’s principal executive offices not less than 120 calendar days in advance of the date that the Corporation’s (or the Corporation’s predecessor’s) proxy statement was released to stockholders in connection with the previous year’s annual meeting of stockholders, except that if no annual meeting was held in the previous year or the date of the annual meeting has been advanced by more than 30 calendar days from the date contemplated at the time of the previous year’s proxy statement, notice by the stockholders to be timely must be received not later than the close of business on the tenth day following the day on which the public announcement of the date of such meeting is first made.

     A stockholder’s notice to the Secretary of the Corporation shall set forth as to each matter the stockholder proposes to bring before the annual meeting (a) a brief description of the business desired to be brought before the annual meeting, (b) the name and address, as they appear on the Corporation’s books, of the stockholder proposing such business, (c) the class and number of shares of the Corporation which are beneficially owned by the stockholder, (d) any material interest of the stockholder in such business, and (e) whether the stockholder intends to deliver a proxy statement and form of proxy to holders of at least the percentage of the Corporation’s voting shares required under applicable law to carry the proposal. For purposes of this Section 6, “public announcement” shall mean disclosure in a press release reported by the Dow Jones News Service, Associated Press or comparable national news service or in a document publicly filed by the Corporation with the Securities and Exchange Commission pursuant to Section 13, 14 or 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Notwithstanding the foregoing provisions of this Section 6, a stockholder shall also comply with all applicable requirements of the Exchange Act and the rules and regulations thereunder with respect to the matters set forth in this Section 6. Nothing in this Section 6 shall be deemed to affect any rights of stockholders to request inclusion of proposals in the Corporation’s proxy statement pursuant to Rule 14a-8 under the Exchange Act.

     Section 7. Proxies and Voting. Each stockholder shall have one vote for each share of stock entitled to vote held of record by such stockholder and a proportionate vote for each fractional share so held, unless otherwise provided by law. Each stockholder of record entitled to vote at a meeting of stockholders, may vote in person or may authorize any other person or persons to vote or act for him by written proxy executed by the stockholder or his authorized agent or by a transmission permitted by law and delivered to the Secretary of the corporation. No stockholder may authorize more than one proxy for his shares. Any copy, facsimile telecommunication or other reliable reproduction of the writing or transmission created pursuant to this Section may be substituted or used in lieu of the original writing or transmission for any and all purposes for which the original writing or transmission could be used, provided that such copy, facsimile transmission or other reproduction shall be a complete reproduction of the entire original writing or transmission.

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     Section 8. Action at Meeting. When a quorum is present at any meeting, any election shall be determined by a plurality of the votes cast by the stockholders entitled to vote at the election, and all other matters shall be determined by a majority of the votes cast affirmatively or negatively on the matter (or if there are two or more classes of stock entitled to vote as separate classes, then in the case of each such class, a majority of each such class present or represented and voting affirmatively or negatively on the matter), except when a different vote is required by express provision of law or these Bylaws.

     All voting, including on the election of directors, but excepting where otherwise required by law, may be by a voice vote; provided, however, that upon demand therefor by a stockholder entitled to vote or his or her proxy, a stock vote shall be taken. Every stock vote shall be taken by ballots, each of which shall state the name of the stockholder or proxy voting and such other information as may be required under the procedure established for the meeting. Every vote taken by ballots shall be counted by an inspector or inspectors appointed by the chairman of the meeting. The corporation may, and to the extent required by law, shall, in advance of any meeting of stockholders, appoint one or more inspectors to act at the meeting and make a written report thereof. The corporation may designate one or more persons as an alternate inspector to replace any inspector who fails to act. If no inspector or alternate is able to act at a meeting of stockholders, the person presiding at the meeting may, and to the extent required by law, shall, appoint one or more inspectors to act at the meeting. Each inspector, before entering upon the discharge of his duties, shall take and sign an oath faithfully to execute the duties of inspector with strict impartiality and according to the best of his or her ability.

     Section 9. Stock List. A complete list of stockholders entitled to vote at any meeting of stockholders, arranged in alphabetical order for each class of stock and showing the address of each such stockholder and the number of shares registered in his or her name, shall be open to the examination of any such stockholder, for any purpose germane to the meeting, during ordinary business hours for a period of at least ten (10) days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or if not so specified, at the place where the meeting is to be held.

     The stock list shall also be kept at the place of the meeting during the whole time thereof and shall be open to the examination of any such stockholder who is present. This list shall presumptively determine the identity of the stockholders entitled to vote at the meeting and the number of shares held by each of them.

     Section 10. No Stockholder Action Without Meeting. Any action required or permitted to be taken by the stockholders of the Corporation must be effected at a duly called annual or special meeting of stockholders of the Corporation and may not be effected by any consent in writing by such stockholders.

ARTICLE II

BOARD OF DIRECTORS

     Section 1. Number and Term of Office.

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     The number of directors shall be fixed from time to time exclusively by the Board of Directors pursuant to a resolution adopted by a majority of the total number of authorized directors (whether or not there exist any vacancies in previously authorized directorships at the time any such resolution is presented to the Board for adoption). The directors shall be divided into three classes, as nearly equal in number as reasonably possible, with the term of office of the first class to expire at the 1996 annual meeting of stockholders, the term of office of the second class to expire at the 1997 annual meeting of stockholders and the term of office of the third class to expire at the 1998 annual meeting of stockholders, provided that the term of office of directors in office on the date these Amended and Restated Bylaws are adopted is not affected by the adoption of these Amended and Restated Bylaws. At each annual meeting of stockholders following such initial classification and election, directors elected to succeed those directors whose terms expire shall be elected for a term of office to expire at the third succeeding annual meeting of stockholders after their election. All directors shall hold office until the expiration of the term for which elected and until their respective successors are elected, except in the case of the death, resignation or removal of any director.

     Section 2. Vacancies and Newly Created Directorships. Except as provided in the Certificate of Incorporation of the Corporation, newly created directorships resulting from any increase in the authorized number of directors or any vacancies in the Board of Directors resulting from death, resignation, retirement, disqualification, removal from office or other cause may be filled only by a majority vote of the directors then in office, though less than a quorum, and directors so chosen shall hold office for a term expiring at the annual meeting of stockholders at which the term of office of the class to which they have been elected expires. No decrease in the number of directors constituting the Board of Directors shall shorten the term of any incumbent director.

     Section 3. Removal. Any or all of the directors may be removed from office at any time, but only for cause and only by the affirmative vote of the holders of at least a majority of all outstanding shares of capital stock of the Corporation entitled to vote generally in the election of directors, voting together as a single class.

     Section 4. Regular Meetings. Regular meetings of the Board of Directors shall be held at such place or places, on such date or dates, and at such time or times as shall have been established by the Board of Directors and publicized among all directors. A notice of each regular meeting shall not be required. A regular meeting of the Board of Directors may be held without notice immediately after and at the same place as the annual meeting of stockholders.

     Section 5. Special Meetings. Special meetings of the Board of Directors may be called by the Chairman of the Board, the President and Chief Executive Officer, two or more directors, or by one director in the event there is only a single director in office, and shall be held at such place, on such date, and at such time as they or he or she shall fix. Notice of the place, date, and time of each such special meeting shall be given to each director by whom it is not waived (i) by giving notice to such director in person or by telephone, electronic transmission or voice message system at least 24 hours in advance of the meeting, (ii) by sending a telegram, telecopy or telex, or delivering written notice by hand, to his last known business or home address at least 24 hours in advance of the meeting, or (iii) by mailing written notice to his last known business or home

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address at least five (5) days in advance of the meeting. A notice or waiver of notice of a meeting of the Board of Directors need not specify the purposes of the meeting. Unless otherwise indicated in the notice thereof, any and all business may be transacted at a special meeting.

     Section 6. Quorum. At any meeting of the Board of Directors, a majority of the total number of authorized directors shall constitute a quorum for all purposes. In the event one or more of the directors shall be disqualified to vote at any meeting, then the required quorum shall be reduced by one for each such director so disqualified; provided, however, that in no case shall less than one-third (1/3) of the number so fixed constitute a quorum. In the absence of a quorum at any such meeting, a majority of the directors present may adjourn the meeting from time to time without further notice other than announcement at the meeting, until a quorum shall be present. Interested directors may be counted in determining the presence of a quorum at a meeting of the Board of Directors or at a meeting of a committee which authorizes a particular contract or transaction. At any meeting of the Board of Directors at which a quorum is present, the vote of a majority of those present shall be sufficient to take any action, unless a different vote is specified by law or these Bylaws.

     Section 7. Participation in Meetings by Conference Telephone. Members of the Board of Directors, or of any committee thereof, may participate in a meeting of such Board or committee by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other and such participation shall constitute presence in person at such meeting.

     Section 8. Action by Consent. Any action required or permitted to be taken at any meeting of the Board of Directors or of any committee of the Board of Directors may be taken without a meeting, if all members of the Board or committee, as the case may be, consent to the action in writing. Any such written consents shall be filed with the minutes of proceedings of the Board or committee.

     Section 9. Compensation of Directors. Directors, as such, may receive, pursuant to resolution of the Board of Directors, fixed fees and other compensation for their services as directors, including, without limitation, their services as members of committees of the Board of Directors.

     Section 10. Nomination of Director Candidates: Subject to the rights of holders of any class or series of Preferred Stock then outstanding, nominations for the election of Directors may be made by the Board of Directors or a proxy committee appointed by the Board of Directors or by any stockholder entitled to vote in the election of Directors generally. However, any stockholder entitled to vote in the election of Directors generally may nominate one or more persons for election as Directors at a meeting only if timely notice of such stockholder’s intent to make such nomination or nominations has been given in writing to the Secretary of the Corporation. To be timely, a stockholder nomination for a director to be elected at an annual meeting shall be received at the Corporation’s principal executive offices not less than 120 calendar days in advance of the date that the Corporation’s proxy statement was released to stockholders in connection with the previous year’s annual meeting of stockholders, except that if

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no annual meeting was held in the previous year or the date of the annual meeting has been advanced by more than 30 calendar days from the date contemplated at the time of the previous year’s proxy statement, notice by the stockholders to be timely must be received not later than the close of business on the tenth day following the day on which the public announcement of the date of such meeting is first made. Each such notice shall set forth: (a) the name and address of the stockholder who intends to make the nomination and of the person or persons to be nominated; (b) a representation that the stockholder is a holder of record of stock of the Corporation entitled to vote for the election of Directors on the date of such notice and intends to appear in person or by proxy at the meeting to nominate the person or persons specified in the notice; (c) a description of all arrangements or understandings between the stockholder and each nominee and any other person or persons (naming such person or persons) pursuant to which the nomination or nominations are to be made by the stockholder; (d) such other information regarding each nominee proposed by such stockholder as would be required to be included in a proxy statement filed pursuant to the proxy rules of the Securities and Exchange Commission, had the nominee been nominated, or intended to be nominated, by the Board of Directors; (e) the consent of each nominee to serve as a director of the Corporation if so elected; (f) the class and number of shares of the Corporation that are owned beneficially and of record by such stockholder; and (g) whether either such stockholder intends to deliver a proxy statement and form of proxy to holders of a sufficient number of holders of the Corporation’s voting shares to elect such nominee or nominees. For purposes of this Section 10, “public announcement” shall mean disclosure in a press release reported by the Dow Jones News Service, Associated Press or comparable national news service or in a document publicly filed by the Corporation with the Securities and Exchange Commission pursuant to Section 13, 14 or 15(d) of the Exchange Act. Notwithstanding the foregoing provisions of this Section 10, a stockholder shall also comply with all applicable requirements of the Exchange Act and the rules and regulations thereunder with respect to the matters set forth in this Section 10. Nothing in this Section 10 shall be deemed to affect any rights of stockholders to request inclusion of proposals in the Corporation’s proxy statement pursuant to Rule 14a-8 under the Exchange Act.

     In the event that a person is validly designated as a nominee in accordance with this Section 10 and shall thereafter become unable or unwilling to stand for election to the Board of Directors, the Board of Directors or the stockholder who proposed such nominee, as the case may be, may designate a substitute nominee upon delivery, not fewer than five (5) days prior to the date of the meeting for the election of such nominee, of a written notice to the Secretary setting forth such information regarding such substitute nominee as would have been required to be delivered to the Secretary pursuant to this Section 10 had such substitute nominee been initially proposed as a nominee. Such notice shall include a signed consent to serve as a director of the Corporation, if elected, of each such substitute nominee.

     If the chairman of the meeting for the election of Directors determines that a nomination of any candidate for election as a Director at such meeting was not made in accordance with the applicable provisions of this Section 10, such nomination shall be void; provided, however, that nothing in this Section 10 shall be deemed to limit any voting rights upon the occurrence of dividend arrearages provided to holders of Preferred Stock pursuant to the Preferred Stock designation for any series of Preferred Stock.

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ARTICLE III

COMMITTEES

     Section 1. Committees of the Board of Directors. The Board of Directors may from time to time designate committees of the Board, with such lawfully delegable powers and duties as it thereby confers, to serve at the pleasure of the Board and shall, for those committees and any others provided for herein, elect a director or directors to serve as the member or members, designating, if it desires, other directors as alternate members who may replace any absent or disqualified member at any meeting of the committee. Any such committee, to the extent provided in the resolution of the Board of Directors and subject to the provisions of the General Corporation Law of the State of Delaware, shall have and may exercise all the powers and authority of the Board of Directors in the management of the business and affairs of the Corporation and may authorize the seal of the Corporation to be affixed to all papers which may require it. Each such committee shall keep minutes and make such reports as the Board of Directors may from time to time request. Except as the Board of Directors may otherwise determine, any committee may make rules for the conduct of its business, but unless otherwise provided by such rules, its business shall be conducted as nearly as possible in the same manner as is provided in these Bylaws for the Board of Directors. Any committee so designated may exercise the power and authority of the Board of Directors to declare a dividend, to authorize the issuance of stock or to adopt a certificate of ownership and merger pursuant to Section 253 of the Delaware General Corporation Law if the resolution which designates the committee or a supplemental resolution of the Board of Directors shall so provide. In the absence or disqualification of any member of any committee and any alternate member in his place, the member or members of the committee present at the meeting and not disqualified from voting, whether or not he or she or they constitute a quorum, may by unanimous vote appoint another member of the Board of Directors to act at the meeting in the place of the absent or disqualified member.

     Section 2. Conduct of Business. Each committee may determine the procedural rules for meeting and conducting its business and shall act in accordance therewith, except as otherwise provided herein or required by law. Adequate provision shall be made for notice to members of all meetings; one-third of the authorized members shall constitute a quorum unless the committee shall consist of one or two members, in which event one member shall constitute a quorum; and all matters shall be determined by a majority vote of the members present. Action may be taken by any committee without a meeting if all members thereof consent thereto in writing, and the writing or writings are filed with the minutes of the proceedings of such committee.

ARTICLE IV

OFFICERS

     Section 1. Generally. The officers of the Corporation shall consist of a Chief Executive Officer, a President, a Secretary, a Treasurer and such other officers with such other titles as the Board of Directors shall determine, including, at the discretion of the Board of Directors, a Chairman of the Board, and one or more Vice Presidents and Assistant Secretaries. Except as

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otherwise provided in the Certificate of Incorporation of the Corporation, officers shall be elected by the Board of Directors, which shall consider that subject at its first meeting after every annual meeting of stockholders. Each officer shall hold office until his or her successor is elected and qualified or until his or her earlier resignation or removal. The Chairman of the Board, if there be such an officer, shall be a member of the Board of Directors. Any number of offices may be held by the same person.

     Section 2. Chairman of the Board. The Board of Directors may appoint a Chairman of the Board. If the Board of Directors appoints a Chairman of the Board, he shall perform such duties and possess such powers as are assigned to him by the Board of Directors. Unless otherwise provided by the Board of Directors, he shall preside at all meetings of the stockholders. The Chairman of the Board shall preside at all meetings of the Board of Directors, unless otherwise provided in the Corporation’s Corporate Governance Guidelines.

     Section 3. Chief Executive Officer. The Chief Executive Officer of the Corporation shall, subject to the direction of the Board of Directors, have general supervision, direction and control of the business and the officers of the Corporation. He shall have the general powers and duties of management usually vested in the chief executive officer of a corporation, including general supervision, direction and control of the business and supervision of other officers of the corporation, and shall have such other powers and duties as may be prescribed by the Board of Directors or these Bylaws. Unless otherwise determined by the Board of Directors, the President shall be the Chief Executive Officer of the Corporation.

     Section 4. President. In the event that the office of the President and the office of the Chief Executive Officer are vested in two individuals, the President shall have such powers and duties as the Chairman of the Board shall designate from time to time. The President shall have such other powers and duties as may be prescribed by the Board of Directors or these Bylaws. The President shall have power to sign all certificates of stock, bonds, deed and contracts of the Corporation.

     Section 5. Vice President. Each Vice President shall have such powers and duties as may be delegated to him or her by the Board of Directors or the President. In the event of the absence, inability or refusal to act of the President, the Vice President (or if there shall be more than one, the Vice Presidents in the order determined by the Board of Directors) shall perform the duties of the President and when so performing shall have at the powers of and be subject to all the restrictions upon the President. The Board of Directors may assign to any Vice President the title of Executive Vice President, Senior Vice President or any other title selected by the Board of Directors.

     Section 6. Treasurer. The Treasurer shall perform such duties and shall have such powers as may from time to time be assigned to him by the Board of Directors or the President. In addition, the Treasurer shall perform such duties and have such powers as are incident to the office of chief financial officer, including without limitation, the duty and power to keep and be responsible for all funds and securities of the corporation, to maintain the financial records of the Corporation, to deposit funds of the corporation in depositories as authorized, to disburse such funds as authorized, to make proper accounts of such funds, and to render as required by the

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Board of Directors accounts of all such transactions and of the financial condition of the corporation.

     Any Assistant Treasurer shall perform such duties and possess such powers as the Board of Directors, the President or the Treasurer may from time to time prescribe. In the event of the absence, inability or refusal to act of the Treasurer, the Assistant Treasurer (or if there shall be more than one, the Assistant Treasurers in the order determined by the Board of Directors) shall perform the duties and exercise the powers of the Treasurer.

     Section 7. Secretary. The Secretary shall perform such duties and shall have such powers as the Board of Directors or the President may from time to time prescribe. In addition, the Secretary shall perform such duties and have such powers as are incident to the office of the Secretary, including, without limitation, the duty and power to give notices of all meetings of stockholders and special meetings of the Board of Directors, to keep a record of the proceedings of all meetings of stockholders and the Board of Directors, to maintain a stock ledger and prepare lists of stockholders and their addresses as required, to be custodian of corporate records and the corporate seal and to affix and attest to the same on documents.

     Any Assistant Secretary shall perform such duties and possess such powers as the Board of Directors, the President or the Secretary may from time to time prescribe. In the event of the absence, inability or refusal to act of the Secretary, the Assistant Secretary (or if there shall be more than one, the Assistant Secretaries in the order determined by the Board of Directors) shall perform the duties and exercise the powers of the Secretary.

     In the absence of the Secretary or any Assistant Secretary at any meeting of stockholders or directors, the person presiding at the meeting shall designate a temporary secretary to keep a record of the meeting.

     Section 8. Delegation of Authority. The Board of Directors may from time to time delegate the powers or duties of any officer to any other officers or agents, notwithstanding any provision hereof.

     Section 9. Removal. Except as otherwise provided in the Certificate of Incorporation of the Corporation, any officer of the Corporation may be removed at any time, with or without cause, by the Board of Directors.

     Section 10. Action With Respect to Securities of Other Corporations. Unless otherwise directed by the Board of Directors, the President or any officer of the Corporation authorized by the President shall have power to vote and otherwise act on behalf of the Corporation, in person or by proxy, at any meeting of stockholders of or with respect to any action of stockholders of any other corporation in which this Corporation may hold securities and otherwise to exercise any and all rights and powers which this Corporation may possess by reason of its ownership of securities in such other corporation.

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ARTICLE V

STOCK

     Section 1. Certificates of Stock. Each stockholder shall be entitled to a certificate, in such a form as may be prescribed by law, signed by, or in the name of the Corporation by, the President or a Vice President, and by the Secretary or an Assistant Secretary, or the Treasurer or an Assistant Treasurer, certifying the number of shares owned by him or her. Any of or all the signatures on the certificate may be facsimile.

     Each certificate for shares of stock which are subject to any restriction on transfer pursuant to the Certificate of Incorporation, the Bylaws, applicable securities laws or any agreement among any number of stockholders or among such holders and the corporation shall have conspicuously noted on the face or back of the certificate either the full text of the restriction or a statement of the existence of such restriction.

     Section 2. Transfers of Stock. Except as otherwise established by rules and regulations adopted by the Board of Directors, and subject to applicable law, shares of stock may be transferred on the books of the corporation by the surrender to the corporation or its transfer agent of the certificate representing such shares properly endorsed or accompanied by a written assignment or power of attorney properly executed, and with such proof of authority or authenticity of signature as the corporation or its transfer agent may reasonably require. Except as may be otherwise required by law, by the Certificate of Incorporation or by the Bylaws, the Corporation shall be entitled to treat the record holder of stock as shown on its books as the owner of such stock for all purposes, including the payment of dividends and the right to vote with respect to such stock, regardless of any transfer, pledge or other disposition of such stock until the shares have been transferred on the books of the Corporation in accordance with the requirements of these Bylaws.

     Section 3. Record Date. The Board of Directors may fix in advance a date as a record date for the determination of the stockholders entitled to notice of or to vote at any meeting of stockholders or to express consent (or dissent) to corporate action in writing without a meeting, or entitled to receive payment of any dividend or other distribution or allotment of any rights in respect of any change, concession or exchange of stock, or for the purpose of any other lawful action. Such record date shall not be more than sixty (60) nor less than ten (10) days before the date of such meeting, nor more than sixty (60) days prior to any other action to which such record date relates.

     If no record date is fixed, the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day before the day on which notice is given, or, if notice is waived, at the close of business on the day before the day on which the meeting is held. The record date for determining stockholders entitled to express consent to corporate action in writing without a meeting when no prior action by the Board of Directors is necessary, shall be the day on which the first written consent is expressed. The record date for determining stockholders for any other purpose shall be at the close of

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business on the day on which the Board of Directors adopts the resolution relating to such purpose.

     A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting.

     Section 4. Lost, Stolen or Destroyed Certificates. In the event of the loss, theft or destruction of any certificate of stock, another may be issued in its place pursuant to such regulations as the Board of Directors may establish concerning proof of such loss, theft or destruction and concerning the giving of a satisfactory bond or bonds of indemnity.

     Section 5. Regulations. The issue, transfer, conversion and registration of certificates of stock shall be governed by such other regulations as the Board of Directors may establish.

ARTICLE VI

NOTICES

     Section 1. Notices. Except as otherwise specifically provided herein or required by law, all notices required to be given to any stockholder, director, officer, employee or agent shall be in writing and may in every instance be effectively given by hand delivery to the recipient thereof, by depositing such notice in the mails, postage paid, or by sending such notice by prepaid telegram, mailgram, telecopy or commercial courier service, or by facsimile or other electronic transmission shall be given in the manner provided in Section 232 of the Delaware General Corporation Law. Any such notice shall be addressed to such stockholder, director, officer, employee or agent at his or her last known address as the same appears on the books of the Corporation. The time when such notice is received by such stockholder, director, officer, employee or agent, or by any person accepting such notice on behalf of such person, if hand delivered, or dispatched, if delivered through the mails or by prepaid telegram, mailgram, telecopy or commercial courier service, shall be the time of the giving of the notice.

     Section 2. Waivers. A written waiver of any notice, signed by a stockholder, director, officer, employee or agent, whether before or after the time of the event for which notice is to be given, shall be deemed equivalent to the notice required to be given to such stockholder, director, officer, employee or agent. Neither the business nor the purpose of any meeting need be specified in such a waiver.

ARTICLE VII

MISCELLANEOUS

     Section 1. Facsimile Signatures. In addition to the provisions for use of facsimile signatures elsewhere specifically authorized in these Bylaws, facsimile signatures of any officer or officers of the Corporation may be used whenever and as authorized by the Board of Directors or a committee thereof.

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     Section 2. Corporate Seal. The Board of Directors may provide a suitable seal, containing the name of the Corporation, which seal shall be in the charge of the Secretary. If and when so directed by the Board of Directors or a committee thereof, duplicates of the seal may be kept and used by the Treasurer or by an Assistant Secretary or Assistant Treasurer.

     Section 3. Reliance Upon Books, Reports and Records. Each director, each member of any committee designated by the Board of Directors, and each officer of the Corporation shall, in the performance of his duties, be fully protected in relying in good faith upon the books of account or other records of the Corporation, including reports made to the Corporation by any of its officers, by an independent certified public accountant, or by an appraiser selected with reasonable care.

     Section 4. Fiscal Year. The fiscal year of the Corporation shall be as fixed by the Board of Directors.

     Section 5. Time Periods. In applying any provision of these Bylaws which require that an act be done or not done a specified number of days prior to an event or that an act be done during a period of a specified number of days prior to an event, calendar days shall be used, the day of the doing of the act shall be excluded, and the day of the event shall be included.

ARTICLE VIII

INDEMNIFICATION OF DIRECTORS AND OFFICERS

     Section 1. Right to Indemnification. Each person who was or is made a party or is threatened to be made a party to or is involved in any action, suit or proceeding, whether civil, criminal, administrative or investigative (“proceeding”), by reason of the fact that he or she or a person of whom he or she is the legal representative, is or was a director, officer or employee of the Corporation or is or was serving at the request of the Corporation as a director, officer or employee of another corporation, or of a partnership, joint venture, trust or other enterprise, including service with respect to employee benefit plans, whether the basis of such proceeding is alleged action in an official capacity as a director, officer or employee or in any other capacity while serving as a director, officer or employee, shall, to the extent such person is an officer or director of the Corporation, and may otherwise on the resolution of the Board of Directors, be indemnified and held harmless by the Corporation to the fullest extent authorized by Delaware Law, as the same exists or may hereafter be amended (but, in the case of any such amendment, only to the extent that such amendment permits the Corporation to provide broader indemnification rights than said Law permitted the Corporation to provide prior to such amendment) against all expenses, liability and loss (including attorneys’ fees, judgments, fines, ERISA excise taxes or penalties, amounts paid or to be paid in settlement and amounts expended in seeking indemnification granted to such person under applicable law, these Bylaws or any agreement with the Corporation) reasonably incurred or suffered by such person in connection therewith and such indemnification shall continue as to a person who has ceased to be a director, officer or employee and shall inure to the benefit of his or her heirs, executors and administrators; provided, however, that, except as provided in Section 2 of this Article VIII, the Corporation shall indemnify any such person seeking indemnity in connection with an action,

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suit or proceeding (or part thereof) initiated by such person only if such action, suit or proceeding (or part thereof) was authorized by the board of directors of the Corporation. Such right shall be a contract right and shall include the right to be paid by the Corporation expenses incurred in defending any such proceeding in advance of its final disposition; provided, however, that, if the Delaware General Corporation Law then so requires, the payment of such expenses incurred by a director or officer of the Corporation in his or her capacity as a director or officer (and not in any other capacity in which service was or is rendered by such person while a director or officer, including, without limitation, service to an employee benefit plan) in advance of the final disposition of such proceeding, shall be made only upon delivery to the Corporation of an undertaking, by or on behalf of such director or officer, to repay all amounts so advanced if it should be determined ultimately that such director or officer is not entitled to be indemnified under this Section or otherwise.

     Section 2. Right of Claimant to Bring Suit. If a claim under Section 1 is not paid in full by the Corporation within twenty (20) days after a written claim has been received by the Corporation, the claimant may at any time thereafter bring suit against the Corporation to recover the unpaid amount of the claim and, if such suit is not frivolous or brought in bad faith, the claimant shall be entitled to be paid also the expense of prosecuting such claim. It shall be a defense to any such action (other than an action brought to enforce a claim for expenses incurred in defending any proceeding in advance of its final disposition where the required undertaking, if any, has been tendered to this Corporation) that the claimant has not met the standards of conduct which make it permissible under the Delaware General Corporation Law for the Corporation to indemnify the claimant for the amount claimed, but the burden of proving such defense shall be on the Corporation. Neither the failure of the Corporation (including its Board of Directors, independent legal counsel, or its stockholders) to have made a determination prior to the commencement of such action that indemnification of the claimant is proper in the circumstances because he or she has met the applicable standard of conduct set forth in the Delaware General Corporation Law, nor an actual determination by the Corporation (including its Board of Directors, independent legal counsel, or its stockholders) that the claimant has not met such applicable standard of conduct, shall be a defense to the action or create a presumption that claimant has not met the applicable standard of conduct.

     Section 3. Non-Exclusivity of Rights. The rights conferred on any person in Sections 1 and 2 shall not be exclusive of any other right which such persons may have or hereafter acquire under any statute, provision of the Certificate of Incorporation, Bylaws, agreement, vote of stockholders or disinterested directors or otherwise.

     Section 4. Indemnification Contracts. The Board of Directors is authorized to enter into a contract with any director, officer, employee or agent of the Corporation, or any person serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, including employee benefit plans, providing for indemnification rights equivalent to or, if the Board of Directors so determines, greater than, those provided for in this Article VIII.

     Section 5. Insurance. The Corporation shall maintain insurance to the extent reasonably available, at its expense, to protect itself and any such director, officer, employee or agent of the

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Corporation or another corporation, partnership, joint venture, trust or other enterprise against any such expense, liability or loss, whether or not the Corporation would have the power to indemnify such person against such expense, liability or loss under the Delaware General Corporation Law.

     Section 6. Effect of Amendment. Any amendment, repeal or modification of any provision of this Article VIII by the stockholders and the directors of the Corporation shall not adversely affect any right or protection of a director or officer of the Corporation existing at the time of such amendment, repeal or modification.

ARTICLE IX

AMENDMENTS

     Section 1. By the Board of Directors. Except as is otherwise set forth in these Bylaws, these Bylaws may be altered, amended or repealed or new Bylaws may be adopted by the affirmative vote of a majority of the directors present at any regular or special meeting of the Board of Directors at which a quorum is present.

     Section 2. By the Stockholders. Except as otherwise set forth in these Bylaws, these By-laws may be altered, amended or repealed or new Bylaws may be adopted by the affirmative vote of the holders of at least sixty-six and two-thirds percent (66-2/3%) of the shares of the capital stock of the Corporation issued and outstanding and entitled to vote at any annual meeting of stockholders, or at any special meeting of stockholders, provided notice of such alteration, amendment, repeal or adoption of new Bylaws shall have been stated in the notice of such special meeting.

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CERTIFICATE OF SECRETARY

     I, William O. Sweeney, hereby certify:

     1. That I am the duly elected and Assistant Secretary of MAXTOR CORPORATION, a Delaware corporation (the “Corporation”); and

     2. That the foregoing Bylaws comprising fifteen (15) pages, constitute the Amended and Restated Bylaws of the Corporation as duly adopted by the Board of Directors at a meeting on February 18, 2005.

     IN WITNESS WHEREOF, I have hereunder subscribed my name this 18th day of Feburary, 2005.

/s/ William O. Sweeney

William O. Sweeney, Assistant Secretary

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EX-3.2

exv3w2

EX-10.59

EXHIBIT 10.59

RETENTION BONUS PROGRAM
MAXTOR CORPORATION

Purpose:

Maxtor and Seagate have entered into an acquisition agreement under which, if closed, would result in the acquisition of Maxtor by Seagate (the “Acquisition”). In order to retain employees whose dedication, notwithstanding the uncertainty accompanying the pending Acquisition, is important to Maxtor’s business, the Compensation Committee of the Board of Directors has adopted this Retention Bonus Program (the “Program”).

Eligibility and Notification:

Employees eligible to participate in the Program are those employees designated as eligible by the Chief Executive Officer. Such determinations shall be within the sole discretion of the Chief Executive Officer.

Employees designated as eligible to participate in the Program will be notified of that fact in writing promptly following such designation. Employees who are not so notified, will not be eligible to participate in the Program.

To remain eligible, participants must remain in active employment or on an approved leave of absence through the payment dates defined below except as provided below.

Bonus Target:

The amount of the bonus potentially payable to each participant in the Program will be determined by the Chief Executive Officer in his sole discretion. The written notification described in the previous section will set forth the amount of each participant’s “target” bonus.

Bonus Payments:

Subject to his/her continued employment in good standing with the Company through the applicable payment date, a bonus payment will be payable to each participant in the Program as follows: (a) 20% of his/her target bonus on the earlier of the first business day following July 1, 2006 or the date of the closing of the Acquisition (“First Payment”), and (b) 80% of his/her target bonus on the date that is six months after the date of the closing of the Acquisition (“Second Payment”). Payment amounts will be adjusted pro-rata for periods of approved leaves of absence based on the actual period of active employment relative to the entire payment period from the start and through the end of the period for each of the First Payment, and Second Payment, as applicable.

Following the date of the closing of the Acquisition, any remaining unpaid portion of a participant’s target bonus shall become immediately payable in a lump sum upon the first to occur of (i) the participant’s involuntary termination of employment by Maxtor (or its successor) other than for “Cause”, (ii) a reduction in the participant’s base salary rate by 10% or more in comparison to such participant’s base salary rate in effect immediately prior to such reduction; or (iii) the reassignment of the participant to a workplace that

increases the participant’s regular one-way commute distance between the participant’s residence and workplace by more than 50 miles.

For purposes of this Plan, “Cause” means the occurrence of any of the following: (1) the participant’s theft, dishonesty, misconduct, breach of fiduciary duty for personal profit, or falsification of any documents or records of the Company Group; (2) the participant’s material failure to abide by the code of conduct or other policies (including, without limitation, policies relating to confidentiality and reasonable workplace conduct) of any member of the Company Group; (3) misconduct by the participant within the scope of Section 304 of the Sarbanes-Oxley Act of 2002 as a result of which Maxtor is required to prepare an accounting restatement; (4) the participant’s unauthorized use, misappropriation, destruction or diversion of any tangible or intangible asset or corporate opportunity of a member of the Company Group (including, without limitation, the participant’s improper use or disclosure of confidential or proprietary information of a member of the Company Group); (5) any intentional act by the participant which has a material detrimental effect on reputation or business of a member of the Company Group; (6) the participant’s repeated failure or inability to perform any reasonable assigned duties after written notice from a member of the Company Group, and a reasonable opportunity to cure, such failure or inability; (7) any material breach by the participant of any employment, non-disclosure, non-competition, non-solicitation or other similar agreement between the participant and a member of the Company Group, which is not cured pursuant to the terms of such agreement; or (8) the participant’s conviction (including any plea of guilty or nolo contendere) of any criminal act involving fraud, dishonesty, misappropriation or moral turpitude, or which impairs the participant’s ability to perform his or her duties with a member of the Company Group. The “Company Group” means Maxtor Corporation and each present or future parent and subsidiary corporation or other business entity thereof.

In the event of a participant’s involuntary termination other than for Cause by Maxtor prior to the Acquisition, such participant shall be entitled to receive any payments otherwise payable to such participant under the Program as if such participant had continued employment in good standing with the Company through the applicable payment date, subject to and consistent with the other terms of the Program.

All payments pursuant to the Program will be subject to applicable payroll withholding.

Program Termination:

The Program shall terminate and be of no further force or effect, and no bonuses shall become earned or payable hereunder, in the event that the Acquisition is cancelled/terminated.

Special Treatment of Parachute Payments:

The following provisions apply to payments and benefits provided pursuant to the Program or otherwise to Program participants who are deemed “disqualified individuals” within the meaning of Section 280G of the Internal Revenue Code (other than an

individual who is a participant in the Company’s Executive Retention and Severance Plan, the treatment of whom shall be determined in accordance with such plan):

1. In the event that any payment or benefit received or to be received by a disqualified individual pursuant to the Program or otherwise (collectively, the “Payments”) would result in a “parachute payment,” as described in Section 280G, then, notwithstanding the other provisions of the Program, the amount of such Payments will be reduced to the amount that produces the greatest after-tax benefit to the disqualified individual.

2. The “greatest after-tax benefit” to any disqualified individual shall be determined by the Company in a fair and equitable manner within thirty days of the occurrence of the Payments.

EX-10.60

EXHIBIT 10.60

EXECUTIVE INCENTIVE PROGRAM
MAXTOR CORPORATION
January 2006

Purpose:

The purpose of the Executive Incentive Program ( the “Program”) is to advance the interests of Maxtor Corporation (“Maxtor” or the “Company”) and its stockholders by creating an incentive for key executives to achieve short-term corporate objectives.

Definitions:

Acquisition: Seagate’s acquisition of Maxtor pursuant to an Agreement and Plan of Merger dated December 20, 2005 (“Merger Agreement”).

Closing Date: The Closing Date set forth in the Merger Agreement.

Cumulative Net Earnings: Net income/loss as reported excluding the impact of the Retention Bonus Program and other specific components of net income/loss separately disclosed as part of GAAP net income/loss in Maxtor’s publicly announced financial results.

Direct Material Commitment Target: The Direct Material Commitment means the amount as established by the Compensation Committee of the Company’s Board of Directors.

Program Payment Date: Thirty (30) days after the Closing Date.

Retention Bonus Program: Program adopted by the Company on December 20, 2005 to retain certain key employees.

Senior Executive Staff: The members of the Senior Executive Staff determined by the Compensation Committee of the Board of Directors.

Eligibility:

All Senior Executive Staff members are eligible to participate in the Program and will be notified in writing with details about each person’s specific objectives and associated target payouts. To remain eligible, participants must remain in active employment or on an approved leave of absence until the Closing Date.

Bonus Targets:

The target bonus is established as a specific dollar amount and is based on a calendar year commencing on January 1, 2006. Each member of the Senior Executive Staff will be classified by the Compensation Committee in one of four Class Categories for participation. The Target Bonus for each Class Category is as follows:

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Executive Incentive Program

Class Category	Target Bonus Amount
Ÿ Class I	$	300,000
Ÿ Class II	$	250,000
Ÿ Class III	$	200,000
Ÿ Class IV	$	150,000

Bonus Objectives:

The Bonus Objectives will be based on achieving specified key corporate financial targets as established by the Compensation Committee of the Company’s Board of Directors, which will be derived from the Annual Operation Plan (the “AOP”) as presented to the Board of Directors. The 2006 Bonus Objectives and associated payment weightings are as follows:

1. Cumulative Net Earnings (Non GAAP)

• targets as established by the Compensation Committee

• Weighted 50%

2. Revenue

• targets as established by the Compensation Committee

• Weighted 15%

3. Cash

• targets as established by the Compensation Committee

• Weighted 15%

4. Direct Material Commitments

• targets as established by the Compensation Committee

• Weighted 20%

Final measurement to target is based on the last full quarter of financial performance for the Cumulative Net Earnings, Revenue and Cash objectives. The impact of the Retention Bonus Program and other specific components of net income/loss separately disclosed as part of GAAP net income/loss in Maxtor’s publicly announced financial results will be excluded from the calculations of targets.

Bonus Payments:

Bonus payments are determined upon achievement of the Bonus Objectives. In order to receive payment for achievement of a Bonus Objective the target must be met at 100% or greater. There will be no payment for less than 100% target achievement. Achievement and payment of each Bonus Objective will be measured independently. For each Bonus Objective achieved, payment will be calculated based on the weight assigned to the objective multiplied by the target amount. For example, if Bonus Objective 1 and Bonus Objective 3 are achieved, but Bonus Objective 2 and 4 are not achieved the calculation for a Class II participant would be as follows:

Objective 1 weight multiplied by Class II target equals Objective 1 Bonus Payment

50% X $ 250,000 = $ 125,000

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Executive Incentive Program

Objective 3 weight multiplied by Class II target equals Objective 3 Bonus Payment

15% X $ 250,000 = $ 37,500

No payment for Bonus Objectives 2 and 4 because achievement is less than 100%

Total payment = $162,500

A bonus payment will be payable to each participant thirty (30) days after the Closing Date, provided such participant has been employed in good standing with the Company until the Closing Date.

All payments pursuant to the Program will be subject to applicable payroll withholding.

Program Termination:

The Program shall terminate and be of no further force or effect, and no bonuses shall become earned or payable hereunder after the Program Payment Date or upon termination of the Merger Agreement.

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EX-10.61

EXHIBIT 10.61

LEASE AGREEMENT

     THIS LEASE, made the 31st day of October 1989 between JOHN ARRILLAGA, Trustee, or his Successor Trustee, UTA dated 7/20/77 (JOHN ARRILLAGA SEPARATE PROPERTY TRUST) as amended, and RICHARD T. PEERY, Trustee, or his Successor Trustee, UTA dated 7/20/77 (RICHARD T. PEERY SEPARATE PROPERTY TRUST) as amended, hereinafter called Landlord and QUANTUM CORPORATION, a Delaware corporation, 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 land containing approximately 10.531+ acres and that certain 155,734+ square foot one and two-story combination building (“Building 1”) and parking appurtenant thereto, to be constructed and landscaping to be installed by Landlord as shown within the area outlined in red (“Lot 1”) on Exhibit A to be located at the corner of Bellew Drive and Magnolia Drive, Milpitas, California. Said Premises (“Lot 1”) is more particularly shown within the area outlined in red on Exhibit A attached hereto and incorporated herein by this reference. The entire parcel containing approximately 37.096+ acres, of which the Premises is a part, is shown within the area outlined in green on Exhibit A attached hereto and incorporated herein by this reference. The interior of the leased Premises shall be improved in the configuration as shown in red on Exhibit B to be attached hereto and incorporated herein by this reference. The building shell shall be constructed in accordance with the shell and site improvement specifications set forth on Exhibit A, and the general building elevation set forth on Exhibit A. See Paragraph 49

     The word “Premises” as used throughout this lease is hereby defined to include the nonexclusive use of sidewalks and driveways in front of or adjacent to the Premises and the nonexclusive use of the area directly underneath or over such sidewalks and driveways. The gross leasable area of the building 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 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 and observance.

     1. USE. Tenant shall use the Premises only in conformance with applicable governmental laws, regulations, rules and ordinances for the purpose of Office, sales, R&D, light manufacturing and related uses necessary for the use of Tenant or any approved assignee or subtenant to conduct its business providing any and all uses of the Premises shall be subject to

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and in conformance with all governmental laws and ordinances, and for no other purpose without Landlord’s prior written consent, 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 without the prior written consent of Landlord, and provided Tenant bears any cost related to such increased rate, 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 which 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 of Tenant to comply with any applicable law that governs, Tenant use of the Premises Tenant shall comply with any covenant, condition, or restriction (“CC&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 AND COMMENCEMENT DATE OF LEASE. See Paragraphs 41, 42 & 43 of this Lease.

     3. POSSESSION. If Landlord, for any reason whatsoever other than Landlord’s default cannot deliver possession of said premises to Tenant at the commencement of the said term, as hereinbefore specified, this 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 28, above; provided, however, it is agreed that in no event shall this Lease commence sooner than December 15, 1990 unless the parties agree in writing to an earlier date for the Lease to commence. The above is, however, subject to the provision that the period of delay of delivery of the Premises shall not exceed 180 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

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be excluded in calculating such period) in which instance Tenant, at its option, may, by written notice to Landlord, terminate this Lease. See Paragraph 47

     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 total sum of the amount to be calculated pursuant to Paragraph 39 in lawful money of the United States of America, payable as follows: See Paragraphs 39 through 43.

          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 five percent (5%) of each rental payment so in default. See Paragraph 50.

          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.

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     The Additional Rent due hereunder shall be paid to Landlord or Landlord’s agent (i) within five 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 the Lease in which case such amount shall be held by Landlord as a credit for Tenant’s account until such default has been cured 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 actual 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 Perry/Arrillaga, file 1504, P.O. Box 60000, San Francisco, CA 94160 Four Hundred Twenty Thousand Four Hundred Eighty-One Dollars 80/100 Dollars ($420,481.80.) Said sum shall be held by Landlord as a Security Deposit for the faithful performance by Tenant of all of 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 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 10 days after written demand, therefore, deposit cash with Landlord in the amount sufficient to restore the Security Deposit to its 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. 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 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 Landlord’s successor in interest whereupon Tenant agrees to release Landlord from liability for the return of such Deposit or the accounting therefore. See Paragraph 51.

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     5. ACCEPTANCE AND SURRENDER OF PREMISES. By entry hereunder, Tenant accepts the premises as being in good and sanitary order, conditions 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 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 acoustical 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 movable trade fixtures installed at the expense of Tenant) except that Tenant shall ascertain from Landlord within ninety (90) 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 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 movable 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 be 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. See Paragraph 52

     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, airconditioning, partitioning,

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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 alteration 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 Tenant receives notice of 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. See Paragraph 52

     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 airconditioning 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 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. See Paragraph 53

     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,

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any temporary or permanent utility surcharge or other exactions whether or not hereinafter imposed. In the event the above charges 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.

     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 calculated and determined by Landlord cancellation of or nonresponsibility 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 or assessed 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 attorney’s 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 the 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

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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. See Paragraph 54.

          B. Taxes on Tenant’s Property. Tenant shall be liable for and shall pay ten 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 thereof on 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 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, on or about the Premises, including parking and landscaped areas, in the amount of $2,000,000 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 shall 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 WORKMAN’S 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 workman’s compensation insurance and any other employee benefit insurance sufficient to comply with all laws.

     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

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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 (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 to 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. See Paragraph 55.

     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, contractors of which negligence Landlord has knowledge and reasonable time to correct. Except as injury to persons or damage of property the principal cause of which is the negligence of the Landlord and subject to the last two sentences of Paragraph 12, Tenant shall hold Landlord harmless from and defend Landlord against any and all expenses, including reasonable attorney’s 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 of other similar body now or hereafter constituted; and with any direction or occupancy certificate issued pursuant to law by any public officer; 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 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 sole 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. See Paragraph 45 & 53.

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     15. LIENS. Tenant shall keep the Premises free from any liens arising out of any work performed, materials furnished or obligation incurred by Tenant. In the event that Tenant shall not, within ten (10) days following Tenant’s receipt of notice of 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. 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 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 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 reasonable 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 the Lease. SEE PARAGRAPHS 56 AND 57.

     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 or 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. 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. See Paragraph 58.

     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

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nonresponsibility; 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 under any circumstances be construed or deemed 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. See Paragraph 59.

     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 ten (10) 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 thirty (30) 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:

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          (a) The rights and remedies provided for by California Civil Code Section 1951.2, including but not limited to, recovery of the worth at the time of award of the amount by which the unpaid rent for the balance of the term after the time of award exceeds the amount of rental loss for the same period that Tenant proves could be reasonably avoided, as computed pursuant to subsection (b) of said Section 1951.2.

          (b) The rights and remedies provided by California Civil Code Section which allows Landlord to continue the Lease in affect 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 relet 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 after compliance with all statutory requirements and in any event on not less than three (3) business days prior written notice 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 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 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 first to payment of indebtedness other than rent due hereunder from Tenant to Landlord; second, to the payment of any costs of such subletting and of such alterations and repairs; third to payment of rent due and unpaid hereunder; and the residue, if any, shall be held by Landlord and 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 than that to be paid during that month by Tenant hereunder. Tenant shall pay and such deficient to Landlord. Such deficiency shall be calculated and paid monthly. No taking possession of the Premises by Landlord shall be construed as an election on its part to terminate this Lease 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

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Premises and to exercise all other rights and remedies granted to Landlord pursuant to subparagraph d. above. See Paragraph 60.

     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 said 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. See Paragraph 61.

     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 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 when 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 embargos, 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 fixtures, 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% of the replacement cost thereof. Landlord may elect to terminate this Lease, whether the Premises be injured or not. In the event the destruction of the

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Premises is caused by Tenant, Tenant shall pay the deductible portion of Landlord’s insurance proceeds. See Paragraph 62.

     22. EMINENT DOMAIN. If all or any part of the Premises shall be taken by any public or quasi-public authority under the power of eminent domain or conveyance in lieu thereof, the Lease shall terminate as to any portion of the Premises so taken or conveyed on the date when title vests in the condemnor and Landlord shall be entitled to any and all payment, income, rent, award, or any interest therein whatsoever which may be paid or made in connection with such taking or conveyance, and Tenant shall have no claim against Landlord or otherwise for the value of any unexpired term of this Lease. Notwithstanding the foregoing paragraph, any compensation specifically awarded Tenant for loss of business, Tenant’s personal property, moving cost or loss of goodwill shall be and remain the property of Tenant.

     If any action or proceeding is commenced for such taking of the Premises or any part thereof, or if Landlord is advised in writing by any entity or body having the right or power of condemnation of its intention to condemn the premises or any portion thereof, then Landlord shall have the right to terminate this Lease by giving Tenant written notice thereof within sixty (60) days of the date of receipt of said written advice or commencement of said action or proceeding, or taking conveyance, which termination shall take place as of the first to occur of the last day of the calendar month next following the month in which such notice is given or the date on which title to the Premises shall vest in the condemnor.

     In the event of such a partial taking or conveyance of the Premises, if the portion of the Premises taken or conveyed is so substantial that the Tenant can no longer reasonably conduct its business, Tenant shall have the privilege of terminating this Lease within sixty (60) days from the date of such taking or conveyance, upon written notice to Landlord of its intention so to do, and upon giving of such notice 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 the rent from the date of such taking or conveyance to the date of termination.

     If a portion of the Premises be taken by condemnation or conveyance in lieu thereof and neither Landlord nor Tenant shall terminate the Lease as provided herein, this Lease shall continue in full force and effect as to the part of the Premises not so taken or conveyed, and the rent herein shall be apportioned as of the date of such taking or conveyance so that thereafter the rent to be paid by Tenant shall be in the ratio that the area of the portion of the Premises not so taken or conveyed bears to the total area of the Premises prior to such taking. See Paragraph 63

     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. See Paragraph 64.

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     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 thereof at the same rental herein reserved and upon all the other terms, conditions and conveyance herein contained.

     25. HOLDING OVER. Any holding over by Tenant after expiration or other termination of the term 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 the 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 Basic Rent shall be increased to an amount equal to One Hundred Twenty-Five Percent (125%) percent of the monthly Basic Rent required during the last month of the Lease term.

     26. CERTIFICATE OF ESTOPPEL. Either party shall at any time upon not less than ten (10) days prior written notice from the other party, execute, acknowledge and deliver to the requesting party, 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 the best of such party’s knowledge, any uncured defaults on the part of the other party 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 the party receiving such request 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 the requesting party’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 drawing 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 in rent. If Tenant shall fail to pay any sum of money, or other rent, required to be paid by it hereunder or shall fail to

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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 of 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 either Landlord or Tenant 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 the other party 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 an 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 a reasonable attorney’s fee.

     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 Peery/Arrillaga 2560 Mission College Boulevard, Suite 101, Santa Clara, CA 95054. 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.

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     32. EXAMINATION OF LEASE. Submission of this 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 (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 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. INTENTIONALLY LEFT BLANK

     36. 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;

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

               (h) these covenants and agreements are enforceable both by 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 agreements either expressly contained in this Lease or imposed by statute or at common law.

     37. 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 other 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 reasonably 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.

     38. 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 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. The term “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, and the provisions of this Lease shall inure to the benefit of and bind such heirs, executors, administrators, successors and permitted assigns.

     The term “person” includes the plural as well as the singular and individuals, firms, associations, partnerships and corporations. Words used in any gender include other genders. If

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there be more than one Tenant the obligations of Tenant hereunder are joint and several. The paragraph headings of this Lease are for convenience of reference only and shall have no effect upon the construction or interpretation of any provision hereof.

          D. Time of Essence. Time is of the essence of this Lease and of each and all of its provisions.

          E. 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.

          F. Incorporation of Prior Agreements, Amendments. 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.

          G. Recording. Landlord and Tenant shall record a short form memorandum hereof in the form attached hereto as Exhibit D.

          H. Amendments for Financing. Tenant further agrees to execute any amendments reasonably required by a lender to enable Landlord to obtain financing, so long as Tenant’s rights hereunder are not materially and adversely affected and there is no change in the Basic Rent, Options to Renew, Lease Term or Construction obligations of Landlord.

          I. Additional Paragraphs. Paragraphs 39 through 65 are added hereto and are included as a part of this Lease.

          J. 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.

          K. 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 his Lease, entitle Tenant to any reduction of rent hereunder or result in any liability of Landlord to Tenant.

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

LANDLORD:		TENANT:
JOHN ARRILLAGA		QUANTUM CORPORATION,
SEPARATE PROPERTY TRUST		a Delaware corporation
By	/s/ John Arrillaga	By	/s/ Joseph C. Shepela
	John Arrillaga, Trustee
		Title	VP Human Resources
RICHARD T. PEERY
SEPARATE PROPERTY TRUST
By	/s/ Richard Peery
	Richard T. Peery, Trustee

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Paragraphs 39 through 65 to Lease Agreement Dated October 31, 1989, By and Between JOHN ARRILLAGA AND RICHARD T. PEERY SEPARATE PROPERTY TRUSTS, as Landlord, and QUANTUM CORPORATION, a Delaware corporation, as Tenant for 155,734 ± Square Feet of Space Located at the corner of Bellew and Magnolia Drive, Milpitas, California.

     39. BASIC RENT: In accordance with Paragraph 4A, subject to the provisions of Paragraph 40 and 41, Basic Rent shall be payable as follows during the indicated months of the term of the Lease based upon the gross leasable area within the building that is part of the Premises:

Period	Monthly Basic Rent
Months 1-17 $1.00/sf (plus the partial calendar month, if any, following the Commencement Date)	$1.00/sf
Months 18-29	$1.05/sf
Months 30-41	$1.10/sf
Months 42-53	$1.15/sf
Months 54-65	$1.20/sf
Months 66-77	$1.25/sf
Months 78-89	$1.30/sf
Months 90-101	$1.35/sf
Months 102-113	$1.40/sf
Months 114-125	$1.45/sf
Months 126-137	$1.50/sf
Months 138-149	$1.55/sf
Months 150- 161	$1.60/sf
Months 162-173	$1.65/sf
Months 174-185	$1.70/sf

     Example of calculation for Basic Rent per month for the period commencing with the first through the seventeenth month of said Lease:

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Square footage of Building		155,734
Per square foot Basic Monthly Rent:		x$1.00
Basic Rent per Month:	$	155,734

     40. BASIC RENT REDUCTION DURING PHASE IN PERIOD: For the period commencing on [Illegible] basis. In the event Tenant does not occupy the entire building from the Commencement Date of this Lease, it is agreed that Tenant’s monthly Basic Rent will be reduced by $1.00 per square foot on the square footage not occupied. This reduction in Basic Rent is only allowed from the Commencement Date through May 31, 1991 (but not under any circumstances after May 31, 1991). In no event whatsoever shall Tenant be entitled to such reduction in rent and this Paragraph 40 shall not be considered in effect and binding on Landlord after May 31, 1991 regardless of the Commencement Date of this Lease and regardless of the reason for any delays in the Commencement date of this Lease. In the event Tenant occupies the Premises on a phased in basis in accordance with the foregoing, Landlord and Tenant agree to execute an amendment to this Lease reflecting the number of square feet so occupied and adjusting the Basic Rent accordingly. It is further agreed that during the phase-in period Tenant will be responsible for paying all Additional Rent expense as outlined in Paragraph 4D on the entire building from the Commencement Date.

     41. LEASE TERM AND COMMENCEMENT DATE: The following provisions relate to the commencement and duration of the term of this Lease:

          A. Lease Term: The term of this Lease shall commence on the “Commencement Date” (as defined herein) and shall continue for a period of fifteen (15) years and five (5) months, plus the partial calendar month, if any, in which the Commencement Date occurs, subject to (i) earlier termination in accordance with the provisions of this Lease, and (ii) extension pursuant to the options to renew granted by Paragraphs 42 and 43. By way of example only, if the Commencement Date occurs on December 15, 1990, the term of the Lease shall continue until May 30, 2006 (i.e., a period of 15 years and 5 calendar months, along with the partial calendar month following December 15, 1990 until December 31, 1990).

          B. Commencement Date Defined: As used herein, the term “Commencement Date” shall mean the later to occur of the following: (i) the date upon which the “Improvements” are “Substantially Completed”; or (ii) December 15, 1990; provided, however, that if prior to the later of such dates Tenant’s operating personnel enter into occupancy of the Premises and commence the operation of Tenant’s business within the Premises, the Commencement Date shall be the date such personnel of Tenant so enter into occupancy of the Premises. The term “Substantially Completed” and/or “Substantial Completion” shall mean the date when all of the following have occurred with respect to the Improvements in question: (i) the construction of the Improvements in question has been substantially completed in accordance with the approved plans therefor except for punch list items which do not prevent Tenant from reasonably using the Premises to conduct Tenant’s business; (ii) Landlord. has executed a certificate or statement representing that the Improvements in question have been substantially completed in accordance with the plans and specifications therefor except for punch list items which do- net prevent Tenant from reasonably using the Premises to conduct Tenant’s business; and (iii) the Building Department of the City of Milpitas has completed its final inspection of such Improvements and has “signed off” the building inspection card approving such work as complete except for punch list items which do not prevent Tenant from reasonably using the

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Premises to conduct Tenant’s business. Notwithstanding the foregoing, Substantial Completion of the Interior Improvements shall not be deemed to have occurred until Landlord has obtained final or conditional approval from the Fire Department of the City of Milpitas that the Improvements have been completed in accordance with such department’s requirements (subject only to conditions that do not prevent Tenant from occupying the Improvements).

          C. Lease Terms Co-Extensive: It is acknowledged that [Illegible] adjacent property upon which is to be constructed a building for Tenant’s use consisting of approximately 176,516 square feet (the “Companion Lease”), and (ii) it is the intention of the parties that the term of this Lease be co-extensive with the term of the Companion Lease, such that the terms of both leases expire on the same date. To that end, in the event that following the date upon which the Commencement Date of this Lease and the comparable “Commencement Date” of the Companion Lease become established as a date certain following completion of improvements and satisfaction of any other conditions related to determining such dates, and if such dates are not the same, then whichever date occurs later shall be the expiration date of the lease term for both leases (subject to the right of Tenant to extend either lease pursuant to the options to extend granted in the two leases). It is acknowledged that the implementation of this paragraph may result in an extension of the term of this Lease, in which event Tenant shall continue to pay rent at the rate applicable for the period immediately prior to the adjusted lease term expiration date. As soon as the parties are able to implement the provisions of this paragraph because the Commencement Date of this Lease and “Commencement Date” of the Companion Lease have been determined following completion of improvements and satisfaction of other appropriate conditions, the parties shall execute amendments to this Lease and the Companion Lease establishing the applicable Commencement Date, the expiration date of the term of the leases in accordance with the foregoing provisions of this Paragraph 41C, the actual rent based upon the measurements of the completed building covered by such lease as certified prior to the Commencement Date by an architect or general contractor reasonably approved by the parties, and the actual date for each rent adjustment provided for in each lease, based upon the actual Commencement Date.

     42. FIRST FIVE-YEAR OPTION TO EXTEND: Landlord hereby grants to Tenant an option to extend the term of this Lease for an additional five (5) year period upon the following terms and conditions:

          A. If Tenant elects to exercise the option to extend, Tenant shall give Landlord written notice of Tenant’s exercise of this option to extend at least one hundred eighty (180) days prior to the expiration of the Basic Term hereof, in which event the Lease shall be considered extended for an additional five (5) year period upon the same terms and conditions as this Lease, absent this Paragraph 42 and subject to the rental as set forth below. In the event that Tenant fails to timely exercise Tenant’s option asset forth herein in writing, Tenant shall have no further option to extend this Lease, and this Lease shall continue in full force and effect for the full remaining term hereof, absent this Paragraph 42.

          B. The monthly Basic Rent for the option period shall be as follows in the event the option is exercised:

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		Monthly
Period		Basic Rent
Months	1-12	$1.75/sf
Months	13-24	$1.80/sf
Months	25-36	$1.85/sf
Months	37-48	$1.90/sf
Months	49-60	$1.95/sf

          C. Notwithstanding anything contained herein, Tenant may not exercise the option to renew granted by this Paragraph 42 at any time that Tenant is in material default of its obligations under this Lease, if [Illegible] cured within the time period provided for in this Lease; provided, however, that if such default of Tenant is not for money due under this Lease and cannot be cured, and if Landlord does not elect to terminate this Lease as a result of such non-curable default by Tenant, Tenant may exercise the option to extend granted by this Paragraph 42 notwithstanding such non-curable default.

     43. SECOND FIVE-YEAR OPTION TO EXTEND: Provided Tenant has extended the Lease for an additional five (5) year period as set forth in Paragraph 42, Landlord hereby grants to Tenant an option to extend the term of this Lease for an additional five (5) year period upon the following terms and conditions:

          A. Tenant shall give Landlord written notice of Tenant’s exercise of this option to extend at least one hundred eighty (180) days prior to the expiration of the Lease term as extended pursuant to Paragraph 42, in which event the Lease shall be considered extended for an additional five (5) year period upon the same terms and conditions as this Lease, absent this Paragraph 43A and subject to the rental as set forth below. In the event that Tenant fails to timely exercise Tenant’s option as set forth herein in writing, Tenant shall have no further option to extend this Lease, and this Lease shall continue in full force and effect for the full remaining term hereof, absent this Paragraph 43.

          B. The monthly rental for the option period shall be as follows in the event the option is exercised:

		Monthly
Period		Basic Rent
Months	1-12	$2.00/sf
Months	13-24	$2.05/sf
Months	25-36	$2.10/sf
Months	37-48	$2.15/sf
Months	49-60	$2.20/sf

          C. Notwithstanding anything contained herein, Tenant may not exercise the option to extend granted by this Paragraph 43 at any time that Tenant is in material default of its obligations under this Lease, if Tenant has received written notice from Landlord that Tenant is in default, and such default has not been timely cured within the time period provided for in this

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Lease; provided, however, that if such default of Tenant is not for money due under this Lease and cannot be cured, and if Landlord does not elect to terminate this Lease as a result of such non-curable default by Tenant, Tenant may exercise the option to extend granted by this Paragraph 43 notwithstanding such non-curable default.

     44. ASSESSMENT CREDITS: The demised property herein is subject to a special assessment levied by the City of Milpitas in Improvement District No. 12. As a part of said special assessment proceedings, additional bonds were sold and assessments levied to provide for construction contingencies and reserve funds. Interest will be earned on such funds created for contingencies and on reserve funds which will be credited for the benefit of said assessment district. To the extent surpluses are created in said district through unused contingency funds, interest earnings or reserve funds, such surpluses shall be deemed the property of Landlord. Notwithstanding that such surpluses may be credited on assessments otherwise due against the demised premises, Tenant shall pay to Landlord, as additional [ Illegible].

     45. HAZARDOUS MATERIALS: The parties agree as follows with respect to the existence or use of hazardous material on the Premises:

          A. Tenant shall have no obligation to “clean up”, to comply with any law regarding, or to reimburse, release, indemnify, or defend Landlord with respect to any hazardous materials or wastes which Tenant or other parties on the Premises did not store, dispose, or transport in, use, or cause to be on the Premises in violation of applicable law during the term of this Lease. Any handling, transportation, storage, treatment, disposal or use of hazardous materials by Tenant or other parties in or about the Premises during the term of this Lease shall strictly comply with all applicable laws and regulations. Tenant will be 100 percent liable and responsible for any and all “clean up” of said toxic waste and/or hazardous materials contamination which Tenant, its agents, or future subtenants, if any, does store, dispose, or transport in, use or-cause to be on the Premises in violation of applicable law or governing agency(s) (or which originate on the Premises during the term of this Lease from any manner whatsoever, including but not limited to, dumping by others), and will indemnify Landlord and hold Landlord harmless from any liabilities, demands, costs, expenses and damages, including attorney fees incurred as a result of any claims resulting from such contamination, or from any claims for personal injury or property damage or diminution in the value of the Premises caused by the use, storage, disposal or transportation of hazardous materials on the Premises by Tenant or other parties during the term of this Lease. It is agreed that the Tenant’s responsibilities related to toxic waste and hazardous materials will survive the termination date of the Lease. Tenant agrees to complete compliance with governmental regulations regarding use or removal or remediation of Hazardous Materials used, stored, disposed, transported or caused to be on the Premises by Tenant or its agents or subtenants, or which originate on the Premises during the term of this Lease, and prior to the termination of said Lease Tenant agrees to follow the proper closure procedures and will obtain a clearance from the local fire department and/or the appropriate city agency. Tenant also agrees to install such toxic waste and/or hazardous materials monitoring devices as Landlord reasonably deems necessary to monitor any use of hazardous materials by Tenant, its agents or subtenants, originating from the Premises during the Lease term, if recommended by a qualified environmental consulting firm.

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          B. Landlord hereby makes the following representations to Tenant, each of which is made only to the best of Landlord’s knowledge as of the date Landlord executes this Lease, without any inquiry or investigation having been made or required by Landlord regarding this subject, nor does Landlord have any obligation to investigate or make inquiry regarding the subject:

               (1) The soil and ground water on or under the Premises does not contain hazardous materials in amounts which violate any laws to the extent that any governmental entity could require either Landlord or Tenant to take any remedial action with respect to such hazardous materials.

               (2) During the time that Landlord has owned the Premises, Landlord has received no notice of (i) any violation, or alleged violation, of any law that has not been corrected to the satisfaction of the appropriate authority, (ii) any pending claims relating to the presence of hazardous material on the Premises, or (iii) any pending investigation by any governmental agency concerning the Premises relating to hazardous materials.

          C. Landlord [Illegible] received from any governmental authority concerning hazardous materials which relates to the Premises, and (ii) any contamination of the Premises by hazardous materials which constitutes a violation of any law. Attached as Exhibit “C”, hereto is a list of hazardous materials that Tenant intends to use at the Premises. If during the Lease term Tenant proposes to use other hazardous materials at the Premises, Tenant shall inform Landlord of such use, identifying the hazardous materials and the manner of their use, storage and disposal, and shall agree (i) to use, store and dispose of such materials strictly in compliance with all laws and (ii) that the indemnity set forth in paragraph 45A shall be applicable to Tenant’s use of such material.

          D. Landlord or Tenant may, at any time, cause testing wells to be installed on the Premises, and may cause the ground water to be tested to detect the presence of hazardous material by the use of such tests as are then customarily used for such purposes. Testing wells installed by Tenant shall be paid for by Tenant. If tests conducted by Landlord disclose that Tenant has violated any hazardous materials laws, or Tenant or parties on the Premises during the term of this Lease have contaminated the Premises as determined by regulatory agencies pursuant to hazardous materials laws, or that Tenant has liability to Landlord pursuant to paragraph 45A, then Tenant shall pay for 100% of the cost of the test and all related expense. Prior to the expiration of the Lease term, Tenant shall remove any testing wells it has installed at the Premises, and return the Premises to the condition existing prior to the installation of such wells, unless Landlord requests in writing that Tenant leave all or some of the testing wells in which instance the wells requested to be left shall not be removed.

          E. If any tests performed by Tenant or Landlord prior to the Commencement Date disclose hazardous materials at the Premises, Landlord at its expense will promptly take all reasonable action required by law with respect to the existence of such materials at the Premises. The Commencement Date shall not be delayed because of such action by Landlord unless occupation of the Premises is prohibited by law.

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          F. The obligations of Landlord and Tenant under this Paragraph 45 shall survive the expiration or earlier termination of the term of this Lease. The rights and obligations of Landlord and Tenant with respect to issues relating to hazardous materials are exclusively established by this Paragraph 45.

     46. APPROVALS: Whenever this Lease requires the approval or consent of either Landlord or Tenant before an action may be taken, such approval or consent shall not be unreasonably withheld or delayed.

     47. LANDLORD’S RIGHT TO TERMINATE: It is understood that the Premises to be leased by Tenant are to be constructed by Landlord, and that Landlord is required to obtain the necessary building permits for the building shell before construction of said Premises can commence. Therefore, it is agreed that in the event Landlord cannot obtain all the necessary building permits for the building shell by June 1, 1990, then either Landlord or Tenant can terminate this Lease by written notice to the other party given within thirty (30) days thereafter, without any liability to the other party of any type whatsoever, and that this Lease Agreement will be null and void as of the date of receipt of such notice. Landlord agrees to use its best efforts to obtain the required permits by June 1, 1990.

     48. CROSS DEFAULT: As set forth in Paragraph 41C, Landlord and Tenant have entered into another lease dated October 31, 1989 referred to herein as the “Companion Lease” affecting property contiguous to the Premises leased hereunder. As a material part of the consideration for the execution of this Lease by Landlord, it is agreed between Landlord and Tenant that a default under this Lease, or a default under said Companion Lease dated October 31, 1989 may, at the option of Landlord, be considered a default under both leases, in which event Landlord shall be entitled (but in no event required) to apply all rights and remedies of Landlord under the terms of one Lease to both Leases including, but not limited to, the right to terminate one or both of said leases by reason of a default under said Companion Lease dated October 31, 1989 or hereunder.

     49. SUBDIVISION: With respect to the development of the Premises:

          A. The parties acknowledge that as of the date this Lease is signed by the last party (the “Effective Date”) the Premises is not constituted as a separate legal parcel, but is part of a larger parcel consisting of approximately 37.096 acres (“Larger Parcel”), all of which is shown by the site plan attached to the lease as Exhibit “A”. Landlord agrees to use reasonable efforts to cause the Premises to be constituted as a separate legal parcel containing approximately 10.531 acres in the approximate area and configuration shown and outlined within the area marked in red on Exhibit “A”, and to use reasonable efforts to cause lot 2, as shown on Exhibit “A” to the companion Lease and lots 3 through 5 as shown on Exhibit “A” to the Option Agreement (the “Option”) between Landlord and Tenant of even date herewith to be subdivided by means of the recordation of a subdivision map by July 1, 1990. In causing such property to be subdivided, Landlord and Tenant agree to consent to reasonable lot line modifications as required by the City of Milpitas; provided, however, that the configuration of the Premises shall be established in such manner that does not result in a material reduction in the Improvements or in parking, access, or landscape amenities which are shown on the site plan attached to this Lease as Exhibit “A”. Tenant agrees to reimburse Landlord for actual expenses paid by Landlord in the

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preparation, processing and recordation of such subdivision map and to meet other requirements necessary to make said lots 1-5 separate lots; provided, however, Tenant’s total reimbursement obligation pursuant hereto, the Companion Lease and the Option shall not exceed Twenty Five Thousand Dollars ($25,000). At such time is Landlord causes any such subdivision to be completed, Landlord and Tenant shall execute an amendment to this Lease which shall set forth the description of the Premises resulting from the subdivision.

          B. Landlord and Tenant agree that the Premises and the Larger Parcel during (and limited to) the term of this Lease shall be developed and used only in accordance with a master plan, developed by Landlord. The parties have mutually agreed to a Master Plan for the general development of the entire 37.096 ± acre site which is attached hereto as Exhibit “A” and entitled “Master Site Plan”. Said Master Site Plan sets forth the buildings and land to be leased under this Lease and the Companion Lease (Building 1 and 2 on Lots 1 and 2), and the buildings and land proposed to be developed on the remainder of the property (Building 3, 4, and 5 to be constructed on Lots 3, 4, and 5 respectively) as well as the general location of the parking and landscaping pertaining thereto. The parties agree that the Master Site Plan may be modified provided that (i) a perimeter driveway is developed in front of each building which generally runs near and parallel with the street surrounding the 37 ± acre site, (ii) a landscape and recreation area at the rear of Lot 4 (as shown on the Site Plan) is developed when a building is constructed on Lot 4 [Illegible] streets between the street and parking area closest to the street. The parties agree that (i) Landlord may change the master plan, shape and sizes of the buildings, parking and landscaping as long as the general development concept set forth above is generally followed by Landlord, and (ii) any successor or assign of Landlord or Tenant shall be required to consent and agree to develop the Premises and the Larger Parcel in accordance with the foregoing, and shall be deemed to have assumed the obligation to so develop such property by acceptance of a deed, assignment or other means of transfer of Landlord’s or Tenant’s interest in such property or any portion thereof, as the case may be. Further, the memorandum of lease to be recorded by Landlord and Tenant pursuant to paragraph 38G shall contain the following statement:

“The Lease provides that from and after the commencement date of the Lease and continuing for a period of fifteen years, whichever first occurs, the Premises and the larger 37.096 acre parcel in which the Premises were originally included, shall be developed by the parties to the Lease or their successors or assigns, as more particularly set forth in the Lease, so that (i) a perimeter, driveway is developed in front of each building which generally runs near and parallel with the street surrounding the 37 ± acre site, (ii) a landscape area is developed along the frontage of all streets between the street and parking area closest to the street, (iii) a landscape and recreation area at the rear of Lot 4 (as shown on the Site Plan identified in the Lease) is developed when a building is constructed on Lot 4, and (iv) all buildings will be similar and generally architecturally compatible, it being agreed that Landlord may change the shape and sizes of the buildings, parking and landscaping as long as the general development concept set forth above and in the Lease is generally followed by Landlord. Tenant understands that the lots shown on the Master Site Plan described in the Lease are for lease purposes only and that the lots have not been legally subdivided and do not constitute separate legal lots, but Landlord agrees to use reasonable efforts to cause Lots 1-5 to be

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subdivided in accordance with the approved Master Plan by July 1, 1990. If a Public Agency requires modifications to the lot lines as shown on the Master Plan, the parties agree to reasonable lot line modifications. Tenant agrees to reimburse Landlord for actual expenses paid by Landlord in the processing and recordation of such subdivision map and to meet all other requirements necessary to make said Lots 1-5 separate lots; provided, however, Tenant’s total reimbursement obligation (pursuant to all agreements between Landlord and Tenant) shall in no event exceed Twenty-Five Thousand Dollars ($25,000.00).”

     50. LIMITATION ON IMPOSITION OF LATE CHARGE: Notwithstanding anything contained in Paragraph 4C, if Tenant is delinquent in the payment of Basic Rent or Additional Rent and is subject to a late charge, Landlord agrees to waive the late charge if the Basic Rent or Additional Rent due is paid within five days of Landlord’s written notice to Tenant of the delinquent amount owed and provided Tenant has not been delinquent in its payment of Basic Rent or Additional Rent owed under said Lease during the twelve (12) month period preceding the rent delinquency in question.

     51. SECURITY DEPOSIT: The following provisions shall modify Paragraph 4F:

          A. Within thirty (30) days after the expiration or earlier [Illegible] Deposit except for amounts that Landlord has deducted therefrom that are needed by Landlord to cure defaults of Tenant under the Lease or compensate Landlord for damages for which Tenant is liable pursuant to this Lease. The use or disposition of the Security Deposit shall be subject to the provisions of California Civil Code Section 1950.7.

          B. Tenant shall have the option of satisfying its obligation with respect to an amount equal to one-half (1/2) of the Security Deposit by providing to Landlord, at Tenant’s sole cost, a letter of credit which (i) is drawn upon an institutional lender reasonably acceptable to Landlord, (ii) is in the amount of one-half (1/2) of the Security Deposit, (iii) is for a term of at least twelve (12) months, (iv) with respect to any letter of credit in effect within the six month period immediately prior to the expiration of the Lease term, shall provide that the term of such letter of credit shall extend at least thirty (30) days past the Lease expiration date, (v) may be drawn upon by Landlord upon submission of a declaration of Landlord that Tenant is in default (as defined in Paragraph 19 and as modified by Paragraph 60). Landlord shall not be obligated to furnish proof of default to such institutional lender, and Landlord shall only be required to give the institutional lender written notification that Tenant is in default and upon receiving such written notification from Landlord the institutional lender shall be obligated to immediately deliver cash to Landlord equal to the amount Landlord may spend or become obligated to spend by reason of Tenant’s default or to compensate Landlord for any loss or damage which Landlord may suffer by reason of Tenant’s default up to 1/2 of the total Security Deposit, (vi) shall provide that if the letter of credit is not renewed, replaced or extended within twenty (20) days of its expiration date the issuer of the credit shall automatically make payment of the amount of the letter of credit directly to Landlord after the date which is twenty (20) days before the expiration date, and no later than the expiration date, without Landlord being required to make demand upon the letter of credit, and (vii) is otherwise in form and content reasonably satisfactory to Landlord. If Tenant provides Landlord with a letter of credit meeting the foregoing requirements, one-half (1/2) of the cash Security Deposit (i.e., $210,240.90 of the $420,481.80

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Deposit) shall be returned to Tenant by Landlord inasmuch as the cash deposit remaining and the Letter of Credit equal the total Security Deposit required in Paragraph 4F. If Tenant defaults with respect to any provisions of this Lease, including but not limited to provisions relating to the payment of rent, Landlord may (but shall not be required to) draw down on the letter of credit for payment of any sum which Landlord may spend or become obligated to spend by reason of Tenant’s default, or to compensate Landlord for any loss or damage which Landlord may suffer by reason of Tenant’s default. Landlord and Tenant acknowledge that such letter of credit will be treated as if it were a cash security deposit, and such letter of credit may be drawn down upon by Landlord upon demand and presentation of evidence of the identity of Landlord to the issuer, in the event that Tenant defaults with respect to any provision of this Lease and such default is not cured within any applicable cure period. Notwithstanding anything to the contrary in this Lease, Landlord shall not be obligated to furnish proof of default to such institutional lender and Landlord is only required to give the institutional lender written notification that Tenant is in default and upon receiving such written notification from Landlord the institutional lender shall be obligated to immediately deliver cash to Landlord equal to the amount Landlord may spend or become obligated to spend by reason of Tenant’s default, or to compensate Landlord for any loss or damage which Landlord may suffer by reason of Tenant’s default up to 1/2 of the total Security Deposit. Landlord acknowledges that it is not entitled to draw down such letter of credit unless Landlord would have been entitled to draw upon the cash security deposit pursuant to the terms of Paragraph 4.F of the Lease. Concurrent with the delivery of the [Illegible] the default upon which the draw down was based, together with evidence that Landlord has provided to Tenant the written notice of such default which was required under the applicable provision of the Lease, and evidence of the failure of Tenant to cure such default within the applicable grace period following receipt of such notice of default. Any proceeds received by Landlord by drawing upon the letter of credit shall be applied in accordance with the provisions governing the Security Deposit imposed by Paragraph 4F and this Paragraph 51. If Landlord draws upon the letter of credit, thereafter Tenant shall once again shall have the right to post a letter of credit in place of one-half (1/2) of a cash Security Deposit so long as Tenant is not then in default. In any event Tenant will be obligated to replenish the amount drawn to restore the Security Deposit to its original amount as provided for in paragraph 4F. If any portion of the letter of credit is used or applied pursuant hereto, Tenant shall, within ten (10) days after receipt of a written demand therefor from Landlord, restore and replace the value of such security by either (i) depositing cash with Landlord in the amount equal to the sum drawn down under the letter of credit, or (ii) increasing the letter of credit to its value immediately prior to such application. Tenant’s failure to replace the value of the security as provided in the preceding sentence shall be a material breach of its obligation under this Lease.

     52. ALTERATIONS MADE BY TENANT: The provisions of this Paragraph 52 shall modify Paragraphs 5 and 6:

          A. As used herein, the term “Alteration” shall mean any alteration, addition or improvement made by Tenant to the Premises during the term of the Lease, but shall not include Tenant’s trade fixtures so long as such trade fixtures are not installed in such a manner that they have become an integral part of the building.

          B. Tenant shall not construct any Alterations or otherwise alter the Premises without Landlord’s prior written approval if the total cost of such Alterations exceeds $20,000

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per the scope of any single remodeling job to the Premises, or if such Alteration is structural in nature. Any other non-structural Alteration of less than $20,000 for the total cost of the remodeling job may be undertaken by Tenant without Landlord’s prior written approval but with the understanding that Tenant shall be obligated to restore the Premises as set forth in Paragraph 5 at the termination of this Lease, except as otherwise provided in Paragraph 52.D. Notwithstanding the foregoing, Tenant shall have the right to reconfigure modular freestanding walls and partitions without Landlord’s prior consent, which have been installed by Tenant and paid for by Tenant.

          C. At all times during the Lease Term (i) Tenant shall maintain and keep up dated “as-built” plans for all Alterations constructed by Tenant, and (ii) Tenant shall provide to Landlord copies of such “as-built” plans as such Alterations are made.

          D. Tenant shall have the right to remove at any time during the Lease term or prior to the expiration thereof any (i) process equipment such as clean hoods, thermal cycling chambers, freon piping, high temperature furnaces, air handlers and special air-conditioning, (ii) process systems such as compressed air or processed exhaust systems and (iii) the clean room modules and all related process equipment which are paid for 100% by Tenant (excluding building standard HVAC, electrical, plumbing and other building standard systems which are an integral part of the building not related to Tenant’s clean room modules or other [Illegible] Lease shall be deemed to be trade fixtures, so long as Tenant repairs all damage caused by the installation and/or removal thereof, returns the Premises prior to the termination of the Lease to the condition existing prior to the installation of such item, and repairs and restores any so-called “doughnuts” or gaps in the roof and/or floor tiles and/or ceiling and lighting resulting from such removal. At the time Tenant requests the consent of Landlord to approve the installation of an Alteration requiring the consent of Landlord, Tenant shall seek from Landlord a written statement of whether or not Landlord will require Tenant to remove such Alteration and restore all or part of the Premises as required by Landlord in accordance with this paragraph and Paragraph 5 at the expiration or earlier termination of the term of the Lease. If Tenant does not obtain from Landlord a statement in writing that Landlord will not require such Alteration to be removed, then at the expiration or sooner termination of the term of the Lease, it is agreed that Tenant may be required to remove all or part of such Alterations, and return the Premises to the condition existing prior to the installation of such Alterations as provided for in Paragraph 5 above. In addition, if Tenant has installed Alterations without Landlord’s consent, if Landlord so requires, Tenant shall also remove all or part of such Alterations so installed without Landlord’s consent as Landlord may designate and return the Premises to the condition existing prior to the installation of such Alteration. Alterations for which Landlord has given its written consent to Tenant that such Alteration need not be removed, shall not be removed by Tenant at the expiration or earlier termination of the term of the Lease.

          E. At all times during the term of the Lease, Tenant shall have the right to install and remove trade fixtures as defined in the Lease and installed and paid for by Tenant, so long as Tenant repairs all damage caused by the installation thereof and returns the Premises to the condition existing prior to the installation of such fixtures and repairs and restores any so called “doughnuts” or gaps in the roof and/or floor (including floor structure, sub-floor and appropriate floor covering for said area) and/or floor tiles and/or ceiling tiles and lighting resulting from such removal.

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     53. STRUCTURAL CAPITAL COSTS REGULATED BY GOVERNMENTAL AGENCIES AFTER THE COMMENCEMENT OF THIS LEASE NOT CAUSED BY TENANT OR TENANT’S USES OR REMODELING OF THE PREMISES: The provisions of this Paragraph 53 shall modify Paragraphs 7 and 14:

          A. If during the last five (5) years of the term of the Lease if Tenant has not extended the Lease as provided for in Paragraphs 42 and 43, or during either of the five (5) year extension periods permitted by Paragraphs 42 and 43, it becomes necessary (due to any governmental requirement for continued occupancy of the Premises) to make structural improvements required by laws enacted or legal requirements imposed by governmental agency(s) after the Commencement Date, and the cost for each required work or improvement exceeds $100,000, then if such legal requirement is not imposed because of Tenant’s specific use of the Premises and is not “triggered” by Tenant’s Alterations or Tenant’s application for a building permit or any other governmental approval (in which instance Tenant shall be responsible for 100% of the cost of such improvements), Landlord shall be responsible for paying the cost of such improvement and constructing such improvement, subject to a cash contribution from Tenant of a portion of the cost thereof as provided for and calculated in Paragraph 53B.

          B. When Landlord makes an improvement pursuant to Paragraph 53A, and as a condition to Landlord’s obligation to construct such improvement, Tenant shall make the following contribution in cash to Landlord for the cost therefore prior to the [Illegible] 100% of the cost or the first $100,000.00 worth of each improvement. After the first $100,000.00, all costs above $100,000.00 shall be divided by 15 and multiplied by the time period remaining in the last five years of the Lease term from the date work on such improvement commences.

     For example, if the cost of such improvement was $400,000 and there was one year and six months remaining in the Lease term when the work commenced, then Tenant would be responsible for reimbursing Landlord in cash $130,000 computed as follows:

Total Cost of Work		$	400,000.00
Tenant Responsible for 1st $100,000			-100.000.00
Total Amount To Be Amortized			300,000.00
$300,000.00/15 — $20,000/yr. x 1.5 yrs	=	$	30,000.00
Tenant responsible for $100,000 + 30,000	=	$	130,000.00

          C. If Landlord has made improvements, for which Tenant has reimbursed Landlord for the cost thereof pursuant to Paragraph 53B, and the term of this Lease is subsequently extended pursuant to the exercise by Tenant of an option to renew pursuant to Paragraph 42 or 43, upon the exercise of any such option by Tenant, Tenant shall pay to Landlord an additional sum equal to the total amount of said improvement less the amount previously paid for by Tenant. Using the example in Paragraph 53B above, Tenant would owe Landlord the additional amount of $270,000.00 ($400,000.00 - $130,000.00 = $270,000.00).

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     54. REAL PROPERTY TAXES: Paragraph 9 is modified by the following:

          A. The term “Real Property Taxes” shall not include charges, levies or fees directly related to the use, storage, disposal or release of hazardous materials on the Premises unless directly related to Tenant’s activities, which subject is exclusively governed by Paragraph 45.

          B. If any assessments for public improvements are levied against the Premises, Landlord may elect either to pay the assessment in full or to allow the assessment to go to bond. If Landlord pays the assessment in full, Tenant shall pay to Landlord or any assignee or purchaser of the Premises each time payment of Real Property Taxes is made a sum equal to that which would have been payable (as both principal and interest) had Landlord allowed the assessment to go to bond.

          C. Tenant at its cost shall have the right, at any time, to seek a reduction in the assessed valuation of the Premises or to contest any Real Property Taxes that are to be paid by Tenant. If Tenant seeks a reduction or contests such Real Property Taxes, the failure on Tenant’s part to pay such Real Property Taxes being so contested shall not constitute a default so long as Tenant complies with the provisions of this Paragraph. Landlord shall not be required to join in any proceeding or contest brought by Tenant unless the provisions of any law require that the proceeding or contest be brought by or in the name of Landlord. In that case Landlord shall join in the proceedings or contest or permit it to be brought in Landlord’s name as long as Landlord is not required to bear any cost. Tenant, on final determination of the proceeding or contest, shall immediately pay or discharge its share of any Real Property Taxes determined by any decision or judgment rendered, together with all costs, charges, interest, and penalties incidental to the [Illegible] contests them as provided in this paragraph, before the commencement of the proceeding or contest Tenant shall furnish to Landlord a surety bond in form reasonably satisfactory to Landlord issued by an insurance company qualified to do business in California. The amount of the bond shall equal 125% of the total amount of Real Property Taxes in dispute and any such bond shall be assignable to any lender or purchaser of the Premises. The bond shall hold Landlord and the Premises harmless from any damage arising out of the proceeding or contest and shall insure the payment of any judgment that may be rendered.

     55. PROPERTY INSURANCE: Paragraph 12 is modified by the following:

          A. If Tenant so elects, Tenant may obtain from a third party insurance company the insurance required to be carried by Landlord pursuant to Paragraph 12 so long as each of the following conditions is satisfied: (i) the Landlord is not the John Arrillaga and Richard T. Peery Separate Property Trusts or an affiliated entity; (ii) the insurance to be carried by Tenant to satisfy this requirement strictly complies with all of the provisions of Paragraph 12; (iii) such insurance shall name Landlord as the insured and provide that it is to be payable to Landlord in the same manner as if such insurance had been carried by Landlord pursuant to Paragraph 12 (subject to the rights of any lender holding a mortgage or deed of trust encumbering the Premises); (iv) each lender holding a mortgage or deed or trust encumbering the Premises shall have given its written consent to Tenant carrying such insurance and such insurance shall comply with the requirements of any such lender; (v) Tenant must notify Landlord, by certified mail, no later than one hundred eighty (180) days prior to the expiration

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date of Landlord’s insurance policy (which expiration date is currently 3/13/xx of a given year and is subject to change), that Tenant will directly obtain the required insurance coverage for the insurance year commencing 3/14/XX through 3/13/XX and each insurance year through the termination data of this Lease, or until Tenant is no longer able to comply with all of the provisions of this paragraph 55; (vi) the annual premium must be paid in full at the commencement of the policy; (vii) the insurance policy must be issued for a one-year period following the expiration date of Landlord’s insurance policy (i.e., from 3/14/XX to 3/13/XX); (viii) any and all deductibles required under the policy will be paid entirely by Tenant; (ix) the terms of the coverage must be broad form and cover all items to be covered as set forth in Paragraph 12 of this Lease; (x) the Building and Premises must be insured for their full replacement cost; (xi) the insurance policy containing the required coverage in accordance with the provisions of this paragraph must be sent to Landlord for retention within thirty (30) days prior to the expiration date of Landlord’s insurance policy, and may not be terminated or altered without thirty (30) days written notice to Landlord by the company providing such insurance (it is agreed that if the insurance policy is cancelled or altered, Landlord will have the right to obtain the property insurance coverage on said building, and Landlord will bill the Tenant for the related insurance premium); and (xii) at all times while Tenant is so carrying such insurance, Tenant is Quantum Corporation or a successor entity and the then net worth of such corporation is substantially the same as the net worth of Quantum Corporation as of the date of this Lease is executed by Landlord and Tenant. Tenant shall provide such evidence as is required by Landlord and any lender to establish that the insurance that Tenant carries pursuant to this Paragraph 55 has been obtained and meets the requirement of this Paragraph 55. Such insurance carried by Tenant shall be in form and provided by an insurance company that is reasonably acceptable to Landlord, which must be rated “A plus” or better by Best’s Insurance Service (or an equivalent rating from anther rating agency should Best’s no longer provide [Illegible] insurance provided by Tenant does not satisfy the requirements of paragraph 12, in the event of a subsequent casualty, Tenant shall be responsible for and shall pay for that portion of the restoration cost, in excess of the insurance proceeds actually available, that would have been covered by insurance satisfying the requirements of paragraph 12.

          B. Tenant shall not obligated to contribute to the cost of earthquake insurance more than an amount equal to six (6) times the then annual cost of fire and “all risk” insurance per year. For example, if the 1993 annual premium for fire and “all risk” insurance is $9,000, then Tenant’s share of the cost of any premium for earthquake insurance for the following year (1994) shall be limited to $54,000 ($9,000 x 6). Tenant shall have the right to require earthquake insurance providing it is available if Tenant agrees to pay full cost thereof.

     56. ASSIGNMENT AND SUBLETTING: The following modifications are made to Paragraph 16:

          A. In the event that Tenant seeks to make any assignment or sublease, then Landlord, by giving Tenant written notice of its election within fifteen (15) days after Tenant’s notice of intent to assign or sublease has been given to Landlord, shall have the right to elect (i) to withhold its consent to such assignment or sublease, as permitted pursuant to Paragraph 16, or (ii) to permit Tenant to so assign the Lease or sublease such part of the Premises, in which event Tenant may do so, but without being released of its liability for the performance of all of its

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obligations under the Lease, and the following shall apply (except the following shall not apply to a “Permitted Transfer” described in Paragraph 57):

               (1) If Tenant assigns its interest in this Lease, then in addition to the rental provided for in this Lease, Tenant shall pay to Landlord fifty percent (50%) of all consideration received by Tenant over and above (i) the assignee’s agreement to assume the obligations of Tenant under this Lease and (ii) all “Permitted Transfer Costs” (as defined herein) related to such assignment. As used herein, the term “Permitted Transfer Costs” shall mean all reasonable leasing commissions paid to third parties not affiliated with Tenant in order to obtain the assignment or sublease in question.

               (2) (If Tenant sublets all or part of the Premises, then Tenant shall pay to Landlord in addition to the rental provided for in this Lease fifty percent (50%) of the positive difference, if any, between (i) all rent and other consideration paid by the subtenant to Tenant, less (ii) all rent paid by Tenant to Landlord pursuant to this Lease which is allocable to the area so sublet and all Permitted Transfer Costs related to such sublease. After Tenant has recovered all Permitted Transfer Costs Tenant shall pay to Landlord the amount specified in the preceding sentence on the same basis, whether periodic or in lump sum that such rent and other consideration is paid to Tenant by its subtenant, within seven (7) days after it is received by Tenant.

               (3) Tenant’s obligations under this subparagraph shall survive any assignment or sublease. At the time Tenant makes any payment to Landlord required by this subparagraph, Tenant shall deliver an itemized statement of the method by which the amount to which Landlord is entitled was calculated, certified by Tenant as true and correct. Landlord shall have the right to inspect Tenant’s books and records relating to the payments due pursuant to this subparagraph. Upon request therefor, Tenant shall deliver to [Illegible]

               (4) As used herein, the term “consideration” shall mean any consideration of any kind received, or to be received, by Tenant as a result of the assignment or sublease, if such sums are paid for Tenant’s interest in this Lease or in the Premises.

     57. PERMITTED ASSIGNMENTS AND SUBLEASES: Notwithstanding anything contained in Paragraph 16, so long as Tenant otherwise complies with the provisions of Paragraph 16 and the Permitted Transfer does not release Tenant from its obligations hereunder, Tenant may enter into any of the following transfers (a “Permitted Transfer”) without Landlord’s prior written consent, and the provisions of Paragraph 56A shall not apply to any such Permitted Transfer:

          A. Tenant may sublease all or part of the Premises or assign its interest in this Lease to any corporation which controls, is controlled by, or is under common control with Tenant by means of an ownership interest of more than fifty percent (50%) providing Tenant remains liable for the payment of rent and full performance of the lease;

          B. Tenant may assign its interest in the Lease to a corporation which results from a merger, consolidation or other reorganization in which Tenant is not the surviving corporation so long as 95% of all assets of Tenant are permanently transferred to such assignee.

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In the event there is not a permanent transfer of 95% or more of the assets and liabilities from Tenant to a third party, and Tenant continues to exist as a separate entity, both companies shall be jointly and severally liable for the full terms and conditions of the Lease;

          C. Tenant may assign this Lease to a corporation which purchases or otherwise acquires 95% or more of the assets of Tenant so long as 95% of all assets of Tenant are permanently transferred to such assignee (in the event there is not a permanent transfer of 95% or more of the assets and liabilities from Tenant to a third party and Tenant continues to exist as a separate entity, both companies shall be jointly and severally liable for the full terms and conditions of the Lease).

     58. SUBORDINATION AND MORTGAGES: Paragraph 17 is modified to provide that this Lease shall not be subordinate to a mortgage or deed of trust unless the Lender holding such mortgage or deed of trust enters into a written subordination, non-disturbance and attornment agreement in which the Lender agrees that notwithstanding any subordination of this Lease to such Lender’s mortgage or deed of trust, (i) such Lender shall recognize all of Tenant’s rights under this Lease, and (ii) in the event of a foreclosure this Lease shall not be terminated so long as Tenant is not in material default of its obligations under this Lease, but shall continue in effect and Tenant and such Lender (or any party acquiring the Premises through such foreclosure) shall each be bound to perform the respective obligations of Tenant and Landlord with respect to the Premises arising after such foreclosure.

     59. LANDLORD’S RIGHT TO ENTER: Notwithstanding the provisions of Paragraph 18, (i) except in the event of an emergency, Landlord shall give Tenant twenty-four (24) hours notice prior to entering the Premises, agrees to comply with any reasonably safety and/or security regulations imposed by Tenant with respect to such entry, and shall only enter the Premises when accompanied by Tenant or its agent (so long as Tenant makes itself reasonably available for this purpose), and (ii) Landlord may install “for lease” signs relating to the Premises only during the last 150 days of the Lease term. Landlord agrees to use [Illegible].and invitees shall be performed in a manner with as minimal interference as possible with Tenant’s business at the Premises. Subject to the foregoing, Tenant agrees to cooperate with Landlord and Landlord’s agents, employees and contractors so that responsibilities of Landlord under the Lease can be fulfilled in a reasonable manner during normal business hours so that no extraordinary costs are incurred by Landlord.

     60. BANKRUPTCY AND DEFAULT: Paragraph 19 is modified to provide that with respect to non-monetary defaults not involving Tenant’s failure to pay Basic Rent or Additional Rent, Tenant shall not be in default of any non-monetary obligation if (i) more than thirty (30) days is required to cure such non-monetary default, and (ii) Tenant commences cure of such default as soon as reasonably practicable after receiving written notice of such default from Landlord and thereafter continuously and with due diligence prosecutes such cure to completion.

     61. ABANDONMENT: Paragraph 20 is modified to provide that Tenant shall not be in default under the Lease if it leaves all or any part of Premises vacant so long as (i) Tenant is performing all of its other obligations under the Lease including the obligation to pay Basic Rent and Additional Rent, (ii) Tenant provides on-site security during normal business hours for those parts of the Premises left vacant, (iii) such vacancy does not materially and adversely affect the

36

validity or coverage of any policy of insurance carried by Landlord with respect to the Premises, and (iv) the utilities and heating and ventilation system are operated to the extent necessary to prevent damage to the Premises or its systems.

     62. DESTRUCTION: Paragraph 21 is modified by the following:

          A. Except as provided in Paragraph 62B, Landlord may not terminate the Lease if the Premises are damaged by a peril that is covered by the insurance carried by Landlord pursuant to Paragraph 12, but instead shall restore the Premises in the manner described by Paragraph 21.

          B. If the Premises are damaged by a peril covered by the insurance carried by Landlord pursuant to Paragraph 12, Landlord shall have the option to terminate the Lease if each of the following conditions is satisfied: (i) the cost to repair or the damage exceeds thirty-three percent (33%) of the then replacement cost of the Premises; and (ii) the damage occurs at a time when there is less than five (5) years remaining in the term of the Lease. Notwithstanding the foregoing, if such damage occurs at a time when there is less than five (5) years remaining in the term of the Lease and Landlord notifies Tenant of Landlord’s election to terminate the Lease pursuant to the provisions of this Paragraph 62B, if Tenant has the right to extend the term of this Lease pursuant to either Paragraph 42 or 43 such that the remaining term of the Lease (including the option period) will be more than five (5) years following the date of such damage, this Lease shall not terminate if Tenant notifies Landlord in writing of Tenant’s exercise of an option to extend granted to Tenant by either Paragraph 42 or 43. In such event, this Lease shall not terminate, the term shall be so extended, and Landlord shall restore the Premises in the manner provided in Paragraph 21.

          C. If the Premises are damaged by any peril, then as soon as reasonably practicable, Landlord shall furnish Tenant with the [Illegible] completed. Tenant shall have the option to terminate this Lease in the event any of the following occurs, which option may be exercised only by delivery to Landlord of a written notice of election to terminate within seven (7) days after Tenant receives from Landlord the estimate of the time needed to complete such restoration:

               (1) The Premises are damaged by any peril and, in the reasonable opinion of Landlord’s architect or construction consultant, the restoration of the Leased Premises cannot be substantially completed within 180 days after the date of such damage; or

               (2) The Premises are damaged by any peril within twelve (12) months of the last day of the Lease term and provided Tenant has not exercised an option to renew pursuant to the provisions of Paragraph 42 or 43, and, in the reasonable opinion of Landlord’s architect or construction consultant, the restoration of the Leased Premises cannot be substantially completed within sixty (60) days after the date of such damage.

     63. EMINENT DOMAIN: Paragraph 22 is modified by the following:

     Landlord may not terminate the Lease if less than 1/3 of the building is taken by condemnation or if a taking by condemnation is only threatened.

37

     64. TRANSFER BY LANDLORD: The provisions of Paragraph 23 of the Lease to the contrary notwithstanding, Landlord shall not be relieved of its obligations under the Lease which may accrue after the date of a sale or other transfer unless and until (i) the transferee agrees to assume and be bound by the terms of this Lease and to perform all obligations of the landlord under the Lease which may accrue after the date of such transfer, and (ii) Landlord transfers the Security Deposit to its successor in interest (transferee) in accordance with the provisions of California Civil Code Section 1950.7, as amended or recodified.

     65. LANDLORD’S LIEN WAIVER: Landlord, within thirty (30) days after demand from Tenant, shall execute and deliver such lien waiver documents that are reasonably required by any supplier, lessor, or lender in connection with the installation in the Premises of the Tenant’s personal property or trade fixtures providing Landlord approves the form of any such waiver and Landlord’s rights under this Lease are not materially and adversely affected.

QUANTUM CORPORATION		JOHN ARRILLAGA SEPARATE PROPERTY
a Delaware corporation		TRUST
By	/s/ Joseph C. Shepela	By	/s/ John Arrillaga
			John Arrillaga, Trustee
By	VP Human Resources	RICHARD T. PEERY SEPARATE PROPERTY
		TRUST
		By	/s/ Richard Peery
			Richard T. Peery, Trustee

38

AMENDMENT NO. 1

     THIS AMENDMENT NO. 1 is made and entered into this 24th day of April, 1990, by and between JOHN ARRILLAGA, Trustee, or his Successor Trustee UTA dated 7/20/77 (JOHN ARRILLAGA SEPARATE PROPERTY TRUST) as amended, and RICHARD T. PEERY, Trustee, or his Successor Trustee UTA dated 7/20/77 (RICHARD T. PEERY SEPARATE PROPERTY TRUST) as amended, as LANDLORD, and QUANTUM CORPORATION, a Delaware corporation, as TENANT.

RECITALS

     A. WHEREAS, by Lease Agreement dated October 31, 1989, Landlord leased to Tenant all of that certain 155,734 ± square foot building located at Bellew Drive and Magnolia Drive, Milpitas, California, the details of which are more particularly set forth in said October 31, 1989 Lease Agreement, and

     B. WHEREAS, it is now the desire of the parties hereto to amend said Lease to reflect the delay of the Commencement Date of the Lease from December 15, 1990 to April 1, 1991 and to amend the Basic Rent schedule accordingly; deletion of the Phase In Right of said Lease; and commencement of payment of Additional Rent as of December 15, 1990; as hereinafter set forth.

AGREEMENT

     NOW THEREFORE, for valuable consideration, receipt of which is hereby acknowledged, and in consideration of the hereinafter mutual promises, the parties hereto do agree as follows:

     1. LEASE TERM AND COMMENCEMENT DATE: Paragraph 41.B. of the Lease is amended by changing the reference to the December 15, 1990 Commencement Date to April 1, 1991. Subject paragraph will be amended to read as follows:

     “B. Commencement Date Defined: As used herein, the term “Commencement Date” shall mean the later to occur of the following: (i) the date upon which the “Improvements” are “Substantially Completed”; or (ii) April 1, 1991; provided, however, that if prior to the later of such dates Tenant’s operating personnel enter into occupancy of the Premises and commence the operation of Tenant’s business within the Premises, the Commencement Date shall be the date such personnel of Tenant so enter into occupancy of the Premises. The term “Substantially Completed” and/or “Substantial Completion” shall mean the date when all of the following have occurred with respect to the Improvements in question: (i) the construction of the Improvements in question has been substantially completed in accordance with the approved plans therefore except for punch list items which do not prevent Tenant from reasonably using the Premises to conduct Tenant’s business; (ii) Landlord has executed a certificate or statement representing that the Improvements in question have been substantially completed in accordance with the plans and specifications therefore except for punch list items which do not prevent Tenant from reasonably using the Premises to conduct Tenant’s business; and (iii) the Building Department of the City of Milpitas has completed its final inspection of such Improvements and has “signed off” the building inspection card approving such work as complete except for punch list items

1

which do not prevent Tenant from reasonably using the Premises to Conduct-Tenant’s business. Notwithstanding the foregoing, Substantial Completion of the Interior Improvements shall not be deemed to have occurred until Landlord has obtained final or conditional approval from the Fire Department of the City of Milpitas that the Improvements have been completed in accordance with such department’s requirements (subject only to conditions that do not prevent Tenant from occupying the Improvements).”

     2. DELETION OF “BASIC RENT REDUCTION DURING PHASE IN PERIOD”: As a material inducement to Landlord to postpone the commencement of the Lease Agreement, Paragraph 40 shall be deleted in its entirety, and Tenant will be responsible for paying Basic Rent to Landlord, from the Commencement Date of said Lease, on the entire 155,734 ± square foot building.

     3. COMMENCEMENT OF PAYMENT OF ADDITIONAL RENT: Notwithstanding the commencement date of this Lease as stated above, Tenant shall be responsible for paying one hundred percent (100%) of the Additional Rent Expenses as outlined in Paragraph 4.D. of said Lease Agreement for the entire 155,734+ square foot Lease Premises commencing December 15, 1990.

     4. BASIC RENT SCHEDULE: Furthermore, as Landlord is accommodating Tenant in deferring the Commencement Date of said Lease from December 15, 1990 to April 1, 1991, the parties have agreed that the Basic Rent increases will be calculated from December 15, 1990 and that Paragraph 39 “Basic Rent” of said Lease Agreement shall be amended as follows:

Period	Monthly Basic Rent
Months 1-13	$1.00/sf
Months 14-25	$1.05/sf
Months 26-37	$1.10/sf
Months 38-49	$1.15/sf
Months 50-61	$1.20/sf
Months 62-73	$1.25/sf
Months 74-85	$1.30/sf
Months 86-97	$1.35/sf
Months 98-109	$1.40/sf
Months 110-121	$1.45/sf
Months 122-133	$1.50/sf

2

Period	Monthly Basic Rent
Months 134-145	$1.55/sf
Months 146-157	$1.60/sf
Months 158-169	$1.65/sf
Months 170-185	$1.70/sf

     5. LANDLORD’S RIGHT TO TERMINATE: Paragraph 47 of the Lease is amended by deleting the references to June 1, 1990 and adding in lieu thereof references to August 1, 1990. Subject paragraph will be amended to read as follows:

     “It is understood that the Premises to be leased by Tenant are to be constructed by Landlord, and that Landlord is required to obtain the necessary building permits for the building shell before construction of said Premises can commence. Therefore, it is agreed that in the event Landlord cannot obtain all the necessary building permits for the building shell by August 1, 1990, then either Landlord or Tenant can terminate this Lease by written notice to the other party given within thirty (30) days thereafter, without any liability to the other party of any the whatsoever, and that this Lease Agreement will be null and void as of the date of receipt of such notice. Landlord agrees to use its best efforts to obtain the required permits by August 1, 1990.”

     EXCEPT AS MODIFIED HEREIN, all other terms, covenants, and conditions of said October 31, 1989 Lease Agreement shall remain in full force and effect.

     IN WITNESS WHEREOF, Landlord and Tenant have executed this Amendment No. 1 to Lease as of the day and year first hereinabove set forth.

LANDLORD:		TENANT:
JOHN ARRILLAGA SEPARATE		QUANTUM CORPORATION
PROPERTY TRUST		a Delaware corporation
By	/s/ John Arrillaga	By	/s/ Joseph C. Shepala
	John Arrillaga, Trustee
RICHARD T. PEERY SEPARATE PROPERTY TRUST		Title:	VP Human Resources
By	/s/ Richard Peery	Dated:	6/12/90
	Richard T. Peery, Trustee

3

AMENDMENT No. 2

     THIS AMENDMENT NO. 2 is made and entered into this 26th day of June, 1991, by and between JOHN ARRILLAGA, Trustee, or his Successor Trustee UTA dated 7/20/77 (JOHN ARRILLAGA SEPARATE PROPERTY TRUST) as amended, and RICHARD T. PEERY, Trustee, or his Successor Trustee UTA dated 7/20/77 (RICHARD T. PEERY SEPARATE PROPERTY TRUST) as amended, as LANDLORD, and QUANTUM CORPORATION, a Delaware corporation, as TENANT.

RECITALS

     A. WHEREAS, by Lease Agreement dated October 31, 1989 Landlord leased to Tenant all of that certain 155,734 ± square foot building located at 1130 Bellew Drive Milpitas, California, the details of which are more particularly set forth in said October 31, 1989 Lease Agreement, and

     B. WHEREAS, the Lease was amended by Amendment No. 1 dated April 24, 1990 to delay the Commencement Date of the Lease from December 15, 1990 to April 1, 1991, and

     C. WHEREAS, the Lease was amended by Commencement Letter dated March 4, 1991 to commence the Lease March 1, 1991, and

     D. WHEREAS, it is now the desire of the parties hereto to: (1) extend the Term for two (2) months so the termination date of said Lease will coincide with the termination date of the “Companion Lease” (additional premises leased from Landlord at 490 McCarthy Blvd., Milpitas, California); and (2) amend the Basic Rent schedule and aggregate Rent of said Lease Agreement as hereinafter set forth.

AGREEMENT

     NOW THEREFORE, for valuable consideration, receipt of which is hereby acknowledged, and in consideration of the hereinafter mutual promises, the parties hereto do agree as follows:

     1. TERM OF LEASE: Pursuant to Lease Paragraph 41.C. “Lease Terms Co-extensive”, it is agreed between the parties that the term of said Lease Agreement shall be extended for an additional two (2) months and the Lease termination date is hereby extended from July 31, 2006 to September 30, 2006.

     2. BASIC RENTAL FOR EXTENDED TERM OF LEASE: The monthly Basic Rental for the Extended Term of the Lease shall be as follows:

     On August 1, 2006 the sum of TWO HUNDRED SIXTY FOUR THOUSAND SEVEN HUNDRED FORTY SEVEN AND 80/100 DOLLARS ($264,747.80) shall be due, and a like sum due on the first day of each month thereafter, through and including September 1, 2006.

     The aggregate rental for the lease shall be increased by $529,495.60 or from $39,058,087.20 to $39,587,582.80.

1

     3. OPTION TO EXTEND PURSUANT TO PARAGRAPHS 42 AND 43 OF THE LEASE: Pursuant to Paragraph 42 “First Five-Year Option to Extend” and Paragraph 43 “Second Five-Year Option to Extend”, the latest dates Tenant may exercise its first and second five-year options to extend, as specified in the aforementioned Paragraphs, are April 3, 2006 and April 3, 2011, respectively.

     EXCEPT AS MODIFIED HEREIN, all other terms, covenants, and conditions of said October 31, 1989 Lease Agreement shall remain in full force and effect.

     IN WITNESS WHEREOF, Landlord and Tenant have executed this Amendment No. 2 to Lease as of the day and year first hereinabove set forth.

LANDLORD:		TENANT:
JOHN ARRILLAGA SEPARATE		QUANTUM CORPORATION
PROPERTY TRUST		a Delaware corporation
By	/s/ John Arrillaga	By	/s/ Joseph C. Shepala
	John Arrillaga, Trustee
RICHARD T. PEERY SEPARATE PROPERTY TRUST		Title:	VP Human Resources
By	/s/ Richard Peery	Dated:	7/19/91
	Richard T. Peery, Trustee

2

Quantum 2

AMENDMENT NO. 3
TO LEASE

     THIS AMENDMENT NO. 3 is made and entered into this 16th day of April, 1997, by and between JOHN ARRILLAGA, Trustee, or his Successor Trustee UTA dated 7/20/77 (JOHN ARRILLAGA SURVIVOR’S TRUST) (previously known as the “John Arrillaga Separate Property Trust”) as amended, and RICHARD T. PEERY, Trustee, or his Successor Trustee UTA dated 7/20/7’ (RICHARD T. PEERY SEPARATE PROPERTY TRUST) as amended, collectively as LANDLORD, and QUANTUM CORPORATION, a Delaware corporation, as TENANT.

RECITALS

     A. WHEREAS, by Lease Agreement dated October 31, 1989 Landlord leased to Tenant all of that certain 155,734 ± square foot building located at 1140 Technology Drive, Milpitas, California, the details of which are more particularly set forth in said October 31, 1989 Lease Agreement, and

     B. WHEREAS, said Lease was amended by Letter Agreement dated October 31, 1989 which provided for a Basic Rent Credit for the period commencing with the Lease Commencement Date and ending on May 31, 1991, and

     C. WHEREAS, said Lease was amended by Amendment No. 1 dated April 24, 1990 which canceled the reduction in Basic Rent Credit Letter dated October 31, 1989, and which delayed the Lease Commencement Date from December 15, 1990 to April 1, 1991, and,

     D. WHEREAS, said Lease was amended by the Commencement Letter dated March 4, 1991 which changed the Commencement Date of the Lease from April 1, 1991 to March 1, 1991, and established the Termination Date of July 31, 2006, and,

     E. WHEREAS, said Lease was amended by Amendment No. 2 dated June 26, 1991 which extended the Term of the Lease for an additional two month period, amended the Basic Rent schedule and Aggregate Rent accordingly; and amended the deadlines in which Tenant could exercise its Optics to Extend pursuant to Lease Paragraphs 42 and 43, and

     F. WHEREAS, it is now the desire of the parties hereto to amend the Lease by (i) extending the Term for five years, changing the Termination Date from September 30, 2006 to September 30, 2011, (ii) amending the Basic Rent schedule and Aggregate Rent accordingly, (iii) adding a third Five Year Option to Extend, (iv) replacing Paragraphs 41C (“Lease Terms Co-extensive”) and 48 (“Cross Default”) and 53 (“Structural Capital Costs Regulated by Governmental Agencies After the Commencement of this Lease not Caused by Tenant or Tenant’s Uses or Remodeling of the Premises” (v) amending Lease Paragraph 12 (“Property Insurance”) and (vi) amending and/or replacing certain provisions of the Lease commencing as of the commencement of the Third Extended Term of said Lease as hereinafter set forth.

1

Quantum 2

AGREEMENT

     NOW THEREFORE, for valuable consideration, receipt of which is hereby acknowledged, and in consideration of the hereinafter mutual promises, the parties hereto do agree as follows:

     1. TERM OF LEASE: It is agreed between the parties that Tenant has exercised its First Five-Year Option to Extend the lease term of that certain lease agreement dated March 23, 1994 for premises located at 1101 Sumac Drive, Milpitas, California (the “Building 5 Lease”), as detailed in Paragraph 41 of said Building 5 Lease. Paragraph 40C of said Building 5 Leases provides that in the event the term of said Building 5 Lease is extended for any reason whatsoever, the terms of the Existing Leases (i.e. two of said leases dated October 31, 1989 are for Premises located at 1140 Technology Drive and 500 McCarthy Blvd., Milpitas, California (the “1989 Leases”); one of said leases dated September 17, 1990 is for Premises located at 1000 Sumac Drive, Milpitas, California) and one of said leases dated April 10, 1992 is for Premises located at 900 Sumac Drive, Milpitas, California) shall also be extended so that all five Leases expire on the same date; therefore, it is agreed between the parties that by exercising its Option to Extend the Building 5 Lease, Tenant has in effect exercised its Option to Extend under Lease Paragraph 42 (“First Five-Year Option to Extend”), and that pursuant to said Lease Paragraph 42, the Term of this Lease Agreement shall he extended for an additional five (5) year period, and the Lease Termination Date shall be changed from September 30, 2006 to September 30, 2011.

     2. BASIC RENTAL FOR FIRST EXTENDED TERM OF LEASE: The monthly Basic Rental for the First Extended Term of Lease shall be as follows:

     On October 1, 2006, the sum of TWO HUNDRED SEVENTY TWO THOUSAND FIVE HUNDRED THIRTY FOUR AND 50/100 DOLLARS ($272,534.50) shall be due, and a like sum due on the first day of each month thereafter through and including September 1, 2007.

     On October 1, 2007, the sum of TWO HUNDRED EIGHTY THOUSAND THREE HUNDRED TWENTY ONE AND 20/100 DOLLARS ($280,321.20) shall be due, and a like sum due on the first day of each month thereafter through and including September 1, 2008.

     On October 1, 2008, the sum of TWO HUNDRED EIGHTY EIGHT THOUSAND ONE HUNDRED SEVEN AND 90/100 DOLLARS ($288,107.90) shall be due, and a like sum due on the first day of each month thereafter through and including September 1, 2009.

     On October 1, 2009, the sum of TWO HUNDRED NINETY FIVE THOUSAND EIGHT HUNDRED NINETY FOUR AND 60/100 DOLLARS ($295,894.60) shall be due, and a like sum due on the first day of each month thereafter through and including September 1, 2010.

     On October 1, 2010, the sum of THREE HUNDRED THREE THOUSAND SIX HUNDRED EIGHTY ONE AND 30/100 DOLLARS ($303,681.30) shall be due, and a like sum due on the first day of each month thereafter through and including September 1, 2011.

     The Aggregate Basic Rent for the Lease shall be increased by $17,286,474.00 or from $39,587,582.80 to $56,874,056.80.

2

Quantum 2

     3. THIRD FIVE-YEAR OPTION TO EXTEND: Provided Tenant has extended the Lease for an additional five (5) year period pursuant to Lease Paragraph 43 (“Second Five Year Option To Extend”), Landlord hereby grants to Tenant a third option to extend the Term of this Lease for an additional five (5) year period upon the following terms and conditions:

          A. Tenant shall give Landlord written notice of Tenant’s exercise of this option to extend at least one hundred eighty (180) days prior to the expiration of the Lease Term as extended pursuant to Lease Paragraph 43 (“Second Five Year Option To Extend”), in which event the Lease shall be considered extended for an additional five (5) year period upon the same terms and conditions as this Lease, absent this Paragraph 3 and subject to the Rental as set forth below. In the event that Tenant fails to timely exercise Tenant’s option as set forth herein in writing, Tenant shall have no further option to extend this Lease or the Other Leases, and this Lease shall continue in full force and effect for the full remaining term hereof, absent this Paragraph 3.

          B. The monthly Basic Rent for the option period shall be as follows in the event the option is exercised:

Period		Monthly Basic Rent
Months	1-12	$2.25/sf
Months	13-24	$2.30/sf
Months	25-36	$2.35/sf
Months	37-48	$2.40/sf
Months	49-60	$2.45/sf

          C. Notwithstanding anything contained herein, Tenant may not exercise the option to extend granted by this Paragraph 3 at any time that Tenant is in default (default for monetary and material default for non-monetary) of its obligations under this Lease, if Tenant has received written notice from Landlord that Tenant is in default, and such default has not been timely cured within the time period provided for in this Lease; provided, however, that if such default of Tenant is not for money due under this Lease and cannot be cured, and if Landlord does not elect to terminate this Lease as a result of such non-curable default by Tenant, Tenant may exercise the option to extend granted by this Paragraph 3 notwithstanding such non-curable default.

     4. LEASE TERMS CO-EXTENSIVE: Lease Paragraph 40C (“Lease Terms Co-extensive”) is hereby deleted in its entirety and replaced with the following:

     “40C. LEASE TERMS CO-EXTENSIVE: It is acknowledged that (i) Landlord and Tenant have previously executed four separate leases in addition to this Lease: one of said leases dated October 31, 1989 is for Premises located at 500 McCarthy Blvd., Milpitas, California (the “Building Two Lease”); one of said leases dated September- 17, 1990 is for Premises located at 1000 Sumac Drive, Milpitas, California (the “Building Four Lease”); one of said leases dated April 10, 1992 is for Premises located at 900 Sumac Drive, Milpitas, California (the “Building 3 Lease”); and one of said leases dated March 23, 1994 is for premises

3

Qunatum 2

located at 1101 Sumac Drive, Milpitas, California (the “Building 5 Lease”) (hereinafter collectively referred to as the “Other Leases”); and (ii) it is the intention of the parties that the term of this Lease be co-extensive with the term of the Other Leases, such that the terms of all five leases (“the Leases”) expire on the same date. The provisions of this Paragraph 40C also requires the terms of all the Leases to be extended accordingly if Tenant exercises its Option to Extend under any of the Leases. The monthly Basic Rent during the extended term under each of the Leases shall be increased by $.05 per square foot on the commencement date of the extended term and thereafter on each and every anniversary of the respective lease’s commencement date of the extended term.”

     5. CROSS DEFAULT: Lease Paragraph 48 (“Cross Default”) is hereby deleted in its entirety and replaced with the following:

     “48. CROSS DEFAULT: It is agreed between Landlord and Tenant that a default under this Lease, or a default under any of the Other Leases may, at the option of Landlord, be considered a default under all Leases, in which event Landlord shall be entitled (but in no event required) to apply all rights and remedies of Landlord under the terms of one lease to all the Leases including, but not limited to, the right to terminate any or all of the aforementioned Other Leases or this Lease by reason of a default under the Leases or hereunder.

     Notwithstanding the above, Landlord shall have the option of considering a default under this Lease or a default under any of the Other Leases to be a default under all such leases, only with respect to such leases under which Landlord is also the ‘Landlord’ at the time such default occurs. By way of example, if at the time a default of Tenant occurs under this Lease, Landlord has sold the premises described in any of the Other Leases and is no longer the ‘Landlord’ thereunder, then a default under this Lease shall not constitute a default under any of such Other Leases so sold by Landlord (unless the premises leased under this Lease and the Other Leases are sold to the same entity), and a default by Tenant under any of such Other Leases so sold by Landlord shall not constitute a default under this Lease or any other of the Other Leases then remaining between Landlord and Tenant. However, if the Landlord under this Lease and the Other Leases is one in the same at the time of said default, said cross default provisions shall apply.”

     6. STRUCTURAL CAPITAL COSTS REGULATED BY GOVERNMENTAL AGENCIES AFTER THE COMMENCEMENT OF THIS LEASE NOT CAUSED BY TENANT OR TENANTS USES OR REMODELING OF THE PREMISES: Lease Paragraph 53 (“Structural Capital Costs Regulated by Governmental Agencies after the Commencement of this Lease Not Caused by Tenant or Tenant’s Uses or Remodeling of the Premises”) is hereby deleted and replaced with the following:

     53. STRUCTURAL CAPITAL COSTS REGULATED BY GOVERNMENTAL AGENCIES AFTER THE COMMENCEMENT OF THIS LEASE NOT CAUSED BY TENANT OR TENANT’S USES OR REMODLING OF THE PREMISES: The provisions of this Paragraph 53 shall modify Paragraphs 7 and 14:

4

Quantum 2

     A. If (i) during the last five (5) years of the First Extended Term of the Lease if said Lease has not been extended as provided for in Lease Paragraph 43 (“Second Five Year Option To Extend”) or in Paragraph 3 (“Third Five Year Option to Extend”) or Paragraph 4 (“Lease Terms Co-Extensive”) above, or (ii) during either of the five (5) year extension periods permitted by Lease Paragraph 43 or Paragraph 3, or Paragraph 4 above, it becomes necessary (due to any governmental requirement for continued occupancy of the Premises) to make structural improvements required by laws enacted or legal requirements imposed by governmental agency(s) after the Commencement Date, and the cost for each required work or improvements exceeds $100,000, then if such legal requirement is not imposed because of Tenant’s specific use of the Premises and is not “triggered” by Tenant’s Alterations or Tenant’s application for a building permit or any other governmental approval (collectively “Tenant’s Actions”) in which instance Tenant shall be responsible for 100% of the cost of such improvements, Landlord shall be responsible for paying the cost of such improvement and constructing such improvement, subject to a cash contribution from Tenant of a portion of the cost thereof as provided for and calculated in Paragraph 53B.

     B. When Landlord makes an improvement pursuant to Paragraph 53A, and as a condition to Landlord’s obligation to construct such improvement, Tenant shall make the following contribution in cash to Landlord for the cost thereof prior to the commencement of the work by Landlord. It is agreed that Tenant shall pay to Landlord 100% of the cost of the first $100,000.00 worth of each improvement. After the first $100,000.00, all costs above $100,000.00 shall be divided by 15 and multiplied by the time period remaining in the last five years of the Lease Term from the date work on such improvement commences.

     For example, if the improvement is not required as a result of Tenant’s Action and if the cost of such improvement was $400,000 and there was one year and six months remaining in the Lease term when the work commenced, then Tenant would be responsible for reimbursing Landlord in cash $130,000.00 computed as follows:

Total Cost of Work	$	400,000.00
Tenant Responsible for 1st $100,000		-100.000.00
Total Amount To Be Amortized	$	300,000.00
$300,000.00/15 - $20,000/yr. x 1.5 yrs =	$	30,000.00
Tenant responsible for $100,000 + 30,000 =	$	130,000.00

     C. If Landlord has made improvements, for which Tenant has reimbursed Landlord for the cost thereof pursuant to Paragraph 53B, and the term of this Lease is subsequently extended pursuant to the exercise by Tenant of an option to renew pursuant to Lease Paragraph 43 or Paragraph 3 above, upon the exercise of any such option by Tenant, Tenant shall pay to Landlord an additional sum equal to the total amount of said

5

Quantum 2

     improvement less the amount previously paid for by Tenant. Using the example in Paragraph 53B above, Tenant would owe Landlord the additional amount of $270,000.00 ($400,000.00 — $130,000.00 = $270,000.00).”

     7. PROPERTY INSURANCE: Lease Paragraph 12 (“Property Insurance”) is hereby an to include the following: “Tenant acknowledges that as part of the cost of insurance policies for the Premises, Tenant is responsible for the payment of insurance deductibles on insurance claims as they relate to the Premises subject to the limitations provided in Lease Paragraph 55 (“Property Insurance”) which limitations are applicable only during the initial Lease Term and the First Lease Extension Period and the Second Lease Extension Period. Said limitation provided for in Lease Paragraph 55 are null and void at the commencement of the Third Lease Extended Term”.

     8. THIRD OPTION PERIOD — LEASE PROVISION CHANGES: In the event Tenant exercises its Third Option to Extend as provided for in Paragraph 3 above, the following amendments (contained within Paragraphs 9 through 19) are herein made to the Lease to be effective upon the commencement of the third option period (“Third Option Period”), or during any period following expiration of the Lease Term or expiration of the Lease when Tenant is in possession of the Premises.

     9. LATE CHARGE: Effective as of the first day of the Third Option Period, the Late Charge referenced in Lease Paragraph 4.D (“Late Charge”) shall be changed from five percent (5%) to ten percent (10%), and Lease Paragraph 50 (“Limitation on Late Charge”) shall be deleted in its entirety and of no further force or effect.

     10. MANAGEMENT FEE: Notwithstanding anything to the contrary in the Lease, effective as of the first day of the Third Option Period, and on the first day of each month thereafter, Tenant shall pay to Landlord, in addition to the Basic Rent and Additional Rent, a fixed monthly manage fee (“Management Fee”) equal to one percent (1%) of the Basic Rent due for each month during the Lease Term.

     11. HAZARDOUS MATERIALS: Effective as of the first day of the Third Option Period Lease Paragraph 45 (“Hazardous Materials”) shall be deleted in its entirety and replaced with the following:

     “45. HAZARDOUS MATERIALS: Landlord and Tenant agree as follows with respect to the existence or use of “Hazardous Materials” (as defined herein) on, in, under or about the Premises and real property located beneath said Premises, which includes the entire parcel of land on which the Premises are located as shown in Green on Exhibit A to the Lease (hereinafter collectively referred to as the “Property”):

     A. As used herein, the term “Hazardous Materials shall mean any material, waste, chemical, mixture or byproduct which is or hereafter is defined, listed or designated under Environmental Laws (defined below) as a pollutant, or as a contaminant, or as a toxic or hazardous substance, waste or material, or any other unwholesome, hazardous, toxic, biohazardous, or radioactive material, waste, chemical, mixture or byproduct, or which is listed, regulated or restricted by any Environmental

6

Quantum 2

Law (including, without limitation, petroleum hydrocarbons or any distillates or derivatives or fractions thereof, polychlorinated biphenyls, or asbestos). As used herein, the term “Environmental Laws” shall mean any applicable Federal, State of California or local government law (including common law), statute, regulation, rule, ordinance, permit, license, order, requirement, agreement, or approval, or any determination, judgment, directive, or order of any executive or judicial authority at any level of Federal, State of California or local government (whether now existing or subsequently adopted or promulgated) relating to pollution or the protection of the environment, ecology, natural resources, or public health and safety.

     B. Tenant shall notify Landlord prior to the occurrence of any Tenant’s Hazardous Materials Activities (defined below). Landlord acknowledges that Tenant shall use, in compliance with applicable Environmental Laws, customary household and office supplies (Tenant shall first provide Landlord with a list of said materials use), such as mild cleaners, lubricants and copier toner. Any and all of Tenant’s Hazardous Materials Activities shall be conducted in conformity with this Paragraph, 45, Paragraph 14 of this Lease, and in compliance with all Environmental Laws and regulations. As used herein, the term “Tenant’s Hazardous Materials Activities” shall mean any and all use, handling, generation, storage, disposal, treatment, transportation, release, discharge, or emission of any Hazardous Materials on, in, beneath, to, from, at or about the Property, in connection with Tenant’s use of the Property, or by Tenant or by any of Tenant’s agents, employees, contractors, vendors, invitees, visitors or its future subtenants or assignees or other third parties (including “dumping” by others) (or which Hazardous Materials originate on the surface of the Premises any time on or after the Commencement Date of this Lease, but excluding Hazardous Materials on the Premises prior to the Lease Commencement Date because of the storage, use, disposal, or transportation of such materials or waste by any of Landlord’s contractors or otherwise arising out of construction work performed by or under the direction of Landlord on the Premises and Landlord shall be responsible for all required actions with respect to such materials or wastes). Tenant agrees to provide Landlord with prompt written notice of any spill or release of Hazardous Materials at the Property during the term of the Lease of which Tenant becomes aware, and further agrees to provide Landlord with prompt written notice of any violation of Environmental Laws in connection with Tenant’s Hazardous Materials Activities of which Tenant becomes aware. If Tenant’s Hazardous Materials Activities involve Hazardous Materials other than normal use of customary household and office supplies, Tenant also agrees at Tenant’s expense: (i) to install such Hazardous Materials monitoring, storage and containment devices as may be required by Environmental Laws, regulations and/or governing agencies; (ii) to provide Landlord with a written inventory of such Hazardous Materials, including an update of same each year upon the anniversary date of the Commencement Date of the Lease (“Anniversary Date”); and (iii) on each Anniversary Date to provide to Landlord copies of all documentation and records, required by applicable Environmental Laws to be prepared and submitted to governmental authorities, relating to use at the Property of Hazardous Materials or to Tenant’s Hazardous Materials Activities, if any. If upon completion of Landlord’s review of said documentation and records, Landlord reasonably questions if Tenant is in compliance with all applicable Environmental Laws with respect to Tenant’s Hazardous Materials Activities, Tenant agrees within thirty (30) days following receipt of

7

Quantum 2

written notice from Landlord, to retain a qualified environmental consultant, acceptable to Landlord, to evaluate whether Tenant is in compliance with all applicable Environmental Laws with respect to Tenant’s Hazardous Materials Activities. Tenant, at its expense, shall submit to Landlord a report from such environmental consultant which discusses the environmental consultant’s findings within two (2) months of each Anniversary Date. Tenant, at its expense, shall promptly undertake and complete any and all steps necessary, and in full compliance with applicable Environmental Laws, to fully correct any and all problems or deficiencies identified by the environmental consultant, and promptly provide Landlord with documentation of all such corrections.

     C. Prior to termination or expiration of the Lease, Tenant, at its expense, shall (i) properly remove from the Property all Hazardous Materials which come to be located at the Property in connection with Tenant’s Hazardous Materials Activities, and (ii) fully comply with and complete all facility closure requirements of applicable Environmental Laws regarding Tenant’s Hazardous Materials Activities, including but not limited to (x) properly restoring and repairing the Property to the extent damaged by such closure activities, and (y) obtaining from the local Fire Department or other appropriate governmental authority with any legal or regulatory jurisdiction a written concurrence that closure has been completed in compliance with applicable Environmental Laws. Tenant shall promptly provide Landlord with copies of any claims, notices, work plans, data and reports prepared, received or submitted in connection with any such closure activities.

     D. If Landlord, upon consultation with Tenant, reasonably concludes that Property has become contaminated as a result of Tenant’s Hazardous Materials Activities, Landlord in addition to any other rights it may have under this Lease or under Environmental Laws or other laws, may enter upon the Property and conduct inspection, sampling and analysis, including but not limited to obtaining and analyzing samples of soil and groundwater, for the purpose of determining the nature and extent of such contamination except to the extent that such activities may be inconsistent with Tenant’s compliance with Environmental Laws. Tenant shall promptly reimburse Landlord for the costs of such an investigation, including but not limited to reasonable attorneys’ fees Landlord incurs with respect to such investigation to the extent, and only to the extent, that it that discloses Hazardous Materials contamination for which Tenant is liable under this Lease. Except as may be required of Tenant by applicable Environmental Laws, Tenant shall not perform any sampling, testing, or drilling to identify the presence of any Hazardous Materials at the Property, without Landlord’s prior written consent which shall not be unreasonably withheld. Tenant shall promptly provide Landlord with copies of any claims, notices, work plans, data and reports prepared, received or submitted in connection with any sampling, testing or drilling performed pursuant to the preceding sentence.

     E. Tenant shall indemnify, defend (with legal counsel acceptable to Landlord, whose consent shall not unreasonably be withheld) and hold harmless Landlord, its employees, assigns, successors, successors-in-interest, agents and representatives from and against any and all claims (including but not limited to third party claims from a private party or a government authority), liabilities, obligations,

8

Quantum 2

losses, causes of action, demands, governmental proceedings or directives, fines, penalties, expenses, costs (including but not limited to reasonable attorneys’, consultants’ and other experts’ fees and costs), and damages, which arise from or relate to: (i) Tenant’s Hazardous Materials Activities; (ii) any Hazardous Materials contamination caused by Tenant prior to the Commencement Date of the Lease; or (iii) the breach of any obligation of Tenant under this Paragraph 45 (collectively, “Tenant’s Environmental Indemnification”). Tenant’s Environmental Indemnification shall include but is not limited to the obligation to promptly and fully reimburse Landlord for losses in or reductions to rental income, and diminution in fair market value of the Property. Tenant’s Environmental Indemnification shall further include but is not limited to the obligation to diligently and properly implement to completion, at Tenant’s expense, any and all environmental investigation, removal, remediation, monitoring, reporting, closure activities, or other environmental response action as may be required by applicable Environmental Laws, regulations or governing agencies (collectively, “Response Actions”). Tenant shall promptly provide Landlord with copies of any claims, notices, work plans, data and reports prepared, received or submitted in connection with any Response Actions.

     F. Landlord hereby makes the following representations to Tenant, each of which is made only to the best of Landlord’s knowledge as of the date Landlord executes this Lease, without any inquiry or investigation having been made or required by Landlord regarding this subject, nor does Landlord have any obligation to investigate or make inquiry regarding the subject:

          (1) The soil and ground water on or under the Premises does not contain Hazardous Materials in amounts which violate any laws to the extent that any governmental entity could require either Landlord or Tenant to take any remedial action with respect to such Hazardous Materials.

          (2) During the time that Landlord has owned the Premises, Landlord has received no notice of (i) any violation, or alleged violation, of any law that has not been corrected to the satisfaction of the appropriate authority, (ii) any pending claims relating to the presence of Hazardous Material on the Premises, or (iii) any pending investigation by any governmental agency concerning the Premises relating to Hazardous Materials.

     G. Landlord and Tenant shall each give written notice to the other as soon as reasonably practicable of (i) any communication received from any governmental authority concerning Hazardous Materials which relates to the Premises, and (ii) any contamination of the Premises by Hazardous Materials which constitutes a violation of any law. Attached as Exhibit “C” to the Lease is a list of Hazardous Materials that Tenant intends to use at the Premises. If during the Lease Term Tenant proposes to use other Hazardous Materials at the Premises, Tenant shall inform Landlord of such use, identifying the Hazardous Materials and the manner of their use, storage disposal, and shall agree (i) to use, store and dispose of such Hazardous Materials strictly in compliance with all laws, regulations and governing agencies and (ii) that the indemnity set forth in Paragraph 45 shall be applicable to Tenant’s use of such Hazardous Material.

9

Quantum 2

     H. Landlord or Tenant may, at any time, cause testing wells to be installed on the Premises, and may cause the ground water to be tested to detect the presence of Hazardous Material by the use of such tests as are then customarily used for such purposes. Testing wells installed by Tenant shall be paid for by Tenant. If tests conducted by Landlord disclose that Tenant has violated any Hazardous Materials laws, or Tenant or parties on the Premises during the Term of this Lease have contaminated the Premises as determined by regulatory agencies pursuant to Hazardous Materials laws, or that Tenant has liability to Landlord pursuant to Paragraph 45A, then Tenant shall pay for 100 percent of the cost of the test and all related expense. Prior to the expiration of the Lease Term, Tenant shall remove any testing wells it hag installed at the Premises, and return the Premises to the condition existing prior to the installation of such wells, unless Landlord requests in writing that Tenant leave all or some of the testing wells in which instance the wells requested to be left shall not be removed.

     I. If any tests performed by Tenant or Landlord prior to the Commencement Date disclose Hazardous Materials at the Premises, Landlord at its expense will promptly take all reasonable action required by law with respect to the existence of such Hazardous Materials at the Premises. The Commencement Date shall not be delayed because of such action by Landlord unless occupation of the Premises is prohibited by law.

     J. The obligations of Landlord and Tenant under this Paragraph 45 shall survive the expiration or earlier termination of the Term of this Lease. The rights and obligations of Landlord and Tenant with respect to issues relating to Hazardous Materials are exclusively established by this Paragraph 45.”

     12. SECURITY DEPOSIT: Effective as of the first day of the Third Option Period, Lease Paragraph 51 (“Security Deposit”) shall be deleted in its entirety and replaced with the following:

     “51. SECURITY DEPOSIT: The following provisions shall modify Lease Paragraph 4F:

     A. Within thirty (30) days after the expiration or earlier termination of the Lease term and after Tenant has vacated the Premises, Landlord shall return to Tenant the entire Security Deposit except for amounts that Landlord has deducted therefrom that are needed by Landlord to cure defaults of Tenant under the Lease or compensate Landlord for damages for which Tenant is liable pursuant to this Lease. The use or disposition of the Security Deposit shall be subject to the provisions of California Civil Code Section 1950.7.

     B. During the first thirty (30) days following Tenant’s exercise of its Third Option to Extend, and only during said thirty day period, Tenant shall have the one-time option of satisfying its obligation with respect to an amount equal to one-half (1/2) ($210,240.90) of the $420,481.80 Security Deposit required under Lease Paragraph 4F by providing to Landlord, at Tenant’s sole cost, a letter of credit which: (1) is drawn upon an institutional lender reasonably acceptable and accessible to Landlord in form and content reasonably satisfactory to Landlord; (ii) is in the amount of one-half (1/2) of the

10

Quantum 2

Security Deposit; (iii) is for a term of at lease twelve (12) months; (iv) with respect to any letter of credit in effect within the six month period immediately prior to the expiration of the Lease term, shall provide that the term of such letter of credit shall extend at least forty five (45) days past the Lease expiration date (including extensions thereof); and (v) may be drawn upon by Landlord upon submission of a declaration of Landlord that Tenant is in default (as defined in Paragraph 19 and as modified by Paragraph 60). Landlord shall not be obligated to furnish proof of default to such institutional lender, and Landlord shall only be required to give the institutional lender written notification that Tenant is in default and upon receiving such written notification from Landlord the institutional lender shall be obligated to immediately deliver cash to Landlord equal to the amount Landlord may spend or become obligated to spend by reason of Tenant’s default or to compensate Landlord for any loss or damage which Landlord may suffer by reason of Tenant’s default up to 1/2 of the total Security Deposit required under Lease Paragraph 4F. Said letter of credit shall provide that if the letter of credit is not renewed, replaced or extended within twenty (20) days prior to its expiration date the issuer of the credit shall automatically issue a cashiers check payable to Landlord in the amount of the letter of credit after the date which is twenty (20) days before the expiration date, and no later than the expiration date, without Landlord being required to make demand upon the letter of credit. If Tenant provides Landlord with a letter of credit, within thirty (30) days of the execution of this Lease, meeting the foregoing requirements, one-half (1/2) of the cash Security Deposit (i.e., $210.240.90 of the $420.481.80 Security Deposit) shall be returned to Tenant by Landlord inasmuch as the cash deposit remaining and the Letter of Credit equal the total Security Deposit required in Lease Paragraph 4F. If Tenant defaults with respect to any provisions of this Lease, including but not limited to provisions relating to the payment of Rent, Landlord may (but shall not be required to) draw down on the letter of credit for payment of any sum which Landlord may spend or become obligated to spend by reason of Tenant’s default, or to compensate Landlord for any loss or damage which Landlord may suffer by reason of Tenant’s default. Landlord and Tenant acknowledge that such letter of credit will be treated as if it were a cash security deposit, and such letter of credit may be drawn down upon by Landlord upon demand and presentation of evidence of the identity of Landlord to the issuer, in the event that Tenant defaults with respect to any provision of this Lease and such default is not cured within any applicable cure period. Notwithstanding anything to the contrary in this Lease, Landlord shall not be obligated to furnish proof of default to such institutional lender and Landlord is only required to give the institutional lender written notification that Tenant is in default and upon receiving such written notification from Landlord the institutional lender shall be obligated to immediately deliver cash to Landlord equal to the amount Landlord may spend or become obligated to spend by reason of Tenant’s default, or to compensate Landlord for any loss or damage which Landlord may suffer by reason of Tenant’s default up to ‘ of the total Security Deposit. Landlord acknowledges that it is not entitled to draw down such letter of credit unless Landlord would have been entitled to draw upon the cash security deposit pursuant to the terms of Paragraph 4F of the Lease. Concurrently with the delivery of the required information to the issuer, Landlord shall deliver to Tenant written evidence of the default upon which the draw down was based, together with evidence that Landlord has provided to Tenant the written notice of such default which was required under the applicable provision of the Lease,

11

Quantum 2

and evidence of the failure of Tenant to cure such default within the applicable grace period following receipt of such notice of default. Any proceeds received by Landlord by drawing upon the letter of credit shall be applied in accordance with the provisions governing the Security Deposit imposed by Lease Paragraph 4F and this Paragraph 51. If Landlord draws upon the letter of credit, thereafter Tenant shall once again have the right to post a letter of credit in place of one-half (1/2) of a cash Security Deposit so long as Tenant is not then in default. In any event Tenant will be obligated to replenish the amount drawn to restore the Security Deposit to its original amount as provided for in Paragraph 4F. If any portion of the letter of credit is used or applied pursuant hereto, Tenant shall, within ten (10) days after receipt of a written demand therefor from Landlord, restore and replace the value of such security by either (i) depositing cash with Landlord in the amount equal to the sum drawn down under the letter of credit, or (ii) increasing the letter of credit to its value immediately prior to such application. Tenant’s failure to replace the value of the security as provided in the preceding sentence shall be a material breach of its obligation under this Lease.”

     13. REAL ESTATE TAXES: Effective as of the first day of the Third Option Period, Lease Paragraph 54 (“Real Estate Taxes”) shall be deleted in its entirety and replaced with the following:

     “54. REAL PROPERTY TAXES: Paragraph 9 is modified by the following:

     A. The term “Real Property Taxes” shall not include charges, levies or fees directly related to the use, storage, disposal or release of Hazardous Materials on the Premises unless directly related to Tenant’s Activities at this site or on other sites leased and/or owned by Tenant; however, Tenant shall be responsible for general or special tax and/or assessments (related to Hazardous Materials and/or toxic waste) imposed on the Property provided said special tax and/or assessment is not imposed due to on-site originated contamination on the Property (by third parties not related to Tenant) prior to the Lease Commencement Date. Subject to the terms and conditions stated herein, Tenant shall be responsible for paying one hundred percent (100%) of said taxes and/or assessments allocated to the Property.

     B. If any assessments for public improvements are levied against the Premises, Landlord may elect either to pay the assessment in full or to allow the assessment to go to bond. If Landlord pays the assessment in full, Tenant shall pay to Landlord or any assignee or purchaser of the Premises each time payment of Real Property Taxes is made a sum equal to that which would have been payable (as both principal and interest) had Landlord allowed the assessment to go to bond.

     C. Tenant at its cost shall have the right, at any time, to seek a reduction in the assessed valuation of the Premises or to contest any Real Property Taxes that are to be paid by Tenant. If Tenant seeks a reduction or contests such Real Property Taxes, the failure on Tenant’s part to pay such Real Property Taxes being so contested shall not constitute a default so long as Tenant complies with the provisions of this Paragraph. Landlord shall not be required to join in any proceeding or contest brought by Tenant unless the provisions of any law require that the proceeding or contest be brought by or in

12

Quantum 2

the name of Landlord. In that case Landlord shall join in the proceedings or contest or permit it to be brought in Landlord’s name as long as Landlord is not required to bear any cost Tenant, on final determination of the proceeding or contest, shall immediately pay or discharge its share of any Real Property Taxes determined by any decision or judgment rendered, together with all costs, charges, interest, and penalties incidental to the decision or judgment. If Tenant does not pay the Real Property Taxes when due pursuant to the Lease and Tenant seeks a reduction or contests them as provided in this paragraph, before the commencement of the proceeding or contest Tenant shall furnish to Landlord a surety bond in form reasonably satisfactory to Landlord issued by an insurance company qualified to do business in California. The amount of the bond shall equal 125% of the total amount of Real Property Taxes in dispute and any such bond shall be assignable to any lender or purchaser of the Premises. The bond shall hold Landlord and the Premises harmless from any damage arising out of the proceeding or contest and shall insure the payment of any judgment that may be rendered.”

     14. PROPERTY INSURANCE: Effective as of the first day of the Third Option Period, section B of Lease Paragraph 55 (“Property Insurance”) shall be deleted in its entirety and be of no further force or effect.

     15. ASSIGNMENT AND SUBLETTING: Effective as of the first day of the Third Option Period, Lease Paragraph 56 (“Assignment and Subletting”) shall be deleted in its entirety and replaced with the following:

     “56. ASSIGNMENT AND SUBLETTING: The following modifications are made to Paragraph 16:

     A. In the event that Tenant seeks to make any assignment or sublease, then Landlord, by giving Tenant written notice of its election within fifteen (15) days after Tenant’s notice of intent to assign or sublease has been given to Landlord, shall have the right to elect (i) to withhold its consent to such assignment or sublease, as permitted pursuant to Paragraph 16, or (ii) to permit Tenant to so assign the lease or sublease such part of the Premises, in which event Tenant may do so, but without being released of its liability for the performance of all of its obligations under the Lease, and the following shall apply (except the following shall not apply to a “Permitted Transfer” described in Paragraph 57):

          (1) If Tenant assigns its interest in this Lease, then in addition to the rental provided for in this Lease, Tenant shall pay to Landlord fifty percent (50%) of all Rent and other consideration received by Tenant over and above (i) the assignee’s agreement to assume the obligations of Tenant under this Lease and (ii) all “Permitted Transfer Costs” (as defined herein) related to such assignment. As used herein, the term “Permitted Transfer Costs” shall mean all reasonable leasing commissions paid to, third parties not affiliated with Tenant in order to obtain the assignment or sublease in question.

          (2) If Tenant sublets all or part of the Premises, then Tenant shall pay to Landlord in addition to the Rent provided for in this Lease fifty percent (50%) of the

13

Quantum 2

positive difference, if any, between (i) all rent and other consideration paid or provided to Tenant by the subtenant, less (ii) all Rent paid by Tenant to Landlord pursuant to this Lease which is allocable to the area so sublet and all Permitted Transfer Costs related to such sublease. After Tenant has recovered all Permitted Transfer Costs Tenant shall pay to Landlord the amount specified in the preceding sentence on the same basis, whether periodic or in lump sum, that such rent and other consideration is paid to Tenant by its subtenant, within seven (7) days after it is received by Tenant.

          (3) Tenant’s obligations under this subparagraph shall survive any assignment or sublease. At the time Tenant makes any payment to Landlord required by this subparagraph, Tenant shall deliver an itemized statement of the method by which the amount to which Landlord is entitled was calculated, certified by Tenant as true and correct. Landlord shall have the right to inspect Tenant’s books and records relating to the payments due pursuant to this subparagraph. Upon request therefor, Tenant shall deliver to Landlord copies of all bills, invoices or other documents upon which its calculations are based.

          (4) As used herein, the term “consideration” shall mean any consideration of any kind received, or to be received (including, but not limited to, services rendered and/or value received) by Tenant as a result of the assignment or sublease, if such sums are paid or provided to Tenant for Tenant’s interest in this Lease or in the Premises.

          (5) This Paragraph 56.A does not apply to a “Permitted Transfer”, as provided in Paragraph 57 hereof. The parties agree that if any of the following transactions occur and do not qualify as “Permitted Transfers”, Tenant must obtain Landlord’s consent to such transaction and if Landlord consents to any of the following transactions which do not otherwise qualify as “Permitted Transfers”, then the provisions of this Paragraph 56.A shall not apply to the following transactions: (i) a merger, consolidation or other reorganization in which Tenant is not the surviving corporation so long as 95% of all assets and liabilities of Tenant are permanently transferred to such assignee; and (ii) an assignment of this Lease to a corporation which purchases or otherwise acquires 95% or more of the assets of Tenant so long as 95% of all assets and liabilities of Tenant are permanently transferred to such assignee and Tenant remains liable and responsible under the Lease to the extent Tenant continues in existence following such transaction.”

     16. PERMITTED ASSIGNMENTS AND SUBLEASES: Effective as of the first day of the Third Option Period, Lease Paragraph 57 (“Permitted Assignments and Subleases”) shall be deleted in its entirety and replaced with the following:

     “57. PERMITTED ASSIGNMENTS AND SUBLEASES: Notwithstanding anything contained in Paragraph 16, so long as Tenant otherwise complies with the provisions of Paragraph 16 and the Permitted Transfer does not release Tenant from its obligations hereunder, Tenant may enter into any of the following transfers (a “Permitted Transfer”) without Landlord’s prior written consent, and the provision Paragraph 56A shall not apply to any such Permitted Transfer:

14

Quantum 2

     A. Tenant may sublease all or part of the Premises or assign its interest in this Lease to any corporation which controls, is controlled by, or is under common control with Tenant by means of an ownership interest of more than fifty percent (50%) providing Tenant remains liable for the payment of Rent and full performance of the Lease;

     B. Tenant may assign its interest in the Lease to a corporation which results from a merger, consolidation or other reorganization in which Tenant is not the surviving corporation so long as (i) 95% of all assets and liabilities of Tenant are permanently transferred to such assignee, and (ii) immediately prior to the merger, consolidation or other reorganization, the corporation into which Tenant is, to be merged has a net worth equal to or greater than the net worth of Tenant at the time of Lease execution or at the time of such assignment, merger, consolidation or reorganization (whichever is greater), or if it does not, Landlord is provided a guaranty of the Lease (in a form reasonably acceptable to Landlord) from a corporation (a) that is the parent of, or is otherwise affiliated with, the corporation into which Tenant is to be merged, and (b) which has a current net worth equal to or greater than the net worth of Tenant at the time of Lease execution or at the time of such assignment, merger, consolidation or reorganization (whichever is greater). In the event there is not a permanent transfer of 95% or more of the assets and liabilities from Tenant to a third party, and Tenant continues to exist as a separate entity, both companies shall be jointly and severally liable for the full terms and conditions of the Lease;

     C. Tenant may assign this Lease to a corporation which purchases or otherwise acquires 95% or more of the assets of Tenant so long as 95% of all assets and liabilities of Tenant are permanently transferred to such assignee (in the event there is not a permanent transfer of 95% or more of the assets and liabilities from Tenant to a third party and Tenant continues to exist as a separate entity, both companies shall be jointly and severally liable for the full terms and conditions of the Lease), and provided that immediately prior to such assignment said corporation, has a net worth equal to or greater than the net worth of Tenant (a) at the time of Lease execution or (b) at the time of such assignment (whichever is greater), or Kit does not, Landlord is provided a guaranty of the Lease (in a form reasonably acceptable to Landlord) from a corporation (a) that is the parent of, or is otherwise affiliated with, said corporation and (b) which has a current net worth equal to or greater than the net worth of Tenant at the time of Lease execution or at the time of such assignment, (whichever is greater).”

     17. DESTRUCTION: Effective as of the first day of the Third Option Period, Lease Paragraph 62 (“Destruction”) shall be deleted in its entirety and replaced with the following:

          “62. Destruction: Paragraph 21 is modified by the following:

          A. Notwithstanding anything to the contrary within Paragraph 21, Landlord may terminate this Lease in the event of an uninsured event or if insurance proceeds, net of the deductible, are insufficient to cover one hundred percent of the rebuilding costs; provided, however, Tenant shall have the right to elect, in its discretion, to contribute such excess funds to permit Landlord to repair the Premises.

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Quantum 2

     B. Except as provided in Paragraph 62C, Landlord may not terminate the Lease if the Premises are damaged by a peril whereby the cost to replace and/or repair is one hundred percent (100%) covered by the insurance carried by Landlord pursuant to Paragraph 12, but instead shall restore the Premises in the manner described by Paragraph 21.

     C. If the Premises are damaged by a peril covered by the insurance carried by Landlord pursuant to Paragraph 12, Landlord shall have the option to terminate the Lease if each of the following conditions is satisfied: (i) the cost to repair or the damage exceeds thirty-three percent (33%) of the then replacement cost of the Premises; and (ii) the damage occurs at a time when there is less than five (5) remaining in the term of the Lease.

     D. If Landlord fails to obtain insurance as required pursuant to Paragraph 12 and said insurance would have been available to cover any damage or destruction to the Premises, Landlord shall be required to rebuild, at its cost, net of the deductible which would have been required under said insurance policy (which deductible Tenant is required to pay).

     E. If the Premises are damaged by any peril, then as soon as reasonably practicable, Landlord shall furnish Tenant with the written opinion of Landlord’s architect or construction consultant as to when the restoration work required of Landlord may be completed. Tenant shall have the option to terminate this Lease in the event any of the following occurs, which option may be exercised only by delivery to Landlord of a written notice of election to terminate within seven (7) days after Tenant receives from Landlord the estimate of the time needed to complete such, restoration:

          (1) The Premises are damaged by any peril (not caused by or resulting from an action of Tenant or Tenant’s agents, employees, contractors or invitees) and, in the reasonable opinion of Landlord’s architect or construction consultant, the restoration of the Leased Premises cannot be substantially completed within 180 days after the date of such damage (subject to force majeure conditions); or

          (2) The Premises are damaged by any peril (not caused by or resulting from an action of Tenant or Tenant’s agents, employees, contractors or invitees) within twelve (12) months of the last day of the Lease term, and, In the reasonable opinion of Landlord’s architect or construction consultant, the restoration of the Leased Premises cannot be substantially completed within sixty (60) days after the date of such damage and Tenant has not exercised its Option to Extend said Term (or Extended Term as the case may be),”

     18. LIABILITY INSURANCE: Effective as of the first day of the Third Option Period, the first sentence of Lease Paragraph 10 (“Liability Insurance”) shall be deleted and replaced with the following: “Tenant, at Tenant’s expense, agrees to keep in force during the Term of this Lease a policy of commercial general liability insurance with combined single limit coverage of not less than Two Million Dollars ($2,000,000) per occurrence for bodily injury and

16

Quantum 2

property damage occurring in, on or about the Premises, including parking and landscaped areas.”

     19. LIMITATION OF LIABILITY: Effective as of the first day of the Third Option Period, Lease Paragraph 36 (“Limitation of Liability”) shall be deleted in its entirety and replaced with the following:

     “36. 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:

(i) the sole and exclusive remedy shall be against Landlord’s interest in the Premises leased herein;

(ii) 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);

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

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

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

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

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

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

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

     EXCEPT AS MODIFIED HEREIN, all other terms, covenants, and conditions of said October 31, 1989 Lease Agreement shall remain in full force and effect.

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Quantum 2

     IN WITNESS WHEREOF, Landlord and Tenant have executed this Amendment No. 3 to Lease as of the day and year last written below.

LANDLORD:		TENANT:
JOHN ARRILLAGA SEPARATE PROPERTY TRUST		QUANTUM CORPORATION
		a Delaware corporation
By	/s/ John Arrillaga	By	/s/ Andrew Kryder
	John Arrillaga, Trustee
		Andrew Kryder
		Print or Type Name
Date: 6/30/97
RICHARD T. PEERY SEPARATE PROPERTY TRUST		Title:	Finance & Corporate General Counsel
By	/s/ Richard Peery	Dated:	June 25, 1997
	Richard T. Peery, Trustee
Date: 6/26/97

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AMENDMENT NO. 4
TO LEASE

     THIS AMENDMENT NO.4 is made and entered into this 22nd day of March, 2001, by and between JOHN ARRILLAGA, Trustee, or his Successor Trustee UTA dated 7/20/77 (JOHN ARRILLAGA SURVIVOR’S TRUST) (previously known as the “John Arrillaga Separate Property Trust”) as amended, and RICHARD T. PEERY, Trustee, or his Successor Trustee UTA dated 7/20/77 (RICHARD T. PEERY SEPARATE PROPERTY TRUST) as amended, collectively as LANDLORD, and MAXTOR CORPORATION, a Delaware corporation, as “ASSIGNEE” or “MAXTOR”.

RECITALS

     A. WHEREAS, by Lease Agreement dated October 31, 1989 Landlord leased to QUANTUM CORPORATION, a Delaware corporation (the “ASSIGNOR” or “QUANTUM”) all of that certain 155,734 ± square foot building located at 1140 Technology Drive, Milpitas, California (the “Premises”), the details of which are more particularly set forth in said October 31, 1989 Lease Agreement, and

     B. WHEREAS, said Lease was amended by Letter Agreement dated October 31, 1989 which provided for a Basic Rent Credit for the period commencing with the Lease Commencement Date and ending on May 31, 1991, and

     C. WHEREAS, said Lease was amended by Amendment No. 1 dated April 24, 1990 which canceled the reduction in Basic Rent Credit Letter dated October 31, 1989, and which delayed the Lease Commencement Date from December 15, 1990 to April 1, 1991, and,

     D. WHEREAS, said Lease was amended by the Commencement Letter dated March 4, 1991 which changed the Commencement Date of the Lease from April 1, 1991 to March 1, 1991, and established the Termination Date of July 31, 2006, and,

     E. WHEREAS, said Lease was amended by Amendment No. 2 dated June 26, 1991 which extended the Term of the Lease for an additional two month period, amended the Basic Rent schedule and Aggregate Rent accordingly, and amended the deadlines in which the Tenant under the Lease (herein the “Tenant”) could exercise its Option to Extend pursuant to Lease Paragraphs 42 and 43, and

     F. WHEREAS, said Lease was amended by Amendment No. 3 dated April 16, 1997, which amended the Lease by (i) extending the Term for five years, changing the Termination Date from September 30, 2006 to September 30, 2011, (ii) amending the Basic Rent schedule and Aggregate Rent accordingly, (iii) adding a third Five Year Option to Extend, (iv) replacing Paragraphs 41C (“Lease Terms Co-extensive”) and 48 (“Cross Default”) and 53 (“Structural Capital Costs Regulated by Governmental Agencies After the Commencement of this Lease not Caused by Tenant or Tenant’s Uses or Remodeling of the Premises”), (v) amending Lease Paragraph 12 (“Property Insurance”) and (vi) amending and/or replacing certain provisions of the Lease commencing as of the commencement of the Third Extended Term of said Lease, and

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     G. WHEREAS, the Lease, together with those certain Amendments described above in Recitals B through F shall hereinafter collectively be referred to as “the Lease Agreement”, and

     H. WHEREAS, it is now the desire of the parties hereto to amend the Lease by (i) acknowledging Landlord’s consent to the assignment of said Lease from “Quantum Corporation, a Delaware corporation” to “Maxtor Corporation, a Delaware corporation”, and (ii) replacing Lease Paragraph 43 (“Second Five Year Option to Extend”) and Paragraph 3 to Amendment No. 3 dated April 16, 1997 (“Third Five Year Option to Extend”) as hereinafter set forth.

AGREEMENT

     NOW THEREFORE, for valuable consideration, receipt of which is hereby acknowledged, and in consideration of the hereinafter mutual promises, the parties hereto do agree as follows:

     1. ASSIGNMENT OF TENANT’S INTEREST: Notwithstanding anything to the contrary contained in the Lease Agreement, Landlord hereby understands that based on Quantum’s notice to Landlord, Landlord hereby acknowledges that the following transactions have occurred:

          A. Quantum has operated its business at the Premises through two separate business groups: Quantum HDD, tracked by Quantum HDD common stock, and Quantum DSS, tracked by Quantum DSS common stock.

          B. On or about, October 3, 2000, Quantum and Maxtor entered into that certain an Amended and Restated Agreement and Plan of Merger and Reorganization, dated as of October 3, 2000 (the “Merger Agreement”), wherein they agreed that:

               (i) Quantum will separate its Quantum HDD business from its Quantum DSS and transfer the assets of Quantum HDD to a newly-formed subsidiary, Insula Corporation, a Delaware corporation (“Insula”), in exchange for all of Insula’s common stock and Insula’s agreement to be entirely responsible for all of the Quantum HDD obligations and liabilities.

               (ii) Immediately after such separation, each currently outstanding share of Quantum HDD common stock will be redeemed in return for a share of Insula common stock, such that the holders of Quantum HDD common stock shall own all of the common stock of Insula.

               (iii) Immediately after said redemption, Insula will merge into Maxtor and each share of the Insula’s common stock will be converted into the right to receive approximately 1.52 shares of Maxtor common stock, subject to possible adjustment as described in the Merger Agreement.

          C. As part of the legal separation of the Quantum HDD business from the Quantum DSS business, all of the right title and interest of Quantum in the Lease will be

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assigned by Quantum to Insula and Insula will assume and agree to be liable for all of the obligations of Quantum, as Tenant, under the Lease.

     As a result of said merger transaction, as of April 2, 2001, the effective date of the merger, Maxtor will become the Tenant under the Lease Agreement, and Maxtor shall assume all obligations of Tenant under the Lease Agreement dated October 31, 1989, as amended.

     Landlord hereby consents to the foregoing transactions (“Landlord’s Consent”). Except as expressly set forth below, Landlord’s Consent shall in no way void or alter any of the terms of the Lease Agreement by and between Landlord and Tenant, nor shall Landlord’s Consent alter or diminish in any way Tenant’s obligations to Landlord.

     Landlord has not reviewed the terms of any agreement between Quantum, Insula and/or Maxtor, and Landlord shall not be bound by any agreement other than the terms of the Lease Agreement between Landlord and Tenant. Landlord does not make any warranties or representations as to the condition of the Leased Premises or the terms of the Lease Agreement between Landlord and Quantum. Landlord’s consent to the assignment shall in no way obligate Landlord to any further consents or agreements between Quantum and/or Assignee. So long as Quantum continues to exist as a Delaware corporation, it is agreed that both Quantum and Maxtor will be jointly and severally liable for all the terms and conditions of the Lease and all Amendments thereto; provided, however, that so long as Quantum remains liable for said Lease, no material amendment to the Lease Agreement after the date hereof shall be binding upon Quantum without the prior written consent of Quantum, which consent shall not be unreasonably withheld, and Quantum’s approval shall not be required on transactions related to Landlord’s Waivers, Landlord’s Consents to Sublease and/or Landlord’s Consents to Alterations. The foregoing, however, shall not prevent Tenant and Landlord from entering into any such modification or amendment between themselves.

     It is further understood that the Security Deposit of Quantum is being transferred to Maxtor.

     1. OPTIONS TO EXTEND: As consideration for the consent of Landlord herein set forth, Lease Paragraph 43 (“Second Five Year Option to Extend”) and Paragraph 3 to Amendment No. 3 dated April 16, 1997 (“Third Five Year Option to Extend”) are hereby deleted in their entirety and shall be replaced with the following:

          A. SECOND FIVE YEAR OPTION TO EXTEND: Landlord hereby grants to Tenant an option to extend this Lease Agreement (“Option to Extend” or the “Option”) for an additional five years (“Second Extended Term”) upon the following terms and conditions:

               1) Tenant shall give Landlord written notice of Tenant’s exercise of this Option to Extend at least one hundred eighty (180) days prior to the expiration of the Lease Term pursuant to Paragraph A hereof (not later than April 3, 2011), in which event the Term of the Lease shall be considered extended for an additional five (5) years, subject to the Basic Rent set forth below and with: (i) the Basic Rent to be determined pursuant to Paragraph 2) below; (ii) management fee and the terms and conditions subject to amendment by Landlord (Landlord, in its sole and absolute discretion, may, but is not required to, incorporate its then current Lease

3

provisions that are standard in Landlord’s leases for comparable buildings as of the date of Tenant’s exercise of its Option to Extend); and (iii) this Paragraph 2.A thereafter deleted. In the event that Tenant fails to timely exercise Tenant’s Option as set forth herein in writing, Tenant shall have no further Option to Extend this Lease, and the Lease shall continue in full force and effect for the full remaining term hereof, absent this Paragraph 2.

               2) In the event Tenant timely exercises Tenant’s Option to Extend as set forth herein, Landlord shall, within fifteen (15) days after receipt of Tenant’s exercise of the Option, advise Tenant of any changes in the management fee and the terms and conditions as referenced in Paragraph 2.A.l(ii) above) and the Basic Rent (which shall not be less than the Basic Rent for the fifth year of the current Term) required for the Extended Term of the Lease to make the Basic Rent for the Premises comparable to the then current market triple net basic rent for comparable properties either (i) then owned in whole or in part by the above mentioned Landlord or by members of its immediate family in the vicinity of the Premises or (ii) if not owned by Landlord or its family as stated herein, other third party properties in the vicinity of the Premises. Tenant shall have five (5) days after receipt from the Landlord of said new terms and conditions and Basic Rent in which to accept said new terms and conditions and Basic Rent and enter into written documentation confirming same. In the event Tenant fails to execute said written documentation confirming said new teens and conditions and Basic Rent for the Second Extended Term of Lease within said five (5) day period, Tenant shall have no further Option to Extend this Lease, and this Lease shall continue in full force and effect for the full remaining term hereof absent of this Paragraph 2, with Landlord having no further responsibility or obligation to Tenant with respect to Tenant’s Option to Extend.

               3) It is agreed that if Tenant is at any time prior to exercising its Option to Extend in default of this Lease and has failed to cure the default in the time period allowed, this Paragraph 2 shall be null and void and Tenant will have no further rights under this Paragraph. It is further agreed that if Tenant has exercised its Option to Extend and is subsequently in default, and has failed to cure the default in the time period allowed by the Lease at any time prior to, or at the time the lease commences on the Second Extended Term, Landlord may at its sole and absolute discretion, cancel Tenant’s Option to Extend, and this Lease will continue in full force and effect for the full remaining Term hereof, absent of this Paragraph 2.

               4) The Option rights of Tenant under this Paragraph 2.A, and the Second Extended Term thereunder, are granted for Tenant’s personal benefit and may not be assigned or transferred by Tenant, except as provided for in Lease Paragraph 57 (“Permitted Assignments and Subleases”), either voluntarily or by operation of law, in any manner whatsoever.

               5) Notwithstanding anything to the contrary in this Paragraph, this Option to Extend is automatically forfeited by Tenant (without notice from Landlord) in the event Tenant is, at any time during the Term of this Lease, in default of said Lease and if Tenant does not completely cure said default within five days for a monetary default and thirty days for a non-monetary default (or such longer time as permitted by cure in the Lease Agreement). In the event said Option to Extend is forfeited as stated herein, Tenant shall have no further Option to Extend this Lease.

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     B. THIRD FIVE (5)-YEAR OPTION PERIOD: Provided Tenant has extended the Lease for an additional five year period as set forth in Paragraph A above, Landlord hereby grants to Tenant another Option to Extend the Lease Agreement upon the following terms and conditions;

          1) Tenant shall give Landlord written notice of Tenant’s exercise of this Option to Extend at least one hundred eighty (180) days prior to the expiration of the Basic Term hereof (not later than April 3, 2016), in which event the Term of the Lease shall be considered extended for an additional five (5) years (“Third Extended Term”) subject to the Basic Rent set forth below and with: (i) the Basic Rent to be determined pursuant to Paragraph 2) below; (ii) the management fee and the terms and conditions subject to amendment by Landlord (Landlord, in its sole and absolute discretion, may, but is not required to, incorporate its then current Lease provisions that are standard in Landlord’s leases for comparable buildings as of the date of Tenant’s exercise of its Option to Extend); and (iii) this Paragraph 2.B thereafter deleted. In the event that Tenant fails to timely exercise Tenant’s Option as set forth herein in writing, Tenant shall have no further Option to Extend this Lease, and the Lease shall continue in full force and effect for the full remaining term hereof, absent this Paragraph 2.B.

          2) In the event Tenant timely exercises Tenant’s Option to Extend as set forth herein, Landlord shall, within fifteen (15) days after receipt of Tenant’s exercise of option, advise Tenant of any changes in the management fee and the terms and conditions as referenced in Paragraph 2.B.1(ii) above and Basic Rent (which shall not be less than the Basic Rent for the fifth year of the Second Extended Term) required for the Third Extended Term of the Lease to make the Basic Rent for the Premises comparable to the then current market triple net basic rent for comparable properties either (i) then owned in whole or in part by the above mentioned Landlord or by members of its immediate family in the vicinity of the Premises or (ii) if not owned by Landlord or its family as stated herein, other third party properties in the vicinity of the Premises. Tenant shall have five (5) days after receipt from the Landlord of said new terms and conditions and Basic Rent in which to accept said new terms and conditions and Basic Rent and enter into written documentation confirming same. In the event Tenant fails to execute said written documentation confirming said new terms and conditions and Basic Rent for the Third Extended Term of Lease within said five (5) day period, Tenant shall have no further Option to Extend this Lease, and this Lease shall continue in full force and effect for the full remaining term hereof absent of this Paragraph 2.B, with Landlord having no further responsibility or obligation to Tenant with respect to Tenant’s Option to Extend.

          3) It is agreed that if Tenant is at any time prior to exercising its Option to Extend in default of this Lease and has failed to cure the default in the time period allowed, this Paragraph 2.B will be null and void and Tenant will have no further rights under this Paragraph. It is further agreed that if Tenant has exercised its Option to Extend and is subsequently in default, and has failed to cure the default in the time period allowed by the Lease at any time prior to, or at the scheduled Commencement Date of the Third Extended Term, Landlord may at its sole and absolute discretion, cancel Tenant’s Option to Extend, and this Lease will continue in full force and effect for the full remaining Term hereof, absent of this Paragraph Z.B.

          4) The Option rights of Tenant under this Paragraph 2.B and the Third Extended Term thereunder, are granted for Tenant’s personal benefit and may not be assigned or

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transferred by Tenant, except as provided for in Lease Paragraph 57 (“Permitted Assignments and Subleases”), either voluntarily or by operation of law, in any manner whatsoever,

          5) Notwithstanding anything to the contrary in this Paragraph 2.B, this Option to Extend is automatically forfeited by Tenant (without notice from Landlord) in the event Tenant is, at any time during the Term of this Lease, in default of said Lease and if Tenant does not completely cure said default within five days for a monetary default and thirty days for a non-monetary default (or such longer time as permitted by cure in the Lease Agreement). In the event said Option to Extend is forfeited as stated herein, Tenant shall have no further Option to Extend this Lease.

     EXCEPT AS MODIFIED HEREIN, all other terms, covenants, and conditions of said October 31, 1989 Lease Agreement, as heretofore amended, shall remain in full force and effect.

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     IN WITNESS WHEREOF, Landlord and Tenant have executed this, Amendment No. 4 to Lease as of the day and year last written below.

LANDLORD:			ASSIGNEE/MAXTOR;
JOHN ARRILLAGA SURVIOR’S TRUST			MAXTOR CORPORATION
			a Delaware corporation
By	/s/ John Arrillaga by Richard Perry		By	/s/ Glenn Stevens
	John Arrillaga, Trustee
			Glenn H. Stevens
Date:		3/30/01	Print or Type Name
RICHARD T. PEERY SEPARATE PROPERTY TRUST			Title:		V.P., General Counsel & Secretary
By	/s/ Richard Peery		Date:		4/1/01
		Richard T. Peery, Trustee
Date:		3/30/01
			ASSIGNOR/QUANTUM:
			QUANTUM CORPORATION
			a Delaware corporation
			By	/s/ Norm Claus
			Norm Claus
			Print or Type Name
			Title:		V.P. Real Estate
			Dated:		3/30/01

7

LEASE AGREEMENT

     THIS LEASE made this 31st day of October 1989 between JOHN ARRILLAGA, Trustee, or his Successor Trustee, UTA dated 7/20/77 (JOHN ARRILLAGA SEPARATE PROPERTY TRUST) as amended, and RICHARD T. PEERY, Trustee, or his Successor Trustee, UTA dated 7/20/77 (RICHARD T. PEERY SEPARATE PROPERTY TRUST) as amended, hereinafter called Landlord and QUANTUM CORPORATION, a Delaware corporation, 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 land containing approximately 11.848 ± acres and that certain 176, 516 ± square foot two story building (“Building 2”) and parking appurtenant thereto, to be constructed and landscaping to be installed by Landlord as shown within the area outlined in red (“Lot 2”) on Exhibit A to be located at the corner of Bellew Drive and McCarthy Blvd., Milpitas, California. Said Premises (“Lot 2”) is more particularly shown within the area outlined in red on Exhibit A attached hereto and incorporated herein by this reference. The entire parcel containing approximately 37.096 ± acres, of which the Premises is a part, is shown within the area outlined in green on Exhibit A attached hereto and incorporated herein by this reference. The interior of the leased Premises shall be improved in the configuration as shown in red on Exhibit B to be attached hereto and incorporated herein by this reference. The building shell shall be constructed in accordance with the shell and site improvement specifications set forth on Exhibit A, and the general building elevation set forth on Exhibit A. See Paragraph 49

     The word “Premises” as used throughout this lease is hereby defined to include the nonexclusive use of sidewalks and driveways in front of or adjacent to the Premises, and the nonexclusive use of the area directly underneath or over such sidewalks and driveways. The gross leasable area of the building 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 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 and observance.

     1. USE. Tenant shall use the Premises only in conformance with applicable governmental laws, regulations, rules and ordinances for the purpose of Office, sales, R & D, light manufacturing and related uses necessary for the use of Tenant or any approved assignee or subtenant to conduct its business providing any and all uses of the Premises shall be subject to and in conformance with all governmental laws and ordinances, and for no other purpose without

1

Landlord’s prior written consent, 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 without the prior written consent of Landlord, and provided Tenant bears any cost related to such increased rate, 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 which 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 of Tenant to comply with any applicable law that that governs Tenant use of the Premises. Tenant shall comply with any covenant, condition, or restriction (“CC&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 AND COMMENCEMENT DATE OF LEASE. See Paragraphs 41, 42 & 43 of this Lease

     3. POSSESSION. If Landlord, for any reason whatsoever other than Landlord’s default cannot deliver possession of said premises to Tenant at the commencement of the said term, as hereinbefore specified, this 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 28 above; provided, however, it is agreed that in no event shall the Lease commence sooner than December 15, 1990 unless the parties agree in writing to an earlier date for the Lease to commence. The above is, however, subject to the provision that the period of delay of delivery of the Premises shall not exceed 180 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

2

be excluded in calculating such period) in which instance Tenant, at its option, may, by written notice to Landlord, terminate this Lease. See Paragraph 47

     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 total sum of the amount to be calculated pursuant to Paragraph 39 in lawful money of the United States of America, payable as follows: See Paragraphs 39 through 43

          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 five percent (5%) of each rental payment so in default. See Paragraph 50

          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.

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     The Additional Rent due hereunder shall be paid to Landlord or Landlord’s agent (i) within five 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 terms, 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 in which case such amount shall be held by Landlord as a credit for Tenant’s account until such default has been cured 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 actual 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 Peery/Arrillaga, File 1504, P.O. Box 60000, San Francisco, CA 94160 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 Four Hundred Seventy-Six Thousand Five Hundred Ninety-Three and 20/100 Dollars ($476,593.20.). Said sum shall be held by Landlord as a Security Deposit for the faithful performance by Tenant of all of 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 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 its original amount. Tenant 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

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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. See Paragraph 51

     5. ACCEPTANCE AND SURRENDER OF 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 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 acoustical 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 ninety (90) 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 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 be 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. See Paragraph 52.

     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.

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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 alteration 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 Tenant receives notice of 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. See Paragraph 52

     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 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. See Paragraph 53

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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 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.

     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 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 nonresponsibility 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 or assessed 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 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 attorney’s 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

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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. See Paragraph 54

          B. Taxes on Tenant’s Property Tenant shall be liable for and shall pay ten 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 on 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, on or about the Premises, including parking and landscaped areas, in the amount of $2,000,000 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 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 shall 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 WORKMAN’S 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

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Premises for the full replacement value thereof. The proceeds from any such policies shall be used for the repair or replacement of such items so insured.

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

     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 (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 to 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. See Paragraph 55

     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 and subject to the last two sentences of Paragraph 12, 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 officer; 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

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failure. The judgment of any court of competent jurisdiction or the admission of Tenant in any action against Tenant, whether 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 sole 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. See Paragraphs 45 & 53

     15. LIENS. Tenant shall keep the Premises free from any liens arising out of any work performed, materials furnished or obligation incurred by Tenant. In the event that Tenant shall not, within ten (10) days following Tenant’s receipt of notice of 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 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 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. 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 subtenants 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 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 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 reasonable 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 the Lease. See Paragraphs 56 & 57

     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

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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. 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. See Paragraph 58

     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, mortgagers or tenants; to post notices of nonresponsibility; 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 under any circumstances be construed or deemed 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. See Paragraph 59

     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

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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 ten (10) 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 thirty (30) 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 and 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 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.

               (b) The rights and remedies provided by California Civil Code 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 relet 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, after compliance with all statutory requirements and in any event on not less than three (3) business days prior written notice 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, 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 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 first to payment of indebtedness other than rent due hereunder from Tenant to Landlord; second, to the payment of any costs of such subletting and of such alterations and repairs; third to payment of rent due and unpaid hereunder; and the residue, if any, shall be held by Landlord and applied in payment of future rent as the same becomes due hereunder. If

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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 than 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. No taking possession of the Premises by Landlord shall be construed as an election on its part to terminate this Lease 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 to Landlord pursuant to subparagraph d above. See Paragraph 60.

     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 said 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. See Paragraph 61

     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 embargos, 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 fixtures, equipment, merchandise,

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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 33¹/2% of the replacement cost thereof, Landlord may elect to terminate this Lease, whether the Premises be injured or not. In the event the destruction of the Premises is caused by Tenant, Tenant shall pay the deductible portion of Landlord’s insurance proceeds. See Paragraph 62

     22. EMINENT DOMAIN. If all or any part of the Premises shall be taken by any public or quasi-public authority under the power of eminent domain or conveyance in lieu thereof, this Lease shall terminate as to any portion of the Premises so taken or conveyed on the date when title vests in the condemnor and Landlord shall be entitled to any and all payment, income, rent, award, or any interest therein whatsoever which may be paid or made in connection with such taking or conveyance, and Tenant shall have no claim against Landlord or otherwise for the value of any unexpired term of this Lease. Notwithstanding the foregoing paragraph, any compensation specifically awarded Tenant for loss of business, Tenant’s personal property, moving cost or loss of goodwill, shall be and remain the property of Tenant.

     If any action or proceeding is commenced for such taking of the Premises or any part thereof, or if Landlord is advised in writing by any entity or body having the right or power of condemnation of its intention to condemn the premises or any portion thereof, then Landlord shall have the right to terminate this Lease by giving Tenant written notice thereof within sixty (60) days of the date of receipt of said written advice, or commencement of said action or proceeding, or taking conveyance, which termination shall take place as of the first to occur of the last day of the calendar month next following the month in which such notice is given or the date on which title to the Premises shall vest in the condemnor.

     In the event of such a partial taking or conveyance of the Premises, if the portion of the Premises taken or conveyed is so substantial that the Tenant can no longer reasonably conduct its business, Tenant shall have the privilege of terminating this Lease within sixty (60) days from the date of such taking or conveyance, upon written notice to Landlord of its intention so to do, and upon giving of such notice 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 the rent from the date of such taking or conveyance to the date of termination.

     If a portion of the Premises be taken by condemnation or conveyance in lieu thereof and neither Landlord nor Tenant shall terminate this Lease as provided herein, this Lease shall continue in full force and effect as to the part of the Premises not so taken or conveyed, and the rent herein shall be apportioned as of the date of such taking or conveyance so that thereafter the rent to be paid by Tenant shall be in the ratio that the area of the portion of the Premises not so taken or conveyed bears to the total area of the Premises prior to such taking. See Paragraph 63

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     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. See Paragraph 64

     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 the term 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 the 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 Basic Rent shall be increased to an amount equal to one hundred twenty-five (125%) percent of the monthly Basic Rent required during the last month of the Lease term.

     26. CERTIFICATE OF ESTOPPEL. Either party shall at any time upon not less than ten (10) days prior written notice from the other party execute, acknowledge and deliver to the requesting party 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 the best of such party’s knowledge, any uncured defaults on the part of the other party 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 the party receiving such request 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 the requesting party’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

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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 in rent. If Tenant shall fail to pay any sum of money, or other rent required to be paid by a hereunder or shall fail 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 either Landlord or Tenant 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 the other party 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 a reasonable attorneys’ fee.

     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 of it

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sent by United Stated 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 Peery/Arrillaga, 2560 Mission College Boulevard, Suite 101, Santa Clara, CA 95054. 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 this 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 (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 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 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. INTENTIONALLY LEFT BLANK

     36. 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);

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               (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 both by 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.

     37. 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 other 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 reasonably 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.

     38. 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. The term “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

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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, and the provisions of this Lease shall inure to the benefit of and bind such heirs, executors, administrators, successors and permitted assigns.

     The term “person” includes the plural as well as the singular and individuals, firms, associations, partnerships and corporations. Words used in any gender include other genders. If there be more than one Tenant the obligations of Tenant hereunder are joint and several. The paragraph headings of this Lease are for convenience of reference only and shall have no effect upon the construction or interpretation of any provision hereof.

          D. Time of Essence. Time is of the essence of this Lease and of each and all of its provisions.

          E. 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.

          F. Incorporation of Prior Agreements: Amendments. 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.

          G. Recording. Landlord and Tenant shall record a short form memorandum hereof in the form attached hereto as Exhibit D.

          H. Amendments for Financing. Tenant further agrees to execute any amendments reasonably required by a lender to enable Landlord to obtain financing, so long as Tenant’s rights hereunder are not materially and adversely affected and there is no change in the Basic Rent, Options to Renew, Lease Term or Construction obligations of Landlord.

          I. Additional Paragraphs. Paragraphs 39 through 65 are added hereto and are included as a part of this Lease

          J. 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.

          K. 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.

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

LANDLORD:		TENANT:
JOHN ARRILLAGA		QUANTUM CORPORATION,
SEPARATE PROPERTY TRUST		a Delaware corporation
By	/s/ John Arrillaga	By	/s/ Joseph C. Shepela
	John Arrillaga, Trustee
		Title	VP Human Resources
RICHARD T. PEERY
SEPARATE PROPERTY TRUST
By	/s/ Richard Peery
	Richard T. Peery, Trustee

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     Paragraphs 39 through 65 to Lease Agreement Dated October 31, 1989, By and Between JOHN ARRILLAGA AND RICHARD T. PEERY SEPARATE PROPERTY TRUSTS, as Landlord, and QUANTUM CORPORATION, a Delaware corporation, as Tenant for 176,516 ± Square Feet of Space Located at the corner of Bellew and McCarthy Boulevard, Milpitas, California.

     39. BASIC RENT: In accordance with Paragraph 4A, subject to the provisions of Paragraph 40 and 41, Basic Rent shall be payable as follows during the indicated months of the term of the Lease based upon the gross leasable area within the building that is part of the Premises:

Period	Monthly Basic Rent
Months 1-17
(plus the partial calendar month, if any,
following the Commencement Date)	$1.00/sf
Months 18-29	$1.05/sf
Months 30-41	$1.10/sf
Months 42-53	$1.15/sf
Months 54-65	$1.20/sf
Months 66-77	$1.25/sf
Months 78-89	$1.30/sf
Months 90-101	$1.35/sf
Months 102-113	$1.40/sf
Months 114-125	$1.45/sf
Months 126-137	$1.50/sf
Months 138-149	$1.55/sf
Months 150-161	$1.60/sf
Months 162-173	$1.65/sf
Months 174-185	$1.70/sf

     Example of calculation for Basic Rent per month for the period commencing with the first through the seventeenth month of said Lease:

Square footage of Building		176,516
Per square foot Basic Monthly Rent:		x$1.00
	[Illegible]

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     40. BASIC RENT REDUCTION DURING PHASE IN PERIOD: For the period commencing on the Commencement Date through May 31, 1991, Landlord acknowledges that Tenant may occupy the building on a phased-in basis. In the event Tenant does not occupy the entire building from the Commencement Date of this Lease, it is agreed that Tenant’s monthly Basic Rent will be reduced by $1.00 per square foot on the square footage not occupied. This reduction in Basic Rent is only allowed from the Commencement Date through May 31, 1991 (but not under any circumstances after May 31, 1991). In no event whatsoever shall Tenant be entitled to such reduction in rent and this Paragraph 40 shall not be considered in effect and binding on Landlord after May 31, 1991 regardless of the Commencement Date of this Lease and regardless of the reason for any delays in the Commencement date of this Lease. In the event Tenant occupies the Premises on a phased in basis in accordance with the foregoing, Landlord and Tenant agree to execute an amendment to this Lease reflecting the number of square feet so occupied and adjusting the Basic Rent accordingly. It is further agreed that during the phase-in period Tenant will be responsible for paying all Additional Rent expense as outlined in Paragraph 4D on the entire building from the Commencement Date.

     41. LEASE TERM AND COMMENCEMENT DATE: The following provisions relate to the commencement and duration of the term of this Lease:

          A. Lease Term: The term of this Lease shall commence on the “Commencement Date” (as defined herein) and shall continue for a period of fifteen (15) years and five (5) months, plus the partial calendar month, if any, in which the Commencement Date occurs, subject to (i) earlier termination in accordance with the provisions of this Lease, and (ii) extension pursuant to the options to renew granted by Paragraphs 42 and 43. By way of example only, if the Commencement Date occurs on December 15, 1990, the term of the Lease shall continue until May 30, 2006 (i.e., a period of 15 years and 5 calendar months, along with the partial calendar month following December 15, 1990 until December 31, 1990).

          B. Commencement Date Defined: As used herein, the term “Commencement Date” shall mean the later to occur of the following: (i) the date upon which the “Improvements” are “Substantially Completed”; or (ii) December 15, 1990; provided, however, that if prior to the later of such dates Tenant’s operating personnel enter into occupancy of the Premises and commence the operation of Tenant’s business within the Premises, the Commencement Date shall be the date such personnel of Tenant so enter into occupancy of the Premises. The term “Substantially Completed” and/or “Substantial Completion” shall mean the date when all of the following have occurred with respect to the Improvements in question: (i) the construction of the Improvements in question has been substantially completed in accordance with the approved plans therefor except for punch list items which do not prevent Tenant from reasonably using the Premises to conduct Tenant’s business; (ii) Landlord has executed a certificate or statement representing that the Improvements in question have been substantially completed in accordance with the plans and specifications therefor except for punch list items which do not prevent Tenant from reasonably using the Premises to conduct Tenant’s business; and (iii) the Building Department of the City of Milpitas has completed its final inspection of such Improvements and has “signed off” the building inspection card approving such work as complete except for punch list items which do not prevent Tenant from reasonably using the Premises to conduct Tenant’s business. Notwithstanding the foregoing, Substantial Completion

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of the Interior Improvements shall not be deemed to have occurred until Landlord has obtained final or [Illegible] that do not prevent Tenant from occupying the improvements.

          C. Lease Terms Co-extensive: It is acknowledged that (i) concurrently with the execution of this Lease, Landlord and Tenant are also executing a lease dated October 31, 1989 affecting adjacent property upon which is to be constructed a building for Tenant’s use consisting of approximately 155,734 square feet (the “Companion Lease”), and (ii) it is the intention of the parties that the term of this Lease be co-extensive with the term of the Companion Lease, such that the terms of both leases expire on the same date. To that end, in the event that following the date upon which the Commencement Date of this Lease and the comparable “Commencement Date” of the Companion Lease become established as a date certain following completion of improvements and satisfaction of any other conditions related to determining such dates, and if such dates are not the same, then whichever date occurs later shall be the expiration date of the lease term for both leases (subject to the right of Tenant to extend either lease pursuant to the options to extend granted in the two leases). It is acknowledged that the implementation of this paragraph may result in an extension of the term of this Lease, in which event Tenant shall continue to pay rent at the rate applicable for the period immediately prior to the adjusted lease term expiration date. As soon as the parties are able to implement the provisions of this paragraph because the Commencement Date of this Lease and “Commencement Date” of the Companion Lease have been determined following completion of improvements and satisfaction of other appropriate conditions, the parties shall execute amendments to this Lease and the Companion Lease establishing the applicable Commencement Date, the expiration date of the term of the leases in accordance with the foregoing provisions of this Paragraph 41C, the actual rent based upon the measurements of the completed building covered by such lease as certified prior to the Commencement Date by an architect or general contractor reasonably approved by the parties, and the actual date for each rent adjustment provided for in each lease, based upon the actual Commencement Date.

     42. FIRST FIVE-YEAR OPTION TO EXTEND: Landlord hereby grants to Tenant an option to extend the term of this Lease for an additional five (5) year period upon the following terms and conditions:

          A. If Tenant elects to exercise the option to extend, Tenant shall give Landlord written notice of Tenant’s exercise of this option to extend at least one hundred eighty (180) days prior to the expiration of the Basic Term hereof, in which event the Lease shall be considered extended for an additional five (5) year period upon the same terms and conditions as this Lease, absent this Paragraph 42 and subject to the rental as set forth below. In the event that Tenant fails to timely exercise Tenant’s option as set forth herein in writing, Tenant shall have no further option to extend this Lease, and this Lease shall continue in full force and effect for the full remaining term hereof, absent this Paragraph 42.

          B. The monthly Basic Rent for the option period shall be as follows in the event the option is exercised:

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	Monthly
Period	Basic Rent
Months 1-12	$1.75/sf
Months 13-24	$1.80/sf
Months 25-36	$1.85/sf
Months 37-48	$1.90/sf
Months 49-60	$1.95/sf

          C. Notwithstanding anything concerned herein, Tenant may not exercise the option to renew granted by this Paragraph 42 at any time that Tenant is in material default of its obligations under this Lease, if Tenant has received written notice from Landlord that Tenant is in default, and such default has not been timely cured within the time period provided for in this Lease; provided, however, that if such default of Tenant is not for money due under this Lease and cannot be cured, and if Landlord does not elect to terminate this Lease as a result of such non-curable default by Tenant, Tenant may exercise the option to extend granted by this Paragraph 42 notwithstanding such non-curable default.

     43. SECOND FIVE-YEAR OPTION TO EXTEND: Provided Tenant has extended the Lease for an additional five (5) year period as set forth in Paragraph 42, Landlord hereby grants to Tenant an option to extend the term of this Lease for an additional five (5) year period upon the following terms and conditions:

          A. Tenant shall give Landlord written notice of Tenant’s exercise of this option to extend at least one hundred eighty (180) days prior to the expiration of the Lease term as extended pursuant to Paragraph 42, in which event the Lease shall be considered extended for an additional five (5) year period upon the same terms and conditions as this Lease, absent this Paragraph 43A and subject to the rental as set forth below. In the event that Tenant fails to timely exercise Tenant’s option as set forth herein in writing, Tenant shall have no further option to extend this Lease, and this Lease shall continue in full force and effect for the full remaining term hereof, absent this Paragraph 43.

          B. The monthly rental for the option period shall be as follows in the event the option is exercised:

	Monthly
Period	Basic Rent
Months 1-12	$2.00/sf
Months 13-24	$2.05/sf
Months 25-36	$2.10/sf
Months 37-48	$2.15/sf
Months 49-60	$2.20/sf

          C. Notwithstanding anything contained herein, Tenant may not exercise the option to extend granted by this Paragraph 43 at any time that Tenant is in material default of its obligations under this Lease, if Tenant has received written notice from Landlord that Tenant is in default, and such default has not been timely cured within the time period provided for in this

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Lease; provided, however, that if such default of Tenant is not for money due under this Lease and cannot be cured, and if Landlord does not elect to terminate this Lease as a result of such non-curable default by Tenant, Tenant may exercise the option to extend granted by this Paragraph 43 notwithstanding such non-curable default.

     44. ASSESSMENT CREDITS: The demised property herein is subject to a special assessment levied by the City of Milpitas in Improvement District No. 12. As a part of said special assessment proceedings, additional bonds were sold and assessments levied to provide for construction contingencies and reserve funds. Interest will be earned on such funds created for contingencies and on reserve funds which will be credited for the benefit of said assessment district. To the extent surpluses are created in said district through unused contingency funds, interest earnings or reserve funds, such surpluses shall be deemed the property of Landlord. Notwithstanding that such surpluses may be [Illegible] additional rent if, and at the time of any such credit of surpluses, an amount equal to all such surpluses so credited.

     45. HAZARDOUS MATERIALS: The parties agree as follows with respect to the existence or use of hazardous material on the Premises:

          A. Tenant shall have no obligation to “clean up”, to comply with any law regarding, or to reimburse, release, indemnify, or defend Landlord with respect to any hazardous materials or wastes which Tenant or other parties on the Premises did not store, dispose, or transport in, use, or cause to be on the Premises in violation of applicable law during the term of this Lease. Any handling, transportation, storage, treatment, disposal or use of hazardous materials by Tenant or other parties in or about the Premises during the term of this Lease shall strictly comply with all applicable laws and regulations. Tenant will be 100 percent liable and responsible for any and all “clean up” of said toxic waste and/or hazardous materials contamination which Tenant, its agents, or future subtenants, if any, does store, dispose, or transport in, use or cause to be on the Premises in violation of applicable law or governing agency(s) (or which originate on the Premises during the term of this Lease from any manner whatsoever, including but not limited to, dumping by others), and will indemnify Landlord and hold Landlord harmless from any liabilities, demands, costs, expenses and damages, including attorney fees incurred as a result of any claims resulting from such contamination, or from any claims for personal injury or property damage or diminution in the value of the Premises caused by the use, storage, disposal or transportation of hazardous materials on the Premises by Tenant or other parties during the term of this Lease. It is agreed that the Tenant’s responsibilities related to toxic waste and hazardous materials will survive the termination date of the Lease. Tenant agrees to complete compliance with governmental regulations regarding use or removal or remediation of Hazardous Materials used, stored, disposed, transported or caused to be on the Premises by Tenant or its agents or subtenants, or which originate on the Premises during the term of this Lease, and prior to the termination of said Lease Tenant agrees to follow the proper closure procedures and will obtain a clearance from the local fire department and/or the appropriate city agency. Tenant also agrees to install such toxic waste and/or hazardous materials monitoring devices as Landlord reasonably deems necessary to monitor any use of hazardous materials by Tenant, its agents or subtenants, originating from the Premises during the Lease term, if recommended by a qualified environmental consulting firm.

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          B. Landlord hereby makes the following representations to Tenant, each of which is made only to the best of Landlord’s knowledge as of the date Landlord executes this Lease, without any inquiry or investigation having been made or required by Landlord regarding this subject, nor does Landlord have any obligation to investigate or make inquiry regarding the subject:

               (1) The soil and ground water on or under the Premises does not contain hazardous materials in amounts which violate any laws to the extent that any governmental entity could require either Landlord or Tenant to take any remedial action with respect to such hazardous materials.

               (2) During the time that Landlord has owned the Premises, Landlord has received no notice of (i) any violation, or alleged violation, of any law that has not been corrected to the [Illegible]

               (3) any pending investigation by any governmental agency concerning the Premises relating to hazardous materials.

          C. Landlord and Tenant shall each give written notice to the other as soon as reasonably practicable of (i) any communication received from any governmental authority concerning hazardous materials which relates to the Premises, and (ii) any contamination of the Premises by hazardous materials which constitutes a violation of any law. Attached as Exhibit “C” hereto is a list of hazardous materials that Tenant intends to use at the Premises. If during the Lease term Tenant proposes to use other hazardous materials at the Premises, Tenant shall inform Landlord of such use, identifying the hazardous materials and the manner of their use, storage and disposal, and shall agree (i) to use, store and dispose of such materials strictly in compliance with all laws and (ii) that the indemnity set forth in paragraph 45A shall be applicable to Tenant’s use of such material.

          D. Landlord or Tenant may, at any time, cause testing wells to be installed on the Premises, and may cause the ground water to be tested to detect the presence of hazardous material by the use of such tests as are then customarily used for such purposes. Testing wells installed by Tenant shall be paid for by Tenant. If tests conducted by Landlord disclose that Tenant has violated any hazardous materials laws, or Tenant or parties on the Premises during the term of this Lease have contaminated the Premises as determined by regulatory agencies pursuant to hazardous materials laws, or that Tenant has liability to Landlord pursuant to paragraph 45A, then Tenant shall pay for 100% of the cost of the test and all related expense. Prior to the expiration of the Lease term, Tenant shall remove any testing wells it has installed at the Premises, and return the Premises to the condition existing prior to the installation of such wells, unless Landlord requests in writing that Tenant leave all or some of the testing wells in which instance the wells requested to be left shall not be removed.

          E. If any tests performed by Tenant or Landlord prior to the Commencement Date disclose hazardous materials at the Premises, Landlord at its expense will promptly take all reasonable action required by law with respect to the existence of such materials at the Premises. The Commencement Date shall not be delayed because of such action by Landlord unless occupation of the Premises is prohibited by law.

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          F. The obligations of Landlord and Tenant under this Paragraph 45 shall survive the expiration or earlier termination of the term of this Lease. The rights and obligations of Landlord and Tenant with respect to issues relating to hazardous materials are exclusively established by this Paragraph 45.

     46. APPROVALS: Whenever this Lease requires the approval or consent of either Landlord or Tenant before an action may be taken, such approval or consent shall not be unreasonably withheld or delayed.

     47. LANDLORD’S RIGHT TO TERMINATE: It is understood that the Premises to be leased by Tenant are to be constructed by Landlord, and that Landlord is required to obtain the necessary building permits for the building shell before construction of said Premises can commence. Therefore, it is agreed that in the event Landlord cannot obtain all the necessary building permits for the building shell by June 1, 1990, then either Landlord or Tenant can terminate this Lease by written notice to the other party given within thirty (30) days thereafter, without any liability to the other party of any type whatsoever, and that this Lease Agreement will be null and void [Illegible] to use its best efforts to obtain the required permits by June 1, 1990.

     48. CROSS DEFAULT: As set forth in Paragraph 41C, Landlord and Tenant have entered into another lease dated October 31, 1989 referred to herein as the “Companion Lease” affecting property contiguous to the Premises leased hereunder. As a material part of the consideration for the execution of this Lease by Landlord, it is agreed between Landlord and Tenant that a default under this Lease, or a default under said Companion Lease dated October 31, 1989 may, at the option of Landlord, be considered a default under both leases, in which event Landlord shall be entitled (but in no event required) to apply all rights and remedies of Landlord under the terms of one Lease to both Leases including, but not limited to, the right to terminate one or both of said leases by reason of a default under said Companion Lease dated October 31, 1989 or hereunder.

     49. SUBDIVISION: With respect to the development of the Premises:

          A. The parties acknowledge that as of the date this Lease is signed by the last party (the “Effective Date”) the Premises is not constituted as a separate legal parcel, but is part of a larger parcel consisting of approximately 37.096 acres (“Larger Parcel”), all of which is shown by the site plan attached to the lease as Exhibit “A”. Landlord agrees to use reasonable efforts to cause the Premises to be constituted as a separate legal parcel containing approximately 11.848 acres in the approximate area and configuration shown and outlined within the area marked in red on Exhibit “A”, and to use reasonable efforts to cause lot 1, as shown on Exhibit “A” to the Companion Lease and lots 3 through 5 as shown on Exhibit “A” to the Option Agreement (the “Option”) between Landlord and Tenant of even date herewith to be subdivided by means of the recordation of a subdivision map by July 1, 1990. In causing such property to be subdivided, Landlord and Tenant agree to consent to reasonable lot line modifications as required by the City of Milpitas; provided, however, that the configuration of the Premises shall be established in such manner that does not result in a material reduction in the Improvements or in parking, access, or landscape amenities which are shown on the site plan attached to this Lease as Exhibit “A”. Tenant agrees to reimburse Landlord for actual expenses paid by Landlord in the

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preparation, processing and recordation of such subdivision map and to meet other requirements necessary to make said lots 1-5 separate lots; provided, however, Tenant’s total reimbursement obligation pursuant hereto, the Companion Lease and the Option shall not exceed Twenty Five Thousand Dollars ($25,000). At such time is Landlord causes any such subdivision to be completed, Landlord and Tenant shall execute an amendment to this Lease which shall set forth the description of the Premises resulting from the subdivision.

          B. Landlord and Tenant agree that the Premises and the Larger Parcel during (and limited to) the term of this Lease shall be developed and used only in accordance with a master plan, developed by Landlord. The parties have mutually agreed to a Master Plan for the general development of the entire 37.096 ± acre site which is attached hereto as Exhibit “A” and entitled “Master Site Plan”. Said Master Site Plan sets forth the buildings and land to be leased under this Lease and the Companion Lease (Building 1 and 2 on Lots 1 and 2), and the buildings and land proposed to be developed on the remainder of the property (Building 3, 4, and 5 to be constructed on Lots 3, 4, and 5 respectively) as well as the general location of the parking and landscaping pertaining thereto. The parties agree that the Master Site Plan may be modified provided that (i) a perimeter driveway is developed in front of [Illegible] generally runs near [Illegible] recreation area at the rear of Lot 4 (as shown on the Site Plan) is developed when a building is constructed on Lot 4, (iii) all buildings will be similar and generally architecturally compatible, and (iv) a landscape area is developed along the frontage of all streets between the street and parking area closest to the street. The parties agree that (i) Landlord may change the master plan, shape and sizes of the buildings, parking and landscaping as long as the general development concept set forth above is generally followed by Landlord, and (ii) any successor or assign of Landlord or Tenant shall be required to consent and agree to develop the Premises and the Larger Parcel in accordance with the foregoing, and shall be deemed to have assumed the obligation to so develop such property by acceptance of a deed, assignment or other means of transfer of Landlord’s or Tenant’s interest in such property or any portion thereof, as the case may be. Further, the memorandum of lease to be recorded by Landlord and Tenant pursuant to paragraph 38G shall contain the following statement:

“The Lease provides that from and after the commencement date of the Lease and continuing for a period of fifteen years the Premises and the larger 37.096 acre parcel in which the Premises were originally included, shall be developed by the parties to the Lease or their successors or assigns, as more particularly set forth in the Lease, so that (i) a perimeter driveway is developed in front of each building which generally runs near and parallel with the street surrounding the 37 ± acre site, (ii) a landscape area is developed along the frontage of all streets between the street and parking area closest to the street, (iii) a landscape and recreation area at the rear of Lot 4 (as shown on the Site Plan identified in the Lease) is developed when a building is constructed on Lot 4, and (iv) all buildings will be similar and generally architecturally compatible, it being agreed that Landlord may change the shape and sizes of the buildings, parking and landscaping as long as the general development concept set forth above and in the Lease is generally followed by Landlord. Tenant understands that the lots shown on the Master Site Plan described in the Lease are for lease purposes only and that the lots have not been legally subdivided and do not constitute separate legal lots, but Landlord agrees to use reasonable efforts to cause Lots 1-5 to be subdivided in accordance

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with the approved Master Plan by July 1, 1990. If a Public Agency requires modifications to the lot lines as shown on the Master Plan, the parties agree to reasonable lot line modifications. Tenant agrees to reimburse Landlord for actual expenses paid by Landlord in the processing and recordation of such subdivision map and to meet all other requirements necessary to make said Lots 1-5 separate lots; provided, however, Tenant’s total reimbursement obligation (pursuant to all agreements between Landlord and Tenant) shall in no event exceed Twenty-Five Thousand Dollars ($25,000.00).”

     50. LIMITATION ON IMPOSITION OF LATE CHARGE: Notwithstanding anything contained in Paragraph 4C, if Tenant is delinquent in the payment of Basic Rent or Additional Rent and is subject to a late charge, Landlord agrees to waive the late charge if the Basic Rent or Additional Rent due is paid within five days of Landlord’s written notice to Tenant of the delinquent amount owed and provided Tenant has not been delinquent in its payment of Basic Rent or Additional Rent owed under said Lease during the twelve (12) month period preceding the rent delinquency in question.

     51. SECURITY DEPOSIT: The following provisions shall modify paragraph 4F:

          A. [Illegible] within thirty (30) days after the expiration or earlier termination of the Lease term and after Tenant has vacated the Premises, Landlord shall return to Tenant the entire Security Deposit except for amounts that Landlord has deducted therefrom that are needed by Landlord to cure defaults of Tenant under the Lease or compensate Landlord for damages for which Tenant is liable pursuant to this Lease. The use or disposition of the Security Deposit shall be subject to the provisions of California Civil Code Section 1950.7.

          B. Tenant shall have the option of satisfying its obligation with respect to an amount equal to one-half (1/2) of the Security Deposit by providing to Landlord, at Tenant’s sole cost, a letter of credit which (i) is drawn upon an institutional lender reasonably acceptable to Landlord, (ii) is in the amount of one-half (1/2) of the Security Deposit, (iii) is for a term of at least twelve (12) months, (iv) with respect to any letter of credit in effect within the six month period immediately prior to the expiration of the Lease term, shall provide that the term of such letter of credit shall extend at least thirty (30) days past the Lease expiration date, (v) may be drawn upon by Landlord upon submission of a declaration of Landlord that Tenant is in default (as defined in Paragraph 19 and as modified by Paragraph 60). Landlord shall not be obligated to furnish proof of default to such institutional lender, and Landlord shall only be required to give the institutional lender written notification that Tenant is in default and upon receiving such written notification from Landlord the institutional lender shall be obligated to immediately deliver cash to Landlord equal to the amount Landlord may spend or become obligated to spend by reason of Tenant’s default or to compensate Landlord for any loss or damage which Landlord may suffer by reason of Tenant’s default up to 1/2 of the total Security Deposit, (vi) shall provide that if the letter of credit is not renewed, replaced or extended within twenty (20) days of its expiration date the issuer of the credit shall automatically make payment of the amount of the letter of credit directly to Landlord after the date which is twenty (20) days before the expiration date, and no later than the expiration date, without Landlord being required to make demand upon the letter of credit, and (vii) is otherwise in form and content reasonably satisfactory to Landlord. If Tenant provides Landlord with a letter of credit meeting the foregoing

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requirements, one-half (1/2) of the cash Security Deposit (i.e., $238,296.60 of the $476,593.20 Deposit) shall be returned to Tenant by Landlord inasmuch as the cash deposit remaining and the Letter of Credit equal the total Security Deposit required in Paragraph 4F. If Tenant defaults with respect to any provisions of this Lease, including but not limited to provisions relating to the payment of rent, Landlord may (but shall not be required to) draw down on the letter of credit for payment of any sum which Landlord may spend or become obligated to spend by reason of Tenant’s default, or to compensate Landlord for any loss or damage which Landlord may suffer by reason of Tenant’s default. Landlord and Tenant acknowledge that such letter of credit will be treated as if it were a cash security deposit, and such letter of credit may be drawn down upon by Landlord upon demand and presentation of evidence of the identity of Landlord to the issuer, in the event that Tenant defaults with respect to any provision of this Lease and such default is not cured within any applicable cure period. Notwithstanding anything to the contrary in this Lease, Landlord shall not be obligated to furnish proof of default to such institutional lender and Landlord is only required to give the institutional lender written notification that Tenant is in default and upon receiving such written notification from Landlord the institutional lender shall be obligated to immediately deliver cash to Landlord equal to the amount Landlord may spend or become obligated to spend by reason of Tenant’s default, or to compensate Landlord [Illegible] acknowledges that it is not entitled to draw down such letter of credit unless Landlord would have been entitled to draw upon the cash security deposit pursuant to the terms of Paragraph 4.F of the Lease. Concurrently with the delivery of the required information to the issuer, Landlord shall deliver to Tenant written evidence of the default upon which the draw down was based, together with evidence that Landlord has provided to Tenant the written notice of such default which was required under the applicable provision of the Lease, and evidence of the failure of Tenant to cure such default within the applicable grace period following receipt of such notice of default. Any proceeds received by Landlord by drawing upon the letter of credit shall be applied in accordance with the provisions governing the Security Deposit imposed by Paragraph 4F and this Paragraph 51. If Landlord draws upon the letter of credit, thereafter Tenant shall once again shall have the right to post a letter of credit in place of one-half (1/2) of a cash Security Deposit so long as Tenant is not then in default. In any event Tenant will be obligated to replenish the amount drawn to restore the Security Deposit to its original amount as provided for in paragraph 4F. If any portion of the letter of credit is used or applied pursuant hereto, Tenant shall, within ten (10) days after receipt of a written demand therefor from Landlord, restore and replace the value of such security by either (i) depositing cash with Landlord in the amount equal to the sum drawn down under the letter of credit, or (ii) increasing the letter of credit to its value immediately prior to such application. Tenant’s failure to replace the value of the security as provided in the preceding sentence shall be a material breach of its obligation under this Lease.

     52. ALTERATIONS MADE BY TENANT: The provisions of this Paragraph 52 shall modify Paragraphs 5 and 6:

          A. As used herein, the term “Alteration” shall mean any alteration, addition or improvement made by Tenant to the Premises during the term of the Lease, but shall not include Tenant’s trade fixtures so long as such trade fixtures are not installed in such a manner that they have become an integral part of the building.

          B. Tenant shall not construct any Alterations or otherwise alter the Premises without Landlord’s prior written approval if the total cost of such Alterations exceeds $20,000

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per the scope of any single remodeling job to the Premises, or if such Alteration is structural in nature. Any other non-structural Alteration of less than $20,000 for the total cost of the remodeling job may be undertaken by Tenant without Landlord’s prior written approval but with the understanding that Tenant shall be obligated to restore the Premises as set forth in Paragraph 5 at the termination of this Lease, except as otherwise provided in Paragraph 52.D. Notwithstanding the foregoing, Tenant shall have the right to reconfigure modular freestanding walls and partitions without Landlord’s prior’ consent, which have been installed by Tenant and paid for by Tenant.

          C. At all times during the Lease Term (i) Tenant shall maintain and keep up dated “as-built” plans for all Alterations constructed by Tenant, and (ii) Tenant shall provide to Landlord copies of such “as-built” plans as such Alterations are made.

          D. Tenant shall have the right to remove at any time during the Lease term or prior to the expiration thereof any (i) process equipment such as clean hoods, thermal cycling chambers, freon piping, high temperature furnaces, air handlers and special air-conditioning, (ii) process systems such as compressed air or processed exhaust systems and (iii) the clean room modules and all related process equipment, which are paid for 100% by Tenant (excluding building [Illegible] part of the building not related to Tenant’s clean room modules or other special purpose process equipment or systems), which systems, equipment and modules the parties agree for the purposes of this Lease shall be deemed to be trade fixtures, so long as Tenant repairs all damage caused by the installation and/or removal thereof, returns the Premises prior to the termination of the Lease to the condition existing prior to the installation of such item, and repairs and restores any so-called “doughnuts” or gaps in the roof and/or floor tiles and/or ceiling and lighting resulting from such removal. At the time Tenant requests the consent of Landlord to approve the installation of an Alteration requiring the consent of Landlord, Tenant shall seek from Landlord a written statement of whether or not Landlord will require Tenant to remove such Alteration and restore all or part of the Premises as required by Landlord in accordance with this paragraph and Paragraph 5 at the expiration or earlier termination of the term of the Lease. If Tenant does not obtain from Landlord a statement in writing that Landlord will not require such Alteration to be removed, then at the expiration or sooner termination of the term of the Lease, it is agreed that Tenant may be required to remove all or part of such Alterations, and return the Premises to the condition existing prior to the installation of such Alterations as provided for in Paragraph 5 above. In addition, if Tenant has installed Alterations without Landlord’s consent, if Landlord so requires, Tenant shall also remove all or part of such Alterations so installed without Landlord’s consent as Landlord may designate and return the Premises to the condition existing prior to the installation of such Alteration. Alterations for which Landlord has given its written consent to Tenant that such Alteration need not be removed, shall not be removed by Tenant at the expiration or earlier termination of the term of the Lease.

          E. At all times during the term of the Lease, Tenant shall have the right to install and remove trade fixtures as defined in the Lease and installed and paid for by Tenant, so long as Tenant repairs all damage caused by the installation thereof and returns the Premises to the condition existing prior to the installation of such fixtures and repairs and restores any so called “doughnuts” or gaps in the roof and/or floor (including floor structure, sub-floor and

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appropriate floor covering for said area) and/or floor tiles and/or ceiling tiles and lighting resulting from such removal.

     53. STRUCTURAL CAPITAL COSTS REGULATED BY GOVERNMENTAL AGENCIES AFTER THE COMMENCEMENT OF THIS LEASE NOT CAUSED BY TENANT OR TENANT’S USES OR REMODELING OF THE PREMISES: The provisions of this Paragraph 53 shall modify Paragraphs 7 and 14:

          A. If during the last five (5) years of the term of the Lease if Tenant has not extended the Lease as provided for in Paragraphs 42 and 43, or during either of the five (5) year extension periods permitted by Paragraphs 42 and 43, it becomes necessary (due to any governmental requirement for continued occupancy of the Premises) to make structural improvements required by laws enacted or legal requirements imposed by governmental agency(s) after the Commencement Date, and the cost for each required work or improvement exceeds $100,000, then if such legal requirement is not imposed because of Tenant’s specific use of the Premises and is not “triggered” by Tenant’s Alterations or Tenant’s application for a building permit or any other governmental approval (in which instance Tenant shall be responsible for 100% of the cost of such improvements), Landlord shall be responsible for paying the cost of such improvement and constructing such improvement, subject to a cash contribution from Tenant of a portion of the cost thereof as provided for and calculated in Paragraph 53B.

          B. [Illegible] improvement pursuant [Illegible] such improvement, Tenant shall make the following contribution in cash to Landlord for the cost thereof prior to the commencement of the work by Landlord. It is agreed that Tenant shall pay to Landlord 100% of the cost of the first $100,000.00 worth of each improvement. After the first $100,000.00, all costs above $100,000.00 shall be divided by 15 and multiplied by the time period remaining in the last five years of the Lease term from the date work on such improvement commences.

     For example, if the cost of such improvement was $400,000 and there was one year and six months remaining in the Lease term when the work commenced, then Tenant would be responsible for reimbursing Landlord in cash $130,000 computed as follows:

Total Cost of Work		$	400,000.00
Tenant Responsible for 1st $100,000			-100.000.00
Total Amount To Be Amortized			300,000.00
$300,000.00/15 = $20,000/yr. x 1.5 yrs	=	$	30,000.00
Tenant responsible for $100,000 + 30,000	=	$	130,000.00

          C. If Landlord has made improvements, for which Tenant has reimbursed Landlord for the cost thereof pursuant to Paragraph 53B, and the term of this Lease is subsequently extended pursuant to the exercise by Tenant of an option to renew pursuant to Paragraph 42 or 43, upon the exercise of any such option by Tenant, Tenant shall pay to Landlord an additional sum equal to the total amount of said improvement less the amount

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previously paid for by Tenant. Using the example in Paragraph 53B above, Tenant would owe Landlord the additional amount of $270,000.00 ($400,000.00 — $130,000.00 = $270,000.00).

     54. REAL PROPERTY TAXES: Paragraph 9 is modified by the following:

          A. The term “Real Property Taxes” shall not include charges, levies or fees directly related to the use, storage, disposal or release of hazardous materials on the Premises unless directly related to Tenant’s activities, which subject is exclusively governed by Paragraph 45.

          B. If any assessments for public improvements are levied against the Premises, Landlord may elect either to pay the assessment in full or to allow the assessment to go to bond. If Landlord pays the assessment in full, Tenant shall pay to Landlord or any assignee or purchaser of the Premises each time payment of Real Property Taxes is made a sum equal to that which would have been payable (as both principal and interest) had Landlord allowed the assessment to go to bond.

          C. Tenant at its cost shall have the right, at any time, to seek a reduction in the assessed valuation of the Premises or to contest any Real Property Taxes that are to be paid by Tenant. If Tenant seeks a reduction or contests such Real Property Taxes, the failure on Tenant’s part to pay such Real Property Taxes being so contested shall not constitute a default so long as Tenant complies with the provisions of this Paragraph. Landlord shall not be required to join in any proceeding or contest brought by Tenant unless the provisions of any law require that the proceeding or contest be brought by or in the name of Landlord. In that case Landlord shall join in the proceedings or contest or permit it to be brought in Landlord’s name as long as Landlord is not required to bear any cost. Tenant, on final determination of the proceeding or contest, shall [Illegible] decision or judgment rendered, together with all costs, charges, interest, and penalties incidental to the decision or judgment. If Tenant does not pay the Real Property Taxes when due pursuant to the Lease and Tenant seeks a reduction or contests them as provided in this paragraph, before the commencement of the proceeding or contest Tenant shall furnish to Landlord a surety bond in form reasonably satisfactory to Landlord issued by an insurance company qualified to do business in California. The amount of the bond shall equal 125% of the total amount of Real Property Taxes in dispute and any such bond shall be assignable to any lender or purchaser of the Premises. The bond shall hold Landlord and the Premises harmless from any damage arising out of the proceeding or contest and shall insure the payment of any judgment that may be rendered.

     55. PROPERTY INSURANCE: Paragraph 12 is modified by the following:

          A. If Tenant so elects, Tenant may obtain from a third party insurance company the insurance required to be carried by Landlord pursuant to Paragraph 12 so long as each of the following conditions is satisfied: (i) the Landlord is not the John Arrillaga and Richard T. Peery Separate Property Trusts or an affiliated entity; (ii) the insurance to be carried by Tenant to satisfy this requirement strictly complies with all of the provisions of Paragraph 12; (iii) such insurance shall name Landlord as the insured and provide that it is to be payable to Landlord in the same manner as if such insurance had been carried by Landlord pursuant to Paragraph 12 (subject to the rights of any lender holding a mortgage or deed of trust

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encumbering the Premises); (iv) each lender holding a mortgage or deed or trust encumbering the Premises shall have given its written consent to Tenant carrying such insurance and such insurance shall comply with the requirements of any such lender; (v) Tenant must notify Landlord, by certified mail, no later than one hundred eighty (180) days prior to the expiration date of Landlord’s insurance policy (which expiration date is currently 3/13/xx of a given year and is subject to change), that Tenant will directly obtain the required insurance coverage for the insurance year commencing 3/14/XX through 3/13/XX and each insurance year through the termination date of this Lease, or until Tenant is no longer able to comply with all of the provisions of this paragraph 55; (vi) the annual premium must be paid in full at the commencement of the policy; (vii) the insurance policy must be issued for a one-year period following the expiration date of Landlord’s insurance policy (i.e., from 3/14/XX to 3/13/XX); (viii) any and all deductibles required under the policy will be paid entirely by Tenant; (ix) the terms of the coverage must be broad form and cover all items to be covered as set forth in Paragraph 12 of this Lease; (x) the Building and Premises must be insured for their full replacement cost; (xi) the insurance policy containing the required coverage in accordance with the provisions of this paragraph must be sent to Landlord for retention within thirty (30) days prior to the expiration date of Landlord’s insurance policy, and may not be terminated or altered without thirty (30) days written notice to Landlord by the company providing such insurance (it is agreed that if the insurance policy is cancelled or altered, Landlord will have the right to obtain the property insurance coverage on said building, and Landlord will bill the Tenant for the related insurance premium); and (xii) at all times while Tenant is so carrying such insurance, Tenant is Quantum Corporation or a successor entity and the then net worth of such corporation is substantially the same as the net worth of Quantum Corporation as of the date of this Lease is executed by Landlord and Tenant. Tenant shall provide such evidence as is required by Landlord and any lender to establish that the insurance that Tenant carries pursuant to this Paragraph 55 has been obtained and meets the requirement of this [Illegible] Such insurance [Illegible] is reasonably acceptable[Illegible] which must be rated “A plus” or better by Best’s Insurance Service (or an equivalent rating from another rating agency should Best’s no longer provide such service). A copy of any such policy shall be delivered to Landlord. If Tenant elects to insure and such insurance provided by Tenant does not satisfy the requirements of paragraph 12, in the event of a subsequent casualty, Tenant shall be responsible for and shall pay for that portion of the restoration cost, in excess of the insurance proceeds actually available, that would have been covered by insurance satisfying the requirements of paragraph 12.

          B. Tenant shall not obligated to contribute to the cost of earthquake insurance more than an amount equal to six (6) times the then annual cost of fire and “all risk” insurance per year. For example, if the 1993 annual premium for fire and “all risk” insurance is $9,000, then Tenant’s share of the cost of any premium for earthquake insurance for the following year (1994) shall be limited to $54,000 ($9,000 x 6). Tenant shall have the right to require earthquake insurance providing it is available if Tenant agrees to pay full cost thereof.

     56. ASSIGNMENT AND SUBLETTING: The following modifications are made to Paragraph 16:

          A. In the event that Tenant seeks to make any assignment or sublease, then Landlord, by giving Tenant written notice of its election within fifteen (15) days after Tenant’s notice of intent to assign or sublease has been given to Landlord, shall have the right to elect (i)

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to withhold its consent to such assignment or sublease, as permitted pursuant to Paragraph 16, or (ii) to permit Tenant to so assign the Lease or sublease such part of the Premises, in which event Tenant may do so, but without being released of its liability for the performance of all of its obligations under the Lease, and the following shall apply (except the following shall not apply to a “Permitted Transfer” described in Paragraph 57):

               (1) If Tenant assigns its interest in this Lease, then in addition to the rental provided for in this Lease, Tenant shall pay to Landlord fifty percent (50%) of all consideration received by Tenant over and above (i) the assignee’s agreement to assume the obligations of Tenant under this Lease and (ii) all “Permitted Transfer Costs” (as defined herein) related to such assignment. As used herein, the term “Permitted Transfer Costs” shall mean all reasonable leasing commissions paid to third parties not affiliated with Tenant in order to obtain the assignment or sublease in question.

               (2) If Tenant sublets all or part of the Premises, then Tenant shall pay to Landlord in addition to the rental provided for in this Lease fifty percent (50%) of the positive difference, if any, between (i) all rent and other consideration paid by the subtenant to Tenant, less (ii) all rent paid by Tenant to Landlord pursuant to this Lease which is allocable to the area so sublet and all Permitted Transfer Costs related to such sublease. After Tenant has recovered all Permitted Transfer Costs Tenant shall pay to Landlord the amount specified in the preceding sentence on the same basis, whether periodic or in lump sum, that such rent and other consideration is paid to Tenant by its subtenant, within seven (7) days after it is received by Tenant.

               (3) Tenant’s obligations under this subparagraph shall survive any assignment or sublease. At the time Tenant makes any payment to Landlord required by this subparagraph, Tenant shall [Illegible] an itemized statement [Illegible] certified by Tenant as true and correct. Landlord shall have the right to inspect Tenant’s books and records relating to the payments due pursuant to this subparagraph. Upon request therefor, Tenant shall deliver to Landlord copies of all bills, invoices or other documents upon which its calculations are based.

               (4) As used herein, the term “consideration” shall mean any consideration of any kind received, or to be received, by Tenant as a result of the assignment or sublease, if such sums are paid for Tenant’s interest in this Lease or in the Premises.

     57. PERMITTED ASSIGNMENTS AND SUBLEASES: Notwithstanding anything contained in Paragraph 16, so long as Tenant otherwise complies with the provisions of Paragraph 16 and the Permitted Transfer does not release Tenant from its obligations hereunder, Tenant may enter into any of the following transfers (a “Permitted Transfer”) without Landlord’s prior written consent, and the provisions of Paragraph 56A shall not apply to any such Permitted Transfer:

          A. Tenant may sublease all or part of the Premises or assign its interest in this Lease to any corporation which controls, is controlled by, or is under common control with Tenant by means of an ownership interest of more than fifty percent (50%) providing Tenant remains liable for the payment of rent and full performance of the lease;

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          B. Tenant may assign its interest in the Lease to a corporation which results from a merger, consolidation or other reorganization in which Tenant is not the surviving corporation so long as 95% of all assets of Tenant are permanently transferred to such assignee. In the event there is not a permanent transfer of 95% or more of the assets and liabilities from Tenant to a third party, and Tenant continues to exist as a separate entity, both companies shall be jointly and severally liable for the full terms and conditions of the Lease;

          C. Tenant may assign this Lease to a corporation which purchases or otherwise acquires 95% or more of the assets of Tenant so long as 95% of all assets of Tenant are permanently transferred to such assignee (in the event there is not a permanent transfer of 95% or more of the assets and liabilities from Tenant to a third party and Tenant continues to exist as a separate entity, both companies shall be jointly and severally liable for the full terms and conditions of the Lease).

     58. SUBORDINATION AND MORTGAGES: Paragraph 17 is modified to provide that this Lease shall not be subordinate to a mortgage or deed of trust unless the Lender holding such mortgage or deed of trust enters into a written subordination, non-disturbance and attornment agreement in which the Lender agrees that notwithstanding any subordination of this Lease to such Lender’s mortgage or deed of trust, (i) such Lender shall recognize all of Tenant’s rights under this Lease, and (ii) in the event of a foreclosure this Lease shall not be terminated so long as Tenant is not in material default of its obligations under this Lease, but shall continue in effect and Tenant and such Lender (or any party acquiring the Premises through such foreclosure) shall each be bound to perform the respective obligations of Tenant and Landlord with respect to the Premises arising after such foreclosure.

     59. LANDLORD’S RIGHT TO ENTER: Notwithstanding the provisions of Paragraph 18, (i) except in the event of an emergency, Landlord shall give Tenant twenty-four (24) hours notice prior to entering [Illegible] shall only enter the Premises when accompanied by Tenant or its agent (so long as Tenant makes itself reasonably available for this purpose), and (ii) Landlord may install “for lease” signs relating to the Premises only during the last 150 days of the Lease term. Landlord agrees to use its reasonable, good faith efforts such that any entry by Landlord, and Landlord’s agents, employees, contractors and invitees shall be performed in a manner with as minimal interference as possible with Tenant’s business at the Premises. Subject to the foregoing, Tenant agrees to cooperate with Landlord and Landlord’s agents, employees and contractors so that responsibilities of Landlord under the Lease can be fulfilled in a reasonable manner during normal business hours so that no extraordinary costs are incurred by Landlord.

     60. BANKRUPTCY AND DEFAULT: Paragraph 19 is modified to provide that with respect to non-monetary defaults not involving Tenant’s failure to pay Basic Rent or Additional Rent, Tenant shall not be in default of any non-monetary obligation if (i) more than thirty (30) days is required to cure such non-monetary default, and (ii) Tenant commences cure of such default as soon as reasonably practicable after receiving written notice of such default from Landlord and thereafter continuously and with due diligence prosecutes such cure to completion.

     61. ABANDONMENT: Paragraph 20 is modified to provide that Tenant shall not be in default under the Lease if it leaves all or any part of Premises vacant so long as (i) Tenant is

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performing all of its other obligations under the Lease including the obligation to pay Basic Rent and Additional Rent, (ii) Tenant provides on-site security during normal business hours for those parts of the Premises left vacant, (iii) such vacancy does not materially and adversely affect the validity or coverage of any policy of insurance carried by Landlord with respect to the Premises, and (iv) the utilities and heating and ventilation system are operated to the extent necessary to prevent damage to the Premises or its systems.

     62. DESTRUCTION: Paragraph 21 is modified by the following:

          A. Except as provided in Paragraph 62B, Landlord may not terminate the Lease if the Premises are damaged by a peril that is covered by the insurance carried by Landlord pursuant to Paragraph 12, but instead shall restore the Premises in the manner described by Paragraph 21.

          B. If the Premises are damaged by a peril covered by the insurance carried by Landlord pursuant to Paragraph 12, Landlord shall have the option to terminate the Lease if each of the following conditions is satisfied: (i) the cost to repair or the damage exceeds thirty-three percent (33%) of the then replacement cost of the Premises; and (ii) the damage occurs at a time when there is less than five (5) years remaining in the term of the Lease. Notwithstanding the foregoing, if such damage occurs at a time when there is less than five (5) years remaining in the term of the Lease and Landlord notifies Tenant of Landlord’s election to terminate the Lease pursuant to the provisions of this Paragraph 62B, if Tenant has the right to extend the term of this Lease pursuant to either Paragraph 42 or 43 such that the remaining term of the Lease (including the option period) will be more than five (5) years following the date of such damage, this Lease shall not terminate if Tenant notifies Landlord in writing of Tenant’s exercise of an option to extend granted to Tenant by either Paragraph 42 or 43. In such event, this Lease shall not terminate, [Illegible] shall be so extended [Illegible]

          C. If the Premises are damaged by any peril, then as soon as reasonably practicable, Landlord shall furnish Tenant with the written opinion of Landlord’s architect or construction consultant as to when the restoration work required of Landlord may be completed. Tenant shall have the option to terminate this Lease in the event any of the following occurs, which option may be exercised only by delivery to Landlord of a written notice of election to terminate within seven (7) days after Tenant receives from Landlord the estimate of the time needed to complete such restoration:

               (1) The Premises are damaged by any peril and, in the reasonable opinion of Landlord’s architect or construction consultant, the restoration of the Leased Premises cannot be substantially completed within 180 days after the date of such damage; or

               (2) The Premises are damaged by any peril within twelve (12) months of the last day of the Lease term and provided Tenant has not exercised an option to renew pursuant to the provisions of Paragraph 42 or 43, and, in the reasonable opinion of Landlord’s architect or construction consultant, the restoration of the Leased Premises cannot be substantially completed within sixty (60) days after the date of such damage.

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     63. EMINENT DOMAIN: Paragraph 22 is modified by the following:

     Landlord may not terminate the Lease if less than 1/3 of the building is taken by condemnation or if a taking by condemnation is only threatened.

     64. TRANSFER BY LANDLORD: The provisions of Paragraph 23 of the Lease to the contrary notwithstanding, Landlord shall not be relieved of its obligations under the Lease which may accrue after the date of a sale or other transfer unless and until (i) the transferee agrees to assume and be bound by the terms of this Lease and to perform all obligations of the landlord under the Lease which may accrue after the date of such transfer, and (ii) Landlord transfers the Security Deposit to its successor in interest (transferee) in accordance with the provisions of California Civil Code Section 1950.7, as amended or recodified.

     65. LANDLORD’S LIEN WAIVER: Landlord, within thirty (30) days after demand from Tenant, shall execute and deliver such lien waiver documents that are reasonably required by any supplier, lessor, or lender in connection with the installation in the Premises of the Tenant’s personal property or trade fixtures providing Landlord approves the form of any such waiver and Landlord’s rights under this Lease are not materially and adversely affected.

QUANTUM CORPORATION,		JOHN ARRILLAGA SEPARATE
a Delaware corporation		PROPERTY TRUST
By	/s/ Joseph Shepala	By	/s/ John Arrillaga
VP Human Resources
		RICHARD T. PEERY SEPARATE
		PROPERTY TRUST
		By	/s/ Richard Peery

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AMENDMENT NO. 1

     THIS AMENDMENT NO. 1 is made and entered into this 24th day of April, 1990, by and between JOHN ARRILLAGA, Trustee, or his Successor Trustee UTA dated 7/20/77 (JOHN ARRILLAGA SEPARATE PROPERTY TRUST) as amended, and RICHARD T. PEERY, Trustee, or his Successor Trustee UTA dated 7/20/77 (RICHARD T. PEERY SEPARATE PROPERTY TRUST) as amended, as LANDLORD, and QUANTUM CORPORATION, a Delaware corporation, as TENANT.

RECITALS

     A. WHEREAS, by Lease Agreement dated October 31, 1989, Landlord leased to Tenant all of that certain 176,516 ± square foot building located at Bellew Drive and Magnolia Drive, Milpitas, California, the details of which are more particularly set forth in said October 31, 1989 Lease Agreement, and

     B. WHEREAS, it is now the desire of the parties hereto to amend said Lease to reflect the: delay of the Commencement Date of the Lease from December 15, 1990 to April 1, 1991 and to amend the Basic Rent schedule accordingly; deletion of the Phase In Right of said Lease; and commencement of payment of Additional Rent as of December 15, 1990; as hereinafter set forth.

AGREEMENT

     NOW THEREFORE, for valuable consideration, receipt of which is hereby acknowledged, and in consideration of the hereinafter mutual promises, the parties hereto do agree as follows:

     1. LEASE TERM AND COMMENCEMENT DATE: Paragraph 41.B. of the Lease is amended by changing the reference to the December 15, 1990 Commencement Date to April 1, 1991. Subject paragraph will be amended to read as follows:

     “B. Commencement Date Defined: As used herein, the term “Commencement Date” shall mean the later to occur of the following: (i) the date upon which the “Improvements” are “Substantially Completed”; or (ii) April 1, 1991; provided, however, that if prior to the later of such dates Tenant’s operating personnel enter into occupancy of the Premises and commence the operation of Tenant’s business within the Premises, the Commencement Date shall be the date such personnel of Tenant so enter into occupancy of the Premises. The term “Substantially Completed” and/or “Substantial Completion” shall mean the date when all of the following have occurred with respect to the Improvements in question: (i) the construction of the Improvements in question has been substantially completed in accordance with the approved plans therefore except for punch list items which do not prevent Tenant from reasonably using the Premises to conduct Tenant’s business; (ii) Landlord has executed a certificate or statement representing that the Improvements in question have been substantially completed in accordance with the plans and specifications therefore except for punch list items which do not prevent Tenant from reasonably using the Premises to conduct Tenant’s business; and (iii) the Building Department of the City of Milpitas has completed its final inspection of such Improvements and has “signed off” the building inspection card approving such work as complete except for punch list items

1

which do not prevent Tenant from reasonably using the Premises to conduct Tenant’s business. Notwithstanding the foregoing, Substantial Completion of the Interior Improvements shall not be deemed to have occurred until Landlord has obtained final or conditional approval from the Fire Department of the City of Milpitas that the Improvements have been completed in accordance with such department’s requirements (subject only to conditions that do not prevent Tenant from occupying the Improvements).”

     2. DELETION OF “BASIC RENT REDUCTION DURING PHASE IN PERIOD”: As a material inducement to Landlord to postpone the commencement of the Lease Agreement, Paragraph 40 shall be deleted in its entirety, and Tenant will be responsible for paying Basic Rent to Landlord, from the Commencement Date of said Lease, on the entire 155,734 ± square foot building.

     3. COMMENCEMENT OF PAYMENT OF ADDITIONAL RENT: Notwithstanding the commencement date of this Lease as stated above, Tenant shall be responsible for paying one hundred percent (100%) of the Additional Rent Expenses as. outlined in Paragraph 4.D. of said Lease Agreement for the entire 155,734 ± square foot Lease Premises commencing December 15, 1990.

     4. BASIC RENT SCHEDULE: Furthermore, as Landlord is accommodating Tenant in deferring the Commencement Date of said Lease from December 15, 1990 to April 1, 1991, the parties have agreed that the Basic Rent increases will be calculated from December 15, 1990 and that Paragraph 39 “Basic Rent” of said Lease Agreement shall be amended as follows:

Period	Monthly Basic Rent
Months 1-13	$1.00/sf
Months 14-25	$1.05/sf
Months 26-37	$1.10/sf
Months 38-49	$1.15/sf
Months 50-61	$1.20/sf
Months 62-73	$1.25/sf
Months 74-85	$1.30/sf
Months 86-97	$1.35/sf
Months 98-109	$1.40/sf
Months 110-121	$1.45/sf

2

Period	Monthly Basic Rent
Months 122-133	$1.50/sf
Months 134-145	$1.55/sf
Months 146-157	$1.60/sf
Months 158-169	$1.65/sf
Months 170-185	$1.70/sf

     5. LANDLORD’S RIGHT TO TERMINATE: Paragraph 47 of the Lease is amended by deleting the references to June 1, 1990 and adding in lieu thereof references to August 1, 1990. Subject paragraph will be amended to read as follows:

     “It is understood that the Premises to be leased by Tenant are to be constructed by Landlord, and that Landlord is required to obtain the necessary building permits for the building shell before construction of said Premises can commence. Therefore, it is agreed that in the event Landlord cannot obtain all the necessary building permits for the building shell by August 1, 1990, then either Landlord or Tenant can terminate this Lease by written notice to the other party given within thirty (30) days thereafter, without any liability to the other party of any type whatsoever, and that this Lease Agreement will be null and void as of the date of receipt of such notice. Landlord agrees to use its best efforts to obtain the required permits by August 1, 1990.”

     EXCEPT AS MODIFIED HEREIN, all other terms, covenants, and conditions of said October 31, 1989 Lease Agreement shall remain in full force and effect.

     IN WITNESS WHEREOF, Landlord and Tenant have executed this Amendment No. 1 to Lease as of the day and year first hereinabove set forth.

LANDLORD:		TENANT:
JOHN ARRILLAGA SEPARATE		QUANTUM CORPORATION
PROPERTY TRUST		a Delaware corporation
By	/s/ John Arrillaga	By	/s/ Joseph Shepala
	John Arrillaga, Trustee
RICHARD T. PEERY SEPARATE		Title:	VP Human Resources
PROPERTY TRUST
By	/s/ Richard Peery	Dated:	6/12/90
	Richard T. Peery, Trustee

3

AMENDMENT NO. 2
TO LEASE

     THIS AMENDMENT NO. 2 is made and entered into this 8th day of June, 1992, by and between JOHN ARRILLAGA, Trustee, or his Successor Trustee UTA dated 7/20/77 (JOHN ARRILLAGA SEPARATE PROPERTY TRUST) as amended, and RICHARD T. PEERY, Trustee, or his Successor Trustee UTA dated 7/20/77 (RICHARD T. PEERY SEPARATE PROPERTY TRUST) as amended, collectively as LANDLORD, and QUANTUM CORPORATION, a Delaware corporation, as TENANT.

RECITALS

     A. WHEREAS, by Lease Agreement dated October 31, 1989 Landlord leased to Tenant all of that certain 155,734 ± square foot building located at 500 McCarthy Blvd., Milpitas, California, the details of which are more particularly set forth in said October 31, 1989 Lease Agreement, and

     B. WHEREAS, said Lease was amended by Amendment No. 1 dated April 24, 1990 which amended said Lease to delay the Commencement Date to April 1, 1991 and amend the Basic Rent schedule, and

     C. WHEREAS, said Lease was amended by the Commencement Letter dated May 3, 1991 which amended the Lease to commence April 7, 1991, and,

     D. WHEREAS, it is now the desire of the parties hereto to amend the Lease by replacing Exhibit A and amending the description of the Premises to said Lease Agreement as hereinafter set forth.

AGREEMENT

     NOW THEREFORE, for valuable consideration, receipt of which is hereby acknowledged, and in consideration of the hereinafter mutual promises, the parties hereto do agree as follows:

     1. REPLACEMENT OF EXHIBIT A: Pursuant to Lot Line/Parcel Adjustment dated April 1, 1992, it is hereby agreed between the parties that Exhibit A to Lease Agreement dated October 31, 1989 shall be considered null and void and shall be replaced with Exhibit A to this Amendment No. 2.

     2. DELETION OF DESCRIPTION QF THE PREMISES ON PAGE 1 OF LEASE AGREEMENT DATED OCTOBER 31, 1989: It is agreed between the parties that the Premises as described on Page 1 of said Lease Agreement shall be deleted and considered null and void; therefore, said description is deleted in its entirety and replaced by the following:

“All of that land containing approximately 11.589 ± acres and that certain 176,516 ± square foot two story building (“Building 2”) and parking appurtenant thereto, to be constructed and landscaping to be installed by Landlord as shown within the area outlined in red (“Lot 2”) on Exhibit A to be located at 500

1

McCarthy Blvd., Milpitas, California. Said Premises (‘‘Lot 2”) is more particularly shown within the area outlined in red on Exhibit A attached hereto and incorporated herein by this reference. The entire parcel containing approximately 37.096 ± acres, of which the Premises is a part, is shown within the area outlined in green on Exhibit A attached hereto and incorporated herein by this reference. The interior of the Leased Premises shall be improved in the configuration as shown in red on Exhibit B to be attached hereto and incorporated herein by this reference. The building shell shall be constructed in accordance with the shell and site improvement specification set forth on Exhibit A, and the general building elevation set forth on Exhibit A.”

     EXCEPT AS MODIFIED HEREIN, all other terms, covenants, and conditions of said October 31, 1989 Lease Agreement shall remain in full force and effect.

     IN WITNESS WHEREOF, Landlord and Tenant have executed this Amendment No. 2 to Lease as of the day and year first hereinabove set forth.

LANDLORD:		TENANT:
JOHN ARRILLAGA SEPARATE		QUANTUM CORPORATION
PROPERTY TRUST		a Delaware corporation
By	/s/ John Arrillaga	By	/s/ Joseph Shepala
	John Arrillaga, Trustee	Print or Type Name: Joseph Shepala
RICHARD T. PEERY SEPARATE		Title:	Vice President, Human Resources
PROPERTY	TRUST
By	/s/ Richard Peery	Dated:	6/9/92
	Richard T. Peery, Trustee

2

Quantum 2

AMENDMENT NO. 3
TO LEASE

     THIS AMENDMENT NO. 3 is made and entered into this 16th day of April, 1997, by and between JOHN ARRILLAGA, Trustee, or his Successor Trustee UTA dated 7/20/77 (JOHN ARRILLAGA SURVIVOR’S TRUST) (previously known as the “John Arrillaga Separate Property Trust”) as amended, and RICHARD T. PEERY, Trustee, or his Successor Trustee UTA dated 7/20/77 (RICHARD T. PEERY SEPARATE PROPERTY TRUST) as amended, collectively as LANDLORD, and QUANTUM CORPORATION, a Delaware corporation, as TENANT.

RECITALS

     A. WHEREAS, by Lease Agreement dated October 31, 1989 Landlord leased to Tenant all of that certain 176,516 ± square foot building located at 500 McCarthy Blvd., Milpitas, California, the details of which are more particularly set forth in said October 31, 1989 Lease Agreement, and

     B. WHEREAS, said Lease was amended by Letter Agreement dated October 31, 1989 which provided for a Basic Rent Credit for the period commencing with the Lease Commencement Date and ending on May 31, 1991, and

     C. WHEREAS, said Lease was amended by Letter Agreement dated April 24, 1990 which canceled the reduction in Basic Rent Credit Letter dated October 31, 1989, and

     D. WHEREAS, said Lease was amended by Amendment No. 1 dated April 24, 1990 which which delayed the Lease Commencement Date from December 15, 1990 to April 1, 1991, and,

     E. WHEREAS, said Lease was amended by the Commencement Letter dated March 7, 1991 which changed the Commencement Date of the Lease from April 1, 1991 to April 7, 1991, and established the Termination Date of September 30, 2006, and,

     E. WHEREAS, said Lease was amended by Amendment No. 2 dated June 8, 1992 which replaced Lease Exhibit A and amended the description of the Premises, and

     F. WHEREAS, it is now the desire of the parties hereto to amend the Lease by (i) extending the Term for five years, changing the Termination Date from September 30, 2006 to September 30, 2011, (ii) amending the Basic Rent schedule and Aggregate Rent accordingly, (iii) adding a third Five Year Option to Extend, (iv) replacing Paragraphs 41C (“Lease Terms Co-extensive”) and 48 (“Cross Default”) and 53 (“Structural Capital Costs Regulated by Governmental Agencies After the Commencement of this Lease not Caused by Tenant or Tenant’s Uses or Remodeling of the Premises”), (v) amending Lease Paragraph 12 (“Property Insurance”) and (vi) amending and/or replacing certain provisions of the Lease commencing as of the commencement of the Third Extended Term of said Lease as hereinafter set forth.

1

Quantum 2

AGREEMENT

     NOW THEREFORE, for valuable consideration, receipt of which is hereby acknowledged, and in consideration of the hereinafter mutual promises, the parties hereto do agree as follows:

     1. TERM OF LEASE: It is agreed between the parties that Tenant has exercised its First Five-Year Option to Extend the lease term of that certain lease agreement dated March 23, 1994 for premises located at 1101 Sumac Drive, Milpitas, California (the “Building 5 Lease”), as detailed in Paragraph 41 of said Building 5 Lease. Paragraph 40C of said Building 5 Lease provides that in the event the term of said Building 5 Lease is extended for any reason whatsoever, the terms of the Existing Leases (i.e. two of said leases dated October 31, 1989 are for Premises located at 1140 Technology Drive and 500 McCarthy Blvd., Milpitas, California (the “1989 Leases”); one of said leases dated September 17, 1990 is for Premises located at 1000 Sumac Drive, Milpitas, California, and one of said leases dated April 10, 1992 is for Premises located at 900 Sumac Drive, Milpitas, California) shall also be extended so that all five Leases expire on the same date; therefore, it is agreed between the parties that by exercising its Option to Extend the Building 5 Lease, Tenant has in effect exercised its Option to Extend under Lease Paragraph 42 (“First Five-Year Option to Extend”), and that pursuant to said Lease Paragraph 42, the Term of this Lease Agreement shall be extended for an additional five (5) year period, and the Lease Termination Date shall be changed from September 30, 2006 to September 30, 2011.

     2. BASIC RFNTAL FOR FIRST EXTENDED TERM OF LEASE: The monthly Basic Rental for the First Extended Term of Lease shall be as follows:

     On October 1, 2006, the sum of THREE HUNDRED EIGHT THOUSAND NINE HUNDRED THREE AND NO/100 DOLLARS ($308,903.00) shall be due, and a like sum due on the first day of each month thereafter through and including September 1, 2007.

     On October 1, 2007, the sum of THREE HUNDRED SEVENTEEN THOUSAND SEVEN HUNDRED TWENTY EIGHT AND 80/100 DOLLARS ($317,728.80) shall be due, and a like sum due on the first day of each month thereafter through and including September 1, 2008.

     On October 1, 2008, the sum of THREE HUNDRED TWENTY SIX THOUSAND FIVE HUNDRED FIFTY FOUR AND 60/100 DOLLARS ($326,554.60) shall be due, and a like sum due on the first day of each month thereafter through and including September 1, 2009.

     On October 1, 2009, the sum of THREE HUNDRED THIRTY FIVE THOUSAND THREE HUNDRED EIGHTY AND 40/100 DOLLARS ($335,380.40) shall be due, and a like sum due on the first day of each month thereafter through and including September 1, 2010.

     On October 1, 2010, the sum of THREE HUNDRED FORTY FOUR THOUSAND TWO HUNDRED SIX AND 20/100 DOLLARS ($344,206.20) shall be due, and a like sum due on the first day of each month thereafter through and including September 1, 2011.

2

Quantum 2

     The Aggregate Basic Rent for the Lease shall be increased by $19,593,276.00 or from $44,409,491.18 to $64,002,767.18.

     3. THIRD FIVE-YEAR OPTION TO EXTEND: Provided Tenant has extended the Lease for an additional five (5) year period pursuant to Lease Paragraph 43 (“Second Five Year Option To Extend”), Landlord hereby grants to Tenant a third option to extend the Term of this Lease for an additional five (5) year period upon the following terms and conditions:

          A. Tenant shall give Landlord written notice of Tenant’s exercise of this option to extend at least one hundred eighty (180) days prior to the expiration of the Lease Term as extended pursuant to Lease Paragraph 43 (“Second Five Year Option To Extend”), in which event the Lease shall be considered extended for an additional five (5) year period upon the same terms and conditions as this Lease, absent this Paragraph 3 and subject to the Rental as set forth below. In the event that Tenant fails to timely exercise Tenant’s option as set forth herein in writing, Tenant shall have no further option to extend this Lease or the Other Leases, and this Lease shall continue in full force and effect for the full remaining term hereof, absent this Paragraph 3.

          B. The monthly Basic Rent for the option period shall be as follows in the event the option is exercised:

Period	Monthly Basic Rent
Months 1-12	$2.25/sf
Months 13-24	$2.30/sf
Months 25-36	$2.35/sf
Months 37-48	$2.40/sf
Months 49-60	$2.45/sf

     C. Notwithstanding anything contained herein, Tenant may not exercise the option to extend granted by this Paragraph 3 at any time that Tenant is in default (default for monetary and material default for non-monetary) of its obligations under this Lease, if Tenant has received written notice from Landlord that Tenant is in default, and such default has not been timely cured within the time period provided for in this Lease; provided, however, that if such default of Tenant is not for money due under this Lease and cannot be cured, and if Landlord does not elect to terminate this Lease as a result of such non-curable default by Tenant, Tenant may exercise the option to extend granted by this Paragraph 3 notwithstanding such non-curable default.

     4. LEASE TERMS CO-EXTENSIVE: Lease Paragraph 40C (“Lease Terms Co-extensive”) is hereby deleted in its entirety and replaced with the following:

“40C. LEASE TERMS CO-EXTENSIVE: It is acknowledged that (i) Landlord and Tenant have previously executed four separate leases in addition to this Lease: one of said leases dated October 31, 1989 is for Premises located at 1140 Technology Drive, Milpitas, California (the “Building One Lease”); one of said leases dated September 17, 1990 is for Premises located at 1000 Sumac

3

Quantum 2

Drive, Milpitas, California (the “Building Four Lease”); one of said leases dated April 10, 1992 is for Premises located at 900 Sumac Drive, Milpitas, California (the “Building 3 Lease”); and one of said leases dated March 23, 1994 is for premises located at 1101 Sumac Drive, Milpitas, California (the “Building 5 Lease”) (hereinafter collectively referred to as the “Other Leases”); and (ii) it is the intention of the parties that the term of this Lease be co-extensive with the term of the Other Leases, such that the terms of all five leases (“the Leases”) expire on the same date. The provisions of this Paragraph 40C also requires the terms of all the Leases to be extended accordingly if Tenant exercises its Option to Extend under any of the Leases. The monthly Basic Rent during the extended term under each of the Leases shall be increased by $.05 per square foot on the commencement date of the extended term and thereafter on each and every anniversary of the respective lease’s commencement date of the extended term.”

     5. CROSS DEFAULT: Lease Paragraph 48 (“Cross Default”) is hereby deleted in its entirety and replaced with the following:

“48. CROSS DEFAULT: It is agreed between Landlord and Tenant that a default under this Lease, or a default under any of the Other Leases may, at the option of Landlord, be considered a default under all Leases, in which event Landlord shall be entitled (but in no event required) to apply all rights and remedies of Landlord under the terms of one lease to all the Leases including, but not limited to, the right to terminate any or all of the aforementioned Other Leases or this Lease by reason of a default under the Leases or hereunder.

Notwithstanding the above, Landlord shall have the option of considering a default under this Lease or a default under any of the Other Leases to be a default under all such leases, only with respect to such leases under which Landlord is also the ‘Landlord’ at the time such default occurs. By way of example, if at the time a default of Tenant occurs under this Lease, Landlord has sold the premises described in any of the Other Leases and is no longer the ‘Landlord’ thereunder, then a default under this Lease shall not constitute a default under any of such Other Leases so sold by Landlord (unless the premises leased under this Lease and the Other Leases are sold to the same entity), and a default by Tenant under any of such Other Leases so sold by Landlord shall not constitute a default under this Lease or any other of the Other Leases then remaining between Landlord and Tenant. However, if the Landlord under this Lease and the Other Leases is one in the same at the time of said default, said cross default provisions shall apply.”

     6. STRUCTURAL CAPITAL COSTS REGULATED BY GOVERNMENTAL AGENCIES AFTER THE COMMENCEMENT OF THIS LEASE NOT CAUSED BY TENANT OR TENANT’S USES OR REMODELING OF THE PREMISES: Lease Paragraph 53 (“Structural Capital Costs Regulated by Governmental Agencies after the Commencement of this Lease Not Caused by Tenant or Tenant’s Uses or Remodeling of the Premises”) is hereby deleted and replaced with the following:

4

Quantum 2

“53. STRUCTURAL CAPITAL COSTS REGULATED BY GOVERNMENTAL AGENCIES AFTER THE COMMENCEMENT OF THIS LEASE NOT CAUSED BY TENANT OR TENANT’S USES OR REMODELING OF THE PREMISES: The provisions of this Paragraph 53 shall modify Paragraphs 7 and 14:

          A. If (i) during the last five (5) years of the First Extended Term of the Lease if said Lease has not been extended as provided for in Lease Paragraph 43 (“Second Five Year Option To Extend”) or in Paragraph 3 (“Third Five Year Option to Extend”) or Paragraph 4 (“Lease Terms Co-Extensive”) above, or (ii) during either of the five (5) year extension periods permitted by Lease Paragraph 43 or Paragraph 3, or Paragraph 4 above, it becomes necessary (due to any governmental requirement for continued occupancy of the Premises) to make structural improvements required by laws enacted or legal requirements imposed by governmental agency(s) after the Commencement Date, and the cost for each required work or improvements exceeds $100,000, then if such legal requirement is not imposed because of Tenant’s specific use of the Premises and is not “triggered” by Tenant’s Alterations or Tenant’s application for a building permit or any other governmental approval (collectively “Tenant’s Actions”) in which instance Tenant shall be responsible for 100% of the cost of such improvements, Landlord shall be responsible for paying the cost of such improvement and constructing such improvement, subject to a cash contribution from Tenant of a portion of the cost thereof as provided for and calculated in Paragraph 53B.

          B. When Landlord makes an improvement pursuant to Paragraph 53A, and as a condition to Landlord’s obligation to construct such improvement, Tenant shall make the following contribution in cash to Landlord for the cost thereof prior to the commencement of the work by Landlord. It is agreed that Tenant shall pay to Landlord 100% of the cost of the first $100,000.00 worth of each improvement. After the first $100,000.00, all costs above $100,000.00 shall be divided by 15 and multiplied by the time period remaining in the last five years of the Lease Term from the date work on such improvement commences.

     For example, if the improvement is not required as a result of Tenant’s Actions and if the cost of such improvement was $400,000 and there was one year and six months remaining in the Lease term when the work commenced, then Tenant would be responsible for reimbursing Landlord in cash $130,000.00 computed as follows:

Total Cost of Work	$	400,000.00
Tenant Responsible for
1st $100,000		-100.000.00
Total Amount To Be Amortized	$	300,000.00
$300,000.00/15 = $20,000.00/yr. x 1.5 yrs =	$	30,000.00
Tenant responsible for $100,000 + $30,000.00 =	$	130,000.00

          C. If Landlord has made improvements, for which Tenant has reimbursed Landlord for the cost thereof pursuant to Paragraph 53B, and the term of this Lease is subsequently extended pursuant to the exercise by Tenant of an option to renew pursuant to

5

Quantum 2

Lease Paragraph 43 or Paragraph 3 above, upon the exercise of any such option by Tenant, Tenant shall pay to Landlord an additional sum equal to the total amount of said improvement less the amount previously paid for by Tenant. Using the example in Paragraph 53B above, Tenant would owe Landlord the additional amount of $270,000.00 ($400,000.00 — $130,000.00 = $270,000.00).”

     7. PROPERTY INSURANCE: Lease Paragraph 12 (“Property Insurance”) is hereby amended to include the following: “Tenant acknowledges that as part of the cost of insurance policies for the Premises, Tenant is responsible for the payment of insurance deductibles on insurance claims as they relate to the Premises subject to the limitations provided in Lease Paragraph 55 (“Property Insurance”) which limitations are applicable only during the initial Lease Term and the First Lease Extension Period and the Second Lease Extension Period. Said limitation provided for in Lease Paragraph 55 are null and void at the commencement of the Third Lease Extended Term”.

     8. THIRD OPTION PERIOD — LEASE PROVISION CHANGES: In the event Tenant exercises its Third Option to Extend as provided for in Paragraph 3 above, the following amendments (contained within Paragraphs 9 through 19) are herein made to the Lease to be effective upon the commencement of the third option period (“Third Option Period”), or during any period following the expiration of the Lease Term or expiration of the Lease when Tenant is in possession of the Premises.

     9. LATE CHARGE: Effective as of the first day of the Third Option Period, the Late Charge referenced in Lease Paragraph 4.D (“Late Charge”) shall be changed from five percent (5%) to ten percent (10%), and Lease Paragraph 50 (“Limitation on Late Charge”) shall be deleted in its entirety and of no further force or effect.

     10. MANAGEMENT FEE: Notwithstanding anything to the contrary in the Lease, effective as of the first day of the Third Option Period, and on the first day of each month thereafter, Tenant shall pay to Landlord, in addition to the Basic Rent and Additional Rent, a fixed monthly management fee (“Management Fee”) equal to one percent (1 %) of the Basic Rent due for each month during the Lease Term.

     11. HAZARDOUS MATERIALS: Effective as of the first day of the Third Option Period, Lease Paragraph 45 (“Hazardous Materials”) shall be deleted in its entirety and replaced with the following:

“45. HAZARDOUS MATERIALS: Landlord and Tenant agree as follows with respect to the existence or use of “Hazardous Materials” (as defined herein) on, in, under or about the Premises and real property located beneath said Premises, which includes the entire parcel of land on which the Premises are located as shown in Green on Exhibit A to the Lease (hereinafter collectively referred to as the “Property”):

     A. As used herein, the term “Hazardous Materials” shall mean any material, waste, chemical, mixture or byproduct which is or hereafter is defined, listed or designated under Environmental Laws (defined below) as a pollutant, or

6

Quantum 2

as a contaminant, or as a toxic or hazardous substance, waste or material, or any other unwholesome, hazardous, toxic, biohazardous, or radioactive material, waste, chemical, mixture or byproduct, or which is listed, regulated or restricted by any Environmental Law (including, without limitation, petroleum hydrocarbons or any distillates or derivatives or fractions thereof, polychlorinated biphenyls, or asbestos). As used herein, the term “Environmental Laws” shall mean any applicable Federal, State of California or local government law (including common law), statute, regulation, rule, ordinance, permit, license, order, requirement, agreement, or approval, or any determination, judgment, directive, or order of any executive or judicial authority at any level of Federal, State of California or local government (whether now existing or subsequently adopted or promulgated) relating to pollution or the protection of the environment, ecology, natural resources, or public health and safety.

B. Tenant shall notify Landlord prior to the occurrence of any Tenant’s Hazardous Materials Activities (defined below). Landlord acknowledges that Tenant shall use, in compliance with applicable Environmental Laws, customary household and office supplies (Tenant shall first provide Landlord with a list of said materials use), such as mild cleaners, lubricants and copier toner. Any and all of Tenant’s Hazardous Materials Activities shall be conducted in conformity with this Paragraph 45, Paragraph 14 of this Lease, and in compliance with all Environmental Laws and regulations. As used herein, the term “Tenant’s Hazardous Materials Activities” shall mean any and all use, handling, generation, storage, disposal, treatment, transportation, release, discharge, or emission of any Hazardous Materials on, in, beneath, to, from, at or about the Property, in connection with Tenant’s use of the Property, or by Tenant or by any of Tenant’s agents, employees, contractors, vendors, invitees, visitors or its future subtenants or assignees or other third parties (including “dumping” by others) (or which Hazardous Materials originate on the surface of the Premises any time on or after the Commencement Date of this Lease, but excluding Hazardous Materials on the Premises prior to the Lease Commencement Date because of the storage, use, disposal, or transportation of such materials or waste by any of Landlord’s contractors or otherwise arising out of construction work performed by or under the direction of Landlord on the Premises and Landlord shall be responsible for all required actions with respect to such materials or wastes). Tenant agrees to provide Landlord with prompt written notice of any spill or release of Hazardous Materials at the Property during the term of the Lease of which Tenant becomes aware, and further agrees to provide Landlord with prompt written notice of any violation of Environmental Laws in connection with Tenant’s Hazardous Materials Activities of which Tenant becomes aware. If Tenant’s Hazardous Materials Activities involve Hazardous Materials other than normal use of customary household and office supplies, Tenant also agrees at Tenant’s expense: (i) to install such Hazardous Materials monitoring, storage and containment devices as may be required by Environmental Laws, regulations and/or governing agencies; (ii) to provide Landlord with a written inventory of such Hazardous Materials, including an update of same each year upon the anniversary date of the Commencement Date of the Lease (“Anniversary Date”);

7

Quantum 2

and (iii) on each Anniversary Date to provide to Landlord copies of all documentation and records, required by applicable Environmental Laws to be prepared and submitted to governmental authorities, relating to use at the Property of Hazardous Materials or to Tenant’s Hazardous Materials Activities, if any. If upon completion of Landlord’s review of said documentation and records, Landlord reasonably questions if Tenant is in compliance with all applicable Environmental Laws with respect to Tenant’s Hazardous Materials Activities, Tenant agrees within thirty (30) days following receipt of written notice from Landlord, to retain a qualified environmental consultant, acceptable to Landlord, to evaluate whether Tenant is in compliance with all applicable Environmental Laws with respect to Tenant’s Hazardous Materials Activities. Tenant, at its expense, shall submit to Landlord a report from such environmental consultant which discusses the environmental consultant’s findings within two (2) months of each Anniversary Date. Tenant, at its expense, shall promptly undertake and complete any and all steps necessary, and in full compliance with applicable Environmental Laws, to fully correct any and all problems or deficiencies identified by the environmental consultant, and promptly provide Landlord with documentation of all such corrections.

C. Prior to termination or expiration of the Lease, Tenant, at its expense, shall (i) properly remove from the Property all Hazardous Materials which come to be located at the Property in connection with Tenant’s Hazardous Materials Activities, and (ii) fully comply with and complete all facility closure requirements of applicable Environmental Laws regarding Tenant’s Hazardous Materials Activities, including but not limited to (x) properly restoring and repairing the Property to the extent damaged by such closure activities, and (y) obtaining from the local Fire Department or other appropriate governmental authority with any legal or regulatory jurisdiction a written concurrence that closure has been completed in compliance with applicable Environmental Laws. Tenant shall promptly provide Landlord with copies of any claims, notices, work plans, data and reports prepared, received or submitted in connection with any such closure activities.

D. If Landlord, upon consultation with Tenant, reasonably concludes that the Property has become contaminated as a result of Tenant’s Hazardous Materials Activities, Landlord in addition to any other rights it may have under this Lease or under Environmental Laws or other laws, may enter upon the Property and conduct inspection, sampling and analysis, including but not limited to obtaining and analyzing samples of soil and groundwater, for the purpose of determining the nature and extent of such contamination except to the extent that such activities may be inconsistent with Tenant’s compliance with Environmental Laws. Tenant shall promptly reimburse Landlord for the costs of such an investigation, including but not limited to reasonable attorneys’ fees Landlord incurs with respect to such investigation to the extent, and only to the extent, that it that discloses Hazardous Materials contamination for which Tenant is liable under this Lease. Except as may be required of Tenant by applicable Environmental Laws, Tenant shall not perform any sampling, testing, or drilling

8

Quantum 2

to identify the presence of any Hazardous Materials at the Property, without Landlord’s prior written consent which shall not be unreasonably withheld. Tenant shall promptly provide Landlord with copies of any claims, notices, work plans, data and reports prepared, received or submitted in connection with any sampling, testing or drilling performed pursuant to the preceding sentence.

E. Tenant shall indemnify, defend (with legal counsel acceptable to Landlord, whose consent shall not unreasonably be withheld) and hold harmless Landlord, its employees, assigns, successors, successors-in-interest, agents and representatives from and against any and all claims (including but not limited to third party claims from a private party or a government authority), liabilities, obligations, losses, causes of action, demands, governmental proceedings or directives, fines, penalties, expenses, costs (including but not limited to reasonable attorneys’, consultants’ and other experts’ fees and costs), and damages, which arise from or relate to: (i) Tenant’s Hazardous Materials Activities; (ii) any Hazardous Materials contamination caused by Tenant prior to the Commencement Date of the Lease; or (iii) the breach of any obligation of Tenant under this Paragraph 45 (collectively, “Tenant’s Environmental Indemnification”). Tenant’s Environmental Indemnification shall include but is not limited to the obligation to promptly and fully reimburse Landlord for losses in or reductions to rental income, and diminution in fair market value of the Property. Tenant’s Environmental Indemnification shall further include but is not limited to the obligation to diligently and properly implement to completion, at Tenant’s expense, any and all environmental investigation, removal, remediation, monitoring, reporting, closure activities, or other environmental response action as may be required by applicable Environmental Laws, regulations or governing agencies (collectively, “Response Actions”). Tenant shall promptly provide Landlord with copies of any claims, notices, work plans, data and reports prepared, received or submitted in connection with any Response Actions.

F. Landlord hereby makes the following representations to Tenant, each of which is made only to the best of Landlord’s knowledge as of the date Landlord executes this Lease, without any inquiry or investigation having been made or required by Landlord regarding this subject, nor does Landlord have any obligation to investigate or make inquiry regarding the subject:

          (1) The soil and ground water on or under the Premises does not contain Hazardous Materials in amounts which violate any laws to the extent that any governmental entity could require either Landlord or Tenant to take any remedial action with respect to such Hazardous Materials.

          (2) During the time that Landlord has owned the Premises, Landlord has received no notice of (i) any violation, or alleged violation, of any law that has not been corrected to the satisfaction of the appropriate authority, (ii) any pending claims relating to the presence of Hazardous Material on the Premises, or (iii) any pending investigation by any governmental agency concerning the Premises relating to Hazardous Materials.

9

Quantum 2

G. Landlord and Tenant shall each give written notice to the other as soon as reasonably practicable of (i) any communication received from any governmental authority concerning Hazardous Materials which relates to the Premises, and (ii) any contamination of the Premises by Hazardous Materials which constitutes a violation of any law. Attached as Exhibit “C” to the Lease is a list of Hazardous Materials-that Tenant intends to use at the Premises. If during the Lease Term Tenant proposes to use other Hazardous Materials at the Premises, Tenant shall inform Landlord of such use, identifying the Hazardous Materials and the manner of their use, storage and disposal, and shall agree (i) to use, store and dispose of such Hazardous Materials strictly in compliance with all laws, regulations and governing agencies and (ii) that the indemnity set forth in Paragraph 45 shall be applicable to Tenant’s use of such Hazardous Material.

H. Landlord or Tenant may, at any time, cause testing wells to be installed on the Premises, and may cause the ground water to be tested to detect the presence of Hazardous Material by the use of such tests as are then customarily used for such purposes. Testing wells installed by Tenant shall be paid for by Tenant. If tests conducted by Landlord disclose that Tenant has violated any Hazardous Materials laws, or Tenant or parties on the Premises during the Term of this Lease have contaminated the Premises as determined by regulatory agencies pursuant to Hazardous Materials laws, or that Tenant has liability to Landlord pursuant to Paragraph 45A, then Tenant shall pay for 100 percent of the cost of the test and all related expense. Prior to the expiration of the Lease Term, Tenant shall remove any testing wells it has installed at the Premises, and return the Premises to the condition existing prior to the installation of such wells, unless Landlord requests in writing that Tenant leave all or some of the testing wells in which instance the wells requested to be left shall not be removed.

I. If any tests performed by Tenant or Landlord prior to the Commencement Date disclose Hazardous Materials at the Premises, Landlord at its expense will promptly take all reasonable action required by law with respect to the existence of such Hazardous Materials at the Premises. The Commencement Date shall not be delayed because of such action by Landlord unless occupation of the Premises is prohibited by law.

J. The obligations of Landlord and Tenant under this Paragraph 45 shall survive the expiration or earlier termination of the Term of this Lease. The rights and obligations of Landlord and Tenant with respect to issues relating to Hazardous Materials are exclusively established by this Paragraph 45.”

     12. SECURITY DEPOSIT: Effective as of the first day of the Third Option Period, Lease Paragraph 51 (“Security Deposit”) shall be deleted in its entirety and replaced with the following:

“51. SECURITY DEPOSIT: The following provisions shall modify Lease Paragraph 4F:

10

Quantum 2

A. Within thirty (30) days after the expiration or earlier termination of the Lease term and after Tenant has vacated the Premises, Landlord shall return to Tenant the entire Security Deposit except for amounts that Landlord has deducted therefrom that are needed by Landlord to cure defaults of Tenant under the Lease or compensate Landlord for damages for which Tenant is liable pursuant to this Lease. The use or disposition of the Security Deposit shall be subject to the provisions of California Civil Code Section 1950.7.

B. During the first thirty (30) days following Tenant’s exercise of its Third Option to Extend, and only during said thirty day period, Tenant shall have the one-time option of satisfying its obligation with respect to an amount equal to one-half (1/2) ($238,296.60) of the $476,593.20 Security Deposit required under Lease Paragraph 4F by providing to Landlord, at Tenant’s sole cost, a letter of credit which: (i) is drawn upon an institutional lender reasonably acceptable and accessible to Landlord in form and content reasonably satisfactory to Landlord; (ii) is in the amount of one-half (1/2) of the Security Deposit; (iii) is for a term of at lease twelve (12) months; (iv) with respect to any letter of credit in effect within the six month period immediately prior to the expiration of the Lease term, shall provide that the term of such letter of credit shall extend at least forty five (45) days past the Lease expiration date (including any extensions thereof); and (v) may be drawn upon by Landlord upon submission of a declaration of Landlord that Tenant is in default (as defined in Paragraph 19 and as modified by Paragraph 60). Landlord shall not be obligated to furnish proof of default to such institutional lender, and Landlord shall only be required to give the institutional lender written notification that Tenant is in default and upon receiving such written notification from Landlord the institutional lender shall be obligated to immediately deliver cash to Landlord equal to the amount Landlord may spend or become obligated to spend by reason of Tenant’s default or to compensate Landlord for any loss or damage which Landlord may suffer by reason of Tenant’s default up to 1/2 of the total Security Deposit required under Lease Paragraph 4F. Said letter of credit shall provide that if the letter of credit is not renewed, replaced or extended within twenty (20) days prior to its expiration date the issuer of the credit shall automatically issue a cashiers check payable to Landlord in the amount of the letter of credit after the date which is twenty (20) days before the expiration date, and no later than the expiration date, without Landlord being required to make demand upon the letter of credit. If Tenant provides Landlord with a letter of credit, within thirty (30) days of the execution of this Lease, meeting the foregoing requirements, one-half (1/2) of the cash Security Deposit (i.e. $238,296.60 of the $476,593.20 Security Deposit) shall be returned to Tenant by Landlord inasmuch as the cash deposit remaining and the Letter of Credit equal the total Security Deposit required in Lease Paragraph 4F. If Tenant defaults with respect to any provisions of this Lease, including but not limited to provisions relating to the payment of Rent, Landlord may (but shall not be required to) draw down on the letter of credit for payment of any sum which Landlord may spend or become obligated to spend by reason of Tenant’s default, or to compensate Landlord for any loss or damage which Landlord may suffer by reason of Tenant’s default. Landlord and Tenant acknowledge that such letter of

11

Quantum 2

credit will be treated as if it were a cash security deposit, and such letter of credit may be drawn down upon by Landlord upon demand and presentation of evidence of the identity of Landlord to the issuer, in the event that Tenant defaults with respect to any provision of this Lease and such default is not cured within any applicable cure period. Notwithstanding anything to the contrary in this Lease, Landlord shall not be obligated to furnish proof of default to such institutional lender and Landlord is only required to give the institutional lender written notification that Tenant is in default and upon receiving such written notification from Landlord the institutional lender shall be obligated to immediately deliver cash to Landlord equal to the amount Landlord may spend or become obligated to spend by reason of Tenant’s default, or to compensate Landlord for any loss or damage which Landlord may suffer by reason of Tenant’s default up to 1/2 of the total Security Deposit. Landlord acknowledges that it is not entitled to draw down such letter of credit unless Landlord would have been entitled to draw upon the cash security deposit pursuant to the terms of Paragraph 4F of the Lease. Concurrently with the delivery of the required information to the issuer, Landlord shall deliver to Tenant written evidence of the default upon which the draw down was based, together with evidence that Landlord has provided to Tenant the written notice of such default which was required under the applicable provision of the Lease, and evidence of the failure of Tenant to cure such default within the applicable grace period following receipt of such notice of default. Any proceeds received by Landlord by drawing upon the letter of credit shall be applied in accordance with the provisions governing the Security Deposit imposed by Lease Paragraph 4F and this Paragraph 51. If Landlord draws upon the letter of credit, thereafter Tenant shall once again have the right to post a letter of credit in place of one-half (1/2) of a cash Security Deposit so long as Tenant is not then in default. In any event Tenant will be obligated to replenish the amount drawn to restore the Security Deposit to its original amount as provided for in Paragraph 4F. If any portion of the letter of credit is used or applied pursuant hereto, Tenant shall, within ten (10) days after receipt of a written demand therefor from Landlord, restore and replace the value of such security by either (i) depositing cash with Landlord in the amount equal to the sum drawn down under the letter of credit, or (ii) increasing the letter of credit to its value immediately prior to such application. Tenant’s failure to replace the value of the security as provided in the preceding sentence shall be a material breach of its obligation under this Lease.”

     13. REAL ESTATE TAXES: Effective as of the first day of the Third Option Period, Lease Paragraph 54 (“Real Estate Taxes”) shall be deleted in its entirety and replaced with the following:

“54. REAL PROPERTY TAXES: Paragraph 9 is modified by the following:

A. The term “Real Property Taxes” shall not include charges, levies or fees directly related to the use, storage, disposal or release of Hazardous Materials on the Premises unless directly related to Tenant’s Activities at this site or on other sites leased and/or owned by Tenant; however, Tenant shall be

12

Quantum 2

responsible for general or special tax and/or assessments (related to Hazardous Materials and/or toxic waste) imposed on the Property provided said special tax and/or assessment is not imposed due to on-site originated contamination on the Property (by third parties not related to Tenant) prior to the Lease Commencement Date. Subject to the terms and conditions stated herein, Tenant shall be responsible for paying one hundred percent (100%) of said taxes and/or assessments allocated to the Property.

B. If any assessments for public improvements are levied against the Premises, Landlord may elect either to pay the assessment in full or to allow the assessment to go to bond. If Landlord pays the assessment in full, Tenant shall pay to Landlord or any assignee or purchaser of the Premises each time payment of Real Property Taxes is made a sum equal to that which would have been payable (as both principal and interest) had Landlord allowed the assessment to go to bond.

C. Tenant at its cost shall have the right, at any time, to seek a reduction in the assessed valuation of the Premises or to contest any Real Property Taxes that are to be paid by Tenant. If Tenant seeks a reduction or contests such Real Property Taxes, the failure on Tenant’s part to pay such Real Property Taxes being so contested shall not constitute a default so long as Tenant complies with the provisions of this Paragraph. Landlord shall not be required to join in any proceeding or contest brought by Tenant unless the provisions of any law require that the proceeding or contest be brought by or in the name of Landlord. In that case Landlord shall join in the proceedings or contest or permit it to be brought in Landlord’s name as long as Landlord is not required to bear any cost. Tenant, on final determination of the proceeding or contest, shall immediately pay or discharge its share of any Real Property Taxes determined by any decision or judgment rendered, together with all costs, charges, interest, and penalties incidental to the decision or judgment. If Tenant does not pay the Real Property Taxes when due pursuant to the Lease and Tenant seeks a reduction or contests them as provided in this paragraph, before the commencement of the proceeding or contest Tenant shall furnish to Landlord a surety bond in form reasonably satisfactory to Landlord issued by an insurance company qualified to do business in California. The amount of the bond shall equal 125% of the total amount of Real Property Taxes in dispute and any such bond shall be assignable to any lender or purchaser of the Premises. The bond shall hold Landlord and the Premises harmless from any damage arising out of the proceeding or contest and shall insure the payment of any judgment that may be rendered.”

     14. PROPERTY INSURANCE: Effective as of the first day of the Third Option Period, section B of Lease Paragraph 55 (“Property Insurance”) shall be deleted in its entirety and be of no further force or effect.

     15. ASSIGNMENT AND SUBLETTING: Effective as of the first day of the Third Option Period, Lease Paragraph 56 (“Assignment and Subletting”) shall be deleted in its entirety and replaced with the following:

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Quantum 2

          “56. ASSIGNMENT AND SUBLETTING: The following modifications are made to Paragraph 16:

          A. In the event that Tenant seeks to make any assignment or sublease, then Landlord, by giving Tenant written notice of its election within fifteen (15) days after Tenant’s notice of intent to assign or sublease has been given to Landlord, shall have the right to elect (i) to withhold its consent to such assignment or sublease, as permitted pursuant to Paragraph 16, or (ii) to permit Tenant to so assign the Lease or sublease such part of the Premises, in which event Tenant may do so, but without being released of its liability for the performance of all of its obligations under the Lease, and the following shall apply (except the following shall not apply to a “Permitted Transfer” described in Paragraph 57):

          (1) If Tenant assigns its interest in this Lease, then in addition to the rental provided for in this Lease, Tenant shall pay to Landlord fifty percent (50%) of all Rent and other consideration received by Tenant over and above (i) the assignee’s agreement to assume the obligations of Tenant under this Lease and (ii) all “Permitted Transfer Costs” (as defined herein) related to such assignment. As used herein, the term “Permitted Transfer Costs” shall mean all reasonable leasing commissions paid to third parties not affiliated with Tenant in order to obtain the assignment or sublease in question.

          (2) If Tenant sublets all or part of the Premises, then Tenant shall pay to Landlord in addition to the Rent provided for in this Lease fifty percent (50%) of the positive difference, if any, between (i) all rent and other consideration paid or provided to Tenant by the subtenant, less (ii) all Rent paid by Tenant to Landlord pursuant to this Lease which is allocable to the area so sublet and all Permitted Transfer Costs related to such sublease. After Tenant has recovered all Permitted Transfer Costs Tenant shall pay to Landlord the amount specified in the preceding sentence on the same basis, whether periodic or in lump sum, that such rent and other consideration is paid to Tenant by its subtenant, within seven (7) days after it is received by Tenant.

          (3) Tenant’s obligations under this subparagraph shall survive any assignment or sublease. At the time Tenant makes any payment to Landlord required by this subparagraph, Tenant shall deliver an itemized statement of the method by which the amount to which Landlord is entitled was calculated, certified by Tenant as true and correct. Landlord shall have the right to inspect Tenant’s books and records relating to the payments due pursuant to this subparagraph. Upon request therefor, Tenant shall deliver to Landlord copies of all bills, invoices or other documents upon which its calculations are based.

          (4) As used herein, the term “consideration” shall mean any consideration of any kind received, or to be received (including, but not limited to, services rendered and/or value received) by Tenant as a result of the

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     assignment or sublease, if such sums are paid or provided to Tenant for Tenant’s interest in this Lease or in the Premises.

     (5) This Paragraph 56.A does not apply to a “Permitted Transfer”, as provided in Paragraph 57 hereof. The parties agree that if any of the following transactions occur and do not qualify as “Permitted Transfers”, Tenant must obtain Landlord’s consent to such transaction and if Landlord consents to any of the following transactions which do not otherwise qualify as “Permitted Transfers”, then the provisions of this Paragraph 56.A shall not apply to the following transactions: (i) a merger, consolidation or other reorganization in which Tenant is not the surviving corporation so long as 95% of all assets and liabilities of Tenant are permanently transferred to such assignee; and (ii) an assignment of this Lease to a corporation which purchases or otherwise acquires 95% or more of the assets of Tenant so long as 95% of all assets and liabilities of Tenant are permanently transferred to such assignee and Tenant remains liable and responsible under the Lease to the extent Tenant continues in existence following such transaction.”

     16. PERMITTED ASSIGNMENTS AND SUBLEASES: Effective as of the first day of the Third Option Period, Lease Paragraph 57 (“Permitted Assignments and Subleases”) shall be deleted in its entirety and replaced with the following:

“57. PERMITTED ASSIGNMENTS AND SUBLEASES: Notwithstanding anything contained in Paragraph 16, so long as Tenant otherwise complies with the provisions of Paragraph 16 and the Permitted Transfer does not release Tenant from its obligations hereunder, Tenant may enter into any of the following transfers (a “Permitted Transfer”) without Landlord’s prior written consent, and the provisions of Paragraph 56A shall not apply to any such Permitted Transfer:

A. Tenant may sublease all or part of the Premises or assign its interest in this Lease to any corporation which controls, is controlled by, or is under common control with Tenant by means of an ownership interest of more than fifty percent (50%) providing Tenant remains liable for the payment of Rent and full performance of the Lease;

B. Tenant may assign its interest in the Lease to a corporation which results from a merger, consolidation or other reorganization in which Tenant is not the surviving corporation so long as (i) 95% of all assets and liabilities of Tenant are permanently transferred to such assignee, and (ii) immediately prior to the merger, consolidation or other reorganization, the corporation into which Tenant is to be merged has a net worth equal to or greater than the net worth of Tenant at the time of Lease execution or at the time of such assignment, merger, consolidation or reorganization (whichever is greater), or if it does not, Landlord is provided a guaranty of the Lease (in a form reasonably acceptable to Landlord) from a corporation (a) that is the parent of, or is otherwise affiliated with, the corporation into which Tenant is to be merged, and (b) which has a current net

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worth equal to or greater than the net worth of Tenant at the time of Lease execution or at the time of such assignment, merger, consolidation or reorganization (whichever is greater). In the event there is not a permanent transfer of 95% or more of the assets and liabilities from Tenant to a third party, and Tenant continues to exist as a separate entity, both companies shall be jointly and severally liable for the full terms and conditions of the Lease;

     C. Tenant may assign this Lease to a corporation which purchases or otherwise acquires 95% or more of the assets of Tenant so long as 95% of all assets and liabilities of Tenant are permanently transferred to such assignee (in the event there is not a permanent transfer of 95% or more of the assets and liabilities from Tenant to a third party and Tenant continues to exist as a separate entity, both companies shall be jointly and severally liable for the full terms and conditions of the Lease), and provided that immediately prior to such assignment said corporation, has a net worth equal to or greater than the net worth of Tenant (a) at the time of Lease execution or (b) at the time of such assignment (whichever is greater), or if it does not, Landlord is provided a guaranty of the Lease (in a form reasonably acceptable to Landlord) from a corporation (a) that is the parent of, or is otherwise affiliated with, said corporation and (b) which has a current net worth equal to or greater than the net worth of Tenant at the time of Lease execution or at the time of such assignment, (whichever is greater).”

     17. DESTRUCTION: Effective as of the first day of the Third Option Period, Lease Paragraph 62 (“Destruction”) shall be deleted in its entirety and replaced with the following:

“62. DESTRUCTION: Paragraph 21 is modified by the following:

     A. Notwithstanding anything to the contrary within Paragraph 21, Landlord may terminate this Lease in the event of an uninsured event or if insurance proceeds, net of the deductible, are insufficient to cover one hundred percent of the rebuilding costs; provided, however, Tenant shall have the right to elect, in its discretion, to contribute such excess funds to permit Landlord to repair the Premises.

     B. Except as provided in Paragraph 62C, Landlord may not terminate the Lease if the Premises are damaged by a peril whereby the cost to replace and/or repair is one hundred percent (100%) covered by the insurance carried by Landlord pursuant to Paragraph 12, but instead shall restore the Premises in the manner described by Paragraph 21.

     C. If the Premises are damaged by a peril covered by the insurance carried by Landlord pursuant to Paragraph 12, Landlord shall have the option to terminate the Lease if each of the following conditions is satisfied: (i) the cost to repair or the damage exceeds thirty-three percent (33%) of the then replacement cost of the Premises; and (ii) the damage occurs at a time when there is less than five (5) years remaining in the term of the Lease.

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Quantum 2

     D. If Landlord fails to obtain insurance as required pursuant to Paragraph 12, and said insurance would have been available to cover any damage or destruction to the Premises, Landlord shall be required to rebuild, at its cost, net of the deductible which would have been required under said insurance policy (which deductible Tenant is required to pay).

     E. If the Premises are damaged by any peril, then as soon as reasonably practicable, Landlord shall furnish Tenant with the written opinion of Landlord’s architect or construction consultant as to when the restoration work required of Landlord may be completed. Tenant shall have the option to terminate this Lease in the event any of the following occurs, which option may be exercised only by delivery to Landlord of a written notice of election to terminate within seven (7) days after Tenant receives from Landlord the estimate of the time needed to complete such restoration:

                    (1) The Premises are damaged by any peril (not caused by or resulting from an action of Tenant or Tenant’s agents, employees, contractors or invitees) and, in the reasonable opinion of Landlord’s architect or construction consultant, the restoration of the Leased Premises cannot be substantially completed within 180 days after the date of such damage (subject to force majeure conditions); or

                    (2) The Premises are damaged by any peril (not caused by or resulting from an action of Tenant or Tenant’s agents, employees, contractors or invitees) within twelve (12) months of the last day of the Lease term, and, in the reasonable opinion of Landlord’s architect or construction consultant, the restoration of the Leased Premises cannot be substantially completed within sixty (60) days after the date of such damage and Tenant has not exercised its Option to Extend said Term (or Extended Term as the case may be).”

     18. LIABILITY INSURANCE: Effective as of the first day of the Third Option Period, the first sentence of Lease Paragraph 10 (“Liability Insurance”) shall be deleted and replaced with the following: “Tenant, at Tenant’s expense, agrees to keep in force during the Term of this Lease a policy of commercial general liability insurance with combined single limit coverage of not less than Two Million Dollars ($2,000,000) per occurrence for bodily injury and property damage occurring in, on or about the Premises, including parking and landscaped areas.”

     19. LIMITATION OF LIABILITY: Effective as of the first day of the Third Option Period, Lease Paragraph 36 (“Limitation of Liability”) shall be deleted in its entirety and replaced with the following:

     “36. 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:

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(i) the sole and exclusive remedy shall be against Landlord’s interest in the Premises leased herein;

(ii) 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);

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

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

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

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

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

(viii) these covenants and agreements are enforceable both by 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.”

     EXCEPT AS MODIFIED HEREIN, all other terms, covenants, and conditions of said October 31, 1989 Lease Agreement shall remain in full force and effect.

     IN WITNESS WHEREOF, Landlord and Tenant have executed this Amendment No. 3 to Lease as of the day and year last written below.

LANDLORD:		TENANT:
JOHN ARRILLAGA SURVIVOR’S TRUST		QUANTUM CORPORATION
		a Delaware corporation
By	/s/ John Arrillaga	By	/s/ Andrew Kryder
John Arrillaga, Tustee
		Andrew Kryder
Date:	6/30/97	Print or Type Name
RICHARD T. PEERY SEPARATE		Title:	Finance & Corporate General Counsel
PROPERTY TRUST
By	/s/ Richard Peery	Date:	June 25, 1997
	Richard T. Peery, Trustee
Date:	6/26/97

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AMENDMENT NO.4
TO LEASE

     THIS AMENDMENT NO. 4 is made and entered into this 22nd day of March, 2001, by and between JOHN ARRILLAGA, Trustee, or his Successor Trustee UTA dated 7/20/77 (JOHN ARRILLAGA SURVIVOR’S TRUST) (previously known as the “John Arrillaga Separate Property Trust”) as amended, and RICHARD T. PEERY, Trustee, or his Successor Trustee UTA dated 7/20/77 (RICHARD T. PEERY SEPARATE PROPERTY TRUST) as amended, collectively as LANDLORD, and MAXTOR CORPORATION, a Delaware corporation, as “ASSIGNEE” or “MAXTOR”.

RECITALS

     A. WHEREAS, by Lease Agreement dated October 31, 1989 Landlord leased to QUANTUM CORPORATION, a Delaware corporation (the “ASSIGNOR” or “QUANTUM”) all of that certain 176,516 ± square foot building located at 500 McCarthy Blvd., Milpitas, California, the details of which are more particularly set forth in said October 31, 1989 Lease Agreement, and

     B. WHEREAS, said Lease was amended by Letter Agreement dated October 31, 1989 which provided for a Basic Rent Credit for the period commencing with the Lease Commencement Date and ending on May 31, 1991, and

     C. WHEREAS, said Lease was amended by Letter Agreement dated April 24, 1990 which canceled the reduction in Basic Rent Credit Letter dated October 31, 1989, and

     D. WHEREAS, said Lease was amended by Amendment No. 1 dated April 24, 1990 which delayed the Lease Commencement Date from December 15, 1990 to April 1, 1991, and,

     E. WHEREAS, said Lease was amended by the Commencement Letter dated March 7, 1991 which changed the Commencement Date of the Lease from April 1, 1991 to April 7, 1991, and established the Termination Date of September 30, 2006, and,

     F. WHEREAS, said Lease was amended by Amendment No. 2 dated June 8, 1992 which replaced Lease Exhibit A and amended the description of the Premises, and

     G. WHEREAS, said Lease was amended by Amendment No. 3 dated April 16, 1997, which amended the Lease by (i) extending the Term for five years, changing the Termination Date from September 30, 2006 to September 30, 2011, (ii) amending the Basic Rent schedule and Aggregate Rent accordingly, (iii) adding a third Five Year Option to Extend, (iv) replacing Paragraphs 41C (“Lease Terms Co-extensive”) and 48 (“Cross Default”) and 53 (“Structural Capital Costs Regulated by Governmental Agencies After the Commencement of this Lease not Caused by Tenant or Tenant’s Uses or Remodeling of the Premises”), (v) amending Lease Paragraph 12 (“Property Insurance”) and (vi) amending and/or replacing certain provisions of the Lease commencing as of the commencement of the Third Extended Term of said Lease, and

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Quantum 2

H. WHEREAS, the Lease, together with those certain Amendments described above in Recitals B through G shall herein after collectively be referred to as “the Lease Agreement”, and

     I. WHEREAS, it is now the desire of the parties hereto to amend the Lease by (i) acknowledging Landlord’s consent to the assignment of said Lease from “Quantum Corporation, a Delaware corporation” to “Maxtor Corporation, a Delaware corporation”, and (ii) replacing Lease Paragraph 43 (“Second Five Year Option to Extend”) and Paragraph 3 to Amendment No. 3 dated April 16, 1997 (“Third Five Year Option to Extend”) as hereinafter set forth.

AGREEMENT

     NOW THEREFORE, for valuable consideration, receipt of which is hereby acknowledged, and in consideration of the hereinafter mutual promises, the parties hereto do agree as follows:

     1. ASSIGNMENT OF TENANT’S INTEREST: Notwithstanding anything to the contrary contained in the Lease Agreement, Landlord hereby understands that based on Quantum’s notice to Landlord, Landlord hereby acknowledges that the following transactions have occurred:

     A. Quantum has operated its business at the Premises through two separate business groups: Quantum HDD, tracked by Quantum HDD common stock, and Quantum DSS, tracked by Quantum DSS common stock.

     B. On or about, October 3, 2000, Quantum and Maxtor entered into that certain an Amended and Restated Agreement and Plan of Merger and Reorganization, dated as of October 3, 2000 (the “Merger Agreement”), wherein they agreed that:

          (i) Quantum will separate its Quantum HDD business from its Quantum DSS and transfer the assets of Quantum HDD to a newly-formed subsidiary, Insula Corporation, a Delaware corporation (“Insula”), in exchange for all of Insula’s common stock and Insula’s agreement to be entirely responsible for all of the Quantum HDD obligations and liabilities.

          (ii) Immediately after such separation, each currently outstanding share of Quantum HDD common stock will be redeemed in return for a share of Insula common stock, such that the holders of Quantum HDD common stock shall own all of the common stock of Insula.

          (iii) Immediately after said redemption, Insula will merge into Maxtor and each share of the Insula’s common stock will be converted into the right to receive approximately 1.52 shares of Maxtor common stock, subject to possible adjustment as described in the Merger Agreement.

     C. As part of the legal separation of the Quantum HDD business from the Quantum DSS business, all of the right title and interest of Quantum in the Lease will be assigned by Quantum to Insula and Insula will assume and agree to be liable for all of the obligations of Quantum, as Tenant, under the Lease.

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     D. Because the actual physical separation of the Quantum HDD business from the Quantum DSS business cannot be completed prior to the closing of the foregoing transactions described above, Insula has agreed to provide to Quantum with a limited license for the use of the premises subject to the Leases, identified as “License Back” Leases in attached Exhibit A for a period of time not exceeding the number of months specified in attached Exhibit A.

As a result of said merger transaction, as of April 2, 2001, the effective date of the merger, Maxtor will become the Tenant under the Lease Agreement, and Maxtor shall assume all obligations of Tenant under the Lease Agreement dated October 31, 1989, as amended.

Landlord hereby consents to the foregoing transactions (“Landlord’s Consent”). Except as expressly set forth below, Landlord’s Consent shall in no way void or alter any of the terms of the Lease Agreement by and between Landlord and Tenant, nor shall Landlord’s Consent alter or diminish in any way Tenant’s obligations to Landlord.

Landlord has not reviewed the terms of any agreement between Quantum, Insula and/or Maxtor, and Landlord shall not be bound by any agreement other than the terms of the Lease Agreement between Landlord and Tenant. Landlord does not make any warranties or representations as to the condition of the Leased Premises or the terms of the Lease Agreement between Landlord and Quantum. Landlord’s consent to the assignment shall in no way obligate Landlord to any further consents or agreements between Quantum and/or Assignee. So long as Quantum continues to exist as a Delaware corporation, it is agreed that both Quantum and Maxtor will be jointly and severally liable for all the terms and conditions of the Lease and all Amendments thereto; provided, however, that so long as Quantum remains liable for said Lease, no material amendment to the Lease Agreement after the date hereof shall be binding upon Quantum without the prior written consent of Quantum, which consent shall not be unreasonably withheld, and Quantum’s approval shall not be required on transactions related to Landlord’s Waivers, Landlord’s Consents to Sublease and/or Landlord’s Consents to Alterations. The foregoing, however, shall not prevent Tenant and Landlord from entering into any such modification or amendment between themselves.

It is further understood that the Security Deposit of Quantum is being transferred to Maxtor.

     1. OPTIONS TO EXTEND: As consideration for the consent of Landlord herein set forth, Lease Paragraph 43 (“Second Five Year Option to Extend”) and Paragraph 3 to Amendment No. 3 dated April 16, 1997 (“Third Five Year Option to Extend”) are hereby deleted in their entirety and shall be replaced with the following:

          A. SECOND FIVE YEAR OPTION TO EXTEND: Landlord hereby grants to Tenant an option to extend this Lease Agreement (“Option to Extend” or the “Option”) for an additional five years (“Second Extended Term”) upon the following terms and conditions:

               1) Tenant shall give Landlord written notice of Tenant’s exercise of this Option to Extend at least one hundred eighty (180) days prior to the expiration of the Lease

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Quantum 2

Term pursuant to Paragraph A hereof (not later than April 3, 2011), in which event the Term of the Lease shall be considered extended for an additional five (5) years, subject to the Basic Rent set forth below and with: (i) the Basic Rent to be determined pursuant to Paragraph 2) below; (ii) management fee and the terms and conditions subject to amendment by Landlord (Landlord, in its sole and absolute discretion, may, but is not required to, incorporate its then current Lease provisions that are standard in Landlord’s leases for comparable buildings as of the date of Tenant’s exercise of its Option to Extend); and (iii) this Paragraph 2.A thereafter deleted. In the event that Tenant fails to timely exercise Tenant’s Option as set forth herein in writing, Tenant shall have no further Option to Extend this Lease, and the Lease shall continue in full force and effect for the full remaining term hereof, absent this Paragraph 2.

               2) In the event Tenant timely exercises Tenant’s Option to Extend as set forth herein, Landlord shall, within fifteen (15) days after receipt of Tenant’s exercise of the Option, advise Tenant of any changes in the management fee and the terms and conditions as referenced in Paragraph 2.A.1(ii) above) and the Basic Rent (which shall not be less than the Basic Rent for the fifth year of the current Term) required for the Extended Term of the Lease to make the Basic Rent for the Premises comparable to the then current market triple net basic rent for comparable properties either (i) then owned in whole or in part by the above mentioned Landlord or by members of its immediate family in the vicinity of the Premises or (ii) if not owned by Landlord or its family as stated herein, other third party properties in the vicinity of the Premises. Tenant shall have five (5) days after receipt from the Landlord of said new terms and conditions and Basic Rent in which to accept said new terms and conditions and Basic Rent and enter into written documentation confirming same. In the event Tenant fails to execute said written documentation confirming said new terms and conditions and Basic Rent for the Second Extended Term of Lease within said five (5) day period, Tenant shall have no further Option to Extend this Lease, and this Lease shall continue in full force and effect for the full remaining term hereof absent of this Paragraph 2, with Landlord having no further responsibility or obligation to Tenant with respect to Tenant’s Option to Extend.

               3) It is agreed that if Tenant is at any time prior to exercising its Option to Extend in default of this Lease and has failed to cure the default in the time period allowed, this Paragraph 2 shall be null and void and Tenant will have no further rights under this Paragraph. It is further agreed that if Tenant has exercised its Option to Extend and is subsequently in default, and has failed to cure the default in the time period allowed by the Lease at any time prior to, or at the time the lease commences on the Second Extended Term, Landlord may at its sole and absolute discretion, cancel Tenant’s Option to Extend, and this Lease will continue in full force and effect for the full remaining Term hereof, absent of this Paragraph 2.

               4) The Option rights of Tenant under this Paragraph 2.A, and the Second Extended Term thereunder, are granted for Tenant’s personal benefit and may not be assigned or transferred by Tenant, except as provided for in Lease Paragraph 57 (“Permitted Assignments and Subleases”), either voluntarily or by operation of law, in any manner whatsoever.

               5) Notwithstanding anything to the contrary in this Paragraph, this Option to Extend is automatically forfeited by Tenant (without notice from Landlord) in the event Tenant is, at any time during the Term of this Lease, in default of said Lease and if Tenant

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does not completely cure said default within five days for a monetary default and thirty days for a non-monetary default (or such longer time as permitted by cure in the Lease Agreement). In the event said Option to Extend is forfeited as stated herein, Tenant shall have no further Option to Extend this Lease.

     B. THIRD FIVE (5)-YEAR OPTION PERIOD: Provided Tenant has extended the Lease for an additional five year period as set forth in Paragraph A above, Landlord hereby grants to Tenant another Option to Extend the Lease Agreement upon the following terms and conditions;

          1) Tenant shall give Landlord written notice of Tenant’s exercise of this Option to Extend at least one hundred eighty (180) days prior to the expiration of the Basic Term hereof (not later than April 3, 2016), in which event the Term of the Lease shall be considered extended for an additional five (5) years (“Third Extended Term”) subject to the Basic Rent set forth below and with: (i) the Basic Rent to be determined pursuant to Paragraph 2) below; (ii) the management fee and the terms and conditions subject to amendment by Landlord (Landlord, in its sole and absolute discretion, may, but is not required to, incorporate its then current Lease provisions that are standard in Landlord’s leases for comparable buildings as of the date of Tenant’s exercise of its Option to Extend); and (iii) this Paragraph 2.B thereafter deleted. In the event that Tenant fails to timely exercise Tenant’s Option as set forth herein in writing, Tenant shall have no further Option to Extend this Lease, and the Lease shall continue in full force and effect for the full remaining term hereof, absent this Paragraph 2.B.

          2) In the event Tenant timely exercises Tenant’s Option to Extend as set forth herein, Landlord shall, within fifteen (15) days after receipt of Tenant’s exercise of option, advise Tenant of any changes in the management fee and the terms and conditions as referenced in Paragraph 2.B.l(ii) above and Basic Rent (which shall not be less than the Basic Rent for the fifth year of the Second Extended Term) required for the Third Extended Term of the Lease to make the Basic Rent for the Premises comparable to the then current market triple net basic rent for comparable properties either (i) then owned in whole or in part by the above mentioned Landlord or by members of its immediate family in the vicinity of the Premises or (ii) if not owned by Landlord or its family as stated herein, other third party properties in the vicinity of the Premises. Tenant shall have five (5) days after receipt from the Landlord of said new terms and conditions and Basic Rent in which to accept said new terms and conditions and Basic Rent and enter into written documentation confirming same. In the event Tenant fails to execute said written documentation confirming said new terms and conditions and Basic Rent for the Third Extended Term of Lease within said five (5) day period, Tenant shall have no further Option to Extend this Lease, and this Lease shall continue in full force and effect for the full remaining term hereof absent of this Paragraph 2.B, with Landlord having no further responsibility or obligation to Tenant with respect to Tenant’s Option to Extend.

          3) It is agreed that if Tenant is at any time prior to exercising its Option to Extend in default of this Lease and has failed to cure the default in the time period allowed, this Paragraph 2.B will be null and void and Tenant will have no further rights under this Paragraph. It is further agreed that if Tenant has exercised its Option to Extend and is subsequently in default, and has failed to cure the default in the time period allowed by the Lease at any time prior to, or at the scheduled Commencement Date of the Third Extended Term, Landlord may at

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its sole and absolute discretion, cancel Tenant’s Option to Extend, and this Lease will continue in full force and effect for the full remaining Term hereof, absent of this Paragraph 2.B.

          4) The Option rights of Tenant under this Paragraph 2.B and the Third Extended Term thereunder, are granted for Tenant’s personal benefit and may not be assigned or transferred by Tenant, except as provided for in Lease Paragraph 57 (“Permitted Assignments and Subleases”), either voluntarily or by operation of law, in any manner whatsoever.

          5) Notwithstanding anything to the contrary in this Paragraph 2.B, this Option to Extend is automatically forfeited by Tenant (without notice from Landlord) in the event Tenant is, at any time during the Term of this Lease, in default of said Lease and if Tenant does not completely cure said default within five days for a monetary default and thirty days for anon-monetary default (or such longer time as permitted by cure in the Lease Agreement). In the event said Option to Extend is forfeited as stated herein, Tenant shall have no further Option to Extend this Lease.

     EXCEPT AS MODIFIED HEREIN, all other terms, covenants, and conditions of said October 31, 1989 Lease Agreement, as heretofore amended, shall remain in full force and effect.

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     IN WITNESS WHEREOF, Landlord and Tenant have executed this Amendment No. 4 to Lease as of the day and year last written below.

LANDLORD: JOHN ARRILLAGA SURVIVOR’S TRUST		ASSIGNEE/MAXTOR: MAXTOR CORPORATION a Delaware corporation
By	/s/ John Arrillaga, by Richard	By	/s/ Glenn Stevens
	Peery, his attorney-in-fact
	John Arrillaga, Trustee	Glenn H. Stevens
		Print or Type Name
Date:	3/30/01
RICHARD T. PEERY SEPARATE		Title:	V.P., General Counsel & Secretary
PROPERTY TRUST
By	/s/ Richard Peery	Date:	4/1/01
	Richard T. Peery, Trustee
Date:	3/30/01	ASSIGNOR/QUANTUM:
		QUANTUM CORPORATION a Delaware corporation
		By	/s/ Norm Claus
		Print or Type Name
		Title:	V.P. Real Estate
		Date:	3/30/01

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LEASE AGREEMENT

     THIS LEASE, made this 10th day of April, 1992 between JOHN ARRILLAGA, Trustee, or his Successor Trustee, UTA dated 7/20/77 (JOHN ARRILLAGA SEPARATE PROPERTY TRUST) as amended, and RICHARD T. PEERY Trustee, or his Successor Trustee, UTA dated 7/20/77 (RICHARD T. PEERY SEPARATE PROPERTY TRUST) as amended, hereinafter called Landlord and QUANTUM CORPORATION, a Delaware corporation, 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 land containing approximately 3.752± acres and that certain 60.128 ± square foot two-story building (“Building 3”) and parking appurtenant thereto, to be constructed and landscaping to be installed by Landlord as shown within the area outlined in Red (“Lot 3”) on Exhibit A to be located at 900 Sumac Drive, Milpitas, California 95035. Said Premises is more particularly shown within the area outlined in Red on Exhibit A attached hereto and incorporated herein by this reference. The interior of the leased Premises shall be improved in the configuration as shown in Red on Exhibit B to be attached hereto and incorporated herein by this reference. The building shell shall be constructed in accordance with the shell and site improvement specifications set forth on Exhibit A, and the general building elevation set forth on Exhibit A.

SEE PARAGRAPH 49.

          The word “Premises” as used throughout this lease is hereby defined to include the nonexclusive use of sidewalks and driveways in front of or adjacent to the Premises, and the nonexclusive use of the area directly underneath or over such sidewalks and driveways. The gross leasable area of the building 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 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 and observance.

     1. USE Tenant shall use the Premises only in conformance with applicable governmental laws, regulations, rules and ordinances for the purpose of office, sales and R&D, and related uses necessary for the use of Tenant or any approved assignee or subtenant to conduct its business providing any and all uses of the Premises shall be subject to and in conformance with all governmental laws and ordinances, and for no other purpose without

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Landlord’s prior written consent, 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 without the prior written consent of Landlord, and provided Tenant bears any cost related to such increased rate, 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 which 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 of Tenant to comply with any applicable law that governs Tenant use of the Premises. Tenant shall comply with any covenant, condition, or restriction (“CC&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 AND COMMENCEMENT DATE OF LEASE See Paragraphs 41, 42, & 43 of this Lease.

     3. POSSESSION If Landlord, for any reason whatsoever other than Landlord’s default cannot deliver possession of said premises to Tenant at the commencement of the said term, as hereinbefore specified, this 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 28, above; provided, however, it is agreed that in no event shall the Lease commence sooner that April 1, 1993 unless the parties agree in writing to an earlier date for the Lease to commence. The above is, however, subject to the provision that the period of delay of delivery of the Premises shall not exceed 180 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

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control shall be excluded in calculating such period) in which instance Tenant, at its option, may, by written notice to Landlord, terminate this Lease. SEE PARAGRAPH 47.

     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 total sum of the amount to be calculated pursuant to Paragraph 39 in lawful money of the United States of America, payable as follows:

SEE PARAGRAPHS 39 THROUGH 43.

          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 five percent (5%) of each rental payment so in default. See Paragraph 50.

          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.

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     The Additional Rent due hereunder shall be paid to Landlord or Landlord’s agent (i) within five 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 in which case such amount shall be held by Landlord as a credit for Tenant’s account until such default has been cured) 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 actual 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 Peery/Arrillaga, File 1504, P.O. Box 60000, San Francisco, CA 94160 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 ONE HUNDRED SIXTY SIX THOUSAND FIVE HUNDRED FIFTY FOUR AND 56/00 Dollars ($166,554.56). Said sum shall be held by Landlord as a Security Deposit for the faithful performance by Tenant of all of 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 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 its 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

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to release Landlord from liability for the return of such Deposit or the accounting therefor. SEE PARAGRAPH 51

     5. ACCEPTANCE AND SURRENDER OF 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 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 acoustical 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 ninety (90) 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 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 be 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. SEE PARAGRAPH 52.

     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.

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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, airconditioning, 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 alteration 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 Tenant receives notice of 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. SEE PARAGRAPH 52.

     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 airconditioning 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 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. SEE PARAGRAPH 53.

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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 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.

     9. TAXES

          A. Notwithstanding the following and pursuant to the terms of the Option Agreement dated October 31, 1989 related to this Lease Tenant is responsible for paying all real estate taxes and assessments assessed against the Premises leased hereunder from the date Tenant exercised its option on said Premises which date was April 6, 1992. 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 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 nonresponsibility 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 or assessed 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

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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. SEE PARAGRAPH 54.

          B. Taxes on Tenant’s Property Tenant shall be liable for and shall pay ten 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 on 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, on or about the Premises, including parking and landscaped areas, in the amount of $2,000,000 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 shall 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.

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     11. TENANT’S PERSONAL PROPERTY INSURANCE AND WORKMAN’S 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 workman’s compensation insurance and any other employee benefit insurance sufficient to comply with all laws.

     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 (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 to 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. SEE PARAGRAPH 55.

     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, and subject to the last two sentences of Paragraph 12, 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

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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 officer; 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 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 sole 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. SEE PARAGRAPHS 45 AND 53.

     15. LIENS Tenant shall keep the Premises free from any liens arising out of any work performed, materials furnished or obligation incurred by Tenant. In the event that Tenant shall not, within ten (10) days following Tenant’s receipt of notice of 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. 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 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 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 reasonable 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 the Lease. SEE PARAGRAPHS 56 AND 57.

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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. 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. SEE PARAGRAPH 58.

     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, mortgagers or tenants; to post notices of nonresponsibility; 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 under any circumstances be construed or deemed 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. SEE PARAGRAPH 59.

     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

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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 ten (10) 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 thirty (30) 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 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.

               (b) The rights and remedies provided by California Civil Code Section which allows Landlord to continue the Lease in affect 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 relet 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, after compliance with all statutory requirements and in any event on not less than three (3) business days prior written notice, 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, 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 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

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for such period or (ii) at the option of Landlord, rents received from such subletting shall be applied first to payment of indebtedness other than rent due hereunder from Tenant to Landlord; second, to the payment of any costs of such subletting and of such alterations and repairs; third to payment of rent due and unpaid hereunder; and the residue, if any, shall be held by Landlord and 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 than 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. No taking possession of the Premises by Landlord shall be construed as an election on its part to terminate this Lease 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 to Landlord pursuant to subparagraph d above. SEE PARAGRAPH 60.

     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 said 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. SEE PARAGRAPH 61.

     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 embargos, 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

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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 fixtures, 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 33¹/₃% of the replacement cost thereof, Landlord may elect to terminate this Lease, whether the Premises be injured or not. In the event the destruction of the Premises is caused by Tenant, Tenant shall pay the deductible portion of Landlord’s insurance proceeds. SEE PARAGRAPH 62.

     22. EMINENT DOMAIN If all or any part of the Premises shall be taken by any public or quasi-public authority under the power of eminent domain or conveyance in lieu thereof, this Lease shall terminate as to any portion of the Premises so taken or conveyed on the date when title vests in the condemnor and Landlord shall be entitled to any and all payment, income, rent, award, or any interest therein whatsoever which may be paid or made in connection with such taking or conveyance, and Tenant shall have no claim against Landlord or otherwise for the value of any unexpired term of this Lease. Notwithstanding the foregoing paragraph, any compensation specifically awarded Tenant for loss of business, Tenant’s personal property, moving cost or loss of goodwill shall be and remain the property of Tenant.

          If any action or proceeding is commenced for such taking of the Premises or any part thereof, or if Landlord is advised in writing by any entity or body having the right or power of condemnation of its intention to condemn the premises or any portion thereof, then Landlord shall have the right to terminate this Lease by giving Tenant written notice thereof within sixty (60) days of the date of receipt of said written advice, or commencement of said action or proceeding, or taking conveyance, which termination shall take place as of the first to occur of the last day of the calendar month next following the month in which such notice is given or the date on which title to the Premises shall vest in the condemnor.

          In the event of such a partial taking or conveyance of the Premises, if the portion of the Premises taken or conveyed is so substantial that the Tenant can no longer reasonably conduct its business, Tenant shall have the privilege of terminating this Lease within sixty (60) days from the date of such taking or conveyance, upon written notice to Landlord of its intention so to do, and upon giving of such notice 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 the rent from the date of such taking or conveyance to the date of termination.

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          If a portion of the Premises be taken by condemnation or conveyance in lieu thereof and neither Landlord nor Tenant shall terminate this Lease as provided herein, this Lease shall continue in full force and effect as to the part of the Premises not so taken or conveyed, and the rent herein shall be apportioned as of the date of such taking or conveyance so that thereafter the rent to be paid by Tenant shall be in the ratio that the area of the portion of the Premises not so taken or conveyed bears to the total area of the Premises prior to such taking. SEE PARAGRAPH 63.

     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. SEE PARAGRAPH 64.

     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 the term 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 the 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 Basic Rent shall be increased to an amount equal to one hundred twenty five (125%) percent of the monthly Basic Rent required during the last month of the Lease term.

     26. CERTIFICATE OF ESTOPPEL Either party shall at any time upon not less than ten (10) days prior written notice from the other party execute, acknowledge and deliver to the requesting party 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 the best of such party’s knowledge, any uncured defaults on the part of the other party 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. A party’s failure to deliver such

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statement within such time shall be conclusive upon the party receiving such request 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 the requesting party’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 fail 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 either Landlord or Tenant 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 the other party hereunder, then all costs and expenses, including reasonable attorney’s 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 a reasonable attorney’s fee.

     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

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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 of if sent by United Stated 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 Peery/Arrillaga, 2560 Mission College Blvd., Suite 101, Santa Clara, CA 95054. 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 this 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 (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 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. INTENTIONALLY LEFT BLANK

     36. 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:

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               (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 maybe 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 both by 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.

     37. 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 other 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 reasonably 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.

     38. 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.

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     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. The term “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, and the provisions of this Lease shall inure to the benefit of and bind such heirs, executors, administrators, successors and permitted assigns.

     The term “person” includes the plural as well as the singular and individuals, firms, associations, partnerships and corporations. Words used in any gender include other genders. If there be more than one Tenant the obligations of Tenant hereunder are joint and several. The paragraph headings of this Lease are for convenience of reference only and shall have no effect upon the construction or interpretation of any provision hereof.

     D. Time of Essence. Time is of the essence of this Lease and of each and all of its provisions.

     E. 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.

     F. Incorporation of Prior Agreements; Amendments. 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.

     G. Recording. Landlord and Tenant shall record a short form memorandum hereof in the form attached hereto as Exhibit D.

     H. Amendments for Financing. Tenant further agrees to execute any amendments reasonably required by a lender to enable Landlord to obtain financing, so long as Tenant’s rights hereunder are not materially and adversely affected and there is no change in the Basic Rent Options to Renew, Lease Term or Construction obligations of Landlord.

     I. Additional Paragraphs. Paragraphs 39 through 65 are added hereto and are included as a part of this Lease.

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          J. 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.

          K. 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.

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

LANDLORD:		TENANT:
JOHN ARRILLAGA		QUANTUM CORPORATION,
SEPARATE PROPERTY TRUST		a Delaware corporation
By	/s/ John Arrillaga	By	/s/ Joseph C. Shepela
	John Arrillaga, Trustee
		Title	Vice President Human Resources
RICHARD T. PEERY
SEPARATE PROPERTY TRUST
By	/s/ Richard Peery
	Richard T. Peery, Trustee

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     Paragraphs 39 through 65 to Lease Agreement dated April 10, 1992. By and Between JOHN ARRILLAGA AND RICHARD T. PEERY SEPARATE PROPERTY TRUSTS, as Landlord, and QUANTUM CORPORATION, a Delaware corporation, as Tenant for 60,128 ± Square Feet of Space Located at 900 Sumac Drive, Milpitas, California.

     39. BASIC RENT: In accordance with Paragraph 4A, subject to the provisions of Paragraphs 39 and 40, Basic Rent shall be payable as follows during the indicated months of the term of the Lease based upon the gross leasable area within the building that is part of the Premises:

Period	Monthly Basic Rent
Months 1-12 (plus the partial calendar month, if any, following the Commencement Date)	$1.16/sf
Months 13-24	$1.21/sf
Months 25-36	$1.26/sf
Months 37-48	$1.31/sf
Months 49-60	$1.36/sf
Months 61-72	$1.41/sf
Months 73-84	$1.46/sf
Months 85-96	$1.51/sf
Months 97-108	$1.56/sf
Months 109-120	$1.61/sf
Months 121-132	$1.66/sf
Months 133-144	$1.71/sf
Months 145-156	$1.76/sf
Months 157-163	$1.81/sf

     Example of calculation of Basic Rent per month for the period commencing with the first through the twelfth months of said Lease:

Square footage of Building		60,128
Per square foot Basic Monthly Rent		x $1.16
Basic Rent per Month	$	69,748.48

In the event this Lease commences on June 1, 1993 or thereafter, the Basic Rent schedule shown above may be amended in accordance with Article I.F.2.(b)(1) entitled “Basic Monthly Rental” of Option Agreement dated October 31, 1989 between the parties.

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     40. BASIC RENT REDUCTION IN THE EVENT TENANT DEFERS ITS OCCUPANCY OF THE LEASED PREMISES: It is agreed between the parties that the Lease term will commence on the Commencement Date as defined in Paragraph 41.B., however, Landlord has agreed that Tenant may, by providing Landlord 30 days prior written notice, defer its occupancy of the Leased Premises from the Lease Commencement Date (projected to be April 1, 1993) through July 31, 1993 (hereinafter referred to as the “Deferral Period”). Provided Tenant notifies Landlord of its election to defer its occupancy, as provided above, and further provided Tenant does not occupy any portion of the Leased Premises, the Monthly Basic Rent will be reduced to FORTY THOUSAND AND NO/100 DOLLARS ($40,000.00) per month during the Deferral Period and the Lease will be amended to reflect said adjustment to the Basic Rent Schedule. In the event Tenant occupies any part of the Leased Premises during the Deferral Period, the Lease will be further amended and Tenant will pay, from the date of occupancy of any part of the Leased Premises, Basic Rent per the Schedule outlined in Paragraph 39 “Basic Rent.” For example, if the Lease Commencement Date is April 1, 1993 and Tenant notifies Landlord by March 1, 1993 of its intent to defer occupancy until July 1, 1993, and Tenant occupies part or all of the Leased Premises on June 1, 1993, the Basic Rent for the Deferral Period shall be payable as follows: April 1 through 30th....$40,000.00; May 1 through 31st....$40,000.00; June 1 through 30th....$69,748.48; July I through 31st....$69,748.48. In the event the Lease term commences on a date other than the first day of the month, or Tenant occupies the Leased Premises during the Deferral Period on a date other than the first day of the month, the Basic Rent shall be pro rated on a daily basis for such partial month at the Basic Rent rate scheduled for the Commencement Date as shown in Paragraph 39 above, and/or the reduced Basic Rent as provided for in this Paragraph 40. For example, if the Lease Commencement Date is April 1, 1993 and Tenant occupies part or all of the Leased Premises on April 15, 1993, Tenant’s Basic Rent due for the period April 1, 1993 through April 30, 1993 shall be $55,100.59, calculated as follows:

$40,000.00/mo x 12	= $480,000.00/year
$480,000.00 divided by 365	= $1,315.07/day
$ 1,315.07 x 14 days	= $18,410.98 due for the period 4/1/93 — 4/14/93
$ 69,748.48/mo x 12	= $836,981.76/year
$836,981.76 divided by 365	= $2,293.10/day
$ 2,293.10 x 16 days	= $36,689.61 due for the period 4/15/93 — 4/30/93

$18,410.98	due for the period 4/01/93 - 4/14/93
$36,689.61	due for the period 4/15/93 - 4/30/93
$55,100.59	due for the period 4/01/93 - 4/30/93

This reduction in Basic Rent is only allowed from the Commencement Date through July 31, 1993 (but under no circumstances after July 31, 1993). In no event whatsoever shall Tenant be

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entitled to such reduction in Basic Rent after July 31, 1993 regardless of the Commencement Date of this Lease and regardless of the reason for any delays in the Commencement Date of this Lease. Subject to the above, commencing August 1, 1993, Tenant shall pay monthly Basic Rent in accordance with the Basic Rent schedule shown in Paragraph 39 “Basic Rent” above (i.e. Months 1-12 $1.16 PSF, Months 13-24 $1.21 PSF,...). For purposes of this Paragraph 40, Tenant shall be deemed to occupy the Leased Premises on the date any of Tenant’s personnel occupy any part of the Premises, provided however, entry into the Premises by Tenant to install Tenant’s trade fixtures and furniture won’t be considered occupancy by Tenant to the Premises.

It is further agreed that during the Deferral Period Tenant will be responsible, from the Commencement Date of the Lease, for paying all Additional Rent expenses as outlined in Paragraph 4D.

     41. LEASE TERM AND COMMENCEMENT DATE: The following provisions relate to the commencement and duration of the term of this Lease:

          A. Lease Term: The term of this Lease shall commence on the “Commencement Date” (as defined herein) which is projected to be April 1, 1993, and shall continue for a period of thirteen years and six months plus the partial calendar month, if any, in which the Commencement Date occurs, subject to (i) earlier termination in accordance with the provisions of this Lease, and (ii) extension pursuant to the options to renew granted by Paragraphs 42 and 43; provided, however, that in the event the Lease term commences on a date other than April 1, 1993, the Lease term shall be amended to reflect a term equal to the period which commences on the Act Commencement Date and ends on September 30, 2006 (the termination date) (i.e., In the event the Lease term commences June 1, 1993, the term of this Lease shall be amended to reflect a thirteen year four month term. In the event the Lease term commences February 1, 1993, the Lease term shall be for thirteen years eight months).

          B. Commencement Date Defined: As used herein, the term “Commencement Date” shall mean the later to occur of the following: (i) the date upon which the “Improvements” are “Substantially Completed”; or (ii) April 1, 1993; provided, however, that if prior to the later of such dates Tenant’s operating personnel enter into occupancy of the Premises and commence the operation of Tenant’s business within the Premises, the Commencement Date shall be the date such personnel of Tenant so enter into occupancy of the Premises. The term “Substantially Completed” and/or “Substantial Completion” shall mean the date when all of the following have occurred with respect to the Improvements in question: (i) the construction of the Improvements in question has been substantially completed in accordance with the approved plans therefor except for punch list items which do not prevent Tenant from reasonably using the Premises to conduct Tenant’s business; (ii) Landlord has executed a certificate or statement representing that the Improvements in question have been substantially completed in accordance with the plans and specifications therefor except for the punch list items which do not prevent Tenant from reasonably using the Premises to conduct Tenant’s business; and (iii) the Building Department of the City of Milpitas has completed its final inspection of such Improvements and has “signed off” the building inspection card approving such work as complete except for punch list items which do not prevent Tenant from reasonably using the Premises to conduct Tenant’s business. Notwithstanding the foregoing, Substantial Completion of the Interior Improvements shall not be deemed to have occurred until Landlord has obtained final or conditional approval

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from the Fire Department of the City of Milpitas that the Improvements have been completed in accordance with such department’s requirements (subject only to conditions that do not prevent Tenant from occupying the Improvements).

          C. Lease Terms Co-extensive: It is acknowledged that (i) Landlord and Tenant have previously executed three separate leases. Two of said leases dated October 31, 1989 (hereinafter referred to as the 1989 Leases) are for Premises located at 1130 Bellew Drive and 490 McCarthy Blvd., Milpitas, California and one of said leases dated September 17, 1990 (hereinafter referred to as the “1990 Lease”) is for Premises located at 1000 Sumac Drive, Milpitas, California, and (ii) it is the intention of the parties that the term of this Lease be co-extensive with the term of the 1989 Leases and the 1990 Lease, such that the terms of all four leases expire on the same date. To that end, following the date upon which the Commencement Date of this Lease becomes established as a date certain following completion of improvements and satisfaction of any other conditions related to determining such date, the term of this Lease may be reduced or extended to coincide with the term of the 1989 Leases and the 1990 Lease, however, in no event will the term of this Lease be for a period of less than ten (10) years. As soon as the parties are able to implement the provisions of this paragraph because the Commencement Date of this Lease has been determined following completion of improvements and satisfaction of other appropriate conditions, the parties shall execute an amendment to this Lease establishing the applicable Commencement Date in accordance with the foregoing provisions of this Paragraph 41C, the actual rent based upon the measurements of the completed building covered by this Lease as certified prior to the Commencement Date by an architect or general contractor reasonably approved by the parties, and the actual date for each rent adjustment provided for in this Lease, based upon the actual Lease Commencement Date.

     42. FIRST FIVE-YEAR OPTION TO EXTEND: Landlord hereby grants to Tenant an option to extend the term of this Lease for an additional five (5) year period upon the following terms and conditions:

          A. If Tenant elects to exercise the option to extend, Tenant shall give Landlord written notice of Tenant’s exercise of this option to extend at lease one hundred eighty (180) days prior to the expiration of the Basic Term hereof, in which event the Lease shall be considered extended for an additional five (5) year period upon the same terms and conditions as this Lease, absent this Paragraph 42 and subject to the rental as set forth below. In the event that Tenant fails to timely exercise Tenant’s option as set forth herein in writing, Tenant shall have no further option to extend this Lease, and this Lease shall continue in full force and effect for the full remaining term hereof, absent this Paragraph 42.

          B. The monthly Basic Rent for the option period shall be as follows in the event the option is exercised:

Period	Monthly Basic Rent
Months 1-12	$1.86/sf
Months 13-24	$1.91/sf
Months 25-36	$1.96/sf
Months 37-48	$2.01/sf
Months 49-60	$2.06/sf

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          C. Notwithstanding anything contained herein, Tenant may not exercise the option to renew granted by this Paragraph 42 at any time that Tenant is in material default of its obligations under this Lease, if Tenant has received written notice from Landlord that Tenant is in default, and such default has not been timely cured within the time period provided for in this Lease; provided, however, that if such default of Tenant is not for money due under this Lease and cannot be cured, and if Landlord does not elect to terminate this Lease as a result of such non-curable default by Tenant, Tenant may exercise the option to extend granted by this Paragraph 42 notwithstanding such non-curable default.

     43. SECOND FIVE-YEAR OPTION TO EXTEND: Provided Tenant has extended the Lease for an additional five (5) year period as set forth in Paragraph 42, Landlord hereby grants to Tenant an option to extend the term of this Lease for an additional five (5) year period upon the following terms and conditions:

          A. Tenant shall give Landlord written notice of Tenant’s exercise of this option to extend at least one hundred eighty (180) days prior to the expiration of the Lease term as extended pursuant to Paragraph 42, in which event the Lease shall be considered extended for an additional five (5) year period upon the same terms and conditions as this Lease, absent this Paragraph 43A and subject to the rental as set forth below. In the event that Tenant fails to timely exercise Tenant’s option as set forth herein in writing, Tenant shall have no further option to extend this Lease, and this Lease shall continue in full force and effect for the full remaining term hereof, absent this Paragraph 43.

          B. The monthly Basic Rent for the option period shall be as follows in the event the option is exercised:

Period	Monthly Basic Rent
Months 1-12	$2.11/sf
Months 13-24	$2.16/sf
Months 25-36	$2.21/sf
Months 37-48	$2.26/sf
Months 49-60	$2.31/sf

          C. Notwithstanding anything contained herein, Tenant may not exercise the option to extend granted by this Paragraph 43 at any time that Tenant is in material default of its obligations under this Lease, if Tenant has received written notice from Landlord that Tenant is in default, and such default has not been timely cured within the time period provided for in this Lease; provided, however, that if such default of Tenant is not for money due under this Lease and cannot be cured, and if Landlord does not elect to terminate this Lease as a result of such non-curable default by Tenant, Tenant may exercise the option to extend granted by this Paragraph 43 notwithstanding such non-curable default.

     44. ASSESSMENT CREDITS: The demised property herein is subject to a special assessment levied by the City of Milpitas in Improvement District No. 12. As a part of said special assessment proceedings, additional bonds were sold and assessments levied to provide for construction contingencies and reserve funds. Interest will be earned on such funds created

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for contingencies and on reserve funds which will be credited for the benefit of said assessment district. To the extent surpluses are created in said district through unused contingency funds, interest earnings or reserve funds, such surpluses shall be deemed the property of Landlord. Notwithstanding that such surpluses may be credited on assessments otherwise due against the demised premises, Tenant shall pay to Landlord, as additional rent if, and at the time of any such credit of surpluses, an amount equal to all such surpluses so credited.

     45. HAZARDOUS MATERIALS: The parties agree as follows with respect to the existence or the use of hazardous material on the Premises:

          A. Tenant shall have no obligations to “clean up”, to comply with any law regarding, or to reimburse, release, indemnify, or defend Landlord with respect to any hazardous materials or wastes which Tenant or other parties on the Premises did not store, dispose, or transport in, use, or cause to be on the Premises in violation of applicable law during the term of this Lease. Any handling, transportation, storage, treatment, disposal or use of hazardous materials by Tenant or other parties in or about the Premises during the term of this Lease shall strictly comply with all applicable laws and regulations. Tenant will be 100 percent liable and responsible for any and all “clean up” of said toxic waste and/or hazardous materials contamination which Tenant, its agents, or future subtenants, if any, does store, dispose, or transport in, use or cause to be on the Premises in violation of applicable law or governing agency(s) or which originate on Premises, during the term of this Lease from any manner whatsoever, including but not limited to, dumping by others, (or which originate on the surface of the Premises any time after October 28, 1989, the date the Option Agreement dated October 31, 1989 related to said Lease was executed by all parties, and before the Commencement Date of this Lease, but excluding Hazardous Materials on the Premises prior to the Lease Commencement Date because of the storage, use, disposal, or transportation of such materials or waste by any of Landlord’s contractors or otherwise arising out of construction work performed by or under the direction of Landlord on the Premises and Landlord shall be responsible for all required actions with respect to such materials or wastes), and will indemnify Landlord and hold Landlord harmless from any liabilities, demands, costs, expenses and damages, including attorney fees incurred as a result of any claims resulting from such contamination, or from any claims for personal injury or property damage or diminution in the value of the Premises caused by the use, storage, disposal or transportation of hazardous materials on the Premises by Tenant or other parties during the term of this Lease. It is agreed that the Tenant’s responsibilities related to toxic waste and hazardous materials will survive the termination date of the Lease. Tenant agrees to complete compliance with governmental regulations regarding use or removal or remediation of Hazardous Materials used, stored, disposed, transported or caused to be on the Premises by Tenant or its agents or subtenants, or which originate on the Premises during the term of this Lease, and prior to the termination of said Lease Tenant agrees to follow the proper closure procedures and will obtain a clearance from the local fire department and/or the appropriate city agency. Tenant also agrees to install such toxic waste and/or hazardous materials monitoring devices as Landlord reasonably deems necessary to monitor any use of hazardous materials by Tenant, its agents or subtenants, originating from the Premises during the Lease term, if recommended by a qualified environmental consulting firm.

          B. Landlord hereby makes the following representations to Tenant, each of which is made only to the best of Landlord’s knowledge as of the date Landlord executes this

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Lease, without any inquiry or investigation having been made or required by Landlord regarding this subject, nor does Landlord have any obligation to investigate or make inquiry regarding the subject:

               (1) The soil and ground water on or under the Premises does not contain hazardous materials in amounts which violate any laws to the extent that any governmental entity could require either Landlord or Tenant to take any remedial action with respect to such hazardous materials.

               (2) During the time that Landlord has owned the Premises, Landlord has received no notice of (i) any violation, or alleged violation, of any law that has not been corrected to the satisfaction of the appropriate authority, (ii) any pending claims relating to the presence of hazardous material on the Premises, or (iii) any pending investigation by any governmental agency concerning the Premises relating to hazardous materials.

          C. Landlord and Tenant shall each give written notice to the other as soon as reasonably practicable of (i) any communication received from any governmental authority concerning hazardous materials which relates to the Premises, and (ii) any contamination of the Premises by hazardous materials which constitutes a violation of any law. If during the Lease term Tenant proposes to use other hazardous materials at the Premises, Tenant shall inform Landlord of such use, identifying the hazardous materials and the manner of their use, storage and disposal, and shall agree (i) to use, store and dispose of such materials strictly in compliance with all laws and (ii) that the indemnity set forth in Paragraph 45A shall be applicable to Tenant’s use of such material.

          D. Landlord or Tenant may, at any time, cause testing wells to be installed on the Premises, and may cause the ground water to be tested to detect the presence of hazardous material by the use of such tests as are then customarily used for such purposes. Testing wells installed by Tenant shall be paid for by Tenant. If tests conducted by Landlord disclose that Tenant has violated any hazardous materials laws, or Tenant or parties on the Premises during the term of this Lease have contaminated the Premises as determined by regulatory agencies pursuant to hazardous materials laws, or that Tenant has liability to Landlord pursuant to Paragraph 45A, then Tenant shall pay for l00 percent of the cost of the test and all related expense. Prior to the expiration of the Lease term, Tenant shall remove any testing wells it has installed at the Premises, and return the Premises to the condition existing prior to the installation of such wells, unless Landlord requests in writing that Tenant leave all or some of the testing wells in which instance the wells requested to be left shall not be removed.

          E. If any tests performed by Tenant or Landlord prior to the Commencement Date disclose hazardous materials at the Premises, Landlord at its expense will promptly take all reasonable action required by law with respect to the existence of such materials at the Premises. The Commencement Date shall not be delayed because of such action by Landlord unless occupation of the Premises is prohibited by law.

          F. The obligations of Landlord and Tenant under this Paragraph 45 shall survive the expiration or earlier termination of the term of this Lease. The rights and obligations

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of Landlord and Tenant with respect to issues relating to hazardous materials are exclusively established by this Paragraph 45.

     46. APPROVALS: Whenever this Lease requires the approval or consent of either Landlord or Tenant before an action may be taken, such approval or consent shall not be unreasonably withheld or delayed.

     47. LANDLORD’S RIGHT TO TERMINATE: It is understood that the Premises to be leased by Tenant are to be constructed by Landlord, and that Landlord is required to obtain the necessary building permits for the building shell before construction of said Premises can commence. Therefore, it is agreed that in the event Landlord cannot obtain all the necessary building permits for the building shell by September 1, 1992, then either Landlord or Tenant can terminate this Lease by written notice to the other party given within thirty (30) days thereafter, without any liability to the other party of any type whatsoever, and that this Lease Agreement shall be null and void as of the date of receipt of such notice. Landlord agrees to use its best efforts to obtain the required permits by September 1, 1992.

     48. CROSS DEFAULT: As set forth in Paragraph 41C, Landlord and Tenant have entered into other leases dated October 31, 1989 referred to herein as the “1989 Leases” and Lease Agreement dated September 17, 1990 referred to herein as the “1990 Lease”. As a material part of the consideration for the execution of this Lease by Landlord, it is agreed between Landlord and Tenant that a default under this Lease, or a default under said 1989 and 1990 Leases may, at the option of Landlord, be considered a default under all leases, in which event Landlord shall be entitled (but in no event required) to apply all rights and remedies of Landlord under the terms of one lease to all Leases including, but not limited to, the right to terminate one, two, three or all of said leases by reason of a default under said 1989 and 1990 Leases or hereunder.

     49. SUBDIVISION: With respect to the development of the Premises:

     Landlord and Tenant agree that the Premises and all of Parcels 1, 2, 4, and 5 shown on that certain parcel map, recorded on July 23, 1990 in Book 616 of Maps, Page 20 (the “Larger Parcel”) during (and limited to) the term of this Lease shall be developed and used only in accordance with a master plan, developed by Landlord. The parties have mutually agreed to a Master Plan for the general development of the Premises and the Larger Parcel which is attached hereto as Exhibit “Al” and entitled “Master Site Plan”. Said Master Site Plan sets forth the buildings and land to be leased under this Lease (Building 3 on Lot 3), the 1989 Leases (Buildings 1 and 2 on Lots 1 and 2, respectively) and the 1990 Lease (Building 4 on Lot 4), and the building and land proposed to be developed on the remainder of the property (Building 5 to be constructed on Lot 5) as well as the general location of the parking and landscaping pertaining thereto. The parties agree that the Master Site Plan may be modified provided that (i) a perimeter driveway is developed in front of each building which generally runs near and parallel with the street surrounding the 37 ± acre site, (ii) all buildings will be similar and generally architecturally compatible, (iii) a landscape area is developed along the frontage of all streets between the street and parking area closest to the street and (iv) a landscape and recreation area at the rear of Lot 4 (as shown on the Site Plan) is developed when a building is constructed on Lot 4. The parties agree that (i) Landlord may change the Master Plan, shape and sizes of the

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buildings, parking and landscaping as long as the general development concept set forth above is generally followed by Landlord, and (ii) any successor or assign of Landlord or Tenant shall be required to consent and agree to develop the Premises and the Larger Parcel in accordance with the foregoing, and shall be deemed to have assumed the obligation to so develop such property by acceptance of a deed, assignment or other means of transfer of Landlord’s or Tenant’s interest in such property or any portion thereof, as the case may be. Further, the memorandum of lease to be recorded by Landlord and Tenant pursuant to Paragraph 38G shall contain the following statement:

“The Lease provides that from and after the commencement date of the 1989 Leases (as defined in the Lease) and continuing for a period of fifteen (15) years, or the date of termination of the Lease, whichever first occurs, the Premises and the larger 37.096 acre parcel in which the Premises were originally included, and which is described on the attached Exhibit “A”, incorporated herein by this reference, shall be developed by Landlord and Tenant or their successors or assigns, as more particularly set forth in the Lease, so that (i) a perimeter driveway is developed in front of each building which generally runs near and parallel with the street surrounding the 37 ± acre site, (ii) a landscape area is developed along the frontage of all streets between the street and parking area closest to the street, (iii) a landscape and recreation area at the rear of Lot 4 (as shown on the Site Plan identified in the Lease) is developed when a building is constructed on Lot 4, and (iv) all buildings will be similar and generally architecturally compatible, it being agreed that Landlord may change the shape and sizes of the buildings, parking and landscaping as long as the general development concept set forth above and in the Lease is generally followed by Landlord. If a Public Agency requires modifications to the lot lines as shown on the Master Plan, the parties agree to reasonable lot line modifications.”

     50. LIMITATION ON IMPOSITION OF LATE CHARGE: Notwithstanding anything contained in Paragraph 4C, if Tenant is delinquent in the payment of Basic Rent or Additional Rent and is subject to a late charge, Landlord agrees to waive the late charge if the Basic Rent or Additional Rent due is paid within five days of Landlord’s written notice to Tenant of the delinquent amount owed and provided Tenant has not been delinquent in its payment of Basic Rent or Additional Rent owed under said Lease during the twelve (12) month period preceding the rent delinquency in question.

     51. SECURITY DEPOSIT: The following provisions shall modify Paragraph 4F:

          A. Within thirty (30) days after the expiration or earlier termination of the Lease term and after Tenant has vacated the Premises, Landlord shall return to Tenant the entire Security Deposit except for amounts that Landlord has deducted therefrom that are needed by Landlord to cure defaults of Tenant under the Lease or compensate Landlord for damages for which Tenant is liable pursuant to this Lease. The use or disposition of the Security Deposit shall be subject to the provisions of California Civil Code Section 1950.7.

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          B. Tenant shall have the option of satisfying its obligation with respect to an amount equal to one-half (1/2) of the Security Deposit by providing to Landlord, at Tenant’s sole cost, a letter of credit which (i) is drawn upon an institutional lender reasonably acceptable to Landlord, (ii) is in the amount of one-half (1/2) of the Security Deposit, (iii) is for a term of at lease twelve (12) months, (iv) with respect to any letter of credit in effect within the six month period immediately prior to the expiration of the Lease term, shall provide that the term of such letter of credit shall extend at least thirty (30) days past the Lease expiration date, (v) may be drawn upon by Landlord upon submission of a declaration of Landlord that Tenant is in default (as defined in Paragraph 19 and as modified by Paragraph 60). Landlord shall not be obligated to furnish proof of default to such institutional lender, and Landlord shall only be required to give the institutional lender written notification that Tenant is in default and upon receiving such written notification from Landlord the institutional lender shall be obligated to immediately deliver cash to Landlord equal to the amount Landlord may spend or become obligated to spend by reason of Tenant’s default or to compensate Landlord for any loss or damage which Landlord may suffer by reason of Tenant’s default up to 1/2 of the total Security Deposit, (vi) shall provide that if the letter of credit is not renewed, replaced or extended within twenty (20) days of its expiration date the issuer of the credit shall automatically make payment of the amount of the letter of credit directly to Landlord after the date which is twenty (20) days before the expiration date, and no later than the expiration date, without Landlord being required to make demand upon the letter of credit, and (vii) is otherwise in form and content reasonably satisfactory to Landlord. If Tenant provides Landlord with a letter of credit meeting the foregoing requirements, one-half (1/2) of the cash Security Deposit (i.e., $83,277.28 of the $166,554.56 Deposit) shall be returned to Tenant by Landlord inasmuch as the cash deposit remaining and the Letter of Credit equal the total Security Deposit required in Paragraph 4F. If Tenant defaults with respect to any provisions of this Lease, including but not limited to provisions relating to the payment of rent, Landlord may (but shall not be required to) draw down on the letter of credit for payment of any sum which Landlord may spend or become obligated to spend by reason of Tenant’s default, or to compensate Landlord for any loss or damage which Landlord may suffer by reason of Tenant’s default. Landlord and Tenant acknowledge that such letter of credit will be treated as if it were a cash security deposit, and such letter of credit may be drawn down upon by Landlord upon demand and presentation of evidence of the identity of Landlord to the issuer, in the event that Tenant defaults with respect to any provision of this Lease and such default is not cured within any applicable cure period. Notwithstanding anything to the contrary in this Lease, Landlord shall not be obligated to furnish proof of default to such institutional lender and Landlord is only required to give the institutional lender written notification that Tenant is in default and upon receiving such written notification from Landlord the institutional lender shall be obligated to immediately deliver cash to Landlord equal to the amount Landlord may spend or become obligated to spend by reason of Tenant’s default, or to compensate Landlord for any loss or damage which Landlord may suffer by reason of Tenant’s default up to 1/2 of the total Security Deposit. Landlord acknowledges that it is not entitled to draw down such letter of credit unless Landlord would have been entitled to draw upon the cash security deposit pursuant to the terms of Paragraph 4F of the Lease. Concurrently with the delivery of the required information to the issuer, Landlord shall deliver to Tenant written evidence of the default upon which the draw down was based, together with evidence that Landlord has provided to Tenant the written notice of such default which was required under the applicable provision of the Lease, and evidence of the failure of Tenant to cure such default within the applicable grace

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period following receipt of such notice of default. Any proceeds received by Landlord by drawing upon the letter of credit shall be applied in accordance with the provisions governing the Security Deposit imposed by Paragraph 4F and this Paragraph 51. If Landlord draws upon the letter of credit, thereafter Tenant shall once again shall have the right to post a letter of credit in place of one-half (1/2) of a cash Security Deposit so long as Tenant is not then in default. In any event Tenant will be obligated to replenish the amount drawn to restore the Security Deposit to its original amount as provided for in Paragraph 4F. If any portion of the letter of credit is used or applied pursuant hereto, Tenant shall, within ten (10) days after receipt of a written demand therefor from Landlord, restore and replace the value of such security by either (i) depositing cash with Landlord in the amount equal to the sum drawn down under the letter of credit, or (ii) increasing the letter of credit to its value immediately prior to such application. Tenant’s failure to replace the value of the security as provided in the preceding sentence shall be a material breach of its obligation under this Lease.

     52. ALTERATIONS MADE BY TENANT: The provisions of this Paragraph 52 shall modify Paragraphs 5 and 6:

          A. As used herein, the term “Alteration” shall mean any alteration, addition or improvement made by Tenant to the Premises during the term of the Lease, but shall not include Tenant’s trade fixtures so long as such trade fixtures are not installed in such a manner that they have become an integral part of the building.

          B. Tenant shall not construct any Alterations or otherwise alter the Premises without Landlord’s prior written approval if the total cost of such Alterations exceeds $20,000 per the scope of any single remodeling job to the Premises, or if such Alteration is structural in nature. Any other non-structural Alteration of less than $20,000 for the total cost of the remodeling job may be undertaken by Tenant without Landlord’s prior written approval but with the understanding that Tenant shall be obligated to restore the Premises as set forth in Paragraph 5 at the termination of this Lease, except as otherwise provided in Paragraph 52.D.

Notwithstanding the foregoing, Tenant shall have the right to reconfigure modular freestanding walls and partitions without Landlord’s prior consent, which have been installed by Tenant and paid for by Tenant.

          C. At all times during the Lease Term (i) Tenant shall maintain and keep updated “as-built” plans for all Alterations constructed by Tenant, and (ii) Tenant shall provide to Landlord copies of such “as-built” plans as such Alterations are made.

          D. Tenant shall have the right to remove at any time during the Lease term or prior to the expiration thereof any (i) process equipment such as clean hoods, thermal cycling chambers, freon piping, high temperature furnaces, air handlers and special air-conditioning, and (ii) process systems such as compressed air or processed exhaust systems and (iii) the clean room modules and all related process equipment which are paid for 100% by Tenant (excluding building standard HVAC, electrical, plumbing and other building standard systems which are an integral part of the building not related to Tenant’s clean room modules or other special purpose process equipment or systems), which systems, equipment and modules the parties agree for the

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purposes of this Lease shall be deemed to be trade fixtures, so long as Tenant repairs all damage caused by the installation and/or removal thereof, returns the Premises prior to the termination of the Lease to the condition existing prior to the installation of such item, and repairs and restores any so-called “doughnuts” or gaps in the roof and/or floor tiles and/or ceiling and lighting resulting from such removal. At the time Tenant requests the consent of Landlord to approve the installation of an Alteration requiring the consent of Landlord, Tenant shall seek from Landlord a written statement of whether or not Landlord will require Tenant to remove such Alteration and restore all or part of the Premises as required by Landlord in accordance with this paragraph and Paragraph 5 at the expiration or earlier termination of the term of the Lease. If Tenant does not obtain-from Landlord a statement in writing that Landlord will not require such Alteration to be removed, then at the expiration or sooner termination of the term of the Lease, it is agreed that Tenant may be required to remove all or part of such Alterations, and return the Premises to the condition existing prior to the installation of such Alterations as provided for in Paragraph 5 above. In addition, if Tenant has installed Alterations without Landlord’s consent, if Landlord so requires, Tenant shall also remove all or part of such Alterations so installed without Landlord’s consent as Landlord may designate and return the Premises to the condition existing prior to the installation of such Alteration. Alterations for which Landlord has given its written consent to Tenant that such Alteration need not be removed, shall not be removed by Tenant at the expiration or earlier termination of the term of the Lease.

          E. At all times during the term of the Lease, Tenant shall have the right to install and remove trade fixtures as defined in the Lease and installed and paid for by Tenant, so long as Tenant repairs all damage caused by the installation thereof and returns the Premises to the condition existing prior to the installation of such fixtures and repairs and restores any so called “doughnuts” or gaps in the roof and/or floor (including floor structure, sub-floor and appropriate floor covering for said area) and/or floor tiles and/or ceiling tiles and lighting resulting from such removal.

     53. STRUCTURAL CAPITAL COSTS REGULATED BY GOVERNMENTAL AGENCIES AFTER THE COMMENCEMENT OF THIS LEASE NOT CAUSED BY TENANT OR TENANT’S USES OR REMODELING OF THE PREMISES: The provisions of this Paragraph 53 shall modify Paragraphs 7 and 14:

          A. If during the last five (5) years of the term of the Lease if Tenant has not extended the Lease as provided for in Paragraphs 42 and 43, or during either of the five (5) year extension periods permitted by Paragraphs 42 and 43, it becomes necessary (due to any governmental requirement for continued occupancy of the Premises) to make structural improvements required by laws enacted or legal requirements imposed by governmental agency(s) after the Commencement Date, and the cost for each required work or improvements exceeds $100,000, then if such legal requirement is not imposed because of Tenant’s specific use of the Premises and is not “triggered” by Tenant’s Alterations or Tenant’s application for a building permit or any other governmental approval (in which instance Tenant shall be responsible for 100% of the cost of such improvements), Landlord shall be responsible for paying the cost of such improvement and constructing such improvement, subject to a cash contribution from Tenant of a portion of the cost thereof as provided for and calculated in Paragraph 53B.

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          B. When Landlord makes an improvement pursuant to Paragraph 53A, and as a condition to Landlord’s obligation to construct such improvement, Tenant shall make the following contribution in cash to Landlord for the cost thereof prior to the commencement of the work by Landlord. It is agreed that Tenant shall pay to Landlord 100% of the cost of the first $100,000.00 worth of each improvement. After the first $100,000.00, all costs above $100,000.00 shall be divided by 15 and multiplied by the time period remaining in the last five years of the Lease term from the date work on such improvement commences.

     For example, if the cost of such improvement was $400,000 and there was one year and six months remaining in the Lease term when the work commenced, then Tenant would be responsible for reimbursing Landlord in cash $130,000.00 computed as follows:

Total Cost of Work	$	400,000.00
Tenant Responsible for 1st $100,000		-100,000.00
Total Amount To Be Amortized	$	300,000.00

$300,000.00/15 = $20,000.00/yr. x 1.5 yrs =	$	30,000.00
Tenant responsible for $100,000 + $30,000.00 =	$	130,000.00

          C. If Landlord has made improvements, for which Tenant has reimbursed Landlord for the cost thereof pursuant to Paragraph 53B, and the term of this Lease is subsequently extended pursuant to the exercise by Tenant of an option to renew pursuant to Paragraph 42, or 43, upon the exercise of any such option by Tenant, Tenant shall pay to Landlord an additional sum equal to the total amount of said improvement less the amount previously paid for by Tenant. Using the example in Paragraph 53B above, Tenant would owe Landlord the additional amount of $270,000.00 ($400,000.00 - $130,000.00 = $270,000.00).

     54. REAL PROPERTY TAXES: Paragraph 9 is modified by the following:

          A. The term “Real Property Taxes” shall not include charges, levies or fees directly related to the use, storage, disposal or release of hazardous materials on the Premises unless directly related to Tenant’s activities, which subject is exclusively governed by Paragraph 45.

          B. If any assessments for public improvements are levied against the Premises, Landlord may elect either to pay the assessment in full or to allow the assessment to go to bond. If Landlord pays the assessment in full, Tenant shall pay to Landlord or any assignee or purchaser of the Premises each time payment of Real Property Taxes is made a sum equal to that which would have been payable (as both principal and interest) had Landlord allowed the assessment to go to bond.

          C. Tenant at its cost shall have the right, at any time, to seek a reduction in the assessed valuation of the Premises or to contest any Real Property Taxes that are to be paid by Tenant. If Tenant seeks a reduction or contests such Real Property Taxes, the failure on Tenant’s part to pay such Real Property Taxes being so contested shall not constitute a default so long as Tenant complies with the provisions of this Paragraph. Landlord shall not be required to

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join in any proceeding or contest brought by Tenant unless the provisions of any law require that the proceeding or contest be brought by or in the name of Landlord. In that case Landlord shall join in the proceedings or contest or permit it to be brought in Landlord’s name as long as Landlord is not required to bear any cost. Tenant, on final determination of the proceeding or contest, shall immediately pay or discharge its share of any Real Property Taxes determined by any decision or judgment rendered, together with all costs, charges, interest, and penalties incidental to the decision or judgment. If Tenant does not pay the Real Property Taxes when due pursuant to the Lease and Tenant seeks a reduction or contests them as provided in this paragraph, before the commencement of the proceeding or contest Tenant shall furnish to Landlord a surety bond in form reasonably satisfactory to Landlord issued by an insurance company qualified to do business in California. The amount of the bond shall equal 125% of the total amount of Real Property Taxes in dispute and any such bond shall be assignable to any lender or purchaser of the Premises. The bond shall hold Landlord and the Premises harmless from any damage arising out of the proceeding or contest and shall insure the payment of any judgment that may be rendered.

     55. PROPERTY INSURANCE: Paragraph 12 is modified by the following:

          A. If Tenant so elects, Tenant may obtain from a third party insurance company the insurance required to be carried by Landlord pursuant to Paragraph 12 so long as each of the following conditions is satisfied: (i) the Landlord is not the John Arrillaga and Richard T. Peery Separate Property Trusts or an affiliated entity; (ii) the insurance to be carried by Tenant to satisfy this requirement strictly complies with all of the provisions of Paragraph 12; (iii) such insurance shall name Landlord as the insured and provide that it is to be payable to Landlord in the same manner as if such insurance had been carried by Landlord pursuant to Paragraph 12 (subject to the rights of any lender holding a mortgage or deed of trust encumbering the Premises); (iv) each lender holding a mortgage or deed of trust encumbering the Premises shall have given its written consent to Tenant carrying such insurance and such insurance shall comply with the requirements of any such lender; (v) Tenant must notify Landlord, by certified mail, no later than one hundred eighty (180) days prior to the expiration date of Landlord’s insurance policy (which expiration date is currently 3/13/xx of a given year and is subject to change), that Tenant will directly obtain the required insurance coverage for the insurance year commencing 3/14/XX through 3/13/XX and each insurance year through the termination date of this Lease, or until Tenant is no longer able to comply with all of the provisions of this Paragraph 55; (vi) the annual premium must be paid in full at the commencement of the policy; (vii) the insurance policy must be issued for a one-year period following the expiration date of Landlord’s insurance policy from 3/14/XX to 3/13/XX; (viii) any and all deductibles required under the policy will be paid entirely by Tenant; (ix) the terms of the coverage must be broad form and cover all items to be covered as set forth in Paragraph 12 of this Lease; (x) the Building and Premises must be insured for their full replacement cost; (xi) the insurance policy containing the required coverage in accordance with the provisions of this paragraph must be sent to Landlord for retention within thirty (30) days prior to the expiration date of Landlord’s insurance policy, and may not be terminated or altered without thirty (30) days written notice to Landlord by the company providing such insurance (it is agreed that if the insurance policy is cancelled or altered, Landlord will have the right to obtain the property insurance coverage on said building, and Landlord will bill the Tenant for the related insurance premium); and (xii) at all times while Tenant is so carrying such insurance, Tenant is Quantum

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Corporation or a successor entity and the then net worth of such corporation is substantially the same as the net worth of Quantum corporation as of the date of this Lease is executed by Landlord and Tenant. Tenant shall provide such evidence as is required by Landlord and any lender to establish that the insurance that Tenant carries pursuant to this Paragraph 55 has been obtained and meets the requirement of this Paragraph 55. Such insurance carried by Tenant shall be in form and provided by an insurance company that is reasonably acceptable to Landlord, which must be rated “A plus” or better by Best’s Insurance Service (or an equivalent rating from another rating agency should Best’s no longer provide such service). A copy of any such policy shall be delivered to Landlord. If Tenant elects to insure and such insurance provided by Tenant does not satisfy the requirements of Paragraph 12, in the event of a subsequent casualty, Tenant shall be responsible for and shall pay for that portion of the restoration cost, in excess of the insurance proceeds actually available, that would have been covered by insurance satisfying the requirements of Paragraph 12.

          B. Tenant shall not be obligated to contribute to the cost of earthquake insurance more than an amount equal to six (6) times the then annual cost of fire and “all risk” insurance per year. For example, if the 1993 annual premium for fire and “all risk” insurance is $9,000, then Tenant’s share of the cost of any premium for earthquake insurance for the following year (1994) shall be limited to $54,000 ($9,000 x 6). Tenant shall have the right to require earthquake insurance providing it is available if Tenant agrees to pay full cost thereof.

     56. ASSIGNMENT AND SUBLETTING: The following modifications are made to Paragraph 16:

          A. In the event that Tenant seeks to make any assignment or sublease, then Landlord, by giving Tenant written notice of its election within fifteen (15) days after Tenant’s notice of intent to assign or sublease has been given to Landlord, shall have the right to elect (i) to withhold its consent to such assignment or sublease, as permitted pursuant to Paragraph 16, or (ii) to permit Tenant to so assign the Lease or sublease such part of the Premises, in which event Tenant may do so, but without being released of its liability for the performance of all of its obligations under the Lease, and the following shall apply (except the following shall not apply to a “Permitted Transfer” described in Paragraph 57):

               (1) If Tenant assigns its interest in this Lease, then in addition to the rental provided for in this Lease, Tenant shall pay to Landlord fifty percent (50%) of all consideration received by Tenant over and above (i) the assignee’s agreement to assume the obligations of Tenant under this Lease and (ii) all “Permitted Transfer Costs” (as defined herein) related to such assignment. As used herein, the term “Permitted Transfer Costs” shall mean all reasonable leasing commissions paid to third parties not affiliated with Tenant in order to obtain the assignment or sublease in question.

               (2) If Tenant sublets all or part of the Premises, then Tenant shall pay to Landlord in addition to the rental provided for in this Lease fifty percent (50%) of the positive difference, if any, between (i) all rent and other consideration paid by the subtenant to Tenant, less (ii) all rent paid by Tenant to Landlord pursuant to this Lease which is allocable to the area so sublet and all Permitted Transfer Costs related to such sublease. After Tenant has recovered all Permitted Transfer Costs Tenant shall pay to Landlord the amount specified in the

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preceding sentence on the same basis, whether periodic or in lump sum, that such rent and other consideration is paid to Tenant by its subtenant, within seven (7) days after it is received by Tenant.

               (3) Tenant’s obligations under this subparagraph shall survive any assignment or sublease. At the time Tenant makes any payment to Landlord required by this subparagraph, Tenant shall deliver an itemized statement of the method by which the amount to which Landlord is entitled was calculated, certified by Tenant as true and correct. Landlord shall have the right to inspect Tenant’s books and records relating to the payments due pursuant to this subparagraph. Upon request therefor, Tenant shall deliver to Landlord copies of all bills, invoices or other documents upon which its calculations are based.

               (4) As used herein, the term “consideration” shall mean any consideration of any kind received, or to be received, by Tenant as a result of the assignment or sublease, if such sums are paid for Tenant’s interest in this Lease or in the Premises.

     57. PERMITTED ASSIGNMENTS AND SUBLEASES: Notwithstanding anything contained in Paragraph 16, so long as Tenant otherwise complies with the provisions of Paragraph 16 and the Permitted Transfer does not release Tenant from its obligations hereunder, Tenant may enter into any of the following transfers (a “Permitted Transfer”) without Landlord’s prior written consent, and the provisions of Paragraph 56A shall not apply to any such Permitted Transfer:

          A. Tenant may sublease all or part of the Premises or assign its interest in this Lease to any corporation which controls, is controlled by, or is under common control with Tenant by means of an ownership interest of more than fifty percent (50%) providing Tenant remains liable for the payment of rent and full performance of the lease;

          B. Tenant may assign its interest in the Lease to a corporation which results from a merger, consolidation or other reorganization in which Tenant is not the surviving corporation so long as 95% of all assets of Tenant are permanently transferred to such assignee. In the event there is not a permanent transfer of 95% or more of the assets and liabilities from Tenant to a third party, and Tenant continues to exist as a separate entity, both companies shall be jointly and severally liable for the full terms and conditions of the Lease;

          C. Tenant may assign this Lease to a corporation which purchases or otherwise acquires 95% or more of the assets of Tenant so long as 95% of all assets of Tenant are permanently transferred to such assignee (in the event there is not a permanent transfer of 95% or more of the assets and liabilities from Tenant to a third party and Tenant continues to exist as a separate entity, both companies shall be jointly and severally liable for the full terms and conditions of the Lease).

     58. SUBORDINATION AND MORTGAGES: Paragraph 17 is modified to provide that this Lease shall not be subordinate to a mortgage or deed of trust unless the Lender holding such mortgage or deed of trust enters into a written subordination, non-disturbance and attornment agreement in which the Lender agrees that notwithstanding any subordination of this Lease to such Lender’s mortgage or deed of trust, (i) such Lender shall recognize all of Tenant’s

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rights under this Lease, and (ii) in the event of a foreclosure this Lease shall not be terminated so long as Tenant is not in material default of its obligations under this Lease, but shall continue in effect and Tenant and such Lender (or any party acquiring the Premises through such foreclosure) shall each be bound to perform the respective obligations of Tenant and Landlord with respect to the Premises arising after such foreclosure.

     59. LANDLORD’S RIGHT TO ENTER: Notwithstanding the provisions of Paragraph 18, (i) except in the event of an emergency, Landlord shall give Tenant twenty-four (24) hours notice prior to entering the Premises, agrees to comply with any reasonably safety and/or security regulations imposed by Tenant with respect to such entry, and shall only enter the Premises when accompanied by Tenant or its agent (so long as Tenant makes itself reasonably available for this purpose), and (ii) Landlord may install “for lease” signs relating to the Premises only during the last 150 days of the Lease term. Landlord agrees to use its reasonable, good faith efforts such that any entry by Landlord, and Landlord’s agents, employees, contractors and invitees shall be performed in a manner with as minimal interference as possible with Tenant’s business at the Premises. Subject to the foregoing, Tenant agrees to cooperate with Landlord and Landlord’s agents, employees and contractors so that responsibilities of Landlord under the Lease can be fulfilled in a reasonable manner during normal business hours so that no extraordinary costs are incurred by Landlord.

     60. BANKRUPTCY AND DEFAULT: Paragraph 19 is modified to provide that with respect to non-monetary defaults not involving Tenant’s failure to pay Basic Rent or Additional Rent, Tenant shall not be in default of any non-monetary obligation if (i) more than thirty (30) days is required to cure such non-monetary default, and (ii) Tenant commences cure of such default as soon as reasonably practicable after receiving written notice of such default from Landlord and thereafter continuously and with due diligence prosecutes such cure to completion.

     61. ABANDONMENT: Paragraph 20 is modified to provide that Tenant shall not be in default under the Lease if it leaves all or any part of Premises vacant so long as (i) Tenant is performing all of its other obligations under the Lease including the obligation to pay Basic Rent and Additional Rent (ii) Tenant provides on-site security during normal business hours for those parts of the Premises left vacant, (iii) such vacancy does not materially and adversely affect the validity or coverage of any policy of insurance carried by Landlord with respect to the Premises, and (iv) the utilities and heating and ventilation system are operated to the extent necessary to prevent damage to the Premises or its systems.

     62. DESTRUCTION: Paragraph 21 is modified by the following:

          A. Except as provided in Paragraph 62B, Landlord may not terminate the Lease if the Premises are damaged by a peril that is covered by the insurance carried by Landlord pursuant to Paragraph 12, but instead shall restore the Premises in the manner described by Paragraph 21.

          B. If the Premises are damaged by a peril covered by the insurance carried by Landlord pursuant to Paragraph 12, Landlord shall have the option to terminate the Lease if each of the following conditions is satisfied: (i) the cost to repair or the damage exceeds thirty-three percent (33%) of the then replacement cost of the Premises; and (ii) the damage occurs at a time

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when there is less than five (5) years remaining in the term of the Lease. Notwithstanding the foregoing, if such damage occurs at a time when there is less than five (5) years remaining in the term of the Lease and Landlord notifies Tenant of Landlord’s election to terminate the Lease pursuant to the provisions of this Paragraph 62B, if Tenant has the right to extend the term of this Lease pursuant to either Paragraph 42 or 43 such that the remaining term of the Lease (including the option period) will be more than five (5) years following the date of such damage, this Lease shall not terminate if Tenant notifies Landlord in writing of Tenant’s exercise of an option to extend granted to Tenant by either Paragraph 42 or 43. In such event, this Lease shall not terminate, the term shall be so extended, and Landlord shall restore the Premises in the manner provided in Paragraph 21.

          C. If the Premises are damaged by any peril, then as soon as reasonably practicable, Landlord shall furnish Tenant with the written opinion of Landlord’s architect or construction consultant as to when the restoration work required of Landlord may be completed. Tenant shall have the option to terminate this Lease in the event any of the following occurs, which option may be exercised only by delivery to Landlord of a written notice of election to terminate within seven (7) days after Tenant receives from Landlord the estimate of the time needed to complete such restoration:

               (1) The Premises are damaged by any peril and, in the reasonable opinion of Landlord’s architect or construction consultant, the restoration of the Leased Premises cannot be substantially completed within 180 days after the date of such damage; or

               (2) The Premises are damaged by any peril within twelve (12) months of the last day of the Lease term and provided Tenant has not exercised an option to renew pursuant to the provisions of Paragraph 42 or 43, and, in the reasonable opinion of Landlord’s architect or construction consultant, the restoration of the Leased Premises cannot be substantially completed within sixty (60) days after the date of such damage.

     63. EMINENT DOMAIN: Paragraph 22 is modified by the following:

     Landlord may not terminate the Lease if less than 1/3 of the building is taken by condemnation or if a taking by condemnation is only threatened.

     64. TRANSFER BY LANDLORD: The provisions of Paragraph 23 of the Lease to the contrary notwithstanding, Landlord shall not be relieved of its obligations under the Lease which may accrue after the date of a sale or other transfer unless and until (i) the transferee agrees to assume and be bound by the terms of this Lease and to perform all obligations of the Landlord under the Lease which may accrue after the date of such transfer, and (ii) Landlord transfers the Security Deposit to its successor in interest (transferee) in accordance with the provisions of California Civil Code Section 1950.7, as amended or recodified.

     65. LANDLORD’S LIEN WAIVER: Landlord, within thirty (30) days after demand from Tenant, shall execute and deliver such lien waiver documents that are reasonably required by any supplier, lessor, or lender in connection with the installation in the Premises of the

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Tenant’s personal property or trade fixtures providing Landlord approves the form of any such waiver and Landlord’s rights under this Lease are not materially and adversely affected.

QUANTUM CORPORATION, a Delaware corporation		JOHN ARRILLAGA SEPARATE PROPERTY TRUST
By	/s/ Joseph C. Shepela	By	/s/ John Arrillaga
			John Arrillaga, Trustee
Title Vice President Human Resources		RICHARD T. PEERY SEPARATE PROPERTY TRUST
		By	/s/ Richard Peery
			Richard T. Peery, Trustee

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AMENDMENT NO. 1
TO LEASE

     THIS AMENDMENT NO. 1 is made and entered into this 16th day of April, 1997, by and between JOHN ARRILLAGA, Trustee, or his Successor Trustee UTA dated 7/20/77 (JOHN ARRILLAGA SURVIVOR’S TRUST) (previously known as the “John Arrillaga Separate Property Trust”) as amended, and RICHARD T. PEERY, Trustee, or his Successor Trustee UTA dated 7/20/77 (RICHARD T. PEERY SEPARATE PROPERTY TRUST) as amended, collectively as LANDLORD, and QUANTUM CORPORATION, a Delaware corporation, as TENANT.

RECITALS

     A. WHEREAS, by Lease Agreement dated April 10, 1992 Landlord leased to Tenant all of that certain 60,128 ± square foot building located at 900 Sumac Drive, Milpitas, California, the details of which are more particularly set forth in said April 10, 1992 Lease Agreement, and

     B. WHEREAS, said Lease was amended by the Commencement Letter dated April 2, 1993 which established the February 26, 1993 Lease Commencement Date, and established the Termination Date of September 30, 2006, and,

     C. WHEREAS, it is now the desire of the parties hereto to amend the Lease by (i) extending the Term for five years, changing the Termination Date from September 30, 2006 to September 30, 2011, (ii) amending the Basic Rent schedule and Aggregate Rent accordingly, (iii) adding a third Five Year Option to Extend, (iv) replacing Paragraphs 41C (“Lease Terms Co-extensive”) and 48 (“Cross Default”) and 53 (“Structural Capital Costs Regulated by Governmental Agencies After the Commencement of this Lease not Caused by Tenant or Tenant’s Uses or Remodeling of the Premises”), (v) amending Lease Paragraph 12 (“Property Insurance”) and (vi) amending and/or replacing certain provisions of the Lease commencing as of the commencement of the Third Extended Term of said Lease as hereinafter set forth.

AGREEMENT

     NOW THEREFORE, for valuable consideration, receipt of which is hereby acknowledged, and in consideration of the hereinafter mutual promises, the parties hereto do agree as follows:

     1. TERM OF LEASE: It is agreed between the parties that Tenant has exercised its First Five-Year Option to Extend the lease term of that certain lease agreement dated March 23, 1994 for premises located at 1101 Sumac Drive, Milpitas, California (the “Building 5 Lease”), as detailed in Paragraph 41 of said Building 5 Lease. Paragraph 40C of said Building 5 Lease provides that in the event the term of said Building 5 Lease is extended for any reason whatsoever, the terms of the Existing Leases (i.e. two of said leases dated October 31, 1989 are for Premises located at 1140 Technology Drive and 500 McCarthy Blvd., Milpitas, California (the “1989 Leases”); one of said leases dated September 17, 1990 is for Premises located at 1000 Sumac Drive, Milpitas, California, and one of said leases dated April 10, 1992 is for Premises located at 900 Sumac Drive, Milpitas, California) shall also be extended so that all five Leases expire on the same date; therefore, it is agreed between the parties that by exercising its Option

1

to Extend the Building 5 Lease, Tenant has in effect exercised its Option to Extend under Lease Paragraph 42 (“First Five-Year Option to Extend”), and that pursuant to said Lease Paragraph 42, the Term of this Lease Agreement shall be extended for an additional five (5) year period, and the Lease Termination Date shall be changed from September 30, 2006 to September 30, 2011.

     2. BASIC RENTAL FOR FIRST EXTENDED TERM OF LEASE: The monthly Basic Rental for the First Extended Term of Lease shall be as follows:

     On October 1, 2006, the sum of ONE HUNDRED ELEVEN THOUSAND EIGHT HUNDRED THIRTY EIGHT AND 08/100 DOLLARS ($111,838.08) shall be due, and a like sum due on the first day of each month thereafter through and including September 1, 2007.

     On October 1, 2007, the sum of ONE HUNDRED FOURTEEN THOUSAND EIGHT HUNDRED FORTY FOUR AND 48/100 DOLLARS ($114,844.48) shall be due, and a like sum due on the first day of each month thereafter through and including September 1, 2008.

     On October 1, 2008, the sum of ONE HUNDRED SEVENTEEN THOUSAND EIGHT HUNDRED FIFTY AND 88/100 DOLLARS ($117,850.88) shall be due, and a like sum due on the first day of each month thereafter through and including September 1, 2009.

     On October 1, 2009, the sum of ONE HUNDRED TWENTY THOUSAND EIGHT HUNDRED FIFTY SEVEN AND 28/100 DOLLARS ($120,857.28) shall be due, and a like sum due on the first day of each month thereafter through and including September 1, 2010.

     On October 1, 2010, the sum of ONE HUNDRED TWENTY THREE THOUSAND EIGHT HUNDRED SIXTY THREE AND 68/100 DOLLARS ($123,863.68) shall be due, and a like sum due on the first day of each month thereafter through and including September 1, 2011.

     The Aggregate Basic Rent for the Lease shall be increased by $7,071,052.80 or from $14,463,454.34 to $21,534,507.14.

     3. THIRD FIVE-YEAR OPTION TO EXTEND: Provided Tenant has extended the Lease for an additional five (5) year period pursuant to Lease Paragraph 43 (“Second Five Year Option To Extend”), Landlord hereby grants to Tenant a third option to extend the Term of this Lease for an additional five (5) year period upon the following terms and conditions:

          A. Tenant shall give Landlord written notice of Tenant’s exercise of this option to extend at least one hundred eighty (180) days prior to the expiration of the Lease Term as extended pursuant to Lease Paragraph 43 (“Second Five Year Option To Extend”), in which event the Lease shall be considered extended for an additional five (5) year period upon the same terms and conditions as this Lease, absent this Paragraph 3 and subject to the Rental as set forth below. In the event that Tenant fails to timely exercise Tenant’s option as set forth herein in writing, Tenant shall have no further option to extend this Lease or the Other Leases, and this Lease shall continue in full force and effect for the full remaining term hereof, absent this Paragraph 3.

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          B. The monthly Basic Rent for the option period shall be as follows in the event the option is exercised:

Period	Monthly Basic Rent
Months 1-12	$2.36/sf
Months 13-24	$2.41/sf
Months 25-36	$2.46/sf
Months 37-48	$2.51/sf
Months 49-60	$2.56/sf

          C. Notwithstanding anything contained herein, Tenant may not exercise the option to extend granted by this Paragraph 3 at any time that Tenant is in default (default for monetary and material default for non-monetary) of its obligations under this Lease, if Tenant has received written notice from Landlord that Tenant is in default, and such default has not been timely cured within the time period provided for in this Lease; provided, however, that if such default of Tenant is not for money due under this Lease and cannot be cured, and if Landlord does not elect to terminate this Lease as a result of such non-curable default by Tenant, Tenant may exercise the option to extend granted by this Paragraph 3 notwithstanding such non-curable default.

     4. LEASE TERMS CO-EXTENSIVE: Lease Paragraph 40C (“Lease Terms Co-extensive”) is hereby deleted in its entirety and replaced with the following:

          “40C. LEASE TERMS CO-EXTENSIVE: It is acknowledged that (i) Landlord and Tenant have previously executed four separate leases in addition to this Lease: one of said leases dated October 31, 1989 is for Premises located at 1140 Technology Drive, Milpitas, California (the “Building One Lease”); one of said leases dated October 31, 1989 is for Premises located at 500 McCarthy Blvd., Milpitas, California (the “Building Two Lease”); one of said leases dated September 17, 1990 is for Premises located at 1000 Sumac Drive, Milpitas, California (the “Building Four Lease”); and one of said leases dated March 23, 1994 is for premises located at 1101 Sumac Drive, Milpitas, California (the “Building 5 Lease”) (hereinafter collectively referred to as the “Other Leases”); and (ii) it is the intention of the parties that the term of this Lease be co-extensive with the term of the Other Leases, such that the terms of all five leases (“the Leases”) expire on the same date. The provisions of this Paragraph 40C also requires the terms of all the Leases to be extended accordingly if Tenant exercises its Option to Extend under any of the Leases. The monthly Basic Rent during the extended term under each of the Leases shall he increased by $.05 per square foot on the commencement date of the extended term and thereafter on each and every anniversary of the respective lease’s commencement date of the extended term.”

     5. CROSS DEFAULT: Lease Paragraph 48 (“Cross Default”) is hereby deleted in its entirety and replaced with the following:

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          “48. CROSS DEFAULT: It is agreed between Landlord and Tenant that a default under this Lease, or a default under any of the Other Leases may, at the option of Landlord, be considered a default under all Leases, in which event Landlord shall be entitled (but in no event required) to apply all rights and remedies of Landlord under the terms of one lease to all the Leases including, but not limited to, the right to terminate any or all of the aforementioned Other Leases or this Lease by reason of a default under the Leases or hereunder.

          Notwithstanding the above, Landlord shall have the option of considering a default under this Lease or a default under any of the Other Leases to be a default under all such leases, only with respect to such leases under which Landlord is also the ‘Landlord’ at the time such default occurs. By way of example, if at the time a default of Tenant occurs under this Lease, Landlord has sold the premises described in any of the Other Leases and is no longer the `Landlord’ thereunder, then a default under this Lease shall not constitute a default under any of such Other Leases so sold by Landlord (unless the premises leased under this Lease and the Other Leases are sold to the same entity), and a default by Tenant under any of such Other Leases so sold by Landlord shall not constitute a default under this Lease or any other of the Other Leases then remaining between Landlord and Tenant. However, if the Landlord under this Lease and the Other Leases is one in the same at the time of said default, said cross default provisions shall apply.”

     6. STRUCTURAL CAPITAL COSTS REGULATED BY GOVERNMENTAL AGENCIES AFTER THE COMMENCEMENT OF THIS LEASE NOT CAUSED BY TENANT OR TENANT’S USES OR REMODELING OF THE PREMISES: Lease Paragraph 53 (“Structural Capital Costs Regulated by Governmental Agencies after the Commencement of this Lease Not Caused by Tenant or Tenant’s Uses or Remodeling of the Premises”) is hereby deleted and replaced with the following:

          “53. STRUCTURAL CAPITAL COSTS REGULATED BY GOVERNMENTAL AGENCIES AFTER THE COMMENCEMENT OF THIS LEASE NOT CAUSED BY TENANT OR TENANT’S USES OR REMODELING OF THE PREMISES: The provisions of this Paragraph 53 shall modify Paragraphs 7 and 14:

          A. If (i) during the last five (5) years of the First Extended Term of the Lease if said Lease has not been extended as provided for in Lease Paragraph 43 (“Second Five Year Option To Extend”) or in Paragraph 3 (“Third Five Year Option to Extend”) or Paragraph 4 (“Lease Terms Co-Extensive”) above, or (ii) during either of the five (5) year extension periods permitted by Lease Paragraph 43 or Paragraph 3, or Paragraph 4 above, it becomes necessary (due to any governmental requirement for continued occupancy of the Premises) to make structural improvements required by laws enacted or legal requirements imposed by governmental agency(s) after the Commencement Date, and the cost for each required work or improvements exceeds $100,000, then if such legal requirement is not imposed because of Tenant’s specific use of the Premises and is not

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“triggered” by Tenant’s Alterations or Tenant’s application for a building permit or any other governmental approval (collectively “Tenant’s Actions”) in which instance Tenant shall be responsible for 100% of the cost of such improvements, Landlord shall be responsible for paying the cost of such improvement and constructing such improvement, subject to a cash contribution from Tenant of a portion of the cost thereof as provided for and calculated in Paragraph 53B.

          B. When Landlord makes an improvement pursuant to Paragraph 53A, and as a condition to Landlord’s obligation to construct such improvement, Tenant shall make the following contribution in cash to Landlord for the cost thereof prior to the commencement of the work by Landlord. It is agreed that Tenant shall pay to Landlord 100% of the cost of the first $100,000.00 worth of each improvement. After the first $100,000.00, all costs above $100,000.00 shall be divided by 15 and multiplied by the time period remaining in the last five years of the Lease Term from the date work on such improvement commences.

          For example, if the improvement is not required as a result of Tenant’s Actions and if the cost of such improvement was $400,000 and there was one year and six months remaining in the Lease term when the work commenced, then Tenant would be responsible for reimbursing Landlord in cash $130,000.00 computed as follows:

Total Cost of Work	$	400,000.00
Tenant Responsible for 1st $100,000		-100,000.00
Total Amount To Be Amortized	$	300,000.00
$300,000.00/15 = $20,000.00/yr. x 1.5 yrs  =	$	30,000.00
Tenant responsible for $100,000 + $30,000.00  =	$	130,000.00

          C. If Landlord has made improvements, for which Tenant has reimbursed Landlord for the cost thereof pursuant to Paragraph 53B, and the term of this Lease is subsequently extended pursuant to the exercise by Tenant of an option to renew pursuant to Lease Paragraph 43 or Paragraph 3 above, upon the exercise of any such option by Tenant, Tenant shall pay to Landlord an additional sum equal to the total amount of said improvement less the amount previously paid for by Tenant. Using the example in Paragraph 53B above, Tenant would owe Landlord the additional amount of $270,000.00 ($400,000.00 — $130,000.00 = $270,000.00).”

     7. PROPERTY INSURANCE: Lease Paragraph 12 (“Property Insurance”) is hereby amended to include the following: “Tenant acknowledges that as part of the cost of insurance policies for the Premises, Tenant is responsible for the payment of insurance deductibles on insurance claims as they relate to the Premises subject to the limitations provided in Lease Paragraph 55 (“Property Insurance”) which limitations are applicable only during the initial Lease Term and the First Lease Extension Period and the Second Lease Extension Period.

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Said limitation provided for in Lease Paragraph 55 are null and void at the commencement of the Third Lease Extended Term”.

     8. THIRD OPTION PERIOD — LEASE PROVISION CHANGES: In the event Tenant exercises its Third Option to Extend as provided for in Paragraph 3 above, the following amendments (contained within Paragraphs 9 through 19) are herein made to the Lease to be effective upon the commencement of the third option period (“Third Option Period”), or during any period following the expiration of the Lease Term or expiration of the Lease when Tenant is in possession of the Premises.

     9. LATE CHARGE: Effective as of the first day of the Third Option Period, the Late Charge referenced in Lease Paragraph 4.D (“Late Charge”) shall be changed from five percent (5%) to ten percent (10%), and Lease Paragraph 50 (“Limitation on Late Charge”) shall be deleted in its entirety and of no further force or effect.

     10. MANAGEMENT FEE: Notwithstanding anything to the contrary in the Lease, effective as of the first day of the Third Option Period, and on the first day of each month thereafter, Tenant shall pay to Landlord, in addition to the Basic Rent and Additional Rent, a fixed monthly management fee (“Management Fee”) equal to one percent (1%) of the Basic Rent due for each month during the Lease Term.

     11. HAZARDOUS MATERIALS: Effective as of the first day of the Third Option Period, Lease Paragraph 45 (“Hazardous Materials”) shall be deleted in its entirety and replaced with the following:

          “45. HAZARDOUS MATERIALS: Landlord and Tenant agree as follows with respect to the existence or use of “Hazardous Materials” (as defined herein) on, in, under or about the Premises and real property located beneath said Premises, which includes the entire parcel of land on which the Premises are located as shown in Green on Exhibit A to the Lease (hereinafter collectively referred to as the “Property”):

          A. As used herein, the term “Hazardous Materials” shall mean any material, waste, chemical, mixture or byproduct which is or hereafter is defined, listed or designated under Environmental Laws (defined below) as a pollutant, or as a contaminant, or as a toxic or hazardous substance, waste or material, or any other unwholesome, hazardous, toxic, biohazardous, or radioactive material, waste, chemical, mixture or byproduct, or which is listed, regulated or restricted by any Environmental Law (including, without limitation, petroleum hydrocarbons or any distillates or derivatives or fractions thereof, polychlorinated biphenyls, or asbestos). As used herein, the term “Environmental Laws” shall mean any applicable Federal, State of California or local government law (including common law), statute, regulation, rule, ordinance, permit, license, order, requirement, agreement, or approval, or any determination, judgment, directive, or order of any executive or judicial authority at any level of Federal, State of California or local government (whether now existing or subsequently

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adopted or promulgated) relating to pollution or the protection of the environment, ecology, natural resources, or public health and safety.

          B. Tenant shall notify Landlord prior to the occurrence of any Tenant’s Hazardous Materials Activities (defined below). Landlord acknowledges that Tenant shall use, in compliance with applicable Environmental Laws, customary household and office supplies (Tenant shall first provide Landlord with a list of said materials use), such as mild cleaners, lubricants and copier toner. Any and all of Tenant’s Hazardous Materials Activities shall be conducted in conformity with this Paragraph 45, Paragraph 14 of this Lease, and in compliance with all Environmental Laws and regulations. As used herein, the term “Tenant’s Hazardous Materials Activities” shall mean any and all use, handling, generation, storage, disposal, treatment, transportation, release, discharge, or emission of any Hazardous Materials on, in, beneath, to, from, at or about the Property, in connection with Tenant’s use of the Property, or by Tenant or by any of Tenant’s agents, employees, contractors, vendors, invitees, visitors or its future subtenants or assignees or other third parties (including “dumping” by others) (or which Hazardous Materials originate on the surface of the Premises any time on or after the Commencement Date of this Lease, but excluding Hazardous Materials on the Premises prior to the Lease Commencement Date because of the storage, use, disposal, or transportation of such materials or waste by any of Landlord’s contractors or otherwise arising out of construction work performed-by or under the direction of Landlord on the Premises and Landlord shall responsible for ‘ all required actions with respect to such materials or wastes). Tenant agrees to provide Landlord with prompt written notice of any spill or release of Hazardous Materials at the Property during the term of the Lease of which Tenant becomes aware, and further agrees to provide Landlord with prompt written notice of any violation of Environmental Laws in connection with Tenant’s Hazardous Materials Activities of which Tenant becomes aware. If Tenant’s Hazardous Materials Activities involve Hazardous Materials other than normal use of customary household and office supplies, Tenant also agrees at Tenant’s expense: (i) to install such Hazardous Materials monitoring, storage and containment devices as may be required by Environmental Laws, regulations and/or governing agencies; (ii) to provide Landlord with a written inventory of such Hazardous Materials, including an update of same each year upon the anniversary date of the Commencement Date of the Lease (“Anniversary Date”); and (iii) on each Anniversary Date to provide to Landlord copies of all documentation and records, required by applicable Environmental Laws to be prepared and submitted to governmental authorities, relating to use at the Property of Hazardous Materials or to Tenant’s Hazardous Materials Activities, if any. If upon completion of Landlord’s review of said documentation and records, Landlord reasonably questions if Tenant is in compliance-with all applicable Environmental Laws with respect to Tenant’s Hazardous Materials Activities, Tenant agrees within thirty (30) days following receipt of written notice from Landlord, to retain a qualified environmental consultant, acceptable to Landlord, to evaluate whether Tenant is in compliance with all applicable Environmental Laws with respect to Tenant’s Hazardous Materials Activities. Tenant, at its

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expense, shall submit to Landlord a report from such environmental consultant which discusses the environmental consultant’s findings within two (2) months of each Anniversary Date. Tenant, at its expense, shall promptly undertake and complete any and all steps necessary, and in full compliance with applicable Environmental Laws, to fully correct any and all problems or deficiencies identified by the environmental consultant, and promptly provide Landlord with documentation of all such corrections.

          C. Prior to termination or expiration of the Lease, Tenant, at its expense, shall (i) properly remove from the Property all Hazardous Materials which come to be located at the Property in connection with Tenant’s Hazardous Materials Activities, and (ii) fully comply with and complete all facility closure requirements of applicable Environmental Laws regarding Tenant’s Hazardous Materials Activities, including but not limited to (x) properly restoring and repairing the Property to the extent damaged by such closure activities, and (y) obtaining from the local Fire Department or other appropriate governmental authority with any legal or regulatory jurisdiction a written concurrence that closure has been completed in compliance with applicable Environmental Laws. Tenant shall promptly provide Landlord with copies of any claims, notices, work plans, data and reports prepared, received or submitted in connection with any such closure activities.

          D. If Landlord, upon consultation with Tenant, reasonably concludes that the Property has become contaminated as a result of Tenant’s Hazardous Materials Activities, Landlord in addition to any other rights it may have under this Lease or under Environmental Laws or other laws, may enter upon the Property and conduct inspection, sampling and analysis, including but not limited to obtaining and analyzing samples of soil and groundwater, for the purpose of determining the nature and extent of such contamination except to the extent that such activities may be inconsistent with Tenant’s compliance with Environmental Laws. Tenant shall promptly reimburse Landlord for the costs of such an investigation, including but not limited to reasonable attorneys’ fees Landlord incurs with respect to such investigation to the extent, and only to the extent, that it that discloses Hazardous Materials contamination for which Tenant is liable under this Lease. Except as may be required of Tenant by applicable Environmental Laws, Tenant shall not perform any sampling, testing, or drilling to identify the presence of any Hazardous Materials at the Property, without Landlord’s prior written consent which shall not be unreasonably withheld. Tenant shall promptly provide Landlord with copies of any claims, notices, work plans, data and reports prepared, received or submitted in connection with any sampling, testing or drilling, performed pursuant to the preceding sentence.

          E. Tenant shall indemnify, defend (with legal counsel acceptable to Landlord, whose consent shall not unreasonably be withheld) and hold harmless Landlord, its employees, assigns, successors, successors-in-interest, agents and representatives from and against any and ail claims (including but not limited to third party claims from a private party or a government authority), liabilities,

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obligations, losses, causes of action, demands, governmental proceedings or directives, fines, penalties, expenses, costs (including but not limited to reasonable attorneys’, consultants’ and other experts’ fees and costs), and damages, which arise from or relate to: (i) Tenant’s Hazardous Materials Activities; (ii) any Hazardous Materials contamination caused by Tenant prior to the Commencement Date of the Lease; or (iii) the breach of any obligation of Tenant under this Paragraph 45 (collectively, “Tenant’s Environmental Indemnification”). Tenant’s Environmental Indemnification shall include but is not limited to the obligation to promptly and fully reimburse Landlord for losses in or reductions to rental income, and diminution in fair market value of the Property. Tenant’s Environmental Indemnification shall further include but is not limited to the obligation to diligently and properly implement to completion, at Tenant’s expense, any and all environmental investigation, removal, remediation, monitoring, reporting, closure activities, or other environmental response action as may be required by applicable Environmental Laws, regulations or governing agencies (collectively, “Response Actions”). Tenant shall promptly provide Landlord with copies of any claims, notices, work plans, data and reports prepared, received or submitted in connection with any Response Actions.

          F. Landlord hereby makes the following representations to Tenant, each of which is made only to the best of Landlord’s knowledge as of the date Landlord executes this Lease, without any inquiry or investigation having been made or required by Landlord regarding this subject, nor does Landlord have any obligation to investigate or make inquiry regarding the subject:

               1) The soil and ground water on or under the Premises does not contain Hazardous Materials in amounts which violate any laws to the extent that any governmental entity could require either Landlord or Tenant to take any remedial action with respect to such Hazardous Materials.

               2) During the time that Landlord has owned the Premises, Landlord has received no notice of (i) any violation, or alleged violation, of any law that has not been corrected to the satisfaction of the appropriate authority, (ii) any pending claims relating to the presence of Hazardous Material on the Premises, or (iii) any pending investigation by any governmental agency concerning the Premises relating to Hazardous Materials.\

          G. Landlord and Tenant shall each give written notice to the other as soon as reasonably practicable of (i) any communication received from any governmental authority concerning Hazardous Materials which relates to the Premises, and (ii) any contamination of the Premises by Hazardous Materials which constitutes a violation of any law. Attached as Exhibit “C” to the Lease is a list of Hazardous Materials that Tenant intends to use at the Premises. If during the Lease Term Tenant proposes to use other Hazardous Materials at the Premises, Tenant shall inform Landlord of such use, identifying the Hazardous Materials and the manner of their use, storage and disposal, and shall agree (i) to use, store and dispose of such Hazardous Materials strictly in compliance with all

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laws, regulations and governing agencies and (ii) that the indemnity set forth in Paragraph 45 shall be applicable to Tenant’s use of such Hazardous Material.

          H. Landlord or Tenant may, at any time, cause testing wells to be installed on the Premises, and may cause the ground water to be tested to detect the presence of Hazardous Material by the use of such tests as are then customarily used for such purposes. Testing wells installed by Tenant shall be paid for by Tenant. If tests conducted by Landlord disclose that Tenant has violated any Hazardous Materials laws, or Tenant or parties on the Premises during the Term of this Lease have contaminated the Premises as determined by regulatory agencies pursuant to Hazards Materials laws, or that Tenant has liability to Landlord pursuant to Paragraph 45A, then Tenant shall pay for 100 percent of the cost of the test and all related expense. Prior to the expiration of the Lease Term, Tenant shall remove any testing wells it has installed at the Premises, and return the Premises to the condition existing prior to the installation of such wells, unless Landlord requests in writing that Tenant leave all or some of the testing wells in which instance the wells requested to be left shall not be removed.

          I. If any tests performed by Tenant or Landlord prior to the Commencement Date disclose Hazardous Materials at the Premises, Landlord at its expense will promptly take all reasonable action required by law with respect to the existence of such Hazardous Materials at the Premises. The Commencement Date shall not be delayed because of such action by Landlord unless occupation of the Premises is prohibited by law.

          J. The obligations of Landlord and Tenant under this Paragraph 45 shall survive the expiration or earlier termination of the Term of this Lease. The rights and obligations of Landlord and Tenant with respect to issues relating to Hazardous Materials are exclusively established by this Paragraph 45.”

     12. SECURITY DEPOSIT: Effective as of the first day of the Third Option Period, Lease Paragraph 51 (“Security Deposit”) shall be deleted in its entirety and replaced with the following:

          “51. SECURITY DEPOSIT: The following provisions shall modify Lease Paragraph 4F:

          A. Within thirty (30) days after the expiration or earlier termination of the Lease term and after Tenant has vacated the Premises, Landlord shall return to Tenant the entire Security Deposit except for amounts that Landlord has deducted therefrom that are needed by Landlord to cure defaults of Tenant under the Lease or compensate Landlord for damages for which Tenant is liable pursuant to this Lease. The use or disposition of the Security Deposit shall be subject to the provisions of California Civil Code Section 1950.7.

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          B. During the first thirty (30) days following Tenant’s exercise of its Third Option to Extend, and only during said thirty day period, Tenant shall have the one-time option of satisfying its obligation with respect to an amount equal to one-half (1/2) ($83,277.28) of the $166,554.56 Security Deposit required under Lease Paragraph 4F by providing to Landlord, at Tenant’s sole cost, a letter of credit which: (i) is drawn upon an institutional lender reasonably acceptable and accessible to Landlord in form and content reasonably satisfactory to Landlord; (ii) is in the amount of one-half (1/2) of the Security Deposit; (iii) is for a term of at lease twelve (12) months; (iv) with respect to any letter of credit in effect within the six month period immediately prior to the expiration of the Lease term, shall provide that the term of such letter of credit shall extend at least forty five (45) days past the Lease expiration date (including any extensions thereof); and (v) may be drawn upon by Landlord upon submission of a declaration of Landlord that Tenant is in default (as defined in Paragraph 19 and as modified by Paragraph 60). Landlord shall not be obligated to furnish proof of default to such institutional lender, and Landlord shall only be required to give the institutional lender written notification that Tenant is in default and upon receiving such written notification from Landlord the institutional lender shall be obligated to immediately deliver cash to Landlord equal to the amount Landlord may spend or become obligated to spend by reason of Tenant’s default or to compensate Landlord for any loss or damage which Landlord may suffer by reason of Tenant’s default up to 1/2 of the total Security Deposit required under Lease Paragraph 4F. Said letter of credit shall provide that if the letter of credit is not renewed, replaced or extended within twenty (20) days prior to its expiration date the issuer of the credit shall automatically issue a cashiers check payable to Landlord in the amount of the letter of credit after the date which is twenty (20) days before the expiration date, and no later than the expiration date, without Landlord being required to make demand upon the letter of credit. If Tenant provides Landlord with a letter of credit, within thirty (30) days of the execution of this Lease, meeting the foregoing requirements, one-half (1/2) of the cash Security Deposit (i.e., $83,277.28 of the $166, 554.56 Security Deposit) shall be returned to Tenant by Landlord inasmuch as the cash deposit remaining and the Letter of Credit equal the total Security Deposit required in Lease Paragraph 4F. If Tenant defaults with respect to any provisions of this Lease, including but not limited to provisions relating to the payment of Rent, Landlord may (but shall not be required to) draw down on the letter of credit for payment of any sum which Landlord may spend or become obligated to spend by reason of Tenant’s default, or to compensate Landlord for any loss or damage which Landlord may suffer by reason of Tenant’s default. Landlord and Tenant acknowledge that such letter of credit will be treated as if it were a cash security deposit, and such letter of credit may be drawn down upon by Landlord upon demand and presentation of evidence of the identity of Landlord to the issuer, in the event that Tenant defaults with respect to any provision of this Lease and such default is not cured within any applicable cure period. Notwithstanding anything to the contrary in this Lease, Landlord shall not be obligated to furnish proof of default to such institutional lender and Landlord is only required to give the institutional lender written

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notification that Tenant is in default and upon receiving such written notification from Landlord the institutional lender shall be obligated to immediately deliver cash to Landlord equal to the amount Landlord may spend or become obligated to spend by reason of Tenant’s default, or to compensate Landlord for any loss or damage which Landlord may suffer by reason of Tenant’s default up to 1/2 of the total Security Deposit. Landlord acknowledges that it is not entitled to draw down such letter of credit unless Landlord would have been entitled to draw upon the cash security deposit pursuant to the terms of Paragraph 4F of the Lease. Concurrently with the delivery of the required information to the issuer, Landlord shall deliver to Tenant written evidence of the default upon which the draw down was based, together with evidence that Landlord has provided to Tenant the written notice of such default which was required under the applicable provision of the Lease, and evidence of the failure of Tenant to cure such default within the applicable grace period following receipt of such notice of default. Any proceeds received by Landlord by drawing upon the letter of credit shall be applied in accordance with the provisions governing the Security Deposit imposed by Lease Paragraph 4F and this Paragraph 51. If Landlord draws upon the letter of credit, thereafter Tenant shall once again have the right to post a letter of credit in place of one-half (1/2) of a cash Security Deposit so long as Tenant is not then in default. In any event Tenant will be obligated to replenish the amount drawn to restore the Security Deposit to its original amount as provided for in Paragraph 4F. If any portion of the letter of credit is used or applied pursuant hereto, Tenant shall, within ten (10) days after receipt of a written demand therefor from Landlord, restore and replace the value of such security by either (i) depositing cash with Landlord in the amount equal to the sum drawn down under the letter of credit, or (ii) increasing the letter of credit to its value immediately prior to such application. Tenant’s failure to replace the value of the security as provided in the preceding sentence shall be a material breach of its obligation under this Lease.”

     13. REAL ESTATE TAXES: Effective as of the first day of the Third Option Period, Lease Paragraph 54 (“Real Estate Taxes”) shall be deleted in its entirety and replaced with the following:

          “54. REAL PROPERTY TAXES: Paragraph 9 is modified by the following:

          A. The term “Real Property Taxes” shall not include charges, levies or fees directly related to the use, storage, disposal or release of Hazardous Materials on the Premises unless directly related to Tenant’s Activities at this site or on other sites leased and/or owned by Tenant; however, Tenant shall be responsible for general or special tax and/or assessments (related to Hazardous Materials and/or toxic waste) imposed on the Property provided said special tax and/or assessment is not imposed due to on-site originated contamination on the Property (by third parties not related to Tenant) prior to the Lease Commencement Date. Subject to the terms and conditions stated herein, Tenant shall be responsible for paying one hundred percent (100%) of said taxes and/or assessments allocated to the Property.

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          B. If any assessments for public improvements are levied against the Premises, Landlord may elect either to pay the assessment in full or to allow the assessment to go to bond. If Landlord pays the assessment in full, Tenant shall pay to Landlord or any assignee or purchaser of the Premises each time payment of Real Property Taxes is made a sum equal to that which would have been payable (as both principal and interest) had Landlord allowed the assessment to go to bond.

          C. Tenant at its cost shall have the right, at any time, to seek a reduction in the assessed valuation of the Premises or to contest any Real Property Taxes that are to be paid by Tenant. If Tenant seeks a reduction or contests such Real Property Taxes, the failure on Tenant’s part to pay such Real Property Taxes being so contested shall not constitute a default so long as Tenant complies with the provisions of this Paragraph. Landlord shall not be required to join in any proceeding or contest brought by Tenant unless the provisions of any law require that the proceeding or contest be brought by or in the name of Landlord. In that case Landlord shall join in the proceedings or contest or permit it to be brought in Landlord’s name as long as Landlord is not required to bear any cost. Tenant, on final determination of the proceeding or contest, shall immediately pay or discharge its share of any Real Property Taxes determined by any decision or judgment rendered, together with all costs, charges, interest, and penalties incidental to the decision or judgment. If Tenant does not pay the Real Property Taxes when due pursuant to the Lease and Tenant seeks a reduction or contests them as provided in this paragraph, before the commencement of the proceeding or contest Tenant shall furnish to Landlord a surety bond in form reasonably satisfactory to Landlord issued by an insurance company qualified to do business in California. The amount of the bond shall equal 125% of the total amount of Real Property Taxes in dispute and any such bond shall be assignable to any lender or purchaser of the Premises. The bond shall hold Landlord and the Premises harmless from any damage arising out of the proceeding or contest and shall insure the payment of any judgment that may be rendered.”

     14. PROPERTY INSURANCE: Effective as of the first day of the Third Option Period, section B of Lease Paragraph 55 (“Property Insurance”) shall be deleted in its entirety and be of no further force or effect.

     15. ASSIGNMENT AND SUBLETTING: Effective as of the first day of the Third Option Period, Lease Paragraph 56 (“Assignment and Subletting”) shall be deleted in its entirety and replaced with the following:

          “56. ASSIGNMENT AND SUBLETTING: The following modifications are made to Paragraph 16:

          A. In the event that Tenant seeks to make any assignment or sublease, then Landlord, by giving Tenant written notice of its election within fifteen (15) days after Tenant’s notice of intent to assign or sublease has been given to Landlord, shall have the right to elect (i) to withhold its consent to such

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assignment or sublease, as permitted pursuant to Paragraph 16, or (ii) to permit Tenant to so assign the Lease or sublease such part of the Premises, in which event Tenant may do so, but without being released of its liability for the performance of all of its obligations under the Lease, and the following shall apply (except the following shall not apply to a “Permitted Transfer” described in Paragraph 57):

               1) If Tenant assigns its interest in this Lease, then in addition to the rental provided for in this Lease, Tenant shall pay to Landlord fifty percent (50%) of all Rent and other consideration received by Tenant over and above (i) the assignee’s agreement to assume the obligations of Tenant under this Lease and (ii) all “Permitted Transfer Costs” (as defined herein) related to such assignment. As used herein, the term “Permitted Transfer Costs” shall mean all reasonable leasing commissions paid to third parties not affiliated with Tenant in order to obtain the assignment or sublease in question.

               2) If Tenant sublets all or part of the Premises, then Tenant shall pay to Landlord in addition to the Rent provided for in this Lease fifty percent (50%) of the positive difference, if any, between (i) all rent and other consideration paid or provided to Tenant by the subtenant, less (ii) all Rent paid by Tenant to Landlord pursuant to this Lease which is allocable to the area so sublet and all Permitted Transfer Costs related to such sublease. After Tenant has recovered all Permitted Transfer Costs Tenant shall pay to Landlord the amount specified in the preceding sentence on the same basis, whether periodic or in lump sum, that such rent and other consideration is paid to Tenant by its subtenant, within seven (7) days after it is received by Tenant.

               3) Tenant’s obligations under this subparagraph shall survive any assignment or sublease. At the time Tenant makes any payment to Landlord required by this subparagraph, Tenant shall deliver an itemized statement of the method by which the amount to which Landlord is entitled was calculated, certified by Tenant as true and correct. Landlord shall have the right to inspect Tenant’s books and records relating to the payments due pursuant to this subparagraph. Upon request therefor, Tenant shall deliver to Landlord copies of all bills, invoices or other documents upon which its calculations are based.

               4) As used herein, the term “consideration” shall mean any consideration of any kind received, or to be received (including, but not limited to, services rendered and/or value received) by Tenant as a result of the assignment or sublease, if such sums are paid or provided to Tenant for Tenant’s interest in this Lease or in the Premises.

               5) This Paragraph 56.A does not apply to a “Permitted Transfer”, as provided in Paragraph 57 hereof. The parties agree that if any of the following transactions occur and do not qualify as “Permitted Transfers”, Tenant must obtain Landlord’s consent to such transaction and if Landlord consents to any of the following transactions which do not otherwise qualify as “Permitted

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Transfers”, then the provisions of this Paragraph 56.A shall not apply to the following transactions: (i) a merger, consolidation or other reorganization in which Tenant is not the surviving corporation so long as 95% of all assets and liabilities of Tenant are permanently transferred to such assignee; and (ii) an assignment of this Lease to a corporation which purchases or otherwise acquires 95% or more of the assets of Tenant so long as 95% of all assets and liabilities of Tenant are permanently transferred to such assignee and Tenant remains liable and responsible under the Lease to the extent Tenant continues in existence following such transaction.”

     16. PERMITTED ASSIGNMENTS AND SUBLEASES: Effective as of the first day of the Third Option Period, Lease Paragraph 57 (“Permitted Assignments and Subleases”) shall be deleted in its entirety and replaced with the following:

          “57. PERMITTED ASSIGNMENTS AND SUBLEASES: Notwithstanding anything contained in Paragraph 16, so long as Tenant otherwise complies with the provisions of Paragraph 16 and the Permitted Transfer does not release Tenant from its obligations hereunder, Tenant may enter into any of the following transfers (a “Permitted Transfer”) without Landlord’s prior written consent, and the provisions of Paragraph 56A shall not apply to any such Permitted Transfer:

          A. Tenant may sublease all or part of the Premises or assign its interest in this Lease to any corporation which controls, is controlled by, or is under common control with Tenant by means of an ownership interest of more than fifty percent (50%) providing Tenant remains liable for the payment of Rent and full performance of the Lease;

          B. Tenant may assign its interest in the Lease to a corporation which results from a merger, consolidation or other reorganization in which Tenant is not the surviving corporation so long as (i) 95% of all assets and liabilities of Tenant are permanently transferred to such assignee, and (ii) immediately prior to the merger, consolidation or other reorganization, the corporation into which Tenant is to be merged has a net worth equal to or greater than the net worth of Tenant at the time of Lease execution or at the time of such assignment, merger, consolidation or reorganization (whichever is greater), or if it does not, Landlord is provided a guaranty of the Lease (in a form reasonably acceptable to Landlord) from a corporation (a) that is the parent of, or is otherwise affiliated with, the corporation into which Tenant is to be merged, and (b) which has a current net worth equal to or greater than the net worth of Tenant at the time of Lease execution or at the time of such assignment, merger, consolidation or reorganization (whichever is greater). In the event there is not a permanent transfer of 95% or more of the assets and liabilities from Tenant to a third party, and Tenant continues to exist as a separate entity, both companies shall be jointly and severally liable for the full terms and conditions of the Lease;

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          C. Tenant may assign this Lease to a corporation which purchases or otherwise acquires 95% or more of the assets of Tenant so long as 95% of all assets and liabilities of Tenant are permanently transferred to such assignee (in the event there is not a permanent transfer of 95% or more of the assets and liabilities from Tenant to a third party and Tenant continues to exist as a separate entity, both companies shall be jointly and severally liable for the full terms and conditions of the Lease), and provided that immediately prior to such assignment said corporation, has a net worth equal to or greater than the net worth of Tenant (a) at the time of Lease execution or (b) at the time of such assignment (whichever is greater), or if it does not, Landlord is provided a guaranty of the Lease (in a form reasonably acceptable to Landlord) from a corporation (a) that is the parent of, or is otherwise affiliated with, said corporation and (b) which has a current net worth equal to or greater than the net worth of Tenant at the time of Lease execution or at the time of such assignment, (whichever is greater).”

     17. DESTRUCTION: Effective as of the first day of the Third Option Period, Lease Paragraph 62 (“Destruction”) shall be deleted in its entirety and replaced with the following:

          “62. DESTRUCTION: Paragraph 21 is modified by the following:

          A. Notwithstanding anything to the contrary within Paragraph 21, Landlord may terminate this Lease in the event of an uninsured event or if insurance proceeds, net of the deductible, are insufficient to cover one hundred percent of the rebuilding costs; provided, however, Tenant shall have the right to elect, in its discretion, to contribute such excess funds to permit Landlord to repair the Premises.

          B. Except as provided in Paragraph 62C, Landlord may not terminate the Lease if the Premises are damaged by a peril whereby the cost to replace and/or repair is one hundred percent (100%) covered by the insurance carried by Landlord pursuant to Paragraph 12, but instead shall restore the Premises in the manner described by Paragraph 21.

          C. If the Premises are damaged by a peril covered by the insurance carried by Landlord pursuant to Paragraph 12, Landlord shall have the option to terminate the Lease if each of the following conditions is satisfied: (i) the cost to repair or the damage exceeds thirty-three percent (33%) of the then replacement cost of the Premises; and (ii) the damage occurs at a time when there is less than five (5) years remaining in the term of the Lease.

          D. If Landlord fails to obtain insurance as required pursuant to Paragraph 12, and said insurance would have been available to cover any damage or destruction to the Premises, Landlord shall be required to rebuild, at its cost, net of the deductible which would have been required under said insurance policy (which deductible Tenant is required to pay).

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          E. If the Premises are damaged by any peril, then as soon as reasonably practicable, Landlord shall furnish Tenant with the written opinion of Landlord’s architect or construction consultant as to when the restoration work required of Landlord may be completed. Tenant shall have the option to terminate this Lease in the event any of the following occurs, which option may be exercised only by delivery to Landlord of a written notice of election to terminate within seven (7) days after Tenant receives from Landlord the estimate of the time needed to complete such restoration:

               1) The Premises are damaged by any peril (not caused by or resulting from an action of Tenant or Tenant’s agents, employees, contractors or invitees) and, in the reasonable opinion of Landlord’s architect or construction consultant, the restoration of the Leased Premises cannot be substantially completed within 180 days after the date of such damage (subject to force majeure conditions); or

               2) The Premises are damaged by any peril (not caused by or resulting from an action of Tenant or Tenant’s agents, employees, contractors or invitees) within twelve (12) months of the last day of the Lease term, and, in the reasonable opinion of Landlord’s architect or construction consultant, the restoration of the Leased Premises cannot be substantially completed within sixty (60) days after the date of such damage and Tenant has not exercised its Option to Extend said Term (or Extended Term as the case may be).”

     18. LIABILITY INSURANCE: Effective as of the first day of the Third Option Period, the first sentence of Lease Paragraph 10 (“Liability Insurance”) shall be deleted and replaced with the following: “Tenant, at Tenant’s expense, agrees to keep in force during the Term of this Lease a policy of commercial general liability insurance with combined single limit coverage of not less than Two Million Dollars ($2,000,000) per occurrence for bodily injury and property damage occurring in, on or about the Premises, including parking and landscaped areas.”

     19. LIMITATION OF LIABILITY: Effective as of the first day of the Third Option Period, Lease Paragraph 36 (“Limitation of Liability”) shall be deleted in its entirety and replaced with the following:

          “36. 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:

(i) the sole and exclusive remedy shall be against Landlord’s interest in the Premises leased herein;

(ii) 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);

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

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

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

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

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

(vii) these covenants and agreements are enforceable both by 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.”

     EXCEPT AS MODIFIED HEREIN, all other terms, covenants, and conditions of said April 10, 1992 Lease Agreement shall remain in full force and effect.

(This Space Left Blank Intentionally)

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     IN WITNESS WHEREOF, Landlord and Tenant have executed this Amendment No. 1 to Lease as of the day and year last written below.

LANDLORD:		TENANT:
JOHN ARRILLAGA SURVIVOR’S TRUST		QUANTUM CORPORATION
		a Delaware corporation
By	/s/ John Arrillaga	By		/s/ Andrew Kryder
	John Arrillaga, Trustee		Andrew Kryder
Date:	6/30/97	Andrew Kryder
		Print or Type Name
RICHARD T. PEERY		Title:		Finance & Corporate General Council
SEPARATE PROPERTY TRUST
By	/s/ Richard Peery	Date:		June 25, 1997
	Richard T. Peery, Trustee
Date:	6/26/97

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AMENDMENT NO. 2
TO LEASE

     THIS AMENDMENT NO. 2 is made and entered into this 22^nd day of March, 2001, by and between JOHN ARRILLAGA, Trustee, or his Successor Trustee UTA dated 7/20/77 (JOHN ARRILLAGA SURVIVOR’S TRUST) (previously known as the “John Arrillaga Separate Property Trust”) as amended, and RICHARD T. PEERY, Trustee, or his Successor Trustee UTA dated 7/20/77 (RICHARD T. PEERY SEPARATE PROPERTY TRUST) as amended, collectively as LANDLORD, and MAXTOR CORPORATION, a Delaware corporation, as “ASSIGNEE” OR “MAXTOR”.

RECITALS

     A. WHEREAS, by Lease Agreement dated April 10, 1992 Landlord leased to QUANTUM CORPORATION, a Delaware corporation (the “ASSIGNOR” or “QUANTUM”) all of that certain 60,128+ square foot building located at 900 Sumac Drive, Milpitas, California (the “Premises”), the details of which are more particularly set forth in said April 10, 1992 Lease Agreement, and

     B. WHEREAS, said Lease was amended by the Commencement Letter dated April 2, 1993 which established the February 26, 1993 Lease Commencement Date, and established the Termination Date of September 30, 2006, and,

     C. WHEREAS, said Lease was amended by Amendment No. 1 dated April 16, 1997, which amended the Lease by (i) extending the Term for five years, changing the Termination Date from September 30, 2006 to September 30, 2011, (ii) amending the Basic Rent schedule and Aggregate Rent accordingly, (iii) adding a third Five Year Option to Extend, (iv) replacing Paragraphs 41C (“Lease Terms Co-extensive”) and 48 (“Cross Default”) and 53 (“Structural Capital Costs Regulated by Governmental Agencies After the Commencement of this Lease not Caused by Tenant or Tenant’s Uses or Remodeling of the Premises”), (v) amending Lease Paragraph 12 (“Property Insurance”) and (vi) amending and/or replacing certain provisions of the Lease commencing as of the commencement of the Third Extended Term of said Lease , and

     D. WHEREAS, the Lease, together with those certain Amendments described above in Recitals B and C shall hereinafter collectively be referred to as “the Lease Agreement”, and

     E. WHEREAS, it is now the desire of the parties hereto to amend the Lease by (i) acknowledging Landlord’s consent to the assignment of said Lease from “Quantum Corporation, a Delaware corporation” to “Maxtor Corporation, a Delaware corporation”, and (ii) replacing Lease Paragraph 43 (“Second Five Year Option to Extend”) and Paragraph 3 to Amendment No. 1 dated April 16, 1997 (“Third Five Year Option to Extend”) as hereinafter set forth.

AGREEMENT

     NOW THEREFORE, for valuable consideration, receipt of which is hereby acknowledged, and in consideration of the hereinafter mutual promises, the parties hereto do agree as follows:

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     1. ASSIGNMENT OF TENANT’S INTEREST: Notwithstanding anything to the contrary contained in the Lease Agreement, Landlord hereby understands that based on Quantum’s notice to Landlord, Landlord hereby acknowledges that the following transactions have occurred:

          A. Quantum has operated its business at the Premises through two separate business groups: Quantum HDD, tracked by Quantum HDD common stock, and Quantum DSS, tracked by Quantum DSS common stock.

          B. On or about, October 3, 2000, Quantum and Maxtor entered into that certain an Amended and Restated Agreement and Plan of Merger and Reorganization, dated as of October 3, 2000 (the “Merger Agreement”), wherein they agreed that:

               (i) Quantum will separate its Quantum HDD business from its Quantum DSS and transfer the assets of Quantum HDD to a newly-formed subsidiary, Insula Corporation, a Delaware corporation (“Insula”), in exchange for all of Insula’s common stock and Insula’s agreement to be entirely responsible for all of the Quantum HDD obligations and liabilities.

               (ii) Immediately after such separation, each currently outstanding share of Quantum HDD common stock will be redeemed in return for a share of Insula common stock, such that the holders of Quantum HDD common stock shall own all of the common stock of Insula.

               (iii) Immediately after said redemption, Insula will merge into Maxtor and each share of the Insula’s common stock will be converted into the right to receive approximately 1.52 shares of Maxtor common stock, subject to possible adjustment as described in the Merger Agreement.

          C. As part of the legal separation of the Quantum HDD business from the Quantum DSS business, all of the right title and interest of Quantum in the Lease will be assigned by Quantum to Insula and Insula will assume and agree to be liable for all of the obligations of Quantum, as Tenant, under the Lease.

As a result of said merger transaction, as of April 2, 2001, the effective date of the merger, Maxtor will become the Tenant under the Lease Agreement, and Maxtor shall assume all obligations of Tenant under the Lease Agreement dated April 10, 1992, as amended.

Landlord hereby consents to the foregoing transactions (“Landlord’s Consent”). Except as expressly set forth below, Landlord’s Consent shall in no way void or alter any of the terms of the Lease Agreement by and between Landlord and Tenant, nor shall Landlord’s Consent alter or diminish in any way Tenant’s obligations to Landlord.

Landlord has not reviewed the terms of any agreement between Quantum, Insula and/or Maxtor, and Landlord shall not be bound by any agreement other than the terms of the Lease Agreement between Landlord and Tenant. Landlord does not make any warranties or representations as to the condition of the Leased Premises or the terms of the Lease Agreement between Landlord and Quantum. Landlord’s consent to the assignment shall in no way obligate Landlord to any further

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consents or agreements between Quantum and/or Assignee. So long as Quantum continues to exist as a Delaware corporation, it is agreed that both Quantum and Maxtor will be jointly and severally liable for all the terms and conditions of the Lease and all Amendments thereto; provided, however, that so long as Quantum remains liable for said Lease, no material amendment to the Lease Agreement after the date hereof shall be binding upon Quantum without the prior written consent of Quantum, which consent shall not be unreasonably withheld, and Quantum’s approval shall not be required on transactions related to Landlord’s Waivers, Landlord’s Consents to Sublease and/or Landlord’s Consents to Alterations. The foregoing, however, shall not prevent Tenant and Landlord from entering into any such modification or amendment between themselves.

It is further understood that the Security Deposit of Quantum is being transferred to Maxtor.

     1. OPTIONS TO EXTEND: As consideration for the consent of Landlord herein set forth, Lease Paragraph 43 (“Second Five Year Option to Extend”) and Paragraph 3 to Amendment No. 1 dated April 16, 1997 (“Third Five Year Option to Extend”) are hereby deleted in their entirety and shall be replaced with the following:

     2. SECOND FIVE YEAR OPTION TO EXTEND: Landlord hereby grants to Tenant an option to extend this Lease Agreement (“Option to Extend” or the “Option”) for an additional five years (“Second Extended Term”) upon the following terms and conditions:

                    (1) Tenant shall give Landlord written notice of Tenant’s exercise of this Option to Extend at least one hundred eighty (180) days prior to the expiration of the Lease Term pursuant to Paragraph A hereof (not later than April 3, 2011), in which event the Term of the Lease shall be considered extended for an additional five (5) years, subject to the Basic Rent set forth below and with: (i) the Basic Rent to be determined pursuant to Paragraph 2) below; (ii) management fee and the terms and conditions subject to amendment by Landlord (Landlord, in its sole and absolute discretion, may, but is not required to, incorporate its then current Lease provisions that are standard in Landlord’s leases for comparable buildings as of the date of Tenant’s exercise of its Option to Extend); and (iii) this Paragraph 2.A thereafter deleted. In the event that Tenant fails to timely exercise Tenant’s Option as set forth herein in writing, Tenant shall have no further Option to Extend this Lease, and the Lease shall continue in full force and effect for the full remaining term hereof, absent this Paragraph 2.

                    (2) In the event Tenant timely exercises Tenant’s Option to Extend as set forth herein, Landlord shall, within fifteen (15) days after receipt of Tenant’s exercise of the Option, advise Tenant of any changes in the management fee and the terms and conditions as referenced in Paragraph 2.A.1(ii) above) and the Basic Rent (which shall not be less than the Basic Rent for the fifth year of the current Term) required for the Extended Term of the Lease to make the Basic Rent for the Premises comparable to the then current market triple net basic rent for comparable properties either (i) then owned in whole or in part by the above mentioned Landlord or by members of its immediate family in the vicinity of the Premises or (ii) if not owned by Landlord or its family as stated herein, other third party properties in the vicinity of the Premises. Tenant shall have five (5) days after receipt from the Landlord of said new terms and conditions and Basic Rent in which to accept said new terms and conditions and Basic Rent and enter into written documentation confirming same. In the event Tenant fails to execute

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said written documentation confirming said new terms and conditions and Basic Rent for the Second Extended Term of Lease within said five (5) day period, Tenant shall have no further Option to Extend this Lease, and this Lease shall continue in full force and effect for the full remaining term hereof absent of this Paragraph 2, with Landlord having no further responsibility or obligation to Tenant with respect to Tenant’s Option to Extend.

                    (3) It is agreed that if Tenant is at any time prior to exercising its Option to Extend in default of this Lease and has failed to cure the default in the time period allowed, this Paragraph 2 shall be null and void and Tenant will have no further rights under this Paragraph. It is further agreed that if Tenant has exercised its Option to Extend and is subsequently in default, and has failed to cure the default in the time period allowed by the Lease at any time prior to, or at the time the lease commences on the Second Extended Term, Landlord may at its sole and absolute discretion, cancel Tenant’s Option to Extend, and this Lease will continue in full force and effect for the full remaining Term hereof, absent of this Paragraph 2.

                    (4) The Option rights of Tenant under this Paragraph 2.A, and the Second Extended Term thereunder, are granted for Tenant’s personal benefit and may not be assigned or transferred by Tenant, except as provided for in Lease Paragraph 57 (“Permitted Assignments and Subleases”), either voluntarily or by operation of law, in any manner whatsoever.

                    (5) Notwithstanding anything to the contrary in this Paragraph, this Option to Extend is automatically forfeited by Tenant (without notice from Landlord) in the event Tenant is, at any time during the Term of this Lease, in default of said Lease and if Tenant does not completely cure said default within five days for a monetary default and thirty days for a non-monetary default (or such longer time as permitted by cure in the Lease Agreement). In the event said Option to Extend is forfeited as stated herein, Tenant shall have no further Option to Extend this Lease.

     3. THIRD FIVE (5)-YEAR OPTION PERIOD: Provided Tenant has extended the Lease for an additional five year period as set forth in Paragraph A above, Landlord hereby grants to Tenant another Option to Extend the Lease Agreement upon the following terms and conditions;

                    (1) Tenant shall give Landlord written notice of Tenant’s exercise of this Option to Extend at least one hundred eighty (180) days prior to the expiration of the Basic Term hereof (not later than April 3, 2016), in which event the Term of the Lease shall be considered extended for an additional five (5) years (“Third Extended Term”) subject to the Basic Rent set forth below and with: (i) the Basic Rent to be determined pursuant to Paragraph 2) below; (ii) the management fee and the terms and conditions subject to amendment by Landlord (Landlord, in its sole and absolute discretion, may, but is not required to, incorporate its then current Lease provisions that are standard in Landlord’s leases for comparable buildings as of the date of Tenant’s exercise of its Option to Extend); and (iii) this Paragraph 2.B thereafter deleted. In the event that Tenant fails to timely exercise Tenant’s Option as set forth herein in writing, Tenant shall have no further Option to Extend this Lease, and the Lease shall continue in full force and effect for the full remaining term hereof, absent this Paragraph 2.B.

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                    (2) In the event Tenant timely exercises Tenant’s Option to Extend as set forth herein, Landlord shall, within fifteen (15) days after receipt of Tenant’s exercise of option, advise Tenant of any changes in the management fee and the terms and conditions as referenced in Paragraph 2.B.1(ii) above and Basic Rent (which shall not be less than the Basic Rent for the fifth year of the Second Extended Term) required for the Third Extended Term of the Lease to make the Basic Rent for the Premises comparable to the then current market triple net basic rent for comparable properties either (i) then owned in whole or in part by the above mentioned Landlord or by members of its immediate family in the vicinity of the Premises or (ii) if not owned by Landlord or its family as stated herein, other third party properties in the vicinity of the Premises. Tenant shall have five (5) days after receipt from the Landlord of said new terms and conditions and Basic Rent in which to accept said new terms and conditions and Basic Rent and enter into written documentation confirming same. In the event Tenant fails to execute said written documentation confirming said new terms and conditions and Basic Rent for the Third Extended Term of Lease within said five (5) day period, Tenant shall have no further Option to Extend this Lease, and this Lease shall continue in full force and effect for the full remaining term hereof absent of this Paragraph 2.B, with Landlord having no further responsibility or obligation to Tenant with respect to Tenant’s Option to Extend.

                    (3) It is agreed that if Tenant is at any time prior to exercising its Option to Extend in default of this Lease and has failed to cure the default in the time period allowed, this Paragraph 2.B will be null and void and Tenant will have no further rights under this Paragraph. It is further agreed that if Tenant has exercised its Option to Extend and is subsequently in default, and has failed to cure the default in the time period allowed by the Lease at any time prior to, or at the scheduled Commencement Date of the Third Extended Term, Landlord may at its sole and absolute discretion, cancel Tenant’s Option to Extend, and this Lease will continue in full force and effect for the full remaining Term hereof, absent of this Paragraph 2.B.

                    (4) The Option rights of Tenant under this Paragraph 2.B and the Third Extended Term thereunder, are granted for Tenant’s personal benefit and may not be assigned or transferred by Tenant, except as provided for in Lease Paragraph 57 (“Permitted Assignments and Subleases”), either voluntarily or by operation of law, in any manner whatsoever.

                    (5) Notwithstanding anything to the contrary in this Paragraph 2.B, this Option to Extend is automatically forfeited by Tenant (without notice from Landlord) in the event Tenant is, at any time during the Term of this Lease, in default of said Lease and if Tenant does not completely cure said default within five days for a monetary default and thirty days for a non-monetary default (or such longer time as permitted by cure in the Lease Agreement). In the event said Option to Extend is forfeited as stated herein, Tenant shall have no further Option to Extend this Lease.

               EXCEPT AS MODIFIED HEREIN, all other terms, covenants, and conditions of said April 10, 1992 Lease Agreement shall remain in full force and effect.

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     IN WITNESS WHEREOF, Landlord and Tenant have executed this Amendment No. 2 to Lease as of the day and year last written below.

LANDLORD:		ASSIGNEE/MAXTOR
JOHN ARRILLAGA SURVIVOR’S TRUST		MAXTOR CORPORATION
		a Delaware corporation
By:	/s/ Richard Peery, his Attorney in Fact	By:	/s/ Glenn H. Stevens
	John Arrillaga, Trustee
	John Arrillaga, Trustee	Glenn H. Stevens
		Print or Type Name
Date:	3/30/01
RICHARD T. PEERY SEPARATE		Title:	V.P., General Counsel & Secretary
PROPERTY TRUST
By:	/s/ Richard Peery	Date:	4/1/01
	Richard T. Peery, Trustee
Date:	3/30/01	ASSIGNOR/QUANTUM
		QUANTUM CORPORATION
		a Delaware corporation
		By:	/s/ Signature Illegible
		Print or Type Name
		Title:	VP Real Estate
		Date:	3/30/01

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LEASE 3

Building 4

Lot 4

LEASE AGREEMENT

     THIS LEASE, made this 17th day of September, 1990 between JOHN ARRILLAGA, Trustee, or his Successor Trustee, UTA dated 7/20/77 (JOHN ARRILLAGA SEPARATE PROPERTY TRUST) as amended, and RICHARD T. PEERY, Trustee, or his Successor Trustee, UTA dated 7/20/77 (RICHARD T. PEERY SEPARATE PROPERTY TRUST) as amended, hereinafter called Landlord, and QUANTUM CORPORATION, a Delaware corporation, 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 land containing approximately 6,749 ± acres and that certain 101,253+ square foot two-story building (“Building 4”) and parking appurtenant thereto, to be constructed and landscaping to be installed by Landlord as shown within the area outlined in Red (“Lot 4”) on Exhibit A to be located at 1000 Sumac Drive, Milpitas, California 95035. Said Premises is more particularly shown within the area outlined in Red on Exhibit A attached hereto and incorporated herein by this reference and Lot 4 is more particularly described as Parcel 4 as shown on that certain parcel map recorded in the Official Records of Santa Clara County in Book 616 of Maps, Page 20 on July 23, 1990. The interior of the leased Premises shall be improved in the configuration as shown in Red on Exhibit B to be attached hereto and incorporated herein by this reference. The building shell shall be constructed in accordance with the shell and site improvement specifications set forth on Exhibit A, and the general building elevation net forth on Exhibit A.

SEE PARAGRAPH 48.

     The word “Premises” as used throughout this lease is hereby defined to include the nonexclusive use of sidewalks and driveways in front of or adjacent the Premises, and the nonexclusive use of the area directly underneath or over such sidewalks and driveways. The gross leasable area of the building 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.

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     Said letting and hiring is upon and subject to the terms, covenants and conditions 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 and observance.

     1. USE: Tenant shall use the Premises only in conformance with applicable governmental laws, regulations, rules and ordinances for the purpose of office, sales, R&D, light manufacturing and related uses necessary for the use of Tenant or any approved assignee or subtenant to conduct its business providing any and all uses of the Premises shall be subject to and in conformance with all governmental laws and ordinances and for no other purpose without Landlord’s prior written consent, 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 without the prior written consent of Landlord, and provided Tenant bears any cost related to such increased rate, 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 material 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 which 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 of Tenant to comply with any applicable law that governs Tenant use of the Premises. Tenant shall comply with any covenant, condition, or restriction (“CC&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: and Commencement Date of Lease: See Paragraph 40, 41 and 42 of this Lease.

     3. POSSESSION: If Landlord, for any reason whatsoever, other than Landlord’s default, cannot deliver possession of said premises to Tenant at the commencement of the said term, as hereinbefore specified, this Lease shall not be void or voidable; no obligation of Tenant

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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; provided, however, it is agreed that in no event shall the Lease commence sooner than December 20, 1991 unless the parties agree in writing to an earlier date for the Lease to commence. The above is, however, subject to the provision that the period of delay of delivery of the Premises shall not exceed 180 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.

SEE PARAGRAPH 46

     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 total sum of the amount to be calculated pursuant to Paragraph 39 Dollars ($) in lawful money of the United States of America, payable as follows:

SEE PARAGRAPHS 39 THROUGH 42.

          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, it 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 five percent (5%) of each rental payment so in default. See Paragraph 49.

          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

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               (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 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 in which case such amount shall be held by Landlord as a credit for Tenant’s account until such default has been cured) 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 actual 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 Peery/Arrillaga, File 1504, P.O. Box 60000, Sand Francisco, CA 4160 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 TWO HUNDRED EIGHTY NINE THOUSAND FIVE HUNDRED EIGHTY THREE AND 58/100 Dollars ($289, 583.58) Said sum shall be held by Landlord as a Security Deposit for the faithful performance by Tenant of all of 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 the payment of any other amount which Landlord may spend by reason of Tenant’s

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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 its 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 therefore. SEE PARAGRAPH 50.

     5. ACCEPTANCE AND SURRENDER OF 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 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 acoustical 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 ninety (90) 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 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 be 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

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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 sub tenancies. SEE PARAGRAPH 51.

     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 alt 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 alteration 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 Tenant receives notice of 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. SEE PARAGRAPH 51.

     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

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caused by such rolling chairs if such wear and tear exceeds that caused by normal foot traffic in surrounding areas. Areas of excessive wear 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. SEE PARAGRAPH 52.

     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 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.

     9. TAXES:

          A. Notwithstanding the following and pursuant to the terms of the Option Agreement dated October 31, 1989 related to this Lease Tenant is responsible for paying all real estate taxes and assessments assessed against the Premises leased hereunder from the date Tenant exercised its option on said Premises which date was August 27, 1990. 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 calculated and determined by Landlord. It 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, than 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 nonresponsibility 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

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governmental or quasi-governmental authority or special district having the direct or indirect power to tax or levy assessments, which are levied or assessed 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) 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, than 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. SEE PARAGRAPH 53.

          B. Taxes on Tenant’s Property Tenant shall be liable for and shall pay ten 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, on or about the Premises, including parking and landscaped areas, in the amount of $2,000,000 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,

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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 shall 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. TENANTS PERSONAL PROPERTY INSURANCE AND WORKMAN’S 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 workman’s compensation insurance and any other employee benefit insurance sufficient to comply with all laws.

     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 (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 to 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 it 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. SEE PARAGRAPH 54.

     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,

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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 and subject to the last two sentences of Paragraph 12. 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 use 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 officer; 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 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 sole 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. SEE PARAGRAPHS 44 AND 52.

     15. LIENS: Tenant shall keep the Premises free from any liens arising out of any work performed, materials furnished or obligation incurred by Tenant. In the event that Tenant shall not, within ten (10) days following Tenant’s receipt of notice of 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. 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 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

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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 wider 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 reasonable 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 the Lease. SEE PARAGRAPHS 55 AND 56.

     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. 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. SEE PARAGRAPH 57

     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, mortgagers or tenants; to post notices of nonresponsibility; 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 under any circumstances be construed or deemed 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. SEE PARAGRAPH 59.

     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

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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 [Illegible] 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 [Illegible] 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 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.

               (b) The rights and remedies provided by California Civil Code Section 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 relet 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, after compliance with all statutory requirements and in any event on not less than three (3) business days prior written notice, 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,

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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 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 first to payment of indebtedness other than rent due hereunder from Tenant to Landlord; second, to the payment of any costs of such subletting and of such alterations and repairs; third to payment of rent due and unpaid hereunder; and the residue, if any, shall be held by Landlord and 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 than 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. No taking possession of the Premises by Landlord shall be construed as an election on its part to terminate this Lease 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 to Landlord pursuant to subparagraph d above. SEE PARAGRAPH 59.

     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 said 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. SEE PARAGRAPH 60.

     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

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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 embargos, 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 of 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 fixtures, 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 the destruction of the Premises is caused by Tenant, Tenant shall pay the deductible portion of Landlord’s insurance proceeds. SEE PARAGRAPH 61.

     22. EMINENT DOMAIN: If all or any part of the Premises shall be taken by any public or quasi-public authority under the power of eminent domain or conveyance in lieu thereof, this Lease shall terminate as to any portion of the Premises so taken or conveyed on the date when title vests in the condemnor, and Landlord shall be entitled to any and all payment, income, rent, award, or any interest therein whatsoever which may be paid or made in connection with such taking or conveyance, and Tenant shall have no claim against Landlord or otherwise for the value of any unexpired term of this Lease. Notwithstanding the foregoing paragraph, any compensation specifically awarded Tenant for loss of business, Tenant’s personal property, moving cost or loss of goodwill, shall be and remain the property of Tenant.

     If any action or proceeding is commenced for such taking of the Premises or any part thereof, or if Landlord is advised in writing by any entity or body having the right or power of condemnation of its intention to condemn the premises or any portion thereof, then Landlord shall have the right to terminate this Lease by giving Tenant written notice thereof within sixty (60) days of the date of receipt of said written advice, or commencement of said action or proceeding, or taking conveyance, which termination shall take place as of the first to occur of the last day of the calendar month next following the month in which such notice is given or the date on which title to the Premises shall vest in the condemnor.

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     In the event of such a partial taking or conveyance of the Premises, if the portion of the Premises taken or conveyed is so substantial that the Tenant can no longer reasonably conduct its business, Tenant shall have the privilege of terminating this Lease within sixty (60) days from the date of such taking or conveyance, upon written notice to Landlord of its intention so to do, and upon giving of such notice 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 the rent from the date of such taking or conveyance to the date of termination.

     If a portion of the Premises be taken by condemnation or conveyance in lieu thereof and neither Landlord nor Tenant shall terminate this Lease as provided herein, this Lease shall continue in full force and effect as to the part of the Premises not so taken or conveyed, and the rent herein shall be apportioned as of the date of such taking or conveyance so that thereafter the rent to be paid by Tenant shall be in the ratio that the area of the portion of the Premises not so taken or conveyed bears to the total area of the Premises prior to such taking. SEE PARAGRAPH 62.

     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 shaft not be affected by any such sale or conveyance, and Tenant agrees to attorn to the successor in interest of such transferor. SEE PARAGRAPH 63.

     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 secunng 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 the term 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 the 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 Basic Rent shall be increased to an amount equal to one hundred twenty five (125%) percent of the monthly Basic Rent required during the last month of the Lease term.

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     26. CERTIFICATE OF ESTOPPEL: Either party shall at any time upon not less than ten (10) days prior written notice from the other party execute, acknowledge and deliver to the requesting party 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 the best of such party’s knowledge, any uncured defaults on the part of the other party 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. A party’s failure to deliver such statement within such time shall be conclusive upon the party receiving such request 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 the requesting party’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 fail 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 either Landlord or Tenant should bring suit for the possession of the Premises, for the recovery of any sum due under this, or because of the breach of any provision of this Lease, or for any other relief against the other party 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.

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          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 a reasonable attorney’s fee.

     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 anyway 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, advises 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 of it sent by United Stated certified or registered mail, postage prepaid, addressed to Tenant at the Premises. All notices, demands, requests, advises 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 Peery/Arrillage, 2560 Mission College Blvd., Suite 101, Santa Clara, CA 95054. 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 this 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 (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 it 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 (a partnership) in accordance with its terms. If Tenant is a corporation, Tenant shall, within thirty

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(30) days after 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. INTENTIONALLY LEFT BLANK

     36. 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 maybe 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 maybe vacated and set aside at any time without hearing;

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

               (h) these covenants and agreements are enforceable both by 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.

     37. 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 other 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 reasonably approved of by Landlord. Tenant

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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.

     38. 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. The term “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, and the provisions of this Lease shall inure to the benefit of and bind such heirs, executors, administrators, successors and permitted assigns. The term “person” includes the plural as well as the singular and individuals, firms, associations, partnerships and corporations. Words used in any gender include other genders. If there be more than one Tenant the obligations of Tenant hereunder are joint and several. The paragraph headings of this Lease are for convenience of reference only and shall have no effect upon the construction or interpretation of any provision hereof.

          D. Time of Essence. Time is of the essence of this Lease and of each and all of its provisions.

          E. 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.

          F. Incorporation of Prior Agreements; Amendments. 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.

          G. Recording. Landlord and Tenant shall record a short form memorandum hereof in the form attached hereto as Exhibit D.

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          H. Amendments for Financing. Tenant further agrees to execute any amendments reasonably required by a lender to enable Landlord to obtain financing, so long as Tenant’s rights hereunder are not materially and adversely affected and there is no change in the Basic Options to Renew, Lease Term or Construction obligations of Landlord.

          I. Additional Paragraphs. Paragraphs 39 through 64 are added hereto and are included as a part of this lease.

          J. 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.

          K. 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 his Lease, entitle Tenant to any reduction of rent hereunder or result in any liability of Landlord to Tenant.

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

LANDLORD:		TENANT:
JOHN ARRILLAGA SEPARATE PROPERTY TRUST		QUANTUM CORPORATION,
		a Delaware corporation
By	/s/ John Arrillaga	By	/s/ Joseph Shepela
	John Arrillaga, Trustee
		Title	VP Human Resources
RICHARD T. PEERY SEPARATE PROPERTY TRUST
By	/s/ Richard Peery
	Richard T. Peery, Trustee

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Paragraphs 39 through 64 to Lease Agreement dated September 17, 1990. By and Between JOHN ARRILLAGA AND RICHARD T. PEERY SEPARATE PROPERTY TRUSTS, as Landlord, and QUANTUM CORPORATION, a Delaware corporation, as Tenant for 101,253 ± Square Feet of Space Located at 1000 Sumac Drive, Milpitas, California.

     39. BASIC RENT: In accordance with Paragraph 4A, subject to the provisions of Paragraph 40, Basic Rent shall be payable as follows during the indicated months of the term of the Lease based upon the gross leasable area within the building that is part of the Premises:

Period	Monthly Basic Rent
Months 1-12 (plus the partial calendar month, if any, following the Commencement Date)	$1.08/sf
Months 13-24	$1.13/sf
Months 25-36	$1.18/sf
Months 37-48	$1.23/sf
Months 49-60	$1.28/sf
Months 61-72	$1.33/sf
Months 73-84	$1.38/sf
Months 85-96	$1.43/sf
Months 97-108	$1.48/sf
Months 109-120	$1.53/sf
Months 121-132	$1.58/sf
Months 133-144	$1.63/sf
Months 145-156	$1.68/sf
Months 157-168	$1.73/sf
Months 169-176	$1.78/sf

     Example of calculation of Basic Rent per month for the period commencing with the first through the twelfth months of said Lease:

Square footage of Building		101,253
Per square foot Basic Monthly Rent		x$1.08
Basic Rent per Month	$	109,353.24

     40. LEASE TERM AND COMMENCEMENT DATE: The following provisions relate to the commencement and duration of the term of this Lease:

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          A. Lease Term: The term of this Lease shall commence on the “Commencement Date” (as defined herein) and shall continue for a period of fourteen years and eight months, plus the partial calendar month, if any, in which the Commencement Date occurs, subject to (i) earlier termination in accordance with the provisions of this Lease, and (ii) extension pursuant to the options to renew granted by Paragraphs 41 and 42. By way of example only, if the Commencement Date occurs on December 20, 1991, the term of the Lease shall continue until August 31, 2006 (i.e., a period of 14 years and 8 calendar months, plus the partial calendar month following December 20, 1991 until December 31, 1991).

          B. Commencement Date Defined: As used herein, the term “Commencement Date” shall mean the later to occur of the following: (i) the date upon which the “Improvements” are “Substantially Completed”; or (ii) December 20, 1991; provided, however, that if prior to the later of such dates Tenant’s operating personnel enter into occupancy of the Premises and commence the operation of Tenant’s business within the Premises, the Commencement Date shall be the date such personnel of Tenant so enter into occupancy of the Premises. The term “Substantially Completed” and/or “Substantial Completion” shall mean the date when all of the following have occurred with respect to the Improvements in question: (i) the construction of the Improvements in question has been substantially completed in accordance with the approved plans therefor except for punch list items which do not prevent Tenant from reasonably using the Premises to conduct Tenant’s business; (ii) Landlord has executed a certificate or statement representing that the Improvements in question have been substantially completed in accordance with the plans and specifications therefor except for the punch list items which do not prevent Tenant from reasonably using the Premises to conduct Tenant’s business; and (iii) the Building Department of the City of Milpitas has completed its final inspection of such Improvements and has “signed off” the building inspection card approving such work as complete except for punch list items which do not prevent Tenant from reasonably using the Premises to conduct Tenant’s business. Notwithstanding the foregoing, Substantial Completion of the Interior Improvements shall not be deemed to have occurred until Landlord has obtained final or conditional approval from the Fire Department of the City of Milpitas that the Improvements have been completed in accordance with such department’s requirements (subject only to conditions that do not prevent Tenant from occupying the Improvements).

          C. Lease Terms Co-extensive: It is acknowledged that (i) Landlord and Tenant have previously executed two separate leases dated October 31, 1989 (hereinafter referred to as the 1989 Leases) for Premises located at 1130 Bellew Drive and 490 McCarthy Blvd., Milpitas, California, affecting property upon which two separate buildings are being constructed for Tenant’s use. The parties to said 1989 Leases have agreed that the 1989 Leases will commence on the later of April 1, 1991 or the date the “Improvements” are “Substantially Completed” (as that term is defined in Amendment No. 1 dated April 29, 1990 to the 1989 Leases between Landlord and Tenant), and (ii) it is the intention of the parties that the term of this Lease be co-extensive with the term of the 1989 Leases, such that the terms of all three leases expire on the same date. To that end, in the event that following the date upon which the Commencement Date of this Lease and the commencement dates for the 1989 Leases become established as dates certain following completion of improvements and satisfaction of any other conditions related to determining such dates, the term of this Lease may be reduced or extended to coincide with the term of the 1989 Leases, however, in no event will the term of this Lease be for a period of less than ten (10) years. It is acknowledged that the implementation of this

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paragraph may result in an extension of the term of this Lease, in which event Tenant shall continue to pay rent at the rate applicable for the period immediately prior to the adjusted lease term expiration date. As soon as the parties are able to implement the provisions of this paragraph because the Commencement Date of this Lease and the commencement dates of the 1989 Leases have been determined following completion of improvements and satisfaction of other appropriate conditions, the parties shall execute an amendment to this Lease establishing the applicable Commencement Date and the expiration date of the term of this Lease in accordance with the foregoing provisions of this Paragraph 40C, the actual rent based upon the measurements of the completed building covered by this Lease as certified prior to the Commencement Date by an architect or general contractor reasonably approved by the parties, and the actual date for each rent adjustment provided for in this Lease, based upon the actual Lease Commencement Date.

     41. FIRST FIVE-YEAR OPTION TO EXTEND: Landlord hereby grants to Tenant an option to extend the term of this Lease for an additional five (5) year period upon the following terms and conditions)

          A. If Tenant elects to exercise the option to extend, Tenant shall give Landlord written notice of Tenant’s exercise of this option to extend at lease one hundred eighty (180) days prior to the expiration of the Basic Term hereof, in which event the Lease shall be considered extended for an additional five (5) year period upon the same terms and conditions as this Lease, absent this Paragraph 41 and subject to the rental as set forth below. In the event that Tenant fails to timely exercise Tenant’s option as set forth herein in writing, Tenant shall have no further option to extend this Lease, and this Lease shall continue in full force and effect for the full remaining term hereof, absent this Paragraph 41.

          B. The monthly Basic Rent for the option period shall be as follows in the event the option is exercised:

Period	Monthly Basic Rent
Months 1-12	$1.83/sf
Months 13-24	$1.88/sf
Months 25-36	$1.93/sf
Months 37-48	$1.98/s£
Months 49-60	$2.03/sf

          C. Notwithstanding anything contained herein, Tenant may not exercise the option to renew granted by this Paragraph 41 at any time that Tenant is in material default of its obligations under this Lease, if Tenant has received written notice from Landlord that Tenant is in default, and such default has not been timely cured within the time period provided for in this Lease; provided, however, that if such default of Tenant is not for money due under this Lease and cannot be cured, and if Landlord does not elect to terminate this Lease as a result of such non-curable default by Tenant, Tenant may exercise the option to extend granted by this Paragraph 41 notwithstanding such non-curable default.

     42. SECOND FIVE-YEAR OPTION TO EXTEND: Provided Tenant has extended the Lease for an additional five (5) year period as set forth in Paragraph 41, Landlord

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hereby grants to Tenant an option to extend the term of this Lease for an additional five (5) year period upon the following terms and conditions:

          A. Tenant shall give Landlord written notice of Tenant’s exercise of this option to extend at least one hundred eighty (180) days prior to the expiration of the Lease term as extended pursuant to Paragraph 41, in which event the Lease shall be considered extended for an additional five (5) year period upon the same terms and conditions as this Lease, absent this Paragraph 42A and subject to the rental as set forth below. In the event that Tenant fails to timely exercise Tenant’s option as set forth herein in writing, Tenant shall have no further option to extend this Lease, and this Lease shall continue in full force and effect for the full remaining term hereof, absent this Paragraph 42.

          B. The monthly Basic Rent for the option period shall be as follows in the event the option is exercised:

Period	Monthly Basic Rent
Months 1-12	$2.08/sf
Months 13-24	$2.13/sf
Months 25-36	$2.18/sf
Months 37-48	$2.23/sf
Months 49-60	$2.28/sf

          C. Notwithstanding anything contained herein, Tenant may not exercise the option to extend granted by this Paragraph 42 at any time that Tenant is in material default of its obligations under this Lease, if Tenant has received written notice from Landlord that Tenant is in default, and such default has not been timely cured within the time period provided for in this Lease; provided; however, that if such default of Tenant is not for money due under this Lease/ and cannot be cured, and if Landlord does not elect to terminate this Lease as a result of such non-curable default by Tenant, Tenant may exercise the option to extend granted by this Paragraph 42 notwithstanding such non-curable default.

     43. ASSESSMENT CREDITS: The demised property herein is subject to a special assessment levied by the City of Milpitas in Improvement District No. 12. As a part of said special assessment proceedings, additional bonds were sold and assessments levied to provide for construction contingencies and reserve funds. Interest will be earned on such funds created for contingencies and on reserve funds which will be credited for the benefit of said assessment district. To the extent surpluses are created in said district through unused contingency funds, interest earnings or reserve funds, such surpluses shall be deemed the property of Landlord. Notwithstanding that such surpluses may be credited on assessments otherwise due against the demised premises, Tenant shall pay to Landlord, as additional rent if, and at the time of any such credit of surpluses, an amount equal to all such surpluses so credited.

     44. HAZARDOUS MATERIALS: The parties agree as follows with respect to the existence or the use of hazardous material on the Premises:

          A. Tenant shall have no obligations to “clean up”, to comply with any law regarding, or to reimburse, release, indemnify, or defend Landlord with respect to any hazardous

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materials or wastes which Tenant or other parties on the Premises did not store, dispose, or transport in, use, or cause to be on the Premises in violation of applicable law during the term of this Lease. Any handling, transportation, storage, treatment, disposal or use of hazardous materials by Tenant or other parties in or about the Premises during the term of this Lease shall strictly comply with all applicable laws and regulations. Tenant will be 100 percent liable and responsible for any and all “clean up” of said toxic waste and/or hazardous materials contamination which Tenant, its agents, or future subtenants, if any, does store, dispose, or transport in, use or cause to be on the Premises in violation of applicable law or governing agency(s) or which originate on Premises, during the term of this Lease from any manner whatsoever, including but not limited to, dumping by others, (or which originate on the surface of the Premises any time after October 28, 1989, the date the Option Agreement dated October 31, 1989 related to said Lease was executed by all parties, and before the Commencement Date of this Lease, but excluding Hazardous Materials on the Premises prior to the Lease Commencement Date because of the storage, use, disposal, or transportation of such materials or waste by any of Landlord’s contractors or otherwise arising out of construction work performed by or under the direction of Landlord on the Premises and Landlord shall be responsible for all required actions with respect to such materials or wastes), and will indemnify Landlord and hold Landlord harmless from any liabilities, demands, costs, expenses and damages, including attorney fees incurred as a result of any claims resulting from such contamination, or from any claims for personal injury or property damage or diminution in the value of the Premises caused by the use, storage, disposal or transportation of hazardous materials on the Premises by Tenant or other parties during the term of this Lease. It is agreed that the Tenant’s responsibilities related to toxic waste and hazardous materials will survive the termination date of the Lease. Tenant agrees to complete compliance with governmental regulations regarding use or removal or remediation of Hazardous Materials used, stored, disposed, transported or caused to be on the Premises by Tenant or its agents or subtenants, or which originate on the Premises during the term of this Lease, and prior to the termination of said Lease Tenant agrees to follow the proper closure procedures and will obtain a clearance from the local fire department and/or the appropriate city agency. Tenant also agrees to install such toxic waste and/or hazardous materials monitoring devices as Landlord reasonably deems necessary to monitor any use of hazardous materials by Tenant, its agents or subtenants, originating from the Premises during the Lease term, if recommended by a qualified environmental consulting firm.

          B. Landlord hereby makes the following representations to Tenant, each of which is made only to the best of Landlord’s knowledge as of the date Landlord executes this Lease, without any inquiry or investigation having been made or required by Landlord regarding this subject, nor does Landlord have any obligation to investigate or make inquiry regarding the subject:

                    (1) The soil and ground water on or under the Premises does not contain hazardous materials in amounts which violate any laws to the extent that any governmental entity could require either Landlord or Tenant to take any remedial action with respect to such hazardous materials.

                    (2) During the time that Landlord has owned the Premises, Landlord has received no notice of (i) any violation, or alleged violation, of any law that has not been corrected to the satisfaction of the appropriate authority, (ii) any pending claims relating to

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the presence of hazardous material on the Premises, or (iii) any pending investigation by any governmental agency concerning the Premises relating to hazardous materials.

          C. Landlord and Tenant shall each give written notice to the other as soon as reasonably practicable of (i) any communication received from any governmental authority concerning hazardous materials which relates to the Premises, and (ii) any contamination of the Premises by hazardous materials which constitutes a violation of any law. Attached as Exhibit “C” hereto is a list of hazardous materials that Tenant intends to use at the Premises. If during the Lease term Tenant proposes to use other hazardous materials at the Premises, Tenant shall inform Landlord of such use, identifying the hazardous materials and the manner of their use, storage and disposal, and shall agree (i) to use, store and dispose of such materials strictly in compliance with all laws and (ii) that the indemnity set forth in Paragraph 44A shall be applicable to Tenant’s use of such material.

          D. Landlord or Tenant may, at any time, cause testing wells to be installed on the Premises, and may cause the ground water to be tested to detect the presence of hazardous material by the use of such tests as are then customarily used for such purposes. Testing wells installed by Tenant shall be paid for by Tenant. If tests conducted by Landlord disclose that Tenant has violated any hazardous materials laws, or Tenant or parties on the Premises during the term of this Lease have contaminated the Premises as determined by regulatory agencies pursuant to hazardous materials laws, or that Tenant has liability to Landlord pursuant to Paragraph 44A, then Tenant shall pay for 100 percent of the cost of the test and all related expense. Prior to the expiration of the Lease term, Tenant shall remove any testing wells it has installed at the Premises, and return the Premises to the condition existing prior to the installation of such wells, unless Landlord requests in writing that Tenant leave all or some of the testing wells in which instance the wells requested to be left shall not be removed.

          E. If any tests performed by Tenant or Landlord prior to the Commencement Date disclose hazardous materials at the Premises, Landlord at its expense will promptly take all reasonable action required by law with respect to the existence of such materials at the Premises. The Commencement Date shall not be delayed because of such action by Landlord unless occupation of the Premises is prohibited by law.

          F. The obligations of Landlord and Tenant under this Paragraph 44 shall survive the expiration or earlier termination of the term of this Lease. The rights and obligations of Landlord and Tenant with respect to issues relating to hazardous materials are exclusively established by this Paragraph 44.

     45. APPROVALS: Whenever this Lease requires the approval or consent of either Landlord or Tenant before an action maybe taken, such approval or consent shall not be unreasonably withheld or delayed.

     46. LANDLORD’S RIGHT TO TERMINATE: It is understood that the Premises to be leased by Tenant are to be constructed by Landlord, and that Landlord is required to obtain the necessary building permits for the building shell before construction of said Premises can commence. Therefore, it is agreed that in the event Landlord cannot obtain all the necessary building permits for the building shell by April 1, 1991, then either Landlord or Tenant can

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terminate this Lease by written notice to the other party given within thirty (30) days thereafter, without any liability to the other party of any type whatsoever, and that this Lease Agreement shall be null and void as of the date of receipt of such notice. Landlord agrees to use its best efforts to obtain the required permits by April 1, 1991.

     47. CROSS DEFAULT: As set forth in Paragraph 40C, Landlord and Tenant have entered into other leases dated October 31, 1989 referred to herein as the “1989 Leases”. As a material part of the consideration for the execution of this Lease by Landlord, it is agreed between Landlord and Tenant that a default under this Lease, or a default under said 1989 Leases may, at the option of Landlord, be considered a default under all leases, in which event Landlord shall be entitled (but in no event required) to apply all rights and remedies of Landlord under the terms of one lease to all Leases including, but not limited to, the right to terminate one, two or all of said leases by reason of a default under said 1989 Leases or hereunder.

     48. SUBDIVISION: With respect to the development of the Premises:

     Landlord and Tenant agree that the Premises and all of Parcels 1, 2, 3 and 5 shown on that certain parcel map, recorded on July 23, 1990 in Book 616 of Maps, Page 20 (the “Larger Parcel”) during (and limited to) the term of this Lease shall be developed and used only in accordance with a master plan, developed by Landlord. The parties have mutually agreed to a Master Plan for the general development of the Premises and the Larger Parcel which is attached hereto as Exhibit “Al” and entitled “Master Site Plan”. Said Master Site Plan sets forth the buildings and land to be leased under this Lease (Building 4 on Lot 4) and the 1989 Leases (Buildings 1 and 2 on Lots 1 and 2), and the buildings and land proposed to be developed on the remainder of the property (Buildings 3 and 5 to be constructed on Lots 3 and 5 respectively) as well as the general location of the parking and landscaping pertaining thereto. The parties agree that the Master Site Plan may be modified provided that (i) a perimeter driveway is developed in front of each building which generally runs near and parallel with the street surrounding the 37+ acre site, (ii) a landscape and recreation area at the rear of lot 4 (as shown on the Site Plan) is developed when a building is constructed on lot 4, (iii) all buildings will be similar and generally architecturally compatible, and (iv) a landscape area is developed along the frontage of all streets between the street and parking area closest to the street. The parties agree that (i) Landlord may change the Master Plan, shape and sizes of the buildings, parking and landscaping as long as the general development concept set forth above is generally followed by Landlord, and (ii) any successor or assign of Landlord or Tenant shall be required to consent and agree to develop the Premises and the Larger Parcel in accordance with the foregoing, and shall be deemed to have assumed the obligation to so develop such property by acceptance of a deed, assignment or other means of transfer of Landlord’s or Tenant’s interest in such property or any portion thereof, as the case may be. Further, the memorandum of lease to be recorded by Landlord and Tenant pursuant to Paragraph 38G shall contain the following statement:

“The Lease provides that from and after the commencement date of the 1989 Leases (as defined in the Lease) and continuing for a period of fifteen (15) years, or the date of termination of the Lease, whichever first occurs, the Premises and the larger 37.096 acre parcel in which the Premises were originally included, and which is described on the attached Exhibit “A”, incorporated herein by

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this reference, shall be developed by—Landlord and Tenant or their successors or assigns, as more particularly set forth in the Lease, so that (i) a perimeter driveway is developed in front of each building which generally runs near and parallel with the street surrounding the 37 ± acre site. (ii) a landscape areas is developed along the frontage of all streets between the street and parking area closest to the street. (iii) a landscape and recreation area at the rear of Lot 4 (as shown on the Site Plan identified in the Lease) is developed when a building is constructed on Lot 4, and (iv) all buildings will be similar and generally architecturally compatible, it being agreed that Landlord may change the shape and sizes of the buildings, parking, and landscaping as long as the general development concept set forth above and in the Lease is generally followed by Landlord. If a Public Agency requires modifications to the lot lines as shown on the Master Plan, the parties agree to reasonable lot line modifications.”

49. LIMITATION ON IMPOSITION OF LATE CHARGE: Notwithstanding anything contained in Paragraph 4C, if Tenant is delinquent in the payment of Basic Rent or Additional Rent and is subject to a late charge, Landlord agrees to waive the late charge if the Basic Rent or Additional Rent due is paid within five days of Landlord’s written notice to Tenant of the delinquent amount owed and provided Tenant has not been delinquent in its payment of Basic Rent or Additional Rent owed under said Lease during the twelve (12) month period preceding the rent delinquency in question.

50. SECURITY DEPOSIT: The following provisions shall modify Paragraph 4F:

     A. Within thirty (30) days after the expiration or earlier termination of the Lease term and after Tenant has vacated the Premises, Landlord shall return to Tenant the entire Security Deposit except for amounts that Landlord has deducted therefrom that are needed by Landlord to cure defaults of Tenant under the Lease or compensate Landlord for damages for which Tenant is liable pursuant to this Lease. The use or disposition of the Security Deposit shall be subject to the provisions of California Civil Code Section 1950.7.

     B. Tenant shall have the option of satisfying its obligation with respect to an amount equal to one-half (1/2) of the Security Deposit by providing to Landlord, at Tenant’s sole cost, a letter of credit which (i) is drawn upon an institutional lender reasonably acceptable to Landlord, (ii) is in the amount of one-half (1/2) of the Security Deposit, (iii) is for a term of at lease twelve (12) months, (iv) with respect to any letter of credit in effect within the six month period immediately prior to the expiration of the Lease term, shall provide that the term of such letter of credit shall extend at least thirty (30) days past the Lease expiration date, (v) may be drawn upon by Landlord upon submission of a declaration of Landlord that Tenant is in default (as defined in Paragraph 19 and as modified by Paragraph 59). Landlord shall not be obligated to furnish proof of default to such institutional lender, and Landlord shall only be required to give the institutional lender written notification that Tenant is in default and upon receiving such written notification from Landlord the institutional lender shall be obligated to immediately deliver cash to Landlord equal to the amount Landlord may spend or become obligated to spend by reason of

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Tenant’s default or to compensate Landlord for any loss or damage which Landlord may suffer by reason of Tenant’s default up to 1/2 of the total Security Deposit, (vi) shall provide that if the letter of credit is not renewed, replaced or extended within twenty (20) days of its expiration date the issuer of the credit shall automatically make payment of the amount of the letter of credit directly to Landlord after the date which is twenty (20) days before the expiration date, and no later than the expiration date, without Landlord being required to make demand upon the letter of credit, and (vii) is otherwise in form and content reasonably satisfactory to landlord. If Tenant provides Landlord with a letter of credit meeting the foregoing requirements, one-half (1/2) of the cash Security Deposit (i.e., $136,691.55 of the $273,383.10 Deposit) shall be returned to Tenant by Landlord inasmuch as the cash deposit remaining and the Letter of Credit equal the total Security Deposit required in Paragraph 4F. If Tenant defaults with respect to any provisions of this Lease, including but not limited to provisions relating to the payment of rent, Landlord may (but shall not be required to) draw down on the letter of credit for payment of any sum which Landlord may spend or become obligated to spend by reason of Tenant’s default, or to compensate Landlord for any loss or damage which Landlord may suffer by reason of Tenant’s default. Landlord and Tenant acknowledge that such letter of credit will be treated as if it were a cash security deposit, and such letter of credit may be drawn down upon by Landlord upon demand and presentation of evidence of the identity of Landlord to the issuer, in the event that Tenant defaults with respect to any provision of this Lease and such default is not cured within any applicable cure period. Notwithstanding anything to the contrary in this Lease, Landlord shall not be obligated to furnish proof of default to such institutional lender and Landlord is only required to give the institutional lender written notification that Tenant is in default and upon receiving such written notification from Landlord the institutional lender shall be obligated to immediately deliver cash to Landlord equal to the amount Landlord may spend or become obligated to spend by reason of Tenant’s default, or to compensate Landlord for any loss or damage which Landlord may suffer by reason of Tenant’s default up to 1/2 of the total Security Deposit. Landlord acknowledges that it is not entitled to draw down such letter of credit unless Landlord would have been entitled to draw upon the cash security deposit pursuant to the terms of Paragraph 4F of the Lease. Concurrently with the delivery of the required information to the issuer, Landlord shall deliver to Tenant written evidence of the default upon which the draw down was based, together with evidence that Landlord has provided to Tenant the written notice of such default which was required under the applicable provision of the Lease, and evidence of the failure of Tenant to cure such default within the applicable grace period following receipt of such notice of default. Any proceeds received by Landlord by drawing upon the letter of credit shall be applied in accordance with the provisions governing the Security Deposit imposed by Paragraph 4F and this Paragraph 50. If Landlord draws upon the letter of credit, thereafter Tenant shall once again shall have the right to post a letter of credit in place of one-half (1/2) of a cash Security Deposit so long as Tenant is not then in default. In any event Tenant will be obligated to replenish the amount drawn to restore the Security Deposit to its original amount as provided for in Paragraph 4F. If any portion of the letter of credit is used or applied pursuant hereto, Tenant shall, within ten (10) days after receipt of a written demand therefor from Landlord, restore and replace the value of such security by either (i) depositing cash with Landlord in the amount equal to the sum drawn down under the letter of credit, or (ii) increasing the letter of credit to its value immediately prior to such application. Tenant’s failure to replace the value of the security as provided in the preceding sentence shall be a material breach of its obligation under this Lease.

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51. ALTERATIONS MADE BY TENANT: The provisions of this Paragraph 51 shall modify Paragraphs 5 and 6:

     A. As used herein, the term “Alteration” shall mean any alteration, addition or improvement made by Tenant to the Premises during the term of the Lease, but shall not include Tenant’s trade fixtures so long as such trade fixtures are not installed in such a manner that they have become an integral part of the building.

     B. Tenant shall not construct any Alterations or otherwise alter the Premises without Landlord’s prior written approval if the total cost of such Alterations exceeds $20,000 per the scope of any single remodeling job to the Premises, or if such Alteration is structural in nature. Any other non-structural Alteration of less than $20,000 for the total cost of the remodeling job may be undertaken by Tenant without Landlord’s prior written approval but with the understanding that Tenant shall be obligated to restore the Premises as set forth in Paragraph 5 at the termination of this Lease, except as otherwise provided in Paragraph 51.D.

Notwithstanding the foregoing, Tenant shall have the right to reconfigure modular freestanding walls and partitions without Landlord’s prior consent, which have been installed by Tenant and paid for by Tenant.

     C. At all times during the Lease Term (i) Tenant shall maintain and keep up dated “as-built” plans for all Alterations constructed by Tenant, and (ii) Tenant shall provide to Landlord copies of such “as-built” plans as such Alterations are made.

     D. Tenant shall have the right to remove at any time during the Lease term or prior to the expiration thereof any (i) process equipment such as clean hoods, thermal cycling chambers, freon piping, high temperature furnaces, air handlers and special air-conditioning, and (ii) process systems such as compressed air or processed exhaust systems and (iii) the clean room modules and all related process equipment which are paid for 100% by Tenant (excluding building standard HVAC, electrical, plumbing and other building standard systems which are an integral part of the building not related to Tenant’s clean room modules or other special purpose process equipment or systems), which systems, equipment and modules the parties agree for the purposes of this Lease shall be deemed to be trade fixtures, so long as Tenant repairs all damage caused by the installation and/or removal thereof, returns the Premises prior to the termination of the Lease to the condition existing prior to the installation of such item, and repairs and restores any so-called “doughnuts” or gaps in the roof and/or floor tiles and/or ceiling and lighting resulting from such removal. At the time Tenant requests the consent of Landlord to approve the installation of an Alteration requiring the consent of Landlord, Tenant shall seek from Landlord a written statement of whether or not Landlord will require Tenant to remove such Alteration and restore all or part of the Premises as required by Landlord in accordance with this paragraph and Paragraph 5 at the expiration or earlier termination of the term of the Lease. If Tenant does not obtain-from Landlord a statement in writing that Landlord will not require such Alteration to be removed, then at the expiration or sooner termination of the term of the Lease, it is agreed that Tenant may be required to remove all or part of such Alterations, and return the Premises to the condition existing prior to the installation of such Alterations as provided for in Paragraph 5 above. In addition, if Tenant has installed Alterations without Landlord’s consent, if Landlord so

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requires, Tenant shall also remove all or part of such Alterations so installed without Landlord’s consent as Landlord may designate and return the Premises to the condition existing prior to the installation of such Alteration. Alterations for which Landlord has given its written consent to Tenant that such Alteration need not be removed, shall not be removed by Tenant at the expiration or earlier termination of the term of the Lease.

     E. At all times during the term of the Lease, Tenant shall have the right to install and remove trade fixtures as defined in the Lease and installed and paid for by Tenant, so long as Tenant repairs all damage caused by the installation thereof and returns the Premises to the condition existing prior to the installation of such fixtures and repairs and restores any so called “doughnuts” or gaps in the roof and/or floor (including floor structure, sub-floor and appropriate floor covering for said area) and/or floor tiles and/or ceiling tiles and lighting resulting from such removal.

52. STRUCTURAL CAPITAL COSTS REGULATED BY GOVERNMENTAL AGENCIES AFTER THE COMMENCEMENT OF THIS LEASE NOT CAUSED BY TENANT OR TENANT’S USES OR REMODELING OF THE PREMISES: The provisions of this Paragraph 52 shall modify Paragraphs 7 and 14:

     A. If during the last five (5) years of the term of the Lease if Tenant has not extended the Lease as provided for in Paragraphs 41 and 42, or during either of the five (5) year extension periods permitted by Paragraphs 41 and 42, it becomes necessary (due to any governmental requirement for continued occupancy of the Premises) to make structural improvements required by laws enacted or legal requirements imposed by governmental agency(s) after the Commencement Date, and the cost for each required work or improvements exceeds $100,000, then if such legal requirement is not imposed because of Tenant’s specific use of the Premises and is not “triggered” by Tenant’s Alterations or Tenant’s application for a building permit or any other governmental approval (in which instance Tenant shall be responsible for 100% of the cost of such improvements), Landlord shall be responsible for paying the cost of such improvement and constructing such improvement, subject to a cash contribution from Tenant of a portion of the cost thereof as provided for and calculated in Paragraph 52B.

     B. When Landlord makes an improvement pursuant to Paragraph 52A, and as a condition to Landlord’s obligation to construct such improvement, Tenant shall make the following contribution in cash to Landlord for the cost thereof prior to the commencement of the work by Landlord. It is agreed that Tenant shall pay to Landlord 100% of the cost of the first $100,000.00 worth of each improvement. After the first $100,000.00, all costs above $100,000.00 shall be divided by 15 and multiplied by the time period remaining in the last five years of the Lease term from the date work on such improvement commences.

     For example, if the cost of such improvement was $400,000 and there was one year and six months remaining in the Lease term when the work commenced, then Tenant would be responsible for reimbursing Landlord in cash $130,000.00 computed as follows:

Total Cost of Work	$	400,000.00
Tenant Responsible for 1st $100,000		-100,000.00
Total Amount To Be Amortized	$	300,000.00
$300,000.00/15 = $20,000.00/yr. x 1.5 yrs =	$	30,000.00
Tenant responsible for $100,000 + $30,000.00 =	$	130,000.00

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     C. If Landlord has made improvements, for which Tenant has reimbursed Landlord for the cost thereof pursuant to Paragraph 52B, and the term of this Lease is subsequently extended pursuant to the exercise by Tenant of an option to renew pursuant to Paragraph 41, or 42, upon the exercise of any such option by Tenant, Tenant shall pay to Landlord an additional sum equal to the total amount of said improvement less the amount previously paid for by Tenant. Using the example in Paragraph 52B above, Tenant would owe Landlord the additional amount of $270,000.00 ($400,000.00 — $130,000.00 = $270,000.00).

53. REAL PROPERTY TAXES: Paragraph 9 is modified by the following:

     A. The term “Real Property Taxes” shall not include charges, levies or fees directly related to the use, storage, disposal or release of hazardous materials on the Premises unless directly related to Tenant’s activities, which subject is exclusively governed by Paragraph 45.

     B. If any assessments for public improvements are levied against the Premises, Landlord may elect either to pay the assessment in full or to allow the assessment to go to bond. If Landlord pays the assessment in full, Tenant shall pay to Landlord or any assignee or purchaser of the Premises each time payment of Real Property Taxes is made a sum equal to that which would have been payable (as both principal and interest) had Landlord allowed the assessment to go to bond.

     C. Tenant at its cost shall have the right, at any time, to seek a reduction in the assessed valuation of the Premises or to contest any Real Property Taxes that are to be paid by Tenant. If Tenant seeks a reduction or contests such Real Property Taxes, the failure on Tenant’s part to pay such Real Property Taxes being so contested shall not constitute a default so long as Tenant complies with the provisions of this Paragraph. Landlord shall not be required to join in any proceeding or contest brought by Tenant unless the provisions of any law require that the proceeding or contest be brought by or in the name of Landlord. In that case Landlord shall join in the proceedings or contest or permit it to be brought in Landlord’s name as long as Landlord is not required to bear any cost. Tenant, on final determination of the proceeding or contest, shall immediately pay or discharge its share of any Real Property Taxes determined by any decision or judgment rendered, together with all costs, charges, interest, and penalties incidental to the decision or judgment. If Tenant does not pay the Real Property Taxes when due pursuant to the Lease and Tenant seeks a reduction or contests them as provided in this paragraph, before the commencement of the proceeding or contest Tenant shall furnish to Landlord a surety bond in form reasonably satisfactory to Landlord issued by an insurance company qualified to do business in California. The amount of the bond shall equal 125% of the total amount of Real Property Taxes in dispute and any such bond shall be assignable to any lender or purchaser of the Premises. The bond shall hold Landlord and the Premises harmless from any damage arising out of the proceeding or contest and shall insure the payment of any judgment that may be rendered.

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54. PROPERTY INSURANCE: Paragraph 12 is modified by the following:

     A. If Tenant so elects, Tenant may obtain from a third party insurance company the insurance required to be carried by Landlord pursuant to Paragraph 12 so long as each of the following conditions is satisfied: (i) the Landlord is not the John Arrillaga and Richard T. Peery Separate Property Trusts or an affiliated entity; (ii) the insurance to be carried by Tenant to satisfy this requirement strictly complies with all of the provisions of Paragraph 12; (iii) such insurance shall name Landlord as the insured and provide that it is to be payable to Landlord in the same manner as if such insurance had been carried by Landlord pursuant to Paragraph 12 (subject to the rights of any lender holding a mortgage or deed of trust encumbering the Premises); (iv) each lender holding a mortgage or deed of trust encumbering the Premises shall have given its written consent to Tenant carrying such insurance and such insurance shall comply with the requirements of any such lender; (v) Tenant must notify Landlord, by certified mail, no later than one hundred eighty (180) days prior to the expiration date of Landlord’s insurance policy (which expiration date is currently 3/13/xx of a given year and is subject to change), that Tenant will directly obtain the required insurance coverage for the insurance year commencing 3/14/XX through 3/13/XX and each insurance year through the termination date of this Lease, or until Tenant is no longer able to comply with all of the provisions of this Paragraph 54; (vi) the annual premium must be paid in full at the commencement of the policy; (vii) the insurance policy must be issued for a one-year period following the expiration date of Landlord’s insurance policy (i.e., from 3/14/XX to 3/13/XX; (viii) any and all deductibles required under the policy will be paid entirely by Tenant; (ix) the terms of the coverage must be broad form and cover all items to be covered as set forth in Paragraph 12 of this Lease; (x) the Building and Premises must be insured for their full replacement cost; (xi) the insurance policy containing the required coverage in accordance with the provisions of this paragraph must be sent to Landlord for retention within thirty (30) days prior to the expiration date of Landlord’s insurance policy, and may not be terminated or altered without thirty (30) days written notice to Landlord by the company providing such insurance (it is agreed that if the insurance policy is cancelled or altered, Landlord will have the right to obtain the property insurance coverage on said building, and Landlord will bill the Tenant for the related insurance premium); and (xii) at all times while Tenant is so carrying such insurance, Tenant is Quantum Corporation or a successor entity and the then net worth of such corporation is substantially the same as the net worth of Quantum corporation as of the date of this Lease is executed by Landlord and Tenant. Tenant shall provide such evidence as is required by Landlord and any lender to establish that the insurance that Tenant carries pursuant to this Paragraph 54 has been obtained and meets the requirement of this Paragraph 54. Such insurance carried by Tenant shall be in form and provided by an insurance company that is reasonably acceptable to Landlord, which must be rated “A plus” or better by Best’s Insurance Service (or an equivalent rating from another rating agency should Best’s no longer provide such service). A copy of any such policy shall be delivered to Landlord. If Tenant elects to insure and such insurance provided by Tenant does not satisfy the requirements of Paragraph 12, in the event of a subsequent casualty, Tenant shall be responsible for and shall pay for that portion of the restoration cost, in excess of the insurance proceeds actually available, that would have been covered by insurance satisfying the requirements of Paragraph 12.

     B. Tenant shall not be obligated to contribute to the cost of earthquake insurance more than an amount equal to six (6) times the then annual cost of fire and “all risk” insurance

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per year. For example, if the 1993 annual premium for fire and “all risk” insurance is $9,000, then Tenant’s share of the cost of any premium for earthquake insurance for the following year (1994) shall be limited to $54,000 ($9,000 x 6). Tenant shall have the right to require earthquake insurance providing it is available if Tenant agrees to pay full cost thereof.

55. ASSIGNMENT AND SUBLETTING: The following modifications are made to Paragraph 16:

     A. In the event that Tenant seeks to make any assignment or sublease, then Landlord, by giving Tenant written notice of its election within fifteen (15) days after Tenant’s notice of intent to assign or sublease has been given to Landlord, shall have the right to elect (i) to withhold its consent to such assignment or sublease, as permitted pursuant to Paragraph 16, or (ii) to permit Tenant to so assign the Lease or sublease such part of the Premises, in which event Tenant may do so, but without being released of its liability for the performance of all of its obligations under the Lease, and the following shall apply (except the following shall not apply to a “Permitted Transfer” described in Paragraph 56):

          (1) If Tenant assigns its interest in this Lease, then in addition to the rental provided for in this Lease, Tenant shall pay to Landlord fifty percent (50%) of all consideration received by Tenant over and above (i) the assignee’s agreement to assume the obligations of Tenant under this Lease and (ii) all “Permitted Transfer Costs” (as defined herein) related to such assignment. As used herein, the term “Permitted Transfer Costs” shall mean all reasonable leasing commissions paid to third parties not affiliated with Tenant in order to obtain the assignment or sublease in question.

               (b) If Tenant sublets all or part of the Premises, then Tenant shall pay to Landlord in addition to the rental provided for in this Lease fifty percent (50%) of the positive difference, if any, between (i) all rent and other consideration paid by the subtenant to Tenant, less (ii) all rent paid by Tenant to Landlord pursuant to this Lease which is allocable to the area so sublet and all Permitted Transfer Costs related to such sublease. After Tenant has recovered all Permitted Transfer Costs Tenant shall pay to Landlord the amount specified in the preceding sentence on the same basis, whether periodic or in lump sum, that such rent and other consideration is paid to Tenant by its subtenant, within seven (7) days after it is received by Tenant.

          (1) Tenant’s obligations under this subparagraph shall survive any assignment or sublease. At the time Tenant makes any payment to Landlord required by this subparagraph, Tenant shall deliver an itemized statement of the method by which the amount to which Landlord is entitled was calculated, certified by Tenant as true and correct. Landlord shall have the right to inspect Tenant’s books and records relating to the payments due pursuant to this subparagraph. Upon request therefor, Tenant shall deliver to Landlord copies of all bills, invoices or other documents upon which its calculations are based.

          (2) As used herein, the term “consideration” shall mean any consideration of any kind received, or to be received, by Tenant as a result of the assignment or sublease, if such sums are paid for Tenant’s interest in this Lease or in the Premises.

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56. PERMITTED ASSIGNMENTS AND SUBLEASES: Notwithstanding anything contained in Paragraph 16, so long as Tenant otherwise complies with the provisions of Paragraph 16 and the Permitted Transfer does not release Tenant from its obligations hereunder, Tenant may enter into any of the following transfers (a “Permitted Transfer”) without Landlord’s prior written consent, and the provisions of Paragraph 56A shall not apply to any such Permitted Transfer:

     A. Tenant may sublease all or part of the Premises or assign its interest in this Lease to any corporation which controls, is controlled by, or is under common control with Tenant by means of an ownership interest of more than fifty percent (50%) providing Tenant remains liable for the payment of rent and full performance of the lease;

     B. Tenant may assign its interest in the Lease to a corporation which results from a merger, consolidation or other reorganization in which Tenant is not the surviving corporation so long as 95% of all assets of Tenant are permanently transferred to such assignee. In the event there is not a permanent transfer of 95% or more of the assets and liabilities from Tenant to a third party, and Tenant continues to exist as a separate entity, both companies shall be jointly and severally liable for the full terms and conditions of the Lease;

     C. Tenant may assign this Lease to a corporation which purchases or otherwise acquires 95% or more of the assets of Tenant so long as 95% of all assets of Tenant are permanently transferred to such assignee (in the event there is not a permanent transfer of 95% or more of the assets and liabilities from Tenant to a third party and Tenant continues to exist as a separate entity, both companies shall be jointly and severally liable for the full terms and conditions of the Lease).

57. SUBORDINATION AND MORTGAGES: Paragraph 17 is modified to provide that this Lease shall not be subordinate to a mortgage or deed of trust unless the Lender holding such mortgage or deed of trust enters into a written subordination, non-disturbance and attornment agreement in which the Lender agrees that notwithstanding any subordination of this Lease to such Lender’s mortgage or deed of trust, (i) such Lender shall recognize all of Tenant’s rights under this Lease, and (ii) in the event of a foreclosure this Lease shall not be terminated so long as Tenant is not in material default of its obligations under this Lease, but shall continue in effect and Tenant and such Lender (or any party acquiring the Premises through such foreclosure) shall each be bound to perform the respective obligations of Tenant and Landlord with respect to the Premises arising after such foreclosure.

58. LANDLORD’S RIGHT TO ENTER: Notwithstanding the provisions of Paragraph 18, (i) except in the event of an emergency, Landlord shall give Tenant twenty-four (24) hours notice prior to entering the Premises, agrees to comply with any reasonably safety and/or security regulations imposed by Tenant with respect to such entry, and shall only enter the Premises when accompanied by Tenant or its agent (so long as Tenant makes itself reasonably available for this purpose), and (ii) Landlord may install “for lease” signs relating to the Premises only during the last 150 days of the Lease term. Landlord agrees to use its reasonable, good faith efforts such that any entry by Landlord, and Landlord’s agents, employees, contractors and invitees shall be performed in a manner with as minimal interference as possible with Tenant’s business at the Premises. Subject to the foregoing, Tenant agrees to cooperate with Landlord and Landlord’s

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agents, employees and contractors so that responsibilities of Landlord under the Lease can be fulfilled in a reasonable manner during normal business hours so that no extraordinary costs are incurred by Landlord.

59. BANKRUPTCY AND DEFAULT: Paragraph 19 is modified to provide that with respect to non-monetary defaults not involving Tenant’s failure to pay Basic Rent or Additional Rent, Tenant shall not be in default of any non-monetary obligation if (i) more than thirty (30) days is required to cure such non-monetary default, and (ii) Tenant commences cure of such default as soon as reasonably practicable after receiving written notice of such default from Landlord and thereafter continuously and with due diligence prosecutes such cure to completion.

60. ABANDONMENT: Paragraph 20 is modified to provide that Tenant shall not be in default under the Lease if it leaves all or any part of Premises vacant so long as (i) Tenant is performing all of its other obligations under the Lease including the obligation to pay Basic Rent and Additional Rent (ii) Tenant provides on-site security during normal business hours for those parts of the Premises left vacant, (iii) such vacancy does not materially and adversely affect the validity or coverage of any policy of insurance carried by Landlord with respect to the Premises, and (iv) the utilities and heating and ventilation system are operated to the extent necessary to prevent damage to the Premises or its systems.

61. DESTRUCTION: Paragraph 21 is modified by the following:

     A. Except as provided in Paragraph 61B, Landlord may not terminate the Lease if the Premises are damaged by a peril that is covered by the insurance carried by Landlord pursuant to Paragraph 12, but instead shall restore the Premises in the manner described by Paragraph 21.

     B. If the Premises are damaged by a peril covered by the insurance carried by Landlord pursuant to Paragraph 12, Landlord shall have the option to terminate the Lease if each of the following conditions is satisfied: (i) the cost to repair or the damage exceeds thirty-three percent (33%) of the then replacement cost of the Premises; and (ii) the damage occurs at a time when there is less than five (5) years remaining in the term of the Lease. Notwithstanding the foregoing, if such damage occurs at a time when there is less than five (5) years remaining in the term of the Lease and Landlord notifies Tenant of Landlord’s election to terminate the Lease pursuant to the provisions of this Paragraph 61B, if Tenant has the right to extend the term of this Lease pursuant to either Paragraph 41 or 42 such that the remaining term of the Lease (including the option period) will be more than five (5) years following the date of such damage, this Lease shall not terminate if Tenant notifies Landlord in writing of Tenant’s exercise of an option to extend granted to Tenant by either Paragraph 41 or 42. In such event, this Lease shall not terminate, the term shall be so extended, and Landlord shall restore the Premises in the manner provided in Paragraph 21.

     C. If the Premises are damaged by any peril, then as soon as reasonably practicable, Landlord shall furnish Tenant with the written opinion of Landlord’s architect or construction consultant as to when the restoration work required of Landlord may be completed. Tenant shall have the option to terminate this Lease in the event any of the following occurs, which option may be exercised only by delivery to Landlord of a written notice of election to terminate within

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seven (7) days after Tenant receives from Landlord the estimate of the time needed to complete such restoration:

          (1) The Premises are damaged by any peril and, in the reasonable opinion of Landlord’s architect or construction consultant, the restoration of the Leased Premises cannot be substantially completed within 180 days after the date of such damage; or

          (2) The Premises are damaged by any peril within twelve (12) months of the last day of the Lease term and provided Tenant has not exercised an option to renew pursuant to the provisions of Paragraph 41 or 42, and, in the reasonable opinion of Landlord’s architect or construction consultant, the restoration of the Leased Premises cannot be substantially completed within sixty (60) days after the date of such damage.

62. EMINENT DOMAIN: Paragraph 22 is modified by the following:

     Landlord may not terminate the Lease if less than 1/3 of the building is taken by condemnation or if a taking by condemnation is only threatened.

63. TRANSFER BY LANDLORD: The provisions of Paragraph 23 of the Lease to the contrary notwithstanding, Landlord shall not be relieved of its obligations under the Lease which may accrue after the date of a sale or other transfer unless and until (i) the transferee agrees to assume and be bound by the terms of this Lease and to perform all obligations of the Landlord under the Lease which may accrue after the date of such transfer, and (ii) Landlord transfers the Security Deposit to its successor in interest (transferee) in accordance with the provisions of California Civil Code Section 1950.7, as amended or recodified.

64. LANDLORD’S LIEN WAIVER: Landlord, within thirty (30) days after demand from Tenant, shall execute and deliver such lien waiver documents that are reasonably required by any supplier, lessor, or lender in connection with the installation in the Premises of the Tenant’s personal property or trade fixtures providing Landlord approves the form of any such waiver and Landlord’s rights under this Lease are not materially and adversely affected.

QUANTUM CORPORATION,		JOHN ARRILLAGA
a Delaware corporation		SEPARATE PROPERTY TRUST
By	/s/ Joseph C. Shepela	By	/s/ John Arrillaga
			John Arrillaga, Trustee
Title Vice President Human Resources		RICHARD T. PEERY
		SEPARATE PROPERTY TRUST
		By	/s/ Richard Peery
			Richard T. Peery, Trustee

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AMENDMENT NO. 1
TO LEASE

     THIS AMENDMENT NO. l is made and entered into this 16th day of April, 1997, by and between JOHN ARRILLAGA, Trustee, or his Successor Trustee UTA dated 7/20/77 (JOHN ARRILLAGA SURVIVOR’S TRUST) (previously known as the “John Arrillaga Separate Property Trust”) as amended, and RICHARD T. PEERY, Trustee, or his Successor Trustee UTA dated 7/20/77 (RICHARD T. PEERY SEPARATE PROPERTY TRUST) as amended, collectively as LANDLORD, and QUANTUM CORPORATION, a Delaware corporation, as TENANT.

RECITALS

     A. WHEREAS, by Lease Agreement dated September 17, 1990 Landlord leased to Tenant all of that certain 101,253 ± square foot building located at 1000 Sumac Drive, Milpitas, California, the details of which are more particularly set forth in said September 17, 1990 Lease Agreement, and

     B. WHEREAS, said Lease was amended by the Commencement Letter dated December 6, 1991 which established the December 6, 1991 Lease Commencement Date, and established the Termination Date of September 30, 2006, and,

     C. WHEREAS, it is now the desire of the parties hereto to amend the Lease by (i) extending the Term for five years, changing the Termination Date from September 30, 2006 to September 30, 2011, (ii) amending the Basic Rent schedule and Aggregate Rent accordingly, (iii) adding a third Five Year Option to Extend, (iv) replacing Paragraphs 40C (“Lease Terms Co-extensive”) and 47 (“Cross Default”) and 52 (“Structural Capital Costs Regulated by Governmental Agencies After the Commencement of this Lease not Caused by Tenant or Tenant’s Uses or Remodeling of the Premises”), (v) amending Lease Paragraph 12 (“Property Insurance”) and (vi) amending and/or replacing certain provisions of the Lease commencing as of the commencement of the Third Extended Term of said Lease as hereinafter set forth.

AGREEMENT

     NOW THEREFORE, for valuable consideration, receipt of which is hereby acknowledged, and in consideration of the hereinafter mutual promises, the parties hereto do agree as follows:

     1. TERM OF LEASE: It is agreed between the parties that Tenant has exercised its First Five-Year Option to Extend the lease term of that certain lease agreement dated March 23, 1994 for premises located at 1101 Sumac Drive, Milpitas, California (the “Building 5 Lease”), as detailed in Paragraph 41 of said Building 5 Lease. Paragraph 40C of said Building 5 Lease provides that in the event the term of said Building 5 Lease is extended for any reason whatsoever, the terms of the Existing Leases (i.e. two of said leases dated October 31, 1989 are for Premises located at 1140 Technology Drive and 500 McCarthy Blvd., Milpitas, California (the “1989 Leases”); one of said leases dated September 17, 1990 is for Premises located at 1000 Sumac Drive, Milpitas, California, and one of said leases dated April 10, 1992 is for Premises located at 900 Sumac Drive, Milpitas, California) shall also be extended so that all five Leases

1

expire on the same date; therefore, it is agreed between the parties that by exercising its Option to Extend the Building 5 Lease, Tenant has in effect exercised its Option to Extend under Lease Paragraph 41 (“First Five-Year Option to Extend”), and that pursuant to said Lease Paragraph 41, the Term of this Lease Agreement shall be extended for an additional five (5) year period, and the Lease Termination Date shall be changed from September 30, 2006 to September 30, 2011.

     2. BASIC RENTAL FOR FIRST EXTENDED TERM OF LEASE: The monthly Basic Rental for the First Extended Term of Lease shall be as follows:

     On October 1, 2006, the sum of ONE HUNDRED EIGHTY FIVE THOUSAND TWO HUNDRED NINETY TWO AND 99/100 DOLLARS ($185,292.99) shall be due, and a like sum due on the first day of each month thereafter through and including September 1, 2007.

     On October 1, 2007, the sum of ONE HUNDRED NINETY THOUSAND THREE HUNDRED FIFTY FIVE AND 64/100 DOLLARS ($190,355.64) shall be due, and a like sum due on the first day of each month thereafter through and including September 1, 2008.

     On October 1, 2008, the sum of ONE HUNDRED NINETY FIVE THOUSAND FOUR HUNDRED EIGHTEEN AND 29/100 DOLLARS ($195,418.29) shall be due, and a like sum due on the first day of each month thereafter through and including September 1, 2009.

     On October 1, 2009, the sum of TWO HUNDRED THOUSAND FOUR HUNDRED EIGHTY AND 94/100 DOLLARS ($200,480.94) shall be due, and a like sum due on the first day of each month thereafter through and including September I, 2010.

     On October 1, 2010, the sum of TWO HUNDRED FIVE THOUSAND FIVE HUNDRED FORTY THREE AND 59/100 DOLLARS ($205,543.59) shall be due, and a like sum due on the first day of each month thereafter through and including September 1, 2011.

     The Aggregate Basic Rent for the Lease shall be increased by $11,725,097.40 or from $25,686,182.83 to $37,411,280.23.

     3. THIRD FIVE-YEAR OPTION TO EXTEND: Provided Tenant has extended the Lease for an additional five (5) year period pursuant to Lease Paragraph 42 (“Second Five Year Option To Extend”), Landlord hereby grants to Tenant a third option to extend the Term of this Lease for an additional five (5) year period upon the following terms and conditions:

          A. Tenant shall give Landlord written notice of Tenant’s exercise of this option to extend at least one hundred eighty (180) days prior to the expiration of the Lease Term as extended pursuant to Lease Paragraph 42 (“Second Five Year Option To Extend”), in which event the Lease shall be considered extended for an additional five (5) year period upon the same terms and conditions as this Lease, absent this Paragraph 3 and subject to the Rental as set forth below. In the event that Tenant fails to timely exercise Tenant’s option as set forth herein in writing, Tenant shall have no further option to extend this Lease or the Other Leases, and this Lease shall continue in full force and effect for the full remaining term hereof, absent this Paragraph 3.

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          B. The monthly Basic Rent for the option period shall be as follows in the event the option is exercised:

Period	Monthly Basic Rent
Months 1-12	$2.33/sf
Months 13-24	$2.38/sf
Months 25-36	$2.43/sf
Months 37-48	$2.48/sf
Months 49-60	$2.53/sf

          C. Notwithstanding anything contained herein, Tenant may not exercise the option to extend granted by this Paragraph 3 at any time that Tenant is in default (default for monetary and material default for non-monetary) of its obligations under this Lease, if Tenant has received written notice from Landlord that Tenant is in default, and such default has not been timely cured within the time period provided for in this Lease; provided, however, that if such default of Tenant is not for money due under this Lease and cannot be cured, and if Landlord does not elect to terminate this Lease as a result of such non-curable default by Tenant, Tenant may exercise the option to extend granted by this Paragraph 3 notwithstanding such non-curable default.

     4. LEASE TERMS CO-EXTENSIVE: Lease Paragraph 40C (“Lease Terms Co-extensive”) is hereby deleted in its entirety and replaced with the following:

“40C. LEASE TERMS CO-EXTENSIVE: It is acknowledged that (i) Landlord and Tenant have previously executed four separate leases in addition to this Lease: one of said leases dated October 31, 1989 is for Premises located at 1140 Technology Drive, Milpitas, California (the “Building One Lease”); one of said leases dated October 31, 1989 is for Premises located at 500 McCarthy Blvd., Milpitas, California (the “Building Two Lease”); one of said leases dated April 10, 1992 is for Premises located at 900 Sumac Drive, Milpitas, California (the “Building 3 Lease”); and one of said leases dated March 23, 1994 is for premises located at 1101 Sumac Drive, Milpitas, California (the “Building 5 Lease”) (hereinafter collectively referred to as the “Other Leases”); and (ii) it is the intention of the parties that the term of this Lease be co-extensive with the term of the Other Leases, such that the terms of all five leases (“the Leases”) expire on the same date. The provisions of this Paragraph 40C also requires the terms of all the Leases to be extended accordingly if Tenant exercises its Option to Extend under any of the Leases. The monthly Basic Rent during the extended term under each of the Leases shall be increased by $.05 per square foot on the commencement date of the extended term and thereafter on each and every anniversary of the respective lease’s commencement date of the extended term.”

     5. CROSS DEFAULT: Lease Paragraph 47 (“Cross Default”) is hereby deleted in its entirety and replaced with the following:

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     “47. CROSS DEFAULT: It is agreed between Landlord and Tenant that a default under this Lease, or a default under any of the Other Leases may, at the option of Landlord, be considered a default under all Leases, in which event Landlord shall be entitled (but in no event required) to apply all rights and remedies of Landlord under the terms of one lease to all the Leases including, but not limited to, the right to terminate any or all of the aforementioned Other Leases or this Lease by reason of a default under the Leases or hereunder.

     Notwithstanding the above, Landlord shall have the option of considering a default under this Lease or a default under any of the Other Leases to be a default under all such leases, only with respect to such leases under which Landlord is also the ‘Landlord’ at the time such default occurs. By way of example, if at the time a default of Tenant occurs under this Lease, Landlord has sold the premises described in any of the Other Leases and is no longer the ‘Landlord’ thereunder, then a default under this Lease shall not constitute a default under any of such Other Leases so sold by Landlord (unless the premises leased under this Lease and the Other Leases are sold to the same entity), and a default by Tenant under any of such Other Leases so sold by Landlord shall not constitute a default under this Lease or any other of the Other Leases then remaining between Landlord and Tenant. However, if the Landlord under this Lease and the Other Leases is one in the same at the time of said default, said cross default provisions shall apply.”

     6. STRUCTURAL CAPITAL COSTS REGULATED BY GOVERNMENTAL AGENCIES AFTER THE COMMENCEMENT OF THIS LEASE NOT CAUSED BY TENANT OR TENANT’S USES OR REMODELING OF THE PREMISES: Lease Paragraph 52 (“Structural Capital Costs Regulated by Governmental Agencies after the Commencement of this Lease Not Caused by Tenant or Tenant’s Uses or Remodeling of the Premises”) is hereby deleted and replaced with the following:

     “52. STRUCTURAL CAPITAL COSTS REGULATED BY GOVERNMENTAL. AGENCIES AFTER THE COMMENCEMENT OF THIS LEASE NOT CAUSED BY TENANT OR TENANT’S USES OR REMODELING OF THE PREMISES: The provisions of this Paragraph 52 shall modify Paragraphs 7 and 14:

     A. If (i) during the last five (5) years of the First Extended Term of the Lease if said Lease has not been extended as provided for in Lease Paragraph 42 “Second Five Year Option To Extend”) or in Paragraph 3 (“Third Five Year Option to Extend”) or Paragraph 4 (“Lease Terms Co-Extensive”) above, or (ii) during either of the five (5) year extension periods permitted by Lease Paragraph 42 or Paragraph 3, or Paragraph 4 above, it becomes necessary (due to any governmental requirement for continued occupancy of the Premises) to make structural improvements required by laws enacted or legal requirements imposed by governmental agency(s) after the Commencement Date, and the cost for each required work or improvements exceeds $100,000, then if such legal requirement is not imposed because of Tenant’s specific use of the Premises and is not

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“triggered” by Tenant’s Alterations or Tenant’s application for a building permit or any other governmental approval (collectively “Tenant’s Actions”) in which instance Tenant shall be responsible for 100% of the cost of such improvements, Landlord shall be responsible for paying the cost of such improvement and constructing such improvement, subject to a cash contribution from Tenant of a portion of the cost thereof as provided for and calculated in Paragraph 52B.

     B. When Landlord makes an improvement pursuant to Paragraph 52A, and as a condition to Landlord’s obligation to construct such improvement, Tenant shall make the following contribution in cash to Landlord for the cost thereof prior to the commencement of the work by Landlord. It is agreed that Tenant shall pay to Landlord 100% of the cost of the first $100,000.00 worth of each improvement. After the first $100,000.00, all costs above $100,000.00 shall be divided by 15 and multiplied by the time period remaining in the last five years of the Lease Term from the date work on such improvement commences.

     For example, if the improvement is not required as a result of Tenant’s Actions and if the cost of such improvement was $400,000 and there was one year and six months remaining in the Lease term when the work commenced, then Tenant would be responsible for reimbursing Landlord in cash $130,000.00 computed as follows:

Total Cost of Work	$	400,000.00
Tenant Responsible for1st $100,000		-100.000.00
Total Amount To Be Amortized	$	300,000.00
$300,000.00/15 = $20,000.00/yr. x 1.5 yrs =	$	30,000.00
Tenant responsible for $100,000 + $30,000.00 =	$	130,000.00

     C. If Landlord has made improvements, for which Tenant has reimbursed Landlord for the cost thereof pursuant to Paragraph 52B, and the term of this Lease is subsequently extended pursuant to the exercise by Tenant of an option to renew pursuant to Lease Paragraph 42 or Paragraph 3 above, upon the exercise of any such option by Tenant, Tenant shall pay to Landlord an additional sum equal to the total amount of said improvement less the amount previously paid for by Tenant. Using the example in Paragraph 52B above, Tenant would owe Landlord the additional amount of $270,000.00 ($400,000.00 — $130,000.00 = $270,000.00).”

     7. PROPERTY INSURANCE: Lease Paragraph 12 (“Property Insurance”) is hereby amended to include the following: “Tenant acknowledges that as part of the cost of insurance policies for the Premises, Tenant is responsible for the payment of insurance deductibles on insurance claims as they relate to the Premises subject to the limitations provided in Lease Paragraph 54 (“Property Insurance”) which limitations are applicable only during the initial Lease Term and the First Lease Extension Period and the Second Lease Extension Period.

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Said limitation provided for in Lease Paragraph 54 are null and void at the commencement of the Third Lease Extended Term”.

     8. THIRD OPTION PERIOD — LEASE PROVISION CHANGES: In the event Tenant exercises its Third Option to Extend as provided for in Paragraph 3 above, the following amendments (contained within Paragraphs 9 through 19) are herein made to the Lease to be effective upon the commencement of the third option period (“Third Option Period”), or during any period following the expiration of the Lease Term or expiration of the Lease when Tenant is in possession of the Premises.

     9. LATE CHARGE: Effective as of the first day of the Third Option Period, the Late Charge referenced in Lease Paragraph 4.D (“Late Charge”) shall be changed from five percent (5%) to ten percent (10%), and Lease Paragraph 49 (“Limitation on Late Charge”) shall be deleted in its entirety and of no further force or effect.

     10. MANAGEMENT FEE: Notwithstanding anything to the contrary in the Lease, effective as of the first day of the Third Option Period, and on the first day of each month thereafter, Tenant shall pay to Landlord, in addition to the Basic Rent and Additional Rent, a fixed monthly management fee (“Management Fee”) equal to one percent (1%) of the Basic Rent due for each month during the Lease Term.

     11. HAZARDOUS MATERIALS: Effective as of the first day of the Third Option Period, Lease Paragraph 44 (“Hazardous Materials”) shall be deleted in its entirety and replaced with the following:

     “44. HAZARDOUS MATERIALS: Landlord and Tenant agree as follows with respect to the existence or use of “Hazardous Materials” (as defined herein) on, in, under or about the Premises and real property located beneath said Premises, which includes the entire parcel of land on which the Premises are located as shown in Green on Exhibit A to the Lease (hereinafter collectively referred to as the “Property”):

     A. As used herein, the term “Hazardous Materials” shall mean any material, waste, chemical, mixture or byproduct which is or hereafter is defined, listed or designated under Environmental Laws (defined below) as a pollutant, or as a contaminant, or as a toxic or hazardous substance, waste or material, or any other unwholesome, hazardous, toxic, biohazardous, or radioactive material, waste, chemical, mixture or byproduct, or which is listed, regulated or restricted by any Environmental Law (including, without limitation, petroleum hydrocarbons or any distillates or derivatives or fractions thereof, polychlorinated biphenyls, or asbestos). As used herein, the term “Environmental Laws” shall mean any applicable Federal, State of California or local government law (including common law), statute, regulation, rule, ordinance, permit, license, order, requirement, agreement, or approval, or any determination, judgment, directive, or order of any executive or judicial authority at any level of Federal, State of California or local government (whether now existing or subsequently

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adopted or promulgated) relating to pollution or the protection of the environment, ecology, natural resources, or public health and safety.

     B. Tenant shall notify Landlord prior to the occurrence of any Tenant’s Hazardous Materials Activities (defined below). Landlord acknowledges that Tenant shall use, in compliance with applicable Environmental Laws, customary household and office supplies (Tenant shall first provide Landlord with a list of said materials use), such as mild cleaners, lubricants and copier toner. Any and all of Tenant’s Hazardous Materials Activities shall be conducted in conformity with this Paragraph 44, Paragraph 14 of this Lease, and in compliance with all Environmental Laws and regulations. As used herein, the term “Tenant’s Hazardous Materials Activities” shall mean any and all use, handling, generation, storage, disposal, treatment, transportation, release, discharge, or emission of any Hazardous Materials on, in, beneath, to, from, at or about the Property, in connection with Tenant’s use of the Property, or by Tenant or by any of Tenant’s agents, employees, contractors, vendors, invitees, visitors or its future subtenants or assignees or other third parties (including “dumping” by others) (or which Hazardous Materials originate on the surface of the Premises any time on or after the Commencement Date of this Lease, but excluding Hazardous Materials on the Premises prior to the Lease Commencement Date because of the storage, use, disposal, or transportation of such materials or waste by any of Landlord’s contractors or otherwise arising out of construction work performed by or under the direction of Landlord on the Premises and Landlord shall be responsible for all required actions with respect to such materials or wastes). Tenant agrees to provide Landlord with prompt written notice of any spill or release of Hazardous Materials at the Property during the term of the Lease of which Tenant becomes aware, and further agrees to provide Landlord with prompt written notice of any violation of Environmental Laws in connection with Tenant’s Hazardous Materials Activities of which Tenant becomes aware. If Tenant’s Hazardous Materials Activities involve Hazardous Materials other than normal use of customary household and office supplies, Tenant also agrees at Tenant’s expense: (i) to install such Hazardous Materials monitoring, storage and containment devices as may be required by Environmental Laws, regulations and/or governing agencies; (ii) to provide Landlord with a written inventory of such Hazardous Materials, including an update of same each year upon the anniversary date of the Commencement Date of the Lease (“Anniversary Date”); and (iii) on each Anniversary Date to provide to Landlord copies of all documentation and records, required by applicable Environmental Laws to be prepared and submitted to governmental authorities, relating to use at the Property of Hazardous Materials or to Tenant’s Hazardous Materials Activities, if any. If upon completion of Landlord’s review of said documentation and records, Landlord reasonably questions if Tenant is in compliance with all applicable Environmental Laws with respect to Tenant’s Hazardous Materials Activities, Tenant agrees within thirty (30) days following receipt of written notice from Landlord, to retain a qualified environmental consultant, acceptable to Landlord, to evaluate whether Tenant is in compliance with all applicable Environmental Laws with respect to Tenant’s Hazardous Materials Activities. Tenant, at its expense, shall submit to Landlord a

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report from such environmental consultant which discusses the environmental consultant’s findings within two (2) months of each Anniversary Date. Tenant, at its expense, shall promptly undertake and complete any and all steps necessary, and in full compliance with applicable Environmental Laws, to fully correct any and all problems or deficiencies identified by the environmental consultant, and promptly provide Landlord with documentation of all such corrections.

     C. Prior to termination or expiration of the Lease, Tenant, at its expense, shall (i) properly remove from the Property all Hazardous Materials which come to be located at the Property in connection with Tenant’s Hazardous Materials Activities, and (ii) fully comply with and complete all facility closure requirements of applicable Environmental Laws regarding Tenant’s Hazardous Materials Activities, including but not limited to (x) properly restoring and repairing the Property to the extent damaged by such closure activities, and (y) obtaining from the local Fire Department or other appropriate governmental authority with any legal or regulatory jurisdiction a written concurrence that closure has been completed in compliance with applicable Environmental Laws. Tenant shall promptly provide Landlord with copies of any claims, notices, work plans, data and reports prepared, received or submitted in connection with any such closure activities.

     D. If Landlord, upon consultation with Tenant, reasonably concludes that the Property has become contaminated as a result of Tenant’s Hazardous Materials Activities, Landlord in addition to any other rights it may have under this Lease or under Environmental Laws or other laws, may enter upon the Property and conduct inspection, sampling and analysis, including but not limited to obtaining and analyzing samples of soil and groundwater, for the purpose of determining the nature and extent of such contamination except to the extent that such activities may be inconsistent with Tenant’s compliance with Environmental Laws. Tenant shall promptly reimburse Landlord for the costs of such an investigation, including but not limited to reasonable attorneys’ fees Landlord incurs with respect to such investigation to the extent, and only to the extent, that it that discloses Hazardous Materials contamination for which Tenant is liable under this Lease. Except as may be required of Tenant by applicable Environmental Laws, Tenant shall not perform any sampling, testing, or drilling to identify the presence of any Hazardous Materials at the Property, without Landlord’s prior written consent which shall not be unreasonably withheld. Tenant shall promptly provide Landlord with copies of any claims, notices, work plans, data and reports’ prepared, received or submitted in connection with any sampling, testing or drilling performed pursuant to the preceding sentence.

     E. Tenant shall indemnify, defend (with legal counsel acceptable to Landlord, whose consent shall not unreasonably be withheld) and hold harmless Landlord, its employees, assigns, successors, successors-in-interest, agents and representatives from and against any and all claims (including but not limited to third party claims from a private party or a government authority), liabilities, obligations, losses, causes of action, demands, governmental proceedings or

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directives, fines, penalties, expenses, costs (including but not limited to reasonable attorneys’, consultants’ and other experts’ fees and costs), and damages, which arise from or relate to: (i) Tenant’s Hazardous Materials Activities; (ii) any Hazardous Materials contamination caused by Tenant prior to the Commencement Date of the Lease; or (iii) the breach of any obligation of Tenant under this Paragraph 44 (collectively, “Tenant’s Environmental Indemnification”). Tenant’s Environmental Indemnification shall include but is not limited to the obligation to promptly and fully reimburse Landlord for losses in or reductions to rental income, and diminution in fair market value of the Property. Tenant’s Environmental Indemnification shall further include but is not limited to the obligation to diligently and properly implement to completion, at Tenant’s expense, any and all environmental investigation, removal, remediation, monitoring, reporting, closure activities, or other environmental response action as may be required by applicable Environmental Laws, regulations or governing agencies (collectively, “Response Actions”). Tenant shall promptly provide Landlord with copies of any claims, notices, work plans, data and reports prepared, received or submitted in connection with any Response Actions.

     F. Landlord hereby makes the following representations to Tenant, each of which is made only to the best of Landlord’s knowledge as of the date Landlord executes this Lease, without any inquiry or investigation having been made or required by Landlord regarding this subject, nor does Landlord have any obligation to investigate or make inquiry regarding the subject:

          (1) The soil and ground water on or under the Premises does not contain Hazardous Materials in amounts which violate any laws to the extent that any governmental entity could require either Landlord or Tenant to take any remedial action with respect to such Hazardous Materials.

          (2) During the time that Landlord has owned the Premises, Landlord has received no notice of (i) any violation, or alleged violation, of any law that has not been corrected to the satisfaction of the appropriate authority, (ii) any pending claims relating to the presence of Hazardous Material on the Premises, or (iii) any pending investigation by any governmental agency concerning the Premises relating to Hazardous Materials.

     G. Landlord and Tenant shall each give written notice to the other as soon as reasonably practicable of (i) any communication received from any governmental authority concerning Hazardous Materials which relates to the Premises, and (ii) any contamination of the Premises by Hazardous Materials which constitutes a violation of any law. Attached as Exhibit “C” to the Lease is a list of Hazardous Materials that Tenant intends to use at the Premises. If during the Lease Term Tenant proposes to use other Hazardous Materials at the Premises, Tenant shall inform Landlord of such use, identifying the Hazardous Materials and the manner of their use, storage and disposal, and shall agree (i) to use, store and dispose of such Hazardous Materials strictly in compliance with all

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laws, regulations and governing agencies and (ii) that the indemnity set forth in Paragraph 44 shall be applicable to Tenant’s use of such Hazardous Material.

     H. Landlord or Tenant may, at any time, cause testing wells to be installed on the Premises, and may cause the ground water to be tested to detect the presence of Hazardous Material by the use of such tests as are then customarily used for such purposes. Testing wells installed by Tenant shall be paid for by Tenant. If tests conducted by Landlord disclose that Tenant has violated any Hazardous Materials laws, or Tenant or parties on the Premises during the Term of this Lease have contaminated the Premises as determined by regulatory agencies pursuant to Hazardous Materials laws, or that Tenant has liability to Landlord pursuant to Paragraph 44A, then Tenant shall pay for 100 percent of the cost of the test and all related expense. Prior to the expiration of the Lease Term, Tenant shall remove any testing wells it has installed at the Premises, and return the Premises to the condition existing prior to the installation of such wells, unless Landlord requests in writing that Tenant leave all or some of the testing wells in which instance the wells requested to be left shall not be removed.

     I. If any tests performed by Tenant or Landlord prior to the Commencement Date disclose Hazardous Materials at the Premises, Landlord at its expense will promptly take all reasonable action required by law with respect to the existence of such Hazardous Materials at the Premises. The Commencement Date shall not be delayed because of such action by Landlord unless occupation of the Premises is prohibited by law.

     J. The obligations of Landlord and Tenant under this Paragraph 44 shall survive the expiration or earlier termination of the Term of this Lease. The rights and obligations of Landlord and Tenant with respect to issues relating to Hazardous Materials are exclusively established by this Paragraph 44.”

     12. SECURITY DEPOSIT: Effective as of the first day of the Third Option Period, Lease Paragraph 50 (“Security Deposit”) shall be deleted in its entirety and replaced with the following:

     “50. SECURITY DEPOSIT: The following provisions shall modify Lease Paragraph 4F:

     A. Within thirty (30) days after the expiration or earlier termination of the Lease term and after Tenant has vacated the Premises, Landlord shall return to Tenant the entire Security Deposit except for amounts that Landlord has deducted therefrom that are needed by Landlord to cure defaults of Tenant under the Lease or compensate Landlord for damages for which Tenant is liable pursuant to this Lease. The use or disposition of the Security Deposit shall be subject to the provisions of California Civil Code Section 1950.7.

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     B. During the first thirty (30) days following Tenant’s exercise of its Third Option to Extend, and only during said thirty day period, Tenant shall have the one-time option of satisfying its obligation with respect to an amount equal to one-half (1/2) ($136,691.55) of the $273,383.10 Security Deposit required under Lease Paragraph 4F by providing to Landlord, at Tenant’s sole cost, a letter of credit which: (i) is drawn upon an institutional lender reasonably acceptable and accessible to Landlord in form and content reasonably satisfactory to Landlord; (ii) is in the amount of one-half (1/2) of the Security Deposit; (iii) is for a term of at lease twelve (12) months; (iv) with respect to any letter of credit in effect within the six month period immediately prior to the expiration of the Lease term, shall provide that the term of such letter of credit shall extend at least forty five (45) days past the Lease expiration date (including any extensions thereof); and (v) may be drawn upon by Landlord upon submission of a declaration of Landlord that Tenant is in default (as defined in Paragraph 19 and as modified by Paragraph 59). Landlord shall not be obligated to furnish proof of default to such institutional lender, and Landlord shall only be required to give the institutional lender written notification that Tenant is in default and upon receiving such written notification from Landlord the institutional lender shall be obligated to immediately deliver cash to Landlord equal to the amount Landlord may spend or become obligated to spend by reason of Tenant’s default or to compensate Landlord for any loss or damage which Landlord may suffer by reason of Tenant’s default up to 1/2 of the total Security Deposit required under Lease Paragraph 4F. Said letter of credit shall provide that if the letter of credit is not renewed, replaced or extended within twenty (20) days prior to its expiration date the issuer of the credit shall automatically issue a cashiers check payable to Landlord in the amount of the letter of credit after the date which is twenty (20) days before the expiration date, and no later than the expiration date, without Landlord being required to make demand upon the letter of credit. If Tenant provides Landlord with a letter of credit, within thirty (30) day of the execution of this Lease, meeting the foregoing requirements, one-half (1/2) of the cash Security Deposit (i.e. $136.691.55 of the $273.383.10 Security Deposit) shall be returned to Tenant by Landlord inasmuch as the cash deposit remaining and the Letter of Credit equal the total Security Deposit required in Lease Paragraph 4F. If Tenant defaults with respect to any provisions of this Lease, including but not limited to provisions relating to the payment of Rent, Landlord may (but shall not be required to) draw down on the letter of credit for payment of any sum which Landlord may spend or become obligated to spend by reason of Tenant’s default, or to compensate Landlord for any loss or damage which Landlord may suffer by reason of Tenant’s default. Landlord and Tenant acknowledge that such letter of credit will be treated as if it were a cash security deposit, and such letter of credit may be drawn down upon by Landlord upon demand and presentation of evidence of the identity of Landlord to the issuer, in the event that Tenant defaults with respect to any provision of this Lease and such default is not cured within any applicable cure period. Notwithstanding anything to the contrary in this Lease, Landlord shall not be obligated to furnish proof of default to such institutional lender and Landlord is only required to give the institutional lender written

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notification that Tenant is in default and upon receiving such written notification from Landlord the institutional lender shall be obligated to immediately deliver cash to Landlord equal to the amount Landlord may spend or become obligated to spend by reason of Tenant’s default, or to compensate Landlord for any loss or damage which Landlord may suffer by reason of Tenant’s default up to 1/2 of the total Security Deposit. Landlord acknowledges that it is not entitled to draw down such letter of credit unless Landlord would have been entitled to draw upon the cash security deposit pursuant to the terms of Paragraph 4F of the Lease. Concurrently with the delivery of the required information to the issuer, Landlord shall deliver to Tenant written evidence of the default upon which the draw down was based, together with evidence that Landlord has provided to Tenant the written notice of such default which was required under the applicable provision of the Lease, and evidence of the failure of Tenant to cure such default within the applicable grace period following receipt of such notice of default. Any proceeds received by Landlord by drawing upon the letter of credit shall be applied in accordance with the provisions governing the Security Deposit imposed by Lease Paragraph 4F and this Paragraph 50. If Landlord draws upon the letter of credit, thereafter Tenant shall once again have the right to post a letter of credit in place of one-half (1/2) of a cash Security Deposit so long as Tenant is not then in default. In any event Tenant will be obligated to replenish the amount drawn to restore the Security Deposit to its original amount as provided for in Paragraph 4F. If any portion of the letter of credit is used or applied pursuant hereto, Tenant shall, within ten (10) days after receipt of a written demand therefor from Landlord, restore and replace the value of such security by either (i) depositing cash with Landlord in the amount equal to the sum drawn down under the letter of credit, or (ii) increasing the letter of credit to its value immediately prior to such application. Tenant’s failure to replace the value of the security as provided in the preceding sentence shall be a material breach of its obligation under this Lease.”

     13. REAL ESTATE TAXES: Effective as of the first day of the Third Option Period, Lease Paragraph 53 (“Real Estate Taxes”) shall be deleted in its entirety and replaced with the following:

     “53. REAL PROPERTY TAXES: Paragraph 9 is modified by the following:

     A. The term “Real Property Taxes” shall not include charges, levies or fees directly related to the use, storage, disposal or release of Hazardous Materials on the Premises unless directly related to Tenant’s Activities at this site or on other sites leased and/or owned by Tenant; however, Tenant shall be responsible for general or special tax and/or assessments (related to Hazardous Materials and/or toxic waste) imposed on the Property provided said special tax and/or assessment is not imposed due to on-site originated contamination on the Property (by third parties not related to Tenant) prior to the Lease Commencement Date. Subject to the terms and conditions stated herein, Tenant shall be responsible for paying one hundred percent (100%) of said taxes and/or assessments allocated to the Property.

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     B. If any assessments for public improvements are levied against the Premises, Landlord may elect either to pay the assessment in full or to allow the assessment to go to bond. If Landlord pays the assessment in full, Tenant shall pay to Landlord or any assignee or purchaser of the Premises each time payment of Real Property Taxes is made a sum equal to that which would have been payable (as both principal and interest) had Landlord allowed the assessment to go to bond.

     C. Tenant at its cost shall have the right, at any time, to seek a reduction in the assessed valuation of the Premises or to contest any Real Property Taxes that are to be paid by Tenant. If Tenant seeks a reduction or contests such Real Property Taxes, the failure on Tenant’s part to pay such Real Property Taxes being so contested shall not constitute a default so long as Tenant complies with the provisions of this Paragraph. Landlord shall not be required to join in any proceeding or contest brought by Tenant unless the provisions of any law require that the proceeding or contest be brought by or in the name of Landlord. In that case Landlord shall join in the proceedings or contest or permit it to be brought in Landlord’s name as long as Landlord is not required to bear any cost. Tenant, on final determination of the proceeding or contest, shall immediately pay or discharge its share of any Real Property Taxes determined by any decision or judgment rendered, together with all costs, charges, interest, and penalties incidental to the decision or judgment. If Tenant does not pay the Real Property Taxes when due pursuant to the Lease and Tenant seeks a reduction or contests them as provided in this paragraph, before the commencement of the proceeding or contest Tenant shall furnish to Landlord a surety bond in form reasonably satisfactory to Landlord issued by an insurance company qualified to do business in California. The amount of the bond shall equal 125% of the total amount of Real Property Taxes in dispute and any such bond shall be assignable to any lender or purchaser of the Premises. The bond shall hold Landlord and the Premises harmless from any damage arising out of the proceeding or contest and shall insure the payment of any judgment that may be rendered.”

     14. PROPERTY INSURANCE: Effective as of the first day of the Third Option Period, section B of Lease Paragraph 54 (“Property Insurance”) shall be deleted in its entirety and be of no further force or effect.

     15. ASSIGNMENT AND SUBLETTING: Effective as of the first day of the Third Option Period, Lease Paragraph 55 (“Assignment and Subletting”) shall be deleted in its entirety and replaced with the following:

     “55. ASSIGNMENT AND SUBLETTING: The following modifications are made to Paragraph 16:

     A. In the event that Tenant seeks to make any assignment or sublease, then Landlord, by giving Tenant written notice of its election within fifteen (15) days after Tenant’s notice of intent to assign or sublease has been given to Landlord, shall have the right to elect (i) to withhold its consent to such

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assignment or sublease, as permitted pursuant to Paragraph 16, or (ii) to permit Tenant to so assign the Lease or sublease such part of the Premises, in which event Tenant may do so, but without being released of its liability for the performance of all of its obligations under the Lease, and the following shall apply (except the following shall not apply to a “Permitted Transfer” described in Paragraph 56):

          (1) If Tenant assigns its interest in this Lease, then in addition to the rental provided for in this Lease, Tenant shall pay to Landlord fifty percent (50%) of all Rent and other consideration received by Tenant over and above (i) the assignee’s agreement to assume the obligations of Tenant under this Lease and (ii) all “Permitted Transfer Costs” (as defined herein) related to such assignment. As used herein, the term “Permitted Transfer Costs” shall mean all reasonable leasing commissions paid to third parties not affiliated with Tenant in order to obtain the assignment or sublease in question.

          (2) If Tenant sublets all or part of the Premises, then Tenant shall pay to Landlord in addition to the Rent provided for in this Lease fifty percent (50%) of the positive difference, if any, between (i) all rent and other consideration paid or provided to Tenant by the subtenant, less (ii) all Rent paid by Tenant to Landlord pursuant to this Lease which is allocable to the area so sublet and all Permitted Transfer Costs related to such sublease. After Tenant has recovered all Permitted Transfer Costs Tenant shall pay to Landlord the amount specified in the preceding sentence on the same basis, whether periodic or in lump sum, that such rent and other consideration is paid to Tenant by its subtenant, within seven (7) days after it is received by Tenant.

          (3) Tenant’s obligations under this subparagraph shall survive any assignment or sublease. At the time Tenant makes any payment to Landlord required by this subparagraph, Tenant shall deliver an itemized statement of the method by which the amount to which Landlord is entitled was calculated, certified by Tenant as true and correct. Landlord shall have the right to inspect Tenant’s books and records relating to the payments due pursuant to this subparagraph. Upon request therefor, Tenant shall deliver to Landlord copies of all bills, invoices or other documents upon which its calculations are based.

          (4) As used herein, the term “consideration” shall mean any consideration of any kind received, or to be received (including, but not limited to, services rendered and/or value received) by Tenant as a result of the assignment or sublease, if such sums are paid or provided to Tenant for Tenant’s interest in this Lease or in the Premises.

          (5) This Paragraph 55.A does not apply to a “Permitted Transfer”, as provided in Paragraph 56 hereof. The parties agree that if any of the following transactions occur and do not qualify as “Permitted

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Transfers”, Tenant must obtain Landlord’s consent to such transaction and if Landlord consents to any of the following transactions which do not otherwise qualify as “Permitted Transfers”, then the provisions of this Paragraph 55.A shall not apply to the following transactions: (i) a merger, consolidation or other reorganization in which Tenant is not the surviving corporation so long as 95% of all assets and liabilities of Tenant are permanently transferred to such assignee; and (ii) an assignment of this Lease to a corporation which purchases or otherwise acquires 95% or more of the assets of Tenant so long as 95% of all assets and liabilities of Tenant are permanently transferred to such assignee and Tenant remains liable and responsible under the Lease to the extent Tenant continues in existence following such transaction.”

     16. PERMITTED ASSIGNMENTS AND SUBLEASES: Effective as of the first day of the Third Option Period, Lease Paragraph 56 (“Permitted Assignments and Subleases”) shall be deleted in its entirety and replaced with the following:

     “56. PERMITTED ASSIGNMENTS AND SUBLEASES: Notwithstanding anything contained in Paragraph 16, so long as Tenant otherwise complies with the provisions of Paragraph 16 and the Permitted Transfer does not release Tenant from its obligations hereunder, Tenant may enter into any of the following transfers (a “Permitted Transfer”) without Landlord’s prior written consent, and the provisions of Paragraph 55A shall not apply to any such Permitted Transfer:

     A. Tenant may sublease all or part of the Premises or assign its interest in this Lease to any corporation which controls, is controlled by, or is under common control with Tenant by means of an ownership interest of more than fifty percent (50%) providing Tenant remains liable for the payment of Rent and full performance of the Lease;

     B. Tenant may assign its interact in the Lease to a corporation which results from a merger, consolidation or other reorganization in which Tenant is not the surviving corporation so long as (i) 95% of all assets and liabilities of Tenant are permanently transferred to such assignee, and (ii) immediately prior to the merger, consolidation or other reorganization, the corporation into which Tenant is to be merged has a net worth equal to or greater than the net worth of Tenant at the time of Lease execution or at the time of such assignment, merger, consolidation or reorganization (whichever is greater), or if it does not, Landlord is provided a guaranty of the Lease (in a form reasonably acceptable to Landlord) from a corporation (a) that is the parent of, or is otherwise affiliated with, the corporation into which Tenant is to be merged, and (b) which has a current net worth equal to or greater than the net worth of Tenant at the time of Lease execution or at the time of such assignment, merger, consolidation or reorganization (whichever is greater). In the event there is not a permanent transfer of 95% or more of the assets and liabilities from Tenant to a third party, and Tenant continues to exist as a separate entity, both companies shall be jointly and severally liable for the full terms and conditions of the Lease;

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     C. Tenant may assign this Lease to a corporation which purchases or otherwise acquires 95% or more of the assets of Tenant so long as 95% of all assets and liabilities of Tenant are permanently transferred to such assignee (in the event there is not a permanent transfer of 95% or more of the assets and liabilities from Tenant to a third party and Tenant continues to exist as a separate entity, both companies shall be jointly and severally liable for the full terms and conditions of the Lease), and provided that immediately prior to such assignment said corporation, has a net worth equal to or greater than the net worth of Tenant (a) at the time of Lease execution or (b) at the time of such assignment (whichever is greater), or if it does not, Landlord is provided a guaranty of the Lease (in a form reasonably acceptable to Landlord) from a corporation (a) that is the parent of, or is otherwise affiliated with, said corporation and (b) which has a current net worth equal to or greater than the net worth of Tenant at the time of Lease execution or at the time of such assignment, (whichever is greater).”

     17. DESTRUCTION: Effective as of the first day of the Third Option Period, Lease Paragraph 61 (“Destruction”) shall be deleted in its entirety and replaced with the following:

     “61. DESTRUCTION: Paragraph 21 is modified by the following:

     A. Notwithstanding anything to the contrary within Paragraph 21, Landlord may terminate this Lease in the event of an uninsured event or if insurance proceeds, net of the deductible, are insufficient to cover one hundred percent of the rebuilding costs; provided, however, Tenant shall have the right to elect, in its discretion, to contribute such excess funds to permit Landlord to repair the Premises.

     B. Except as provided in Paragraph 61C, Landlord may not terminate the Lease if the Premises are damaged by a peril whereby the cost to replace and/or repair is one hundred percent (100%) covered by the insurance carried by Landlord pursuant to Paragraph 12, but instead shall restore the Premises in the manner described by Paragraph 21.

     C. If the Premises are damaged by a peril covered by the insurance carried by Landlord pursuant to Paragraph 12, Landlord shall have the option to terminate the Lease if each of the following conditions is satisfied: (i) the cost to repair or the damage exceeds thirty-three percent (33%) of the then replacement cost of the Premises; and (ii) the damage occurs at a time when there is less than five (5) years remaining in the term of the Lease.

     D. If Landlord fails to obtain insurance as required pursuant to Paragraph 12, and said insurance would have been available to cover any damage or destruction to the Premises, Landlord shall be required to rebuild, at its cost, net of the deductible which would have been required under said insurance policy (which deductible Tenant is required to pay).

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     E. If the Premises are damaged by any peril, then as soon as reasonably practicable, Landlord shall furnish Tenant with the written opinion of Landlord’s architect or construction consultant as to when the restoration work required of Landlord may be completed. Tenant shall have the option to terminate this Lease in the event any of the following occurs, which option may be exercised only by delivery to Landlord of a written notice of election to terminate within seven (7) days after Tenant receives from Landlord the estimate of the time needed to complete such restoration:

          (1) The Premises are damaged by any peril (not caused by or resulting from an action of Tenant or Tenant’s agents, employees, contractors or invitees) and, in the reasonable opinion of Landlord’s architect or construction consultant, the restoration of the Leased Premises cannot be substantially completed within 180 days after the date of such damage (subject to force majeure conditions); or

          (2) The Premises are damaged by any peril (not caused by or resulting from an action of Tenant or Tenant’s agents, employees, contractors or invitees) within twelve (12) months of the last day of the Lease term, and, in the reasonable opinion of Landlord’s architect or construction consultant, the restoration of the Leased Premises cannot be substantially completed within sixty (60) days after the date of such damage and Tenant has not exercised its Option to Extend said Term (or Extended Term as the case may be).”

     18. LIABILITY INSURANCE: Effective as of the first day of the Third Option Period, the first sentence of Lease Paragraph 10 (“Liability Insurance”) shall be deleted and replaced with the following: “Tenant, at Tenant’s expense, agrees to keep in force during the Term of this Lease a policy of commercial general liability insurance with combined single limit coverage of not less than Two Million Dollars ($2,000,000) per occurrence for bodily injury and property damage occurring in, on or about the Premises, including parking and landscaped areas.”

     19. LIMITATION OF LIABILITY: Effective as of the first day of the Third Option Period, Lease Paragraph 36 (“Limitation of Liability”) shall be deleted in its entirety and replaced with the following:

     “36. 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:

(i) the sole and exclusive remedy shall be against Landlord’s interest in the Premises leased herein;

(ii) 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);

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

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

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

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

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

(viii) these covenants and agreements are enforceable both by 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.”

     EXCEPT AS MODIFIED HEREIN, all other terms, covenants, and conditions of said September 17, 1990 Lease Agreement shall remain in full force and effect.

     IN WITNESS WHEREOF, Landlord and Tenant have executed this Amendment No. 1 to Lease as of the day and year last written below.

LANDLORD:		TENANT:
JOHN ARRILLAGA SURVIVOR’S TRUST		QUANTUM CORPORATION,
		a Delaware corporation
By	/s/ John Arrillaga	By	/s/ Andrew Kryder
	John Arrillaga, Trustee
		Andrew Kryder
Date	6/30/97	Print or Type Name
RICHARD T. PEERY SEPARATE
PROPERTY TRUST		Title	VP Finance and Corp. General Counsel
By	/s/ Richard Peery	Date	6/25/97
	Richard T. Peery, Trustee
Date	6/26/97

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AMENDMENT NO. 2
TO LEASE

     THIS AMENDMENT NO. 2 is made and entered into this 26th day of March, 2001, by and between JOHN ARRILLAGA, Trustee, or his Successor Trustee UTA dated 7/20/77 (JOHN ARRILLAGA SURVIVOR’S TRUST) (previously known as the “John Arrillaga Separate Property Trust”) as amended, and RICHARD T. PEERY, Trustee, or his Successor Trustee UTA dated 7/20/77 (RICHARD T. PEERY SEPARATE PROPERTY TRUST) as amended, collectively as LANDLORD, and MAXTOR CORPORATION, a Delaware corporation, as “ASSIGNEE” OR “MAXTOR”.

RECITALS

     A. WHEREAS, by Lease Agreement dated September 17, 1990 Landlord leased to QUANTUM CORPORATION, a Delaware corporation (the “ASSIGNOR” or “QUANTUM”) all of that certain 101,253+ square foot building located at 1000 Sumac Drive, Milpitas, California, the details of which are more particularly set forth in said September 17, 1990 Lease Agreement, and

     B. WHEREAS, said Lease was amended by the Commencement Letter dated December 6, 1991 which established the December 6, 1991 Lease Commencement Date, and established the Termination Date of September 30, 2006, and,

     C. WHEREAS, said Lease was amended by Amendment No. 1 dated April 16, 1997, which amended the Lease by (i) extending the Term for five years, changing the Termination Date from September 30, 2006 to September 30, 2011, (ii) amending the Basic Rent schedule and Aggregate Rent accordingly, (iii) adding a third Five Year Option to Extend, (iv) replacing Paragraphs 40C (“Lease Terms Co-extensive”) and 47 (“Cross Default”) and 52 (“Structural Capital Costs Regulated by Governmental Agencies After the Commencement of this Lease not Caused by Tenant or Tenant’s Uses or Remodeling of the Premises”), (v) amending Lease Paragraph 12 (“Property Insurance”) and (vi) amending and/or replacing certain provisions of the Lease commencing as of the commencement of the Third Extended Term of said Lease, and

     D. WHEREAS, the Lease, together with those certain Amendments described above in Recitals B and C shall hereinafter collectively be referred to as “the Lease Agreement”, and

     E. WHEREAS, it is now the desire of the parties hereto to amend the Lease by (i) acknowledging Landlord’s consent to the assignment of said Lease from “Quantum Corporation, a Delaware corporation” to “Maxtor Corporation, a Delaware corporation”, and (ii) replacing Lease Paragraph 42 (“Second Five Year Option to Extend”) and Paragraph 3 to Amendment No. 1 dated April 16, 1997 (“Third Five Year Option to Extend”) as hereinafter set forth.

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AGREEMENT

     NOW THEREFORE, for valuable consideration, receipt of which is hereby acknowledged, and in consideration of the hereinafter mutual promises, the parties hereto do agree as follows:

     1. ASSIGNMENT OF TENANT’S INTEREST: Notwithstanding anything to the contrary contained in the Lease Agreement, Landlord hereby understands that based on Quantum’s notice to Landlord, Landlord hereby acknowledges that the following transactions have occurred:

     A. Quantum has operated its business at the Premises through two separate business groups: Quantum HDD, tracked by Quantum HDD common stock, and Quantum DSS, tracked by Quantum DSS common stock.

     B. On or about, October 3, 2000, Quantum and Maxtor entered into that certain an Amended and Restated Agreement and Plan of Merger and Reorganization, dated as of October 3, 2000 (the “Merger Agreement’), wherein they agreed that:

                    (i) Quantum will separate its Quantum HDD business from its Quantum DSS and transfer the assets of Quantum HDD to a newly-formed subsidiary, Insula Corporation, a Delaware corporation (“Insula”), in exchange for all of Insula’s common stock and Insula’s agreement to be entirely responsible for all of the Quantum HDD obligations and liabilities.

                    (ii) Immediately after such separation, each currently outstanding share of Quantum HDD common stock will be redeemed in return for a share of Insula common stock, such that the holders of Quantum HDD common stock shall own all of the common stock of Insula.

                    (iii) Immediately after said redemption, Insula will merge into Maxtor and each share of the Insula’s common stock will be converted into the right to receive approximately 1.52 shares of Maxtor common stock, subject to possible adjustment as described in the Merger Agreement.

     C. As part of the legal separation of the Quantum HDD business from the Quantum DSS business, all of the right title and interest of Quantum in the Lease will be assigned by Quantum to Insula and Insula will assume and agree to be liable for all of the obligations of Quantum, as Tenant, under the Lease.

     As a result of said merger transaction, as of April 2, 2001, the effective date of the merger, Maxtor will become the Tenant under the Lease Agreement, and Maxtor shall assume all obligations of Tenant under the Lease Agreement dated September 17, 1990, as amended.

     Landlord hereby consents to the foregoing transactions (“Landlord’s Consent”). Except as expressly set forth below, Landlord’s Consent shall in no way void or alter any of the terms of

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the Lease Agreement by and between Landlord and Tenant, nor shall Landlord’s Consent alter or diminish in any way Tenant’s obligations to Landlord.

     Landlord has not reviewed the terms of any agreement between Quantum, Insula and/or Maxtor, and Landlord shall not be bound by any agreement other than the terms of the Lease Agreement between Landlord and Tenant. Landlord does not make any warranties or representations as to the condition of the Leased Premises or the terms of the Lease Agreement between Landlord and Quantum. Landlord’s consent to the assignment shall in no way obligate Landlord to any further consents or agreements between Quantum and/or Assignee. So long as Quantum continues to exist as a Delaware corporation, it is agreed that both Quantum and Maxtor will be jointly and severally liable for all the terms and conditions of the Lease and all Amendments thereto; provided, however, that so long as Quantum remains liable for said Lease, no material amendment to the Lease Agreement after the date hereof shall be binding upon Quantum without the prior written consent of Quantum, which consent shall not be unreasonably withheld, and Quantum’s approval shall not be required on transactions related to Landlord’s Waivers, Landlord’s Consents to Sublease and/or Landlord’s Consents to Alterations. The foregoing, however, shall not prevent Tenant and Landlord from entering into any such modification or amendment between themselves.

     It is further understood that the Security Deposit of Quantum is being transferred to Maxtor.

     2. OPTIONS TO EXTEND: As consideration for the consent of Landlord herein set forth, Lease Paragraph 42 (“Second Five Year Option to Extend”) and Paragraph 3 to Amendment No. I dated April 16, 1997 (“Third Five Year Option to Extend”) are hereby deleted in their entirety and shall be replaced with the following:

     A. SECOND FIVE YEAR OPTION TO EXTEND: Landlord hereby grants to Tenant an option to extend this Lease Agreement (“Option to Extend” or the “Option”) for an additional five years (“Second Extended Term”) upon the following terms and conditions:***

          1) Tenant shall give Landlord written notice of Tenant’s exercise of this Option to Extend at least one hundred eighty (180) days prior to the expiration of the Lease Term pursuant to Paragraph A hereof (not later than April 3, 2011), in which event the Term of the Lease shall be considered extended for an additional five (5) years, subject to the Basic Rent set forth below and with: (i) the Basic Rent to be determined pursuant to Paragraph 2) below; (ii) management fee and the terms and conditions subject to amendment by Landlord (Landlord, in its sole and absolute discretion, may, but is not required to, incorporate its then current Lease provisions that are standard in Landlord’s leases for comparable buildings as of the date of Tenant’s exercise of its Option to Extend); and (iii) this Paragraph 2.A thereafter deleted. In the event that Tenant fails to timely exercise Tenant’s Option as set forth herein in writing, Tenant shall have no further Option to Extend this Lease, and the Lease shall continue in full force and effect for the full remaining term hereof, absent this Paragraph 2.

     2) In the event Tenant timely exercises Tenant’s Option to Extend as set forth herein, Landlord shall, within fifteen (15) days after receipt of Tenant’s exercise of the Option, advise Tenant of any changes in the management fee and the terms and conditions as referenced

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in Paragraph 2.A.1(ii) above) and the Basic Rent (which shall not be less than the Basic Rent for the fifth year of the current Term) required for the Extended Term of the Lease to make the Basic Rent for the Premises comparable to the then current market triple net basic rent for comparable properties either (i) then owned in whole or in part by the above mentioned Landlord or by members of its immediate family in the vicinity of the Premises or (ii) if not owned by Landlord or its family as stated herein, other third party properties in the vicinity of the Premises. Tenant shall have five (5) days after receipt from the Landlord of said new terms and conditions and Basic Rent in which to accept said new terms and conditions and Basic Rent and enter into written documentation confirming same. In the event Tenant fails to execute said written documentation confirming said new terms and conditions and Basic Rent for the Second Extended Term of Lease within said five (5) day period, Tenant shall have no further Option to Extend this Lease, and this Lease shall continue in full force and effect for the full remaining term hereof absent of this Paragraph 2, with Landlord having no further responsibility or obligation to Tenant with respect to Tenant’s Option to Extend.

     3) It is agreed that if Tenant is at any time prior to exercising its Option to Extend in default of this Lease and has failed to cure the default in the time period allowed, this Paragraph 2 shall be null and void and Tenant will have no further rights under this Paragraph. It is further agreed that if Tenant has exercised its Option to Extend and is subsequently in default, and has failed to cure the default in the time period allowed by the Lease at any time prior to, or at the time the lease commences on the Second Extended Term, Landlord may at its sole and absolute discretion, cancel Tenant’s Option to Extend, and this Lease will continue in full force and effect for the full remaining Term hereof, absent of this Paragraph 2.

     4) The Option rights of Tenant under this Paragraph 2.A, and the Second Extended Term thereunder, are granted for Tenant’s personal benefit and may not be assigned or transferred by Tenant, except as provided for in Lease Paragraph 56 (“Permitted Assignments and Subleases”), either voluntarily or by operation of law, in any manner whatsoever.

     5) Notwithstanding anything to the contrary in this Paragraph, this Option to Extend is automatically forfeited by Tenant (without notice from Landlord) in the event Tenant is, at any time during the Term of this Lease, in default of said Lease and if Tenant does not completely cure said default within five days for a monetary default and thirty days for a non-monetary default (or such longer time as permitted by cure in the Lease Agreement). In the event said Option to Extend is forfeited as stated herein, Tenant shall have no further Option to Extend this Lease.

     B. THIRD FIVE (5)-YEAR OPTION PERIOD: Provided Tenant has extended the Lease for an additional five year period as set forth in Paragraph A above, Landlord hereby grants to Tenant another Option to Extend the Lease Agreement upon the following terms and conditions;

          1) Tenant shall give Landlord written notice of Tenant’s exercise of this Option to Extend at least one hundred eighty (180) days prior to the expiration of the Basic Term hereof (not later than April 3, 2016), in which event the Term of the Lease shall be considered extended for an additional five (5) years (“Third Extended Term”) subject to the Basic Rent set

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forth below and with: (i) the Basic Rent to be determined pursuant to Paragraph 2) below; (ii) the management fee and the terms and conditions subject to amendment by Landlord (Landlord, in its sole and absolute discretion, may, but is not required to, incorporate its then current Lease provisions that are standard in Landlord’s leases for comparable buildings as of the date of Tenant’s exercise of its Option to Extend); and (iii) this Paragraph 2.B thereafter deleted. In the event that Tenant fails to timely exercise Tenant’s Option as set forth herein in writing, Tenant shall have no further Option to Extend this Lease, and the Lease shall continue in full force and effect for the full remaining term hereof, absent this Paragraph 2.B.

          2) In the event Tenant timely exercises Tenant’s Option to Extend as set forth herein, Landlord shall, within fifteen (15) days after receipt of Tenant’s exercise of option, advise Tenant of any changes in the management fee and the terms and conditions as referenced in Paragraph 2.B.1 (ii) above and Basic Rent (which shall not be less than the Basic Rent for the fifth year of the Second Extended Term) required for the Third Extended Term of the Lease to make the Basic Rent for the Premises comparable to the then current market triple net basic rent for comparable properties either (i) then owned in whole or in part by the above mentioned Landlord or by members of its immediate family in the vicinity of the Premises or (ii) if not owned by Landlord or its family as stated herein, other third party properties in the vicinity of the Premises. Tenant shall have five (5) days after receipt from the Landlord of said new terms and conditions and Basic Rent in which to accept said new terms and conditions and Basic Rent and enter into written documentation confirming same. In the event Tenant fails to execute said written documentation confirming said new terms and conditions and Basic Rent for the Third Extended Term of Lease within said five (5) day period, Tenant shall have no further Option to Extend this Lease, and this Lease shall continue in full force and effect for the full remaining term hereof absent of this Paragraph 2.B, with Landlord having no further responsibility or obligation to Tenant with respect to Tenant’s Option to Extend.

          3) It is agreed that if Tenant is at any time prior to exercising its Option to Extend in default of this Lease and has failed to cure the default in the time period allowed, this Paragraph 2.B will be null and void and Tenant will have no further rights under this Paragraph. It is further agreed that if Tenant has exercised its Option to Extend and is subsequently in default, and has failed to cure the default in the time period allowed by the Lease at any time prior to, or at the scheduled Commencement Date of the Third Extended Term, Landlord may at its sole and absolute discretion, cancel Tenant’s Option to Extend, and this Lease will continue in full force and effect for the full remaining Term hereof, absent of this Paragraph 2.B.

          4) The Option rights of Tenant under this Paragraph 2.B and the Third Extended Term thereunder, are granted for Tenant’s personal benefit and may not be assigned or transferred by Tenant, except as provided for in Lease Paragraph 56 (“Permitted Assignments and Subleases”), either voluntarily or by operation of law, in any manner whatsoever.

          5) Notwithstanding anything to the contrary in this Paragraph 2.B, this Option to Extend is automatically forfeited by Tenant (without notice from Landlord) in the event Tenant is, at any time during the Term of this Lease, in default of said Lease and if Tenant does not completely cure said default within five days for a monetary default and thirty days for a non-monetary default (or such longer time as permitted by cure in the Lease Agreement). In

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the event said Option to Extend is forfeited as stated herein, Tenant shall have no further Option to Extend this Lease.

     EXCEPT AS MODIFIED HEREIN, all other terms, covenants, and conditions of said September 17, 1990 Lease Agreement, as heretofore amended, shall remain in full force and effect.IN WITNESS WHEREOF, Landlord and Tenant have executed this Amendment No. 2 to Lease as of the day and year last written below.

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LANDLORD:	ASSIGNEE/MAXTOR:
JOHN ARRILLAGA SURVIVOR’S TRUST	MAXTOR CORPORATION, a Delaware corporation

By:	/s/ John Arrillaga by attorney-in-fact, Richard Peery	By:	/s/ Glenn Stevens
	John Arrillaga, Trustee

		Glen H. Stevens
Date:	3/30/01	Print or Type Name

RICHARD T. PEERY SEPARATE
PROPERTY TRUST	Title:	V.P. General Counsel & Secretary

By:	/s/ Richard Peery
	Richard T. Peery, Trustee	Date:	4/1/01

Date: 3/30/01 ASSIGNOR/QUANTUM

QUANTUM CORPORATION a Delaware corporation
By:	/s/ Norm Claus
Norm Claus
Print or Type Name

Title: V.P. Real Estate

 Date: 3/30/01

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LEASE AGREEMENT

     THIS LEASE, made this 23rd day of March, 1994 between JOHN ARRILLAGA, Trustee, or his Successor Trustee, UTA dated 7/20/77 (JOHN ARRILLAGA SEPARATE PROPERTY TRUST) as amended, and RICHARD T. PEERY Trustee, or his Successor Trustee, UTA dated 7/20/77 (RICHARD T. PEERY SEPARATE PROPERTY TRUST) as amended, hereinafter called Landlord and QUANTUM CORPORATION, a Delaware corporation, 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 land containing approximately 5.131± acres and that certain 94,484± square foot two-story building (“Building 5”) and parking appurtenant thereto, to be constructed and installed by Landlord as shown within the area outlined in Red (“Lot 5”) on Exhibit A to be located at 1100 Sumac Drive, Milpitas, California, 95035. Said Premises is more particularly shown within the area outlined in Red on Exhibit A attached hereto and incorporated herein by this reference. The interior of the Leased Premises shall be improved in the configuration as shown in Red on Exhibit B to be attached hereto and incorporated herein by this reference. The building shell shall be constructed in accordance with the shell and site improvement specifications set forth on Exhibit A, and the general building elevation set forth on Exhibit A. SEE PARAGRAPH 48.

     The word “Premises” as used throughout this lease is hereby defined to include the nonexclusive use of sidewalks and driveways in front of or adjacent to the Premises, and the nonexclusive use of the area directly underneath or over such sidewalks and driveways. The gross leasable area of the building 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 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 and observance.

     1. USE: Tenant shall use the Premises only in conformance with applicable governmental laws, regulations, rules and ordinances for the purpose of office, sales and R&D and related uses necessary for the use of Tenant or any approved assignee or subtenant to conduct its business providing any and all uses of the Premises shall be subject to and in conformance with all governmental laws and ordinances and for no other purpose without Landlord’s prior written consent. 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

1

any insurance covering the Premises or any part thereof, or any of its contents without the prior written consent of Landlord, and provided Tenant bears any cost related to such increased rate, 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 which 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 of Tenant to comply with any applicable law that governs Tenant use of the Premises. Tenant shall comply with any covenant, condition or restriction (“CC&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 AND COMMENCEMENT DATE OF LEASE: See Paragraphs 40, 41 and 42 of this Lease.

     3. POSSESSION: If Landlord, for any reason whatsoever other than Landlord’s default cannot deliver possession of said premises to Tenant at the commencement of the said term, as hereinbefore specified, this 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; provided, however, it is agreed that in no event shall the Lease commence sooner than January 1, 1995 unless the parties agree in writing to an earlier date for the Lease to commence. The above is, however, subject to the provision that the period of delay of delivery of the Premises shall not exceed 180 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. SEE PARAGRAPH 46.

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     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 total sum of the amount to be calculated pursuant to Paragraph 39 in lawful money of the United States of America, payable as follows: See Paragraphs 39 through 42.

          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 moth 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 and 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 five percent (5%) of each rental payment so in default. See Paragraph 49.

          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 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,

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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 in which case such amount shall be held by Landlord as a credit for Tenant’s account until such default has been cured 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 actual 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 Peery/Arrillaga, File 1504, P.O. Box 60000, San Francisco, CA 94160 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 THREE HUNDRED SIX THOUSAND ONE HUNDRED TWENTY EIGHT AND 16/100 Dollars ($306,128.16). Said sum shall be held by Landlord as the Security Deposit for the faithful performance by Tenant of all of 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 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 therefore, deposit cash with Landlord in the amount sufficient to restore the Security Deposit to its 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. SEE PARAGRAPH 50.

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     5. ACCEPTANCE AND SURRENDER OF 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 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 acoustical ceiling tiles replaced; all windows washed; the airconditioning 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 ninety (90) 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 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 be 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. SEE PARAGRAPH 51.

     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

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fixtures placed in the Premises. All heating, lighting, electrical airconditioning, 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 alteration 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. Tenant receives notice of SEE PARAGRAPH 51.

     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 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 airconditioning 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 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 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 tenants(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. SEE PARAGRAPH 52.

     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,

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any temporary or permanent utility surcharge or other exactions whether or not hereinafter imposed. In the event the above charges 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.

     9. TAXES:

     A. Notwithstanding the following and pursuant to the terms of the Option Agreement dated October 31, 1989 related to this Lease Tenant is responsible for paying all real estate taxes and assessments assessed against the Premises leased hereunder from August 27, 1990, the date Tenant exercised its first option under the Option Agreement dated October 31, 1989. 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 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 nonresponsiblity 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 or assessed 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

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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. SEE PARAGRAPH 53.

          B. Taxes on Tenant’s Property: Tenant shall be liable for and shall pay ten 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, on or about the Premises, including parking and landscaped areas, in the amount of $2,000,000 combined single limit. Such insurance shall be primary and on 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 shall 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 WORKMAN’S COMPENSATION INSURANCE: Tenant shall maintain a policy or policies of fire and

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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 workman’s compensation insurance and any other employee benefit insurance sufficient to comply with all laws.

     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 or 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 (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 to 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. SEE PARAGRAPH 54.

     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 charter 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, and subject to the last two sentences of Paragraph 12, 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

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now or hereafter constituted; and with any direction or occupancy certificate issued pursuant to law by any public officer; 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 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 sole 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. SEE PARAGRAPHS 44 AND 52.

     15. LIENS: Tenant shall keep the Premises free from any liens arising out of any work performed, materials furnished or obligation incurred by Tenant. In the event that Tenant shall not, within ten (10) days following Tenant’s receipt of notice of 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 SUBLETING: 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 sue the Premises, or any portion thereof, without, in each case, the prior written consent of Landlord which consent will not be unreasonably withheld. 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 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 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 reasonable 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. SEE PARAGRAPHS 55 AND 56.

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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. 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. SEE PARAGRAPH 57.

     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, mortgagers or tenants; to post notices of nonresponsibility; 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 under any circumstances be construed or deemed 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. SEE PARAGRAPH 58.

     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 therein, 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,

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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 ten (10) 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 thirty (30) 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 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.

               (b)The rights and remedies provided by California Civil Code Section 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 relet 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, after compliance with all statutory requirements and in any event on not less than three (3) business days prior written notice, 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, 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 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 incur red by Landlord and the

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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 first to payment of indebtedness other than rent due hereunder from Tenant to Landlord; second, to the payment of any costs of such subletting and or such alterations and repairs; third to payment of rent due and unpaid hereunder; and the residue, if any, shall be held by Landlord and 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 than 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. No taking possession of the Premises by Landlord, shall be construed as an election on its part to terminate this Lease 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 to Landlord pursuant to subparagraph d above. SEE PARAGRAPH 59.

     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 said 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. SEE PARAGRAPH 60.

     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 embargos, rainy or

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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 fixtures, 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 33¹/₃% of the replacement cost thereof, Landlord may elect to terminate this Lease, whether the Premises be injured or not. In the event the destruction of the Premises is caused by Tenant. Tenant shall pay the deductible portion of Landlord’s insurance proceeds. SEE PARAGRAPH 61.

     22. EMINENT DOMAIN: If all or any part of the Premises shall be taken by any public or quasi-public authority under the power of eminent domain or conveyance in lieu thereof, this Lease shall terminate as to any portion of the Premises so taken or conveyed on the date when title vests in the condemnor, and Landlord shall be entitled to any and all payment, income, rent, award, or any interest therein whatsoever which may be paid or made in connection with such taking or conveyance, and Tenant shall have no claim against Landlord or otherwise for the value of any unexpired term of this Lease. Notwithstanding the foregoing paragraph, any compensation specifically awarded Tenant for loss of business, Tenant’s personal property, moving cost or loss of goodwill shall be and remain the property of Tenant.

     If any action or proceeding is commenced for such taking of the Premises or any part thereof, of it Landlord is advised in writing by any entity or body having the right or power of condemnation of its intention to condemn the premises or any portion thereof, then Landlord shall have the right to terminate this Lease by giving Tenant written notice thereof within sixty (60) days of the date of receipt of said written advice, or commencement of said action or proceeding, or taking conveyance, which termination shall take place as of the first to occur of the last day of the calendar month next following the month in which such notice is given or the date on which title to the Premises shall vest in the condemnor.

     In the event of such a partial taking or conveyance of the Premises, if the portion of the Premises taken or conveyed is so substantial that the Tenant can no longer reasonably conduct its business, Tenant shall have the privilege of terminating this Lease within sixty (60) days from the date of such taking or conveyance, upon written notice to Landlord of its intention so to do, and upon giving of such notice this Lease shall terminate on the last day of the calendar month

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next following the month in which such notice is given, upon payment by Tenant of the rent from the date of such taking or conveyance to the date of termination.

     If a portion of the Premises be taken by condemnation or conveyance in lieu thereof and neither Landlord nor Tenant shall terminate this Lease as provided herein, this Lease shall continue in full force and effect as to the part of the Premises not so taken or conveyed, and the rent herein shall be apportioned as of the date of such taking or conveyance so that thereafter the rent to be paid by Tenant shall be in the ratio that the area of the portion of the Premises not so taken or conveyed bears to the total area of the Premises prior to such taking. SEE PARAGRAPH 62.

     23. SALE OF 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. SEE PARAGRAPH 63.

     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 the term 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 the 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 Basic Rent shall be increased to an amount equal to one hundred twenty five (125%) percent of the monthly Basic Rent required during the last month of the Lease term.

     26. CERTIFICATE OF ESTOPPEL: Either party shall at any time upon not less than ten (10) days prior written notice from the other party execute, acknowledge and deliver to the requesting party 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

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are paid in advance, if any, and (ii) acknowledging that there are not, to the best of such party’s knowledge, any uncured defaults on the part of the other party 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. A party’s failure to deliver such statement within such time shall be conclusive upon the party receiving such request 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 the requesting party’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 drawing resists 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 fail 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 either Landlord or Tenant 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 the other party 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 a reasonable attorney’s fee.

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     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 of if sent by United Stated 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 Peery/Arrillaga, 2560 Mission College Blvd., Suite 101, Santa Clara, CA 95054. 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 this 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 (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 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. INTENTIONALLY LEFT BLANK

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     36. 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 every be levied against the assets of any partner of Landlord;

               (h) these covenants and agreements are enforceable both by 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.

     37. 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 other 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 reasonably 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.

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     38. 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: The term “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 and the provisions of this Lease shall inure to the benefit of and bind such heirs, executors, administrators, successors and permitted assigns.

     The term “person” includes the plural as well as the singular and individuals, firms, associations, partnerships and corporations. Words used in any gender include other genders. If there be more than one Tenant the obligations of Tenant hereunder are joint and several. The paragraph headings of this Lease are for convenience of reference only and shall have no effect upon the construction or interpretation of any provision hereof.

          D. Time of Essence: Time is of the essence of this Lease and of each and all of its provisions.

          E. 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.

          F. Incorporation of Prior Agreements; Amendments: 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.

          G. Recording: Landlord and Tenant shall record a short form memorandum hereof in the form attached hereto as Exhibit D.

          H. Amendments for Financing: Tenant further agrees to execute any amendments reasonably required by a lender to enable Landlord to obtain financing, so long as

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Tenant’s rights hereunder are not materially and adversely affected and there is no change in the Basic Rent, Options to Renew, Lease Term or Construction obligations of Landlord.

          I. Additional Paragraphs: Paragraphs 39 through 64 are added hereto and are included as a part of this lease.

          J. 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.

          K. 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 his Lease, entitle Tenant to any reduction of rent hereunder or result in any liability of Landlord to Tenant.

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

LANDLORD:		TENANT:
JOHN ARRILLAGA SEPARATE		QUANTUM CORPORATION
PROPERTY TRUST		a Delaware corporation
By	/s/ John Arrillaga	By	/s/ Deborah E. Barber
	John Arrillaga, Trustee
		Title	Vice President, Human Resources
RICHARD T. PEERY SEPARATE
PROPERTY TRUST
By	/s/ Richard T. Peery
	Richard T. Peery, Trustee

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Paragraphs 39 through 64 to Lease Agreement dated March 23, 1994, By and Between JOHN ARRILLAGA AND RICHARD T. PEERY SEPARATE PROPERTY TRUSTS, as Landlord, and QUANTUM CORPORATION, a Delaware corporation, as Tenant for 94,484 ± Square Feet of Space Located at 1100 Sumac Drive, Milpitas, California.

     39. BASIC RENT: In accordance with Paragraph 4A, subject to the provisions of Paragraphs 40 and 41, Basic Rent shall be payable as follows during the indicated months of the term of the Lease based upon the gross leasable area within the building that is part of the Premises:

Period	Monthly Basic Rent
Months 1-12 (plus the partial calendar month, if any, following the Commencement Date)	$1.32/sf
Months 13-24	$1.37/sf
Months 25-36	$1.42/sf
Months 37-48	$1.47/sf
Months 49-60	$1.52/sf
Months 61-72	$1.57/sf
Months 73-84	$1.62/sf
Months 85-96	$1.67/sf
Months 97-108	$1.72/sf
Months 109-120	$1.77/sf
Months 121-132	$1.82/sf
Months 133-141	$1.87/sf

     Example of calculation of Basic Rent per month for the period commencing with the first through the twelfth months of said Lease:

Square footage of Building		94,484
Per square foot Basic Monthly Rent		x $1.32
Basic Rent per Month	$	124,718.88

*   In the event this Lease commences on June 1, 1995 or thereafter, the Basic Rent schedule shown above may be amended in accordance with Article I.F.2.(b)(1) entitled “Basic Monthly Rental” of Option Agreement dated October 31, 1989 between the parties.

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     40. LEASE TERM AND COMMENCEMENT DATE: The following provisions relate to the commencement and duration of the term of this Lease:

          A. Lease Term: The term of this Lease shall commence on the “Commencement Date” (as defined herein) which is projected to be January 1, 1995, and shall continue for a period of eleven years nine months plus the partial calendar month, if any, in which the Commencement Date occurs, subject to the terms of this Lease and subject to (i) earlier termination rights of Landlord in accordance with the provisions of this Lease, and (ii) extension pursuant to the options to renew granted by Paragraphs 41 and 42, and the provisions of this Paragraph 40.C.

          B. Commencement Date Defined: As used herein, the term “Commencement Date” shall mean the later to occur of the following: (i) the date upon which the “Improvements” are “Substantially Completed”; or (ii) January I, 1995; provided, however, that if prior to the later of such dates Tenant’s operating personnel enter into occupancy of the Premises and commence the operation of Tenant’s business within the Premises, the Commencement Date shall be the date such personnel of Tenant so enter into occupancy of the Premises. The term “Substantially Completed” and/or “Substantial Completion” shall mean the date when all of the following have occurred with respect to the Improvements in question: (i) the construction of the Improvements in question has been substantially completed in accordance with the approved plans therefor except for punch list items which do not prevent Tenant from reasonably using the Premises to conduct Tenant’s business; (ii) Landlord has executed a certificate or statement representing that the Improvements in question have been substantially completed in accordance with the plans and specifications therefor except for the punch list items which do not prevent Tenant from reasonably using the Premises to conduct Tenant’s business; and (iii) the Building Department of the City of Milpitas has completed its final inspection of such Improvements and has “signed off” the building inspection card approving such work as complete except for punch list items which do not prevent Tenant from reasonably using the Premises to conduct Tenant’s business. Notwithstanding the foregoing, Substantial Completion of the Interior Improvements shall not be deemed to have occurred until Landlord has obtained final or conditional approval from the Fire Department of the City of Milpitas that the Improvements have been completed in accordance with such department’s requirements (subject only to conditions that do not prevent Tenant from occupying the Improvements).

          C. Lease Terms Co-extensive: It is acknowledged that (i) Landlord and Tenant have previously executed four separate leases. Two of said leases dated October 31, 1989 are for Premises located at 1130 Bellew Drive and 490 McCarthy Blvd., Milpitas, California (the “1989 Leases”; one of said leases dated September 17, 1990 is for Premises located at 1000 Sumac Drive, Milpitas, California, and one of said leases dated April 10, 1992 is for Premises located at 900 Sumac Drive, Milpitas, California (hereinafter collectively referred to as the “Existing Leases”), and (ii) it is the intention of the parties that the term of this Lease be co-extensive with the term of the Existing Leases, such that the terms of all five leases (“the Leases”) expire on the same date. It is hereby agreed that following the date upon which the Commencement Date of this Lease becomes established as a date certain following completion of improvements and satisfaction of any other conditions related to determining such date, the term of this Lease may be extended to coincide with the termination dates of the Existing Leases,

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however, in no event will the term of this Lease be for a period of less than ten (10) years nor will the termination dates of the Existing Leases be prior to the termination date of this Lease. As soon as the parties are able to implement the provisions of this Paragraph because the Commencement Date of this Lease has been determined following completion of improvements and satisfaction of other appropriate conditions, the parties shall execute an amendment to (i) this Lease establishing the applicable Commencement Date in accordance with the foregoing provisions of this Paragraph 40C, the actual rent based upon the measurements of the completed building covered by this Lease as certified prior to the Commencement Date by an architect or general contractor reasonably approved by the parties, and the actual date for each rent adjustment provided for in this Lease, based upon the actual Lease Commencement Date. The provisions of this Paragraph 40C also requires the terms of all the Leases to be extended accordingly if Tenant exercises its Option to Extend under any of the Leases. The monthly Basic Rent during the extended term under each of the Leases shall be increased by $.05 per square foot on the commencement date of the extended term and thereafter on each and every anniversary of the respective lease Commencement Date.

     41. FIRST FIVE-YEAR OPTION TO EXTEND: Landlord hereby grants to Tenant an option to extend the term of this Lease for an additional five (5) year period upon the following terms and conditions:

          A. If Tenant elects to exercise the option to extend, Tenant shall give Landlord written notice of Tenant’s exercise of this option to extend at lease one hundred eighty (180) days prior to the expiration of the Basic Term hereof, in which event the Lease shall be considered extended for an additional five (5) year period upon the same terms and conditions as this Lease, absent this Paragraph 41 and subject to the rental as set forth below. In the event that Tenant fails to timely exercise Tenant’s option as set forth herein in writing, Tenant shall have no further option to extend this Lease, and this Lease shall continue in full force and effect for the full remaining term hereof, absent this Paragraph 41.

          B. The monthly Basic Rent for the option period shall be as follows in the event the option is exercised:

Period	Monthly Basic Rent
Months 1-12	$1.92/sf
Months 13-24	$1.97/sf
Months 25-36	$2.02/sf
Months 37-48	$2.07/sf
Months 49-60	$2.12/sf

          C. Notwithstanding anything contained herein, Tenant may not exercise the option to renew granted by this Paragraph 41 at any time that Tenant is in material default of its obligations under this Lease, if Tenant has received written notice from Landlord that Tenant is in default, and such default has not been timely cured within the time period provided for in this Lease; provided, however, that if such default of Tenant is not for money due under this Lease and cannot be cured, and if Landlord does not elect to terminate this Lease as a result of such non-curable default by Tenant, Tenant may exercise the option to extend granted by this Paragraph 41 notwithstanding such non-curable default.

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     42. SECOND FIVE-YEAR OPTION TO EXTEND: Provided Tenant has extended the Lease for an additional five (5) year period as set forth in Paragraph 41, Landlord hereby grants to Tenant an option to extend the term of this Lease for an additional five (5) year period upon the following terms and conditions:

          A. Tenant shall give Landlord written notice of Tenant’s exercise of this option to extend at least one hundred eighty (180) days prior to the expiration of the Lease term as extended pursuant to Paragraph 41, in which event the Lease shall be considered extended for an additional five (5) year period upon the same terms and conditions as this Lease, absent this Paragraph 42.A and subject to the rental as set forth below. In the event that Tenant fails to timely exercise Tenant’s option as set forth herein in writing, Tenant shall have no further option to extend this Lease, and this Lease shall continue in full force and effect for the full remaining term hereof, absent this Paragraph 42.

          B. The monthly Basic Rent for the option period shall be as follows in the event the option is exercised:

Period	Monthly Basic Rent
Months 1-12	$2.17/sf
Months 13-24	$2.22/sf
Months 25-36	$2.27/sf
Months 37-48	$2.32/sf
Months 49-60	$2.37/sf

          C. Notwithstanding anything contained herein, Tenant may not exercise the option to extend granted by this Paragraph 42 at any time that Tenant is in material default of its obligations under this Lease, if Tenant has received written notice from Landlord that Tenant is in default, and such default has not been timely cured within the time period provided for in this Lease; provided, however, that if such default of Tenant is not for money due under this Lease and cannot be cured, and if Landlord does not elect to terminate this Lease as a result of such non-curable default by Tenant, Tenant may exercise the option to extend granted by this Paragraph 42 notwithstanding such non-curable default.

     43. ASSESSMENT CREDITS: The demised property herein is subject to a special assessment levied by the City of Milpitas in Improvement District No. 12. As a part of said special assessment proceedings, additional bonds were sold and assessments levied to provide for construction contingencies and reserve funds. Interest will be earned on such funds created for contingencies and on reserve funds which will be credited for the benefit of said assessment district. To the extent surpluses are created in said district through unused contingency funds, interest earnings or reserve funds, such surpluses shall be deemed the property of Landlord. Notwithstanding that such surpluses may be credited on assessments otherwise due against the demised premises, Tenant shall pay to Landlord, as additional rent if, and at the time of any such credit of surpluses, an amount equal to all such surpluses so credited

     44. HAZARDOUS MATERIALS: The parties agree as follows with respect to the existence or the use of hazardous material on the Premises:

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          A. Tenant shall have no obligations to “clean up”, to comply with any law regarding, or to reimburse, release, indemnify, or defend Landlord with respect to any hazardous materials or wastes which Tenant or other parties on the Premises did not store, dispose, or transport in, use, or cause to be on the Premises in violation of applicable law during the term of this Lease. Any handling, transportation, storage, treatment, disposal or use of hazardous materials by Tenant or other parties in or about the Premises during the term of this Lease shall strictly comply with all applicable laws and regulations. Tenant will be 100 percent liable and responsible for any and all “clean up” of said toxic waste and/or hazardous materials contamination which Tenant, its agents, or future subtenants, if any, does store, dispose, or transport in, use or cause to be on the Premises in violation of applicable law or governing agency(s) or which originate on Premises, during the term of this Lease from any manner whatsoever, including but not limited to, dumping by others, (or which originate on the surface of the Premises any time after October 28, 1989, the date the Option Agreement dated October 31, 1989 related to said Lease was executed by all parties, and before the Commencement Date of this Lease, but excluding Hazardous Materials on the Premises prior to the Lease Commencement Date because of the storage, use, disposal, or transportation of such materials or waste by any of Landlord’s contractors or otherwise arising out of construction work performed by or under the direction of Landlord on the Premises and Landlord shall be responsible for all required actions with respect to such materials or wastes), and will indemnify Landlord and hold Landlord harmless from any liabilities, demands, costs, expenses and damages, including attorney fees incurred as a result of any claims resulting from such contamination, or from any claims for personal injury or property damage or diminution in the value of the Premises caused by the use, storage, disposal or transportation of hazardous materials on the Premises by Tenant or other parties during the term of this Lease. It is agreed that the Tenant’s responsibilities related to toxic waste and hazardous materials will survive the termination date of the Lease. Tenant agrees to complete compliance with governmental regulations regarding use or removal or remediation of Hazardous Materials used, stored, disposed, transported or caused to be on the Premises by Tenant or its agents or subtenants, or which originate on the Premises during the term of this Lease, and prior to the termination of said Lease Tenant agrees to follow the proper closure procedures and will obtain a clearance from the local fire department and/or the appropriate city agency. Tenant also agrees to install such toxic waste and/or hazardous materials monitoring devices as Landlord reasonably deems necessary to monitor any use of hazardous materials by Tenant, its agents or subtenants, originating from the Premises during the Lease term, if recommended by a qualified environmental consulting firm.

          B. Landlord hereby makes the following representations to Tenant, each of which is made only to the best of Landlord’s knowledge as of the date Landlord executes this Lease, without any inquiry or investigation having been made or required by Landlord regarding this subject, nor does Landlord have any obligation to investigate or make inquiry regarding the subject:

               (1) The soil and ground water on or under the Premises does not contain hazardous materials in amounts which violate any laws to the extent that any governmental entity could require either Landlord or Tenant to take any remedial action with respect to such hazardous materials.

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               (2) During the time that Landlord has owned the Premises, Landlord has received no notice of (i) any violation, or alleged violation, of any law that has not been corrected to the satisfaction of the appropriate authority, (ii) any pending claims relating to the presence of hazardous material on the Premises, or (iii) any pending investigation by any governmental agency concerning the Premises relating to hazardous materials.

          C. Landlord and Tenant shall each give written notice to the other as soon as reasonably practicable of (i) any communication received from any governmental authority concerning hazardous materials which relates to the Premises, and (ii) any contamination of the Premises by hazardous materials which constitutes a violation of any law. If during the Lease term Tenant proposes to use other hazardous materials at the Premises, Tenant shall inform Landlord of such use, identifying the hazardous materials and the manner of their use, storage and disposal, and shall agree (i) to use, store and dispose of such materials strictly in compliance with all laws and (ii) that the indemnity set forth in Paragraph 44A shall be applicable to Tenant’s use of such material.

          D. Landlord or Tenant may, at any time, cause testing wells to be installed on the Premises, and may cause the ground water to be tested to detect the presence of hazardous material by the use of such tests as are then customarily used for such purposes. Testing wells installed by Tenant shall be paid by Tenant. If tests conducted by Landlord disclose that Tenant has violated any hazard materials laws, or Tenant or parties on the Premises during the term of this Lease have contaminated the Premises as determine by regulatory agencies pursuant to hazardous materials laws, or that Tenant has liability to Landlord pursuant to Paragraph 44A, then Tenant shall pay for 100 percent of the cost of the test and all related expense. Prior to the expiration of the Lease term, Tenant shall remove any testing wells it has installed at the Premises, and return the Premises to the condition existing prior to the installation of such wells, unless Landlord requests in writing that Tenant leave all or some of the testing wells in which instance the wells requested to be left shall not be removed.

          E. If any tests performed by Tenant or Landlord prior to the Commencement Date disclose hazardous materials at the Premises, Landlord at its expense will promptly take all reasonable action required by law with respect to the existence of such materials at the Premises. The Commencement Date shall not be delayed because of such action by Landlord unless occupation of the Premises is prohibited by law.

          F. The obligations of Landlord and Tenant under this Paragraph 45 shall survive the expiration or earlier termination of the term of this Lease. The rights and obligations of Landlord and Tenant with respect to issues relating to hazardous materials are exclusively established by this Paragraph 44.

     45. APPROVALS: Whenever this Lease requires the approval or consent of either Landlord or Tenant before an action may be taken, such approval or consent shall not be unreasonably withheld or delayed.

     46. LANDLORD’S RIGHT TO TERMINATE: It is understood that the Premises to be leased by Tenant are to be constructed by Landlord, and that Landlord is required to obtain the necessary building permits for the building shell before construction of said Premises can

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commence. Therefore, it is agreed that in the event Landlord cannot obtain all the necessary building permits for the building shell by June 1, 1994, then either Landlord or Tenant can terminate this Lease by written notice to the other party given within thirty (30) days thereafter, without any liability to the other party of any type whatsoever, and that this Lease Agreement shall be null and void as of the date of receipt of such notice. Landlord agrees to use its best efforts to obtain the required permits by June 1, 1994.

     47. CROSS DEFAULT: As set forth in Paragraph 40C, Landlord and Tenant have entered into other leases referred to herein as the “Existing Leases”. As a material part of the consideration for the execution of this Lease by Landlord, it is agreed between Landlord and Tenant that a default under this Lease, or a default under any of the Existing Leases may, at the option of Landlord, be considered a default under all leases, in which event Landlord shall be entitled (but in no event required) to apply all rights and remedies of Landlord under the terms of one lease to all the Leases including, but not limited to, the right to terminate any or all of the aforementioned Existing Leases or this Lease by reason of a default under the Leases or hereunder.

     48. SUBDIVISION: With respect to the development of the Premises:

     Landlord and Tenant agree that the Premises and all of Parcels 1, 2, 3, 4, and 5 shown on that certain parcel map, recorded on July 23, 1990 in Book 616 of Maps, Page 20 (the “Larger Parcel”) during (and limited to) the term of this Lease shall be developed and used only in accordance with a master plan, developed by Landlord. The parties have mutually agreed to a Master Plan for the general development of the Premises and the Larger Parcel which is attached hereto as Exhibit “Al” and entitled “Master Site Plan”. Said Master Site Plan sets forth the buildings and land to be leased under this Lease (Building 5 on Lot 5), the 1989 Leases (Buildings 1 and 2 on Lots 1 and 2, respectively), the 1990 Lease (Building 4 on Lot 4) and the 1992 Lease (Building 3 on Lot 3) as well as the general location of the parking and landscaping pertaining thereto. The parties agree that the Master Site Plan may be modified provided that (i) a perimeter driveway is developed in front of each building which generally runs near and parallel with the street surrounding the 37 ¹ acre site, (ii) all buildings will be similar and generally architecturally compatible, (iii) a landscape area is developed along the frontage of all streets between the street and parking area closest to the street and (iv) a landscape and recreation area at the rear of Lot 4 (as shown on the Site Plan) is developed when a building is constructed on Lot 4. The parties agree that (i) Landlord may change the Master Plan, shape and sizes of the buildings, parking and landscaping as long as the general development concept set forth above is generally followed by Landlord, and (ii) any successor or assign of Landlord or Tenant shall be required to consent and agree to develop the Premises and the Larger Parcel in accordance with the foregoing, and shall be deemed to have assumed the obligation to so develop such property by acceptance of a deed, assignment or other means of transfer of Landlord’s or Tenant’s interest in such property or any portion thereof, as the case may be. Further, the memorandum of lease to be recorded by Landlord and Tenant pursuant to Paragraph 38G shall contain the following statement:

“The Lease provides that from and after the commencement date of the 1989 Leases (as defined in the Lease) and continuing for a period of fifteen (15) years, or the date of termination of the Lease, whichever first occurs, the Premises and

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the larger 37.096 acre parcel which the Premises were originally included, and which is described on the attached Exhibit “A”, incorporated herein by this reference, shall be developed by Landlord and Tenant or their successors or assigns, as more particularly set forth in the Lease, so that (i) a perimeter driveway is developed in front of each building which generally runs near and parallel with the street surrounding the 37? acre site, (ii) a landscape area is developed along the frontage of all streets between the street and parking area closest to the street, (iii) a landscape and recreation area at the rear of Lot 4 (as shown on the Site Plan identified in the Lease) is developed when a building is constructed on Lot 4, and (iv) all buildings will be similar and generally architecturally compatible, it being agreed that Landlord may change the shape and sizes of the buildings, parking and landscaping as long as the general development concept set forth above and in the Lease is generally followed by Landlord. If a Public Agency requires modifications to the lot lines as shown on the Master Plan, the parties agree to reasonable lot line modifications.”

     49. LIMITATION ON IMPOSITION OF LATE CHARGE: Notwithstanding anything contained in Paragraph 4C, if Tenant is delinquent in the payment of Basic Rent or Additional Rent and is subject to a late charge, Landlord agrees to waive the late charge if the Basic Rent or Additional Rent due is paid within five days of Landlord’s written notice to Tenant of the delinquent amount owed and provided Tenant has not been delinquent in its payment of Basic Rent or Additional Rent owed under the Lease or the Existing Leases during the twelve (12) month period preceding the rent delinquency in question.

     50. SECURITY DEPOSIT: The following provisions shall modify Paragraph 4F:

          A. Within thirty (30) days after the expiration or earlier termination of the Lease term and after Tenant has vacated the Premises, Landlord shall return to Tenant the entire Security Deposit except for amounts that Landlord has deducted therefrom that are needed by Landlord to cure defaults of Tenant under the Lease or compensate Landlord for damages for which Tenant is liable pursuant to this Lease. The use or disposition of the Security Deposit shall be subject to the provisions of California Civil Code Section 1950.7.

          B. During the first thirty (30) days following execution of this Lease Agreement, Tenant shall have the one-time option of satisfying its obligation with respect to an amount equal to one-half (1/2) ($153,064.08) of the $306,128.16 Security Deposit required under Paragraph 4.C. by providing to Landlord, at Tenant’s sole cost, a letter of credit which (i) is drawn upon an institutional lender reasonably acceptable to Landlord, (ii) is in the amount of one-half (1/2) of the Security Deposit, (iii) is for a term of at lease twelve (12) months, (iv) with respect to any letter of credit in effect within the six month period immediately prior to the expiration of the Lease term, shall provide that the term of such letter of credit shall extend at least thirty (30) days past the Lease expiration date, (v) may be drawn upon by Landlord upon submission of a declaration of Landlord that Tenant is in default (as defined in Paragraph 19 and as modified by Paragraph 59). Landlord shall not be obligated to furnish proof of default to such institutional lender, and Landlord shall only be required to give the institutional lender written notification that Tenant is in default and upon receiving such written notification from Landlord the institutional lender shall be obligated to immediately deliver cash to Landlord equal to the

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amount Landlord may spend or become obligated to spend by reason of Tenant’s default or to compensate Landlord for any loss or damage which Landlord may suffer by reason of Tenant’s default up to 1/2 of the total Security Deposit required under Paragraph 4.f., (vi) shall provide that if the letter of credit is not renewed, replaced or extended within twenty (20) days of its expiration date the issuer of the credit shall automatically make payment of the amount of the letter of credit directly to Landlord after the date which is twenty (20) days before the expiration date, and no later than the expiration date, without Landlord being required to make demand upon the letter of credit, and (vii) is otherwise in form and content reasonably satisfactory to Landlord. If Tenant provides Landlord with a letter of credit, within thirty (30) days of the execution of this Lease, meeting the foregoing requirements, one-half (1/2) of the cash Security Deposit (i.e., $153,064.08 of the $306,128.16 Deposit) shall be returned to Tenant by Landlord inasmuch as the cash deposit remaining and the Letter of Credit equal the total Security Deposit required in Paragraph 4F. If Tenant defaults with respect to any provisions of this Lease, including but not limited to provisions relating to the payment of rent, Landlord may (but shall not be required to) draw down on the letter of credit for payment of any sum which Landlord may spend or become obligated to spend by reason of Tenant’s default, or to compensate Landlord for any loss or damage which Landlord may suffer by reason of Tenant’s default. Landlord and Tenant acknowledge that such letter of credit will be treated as if it were a cash security deposit, and such letter of credit may be drawn down upon by Landlord upon demand and presentation of evidence of the identity of Landlord to the issuer, in the event that Tenant defaults with respect to any provision of this Lease and such default is not cured within any applicable cure period. Notwithstanding anything to the contrary in this Lease, Landlord shall not be obligated to furnish proof of default to such institutional lender and Landlord is only required to give the institutional lender written notification that Tenant is in default and upon receiving such written notification from Landlord the institutional lender shall be obligated to immediately deliver cash to Landlord equal to the amount Landlord may spend or become obligated to spend by reason of Tenant’s default, or to compensate Landlord for any loss or damage which Landlord may suffer by reason of Tenant’s default up to 1/2 of the total Security Deposit. Landlord acknowledges that it is not entitled to draw down such letter of credit unless Landlord would have been entitled to draw upon the cash security deposit pursuant to the terms of Paragraph 4F of the Lease. Concurrently with the delivery of the required information to the issuer, Landlord shall deliver to Tenant written evidence of the default upon which the draw down was based, together with evidence that Landlord has provided to Tenant the written notice of such default which was required under the applicable provision of the Lease, and evidence of the failure of Tenant to cure such default within the applicable grace period following receipt of such notice of default. Any proceeds received by Landlord by drawing upon the letter of credit shall be applied in accordance with the provisions governing the Security Deposit imposed by Paragraph 4F and this Paragraph 50. If Landlord draws upon the letter of credit, thereafter Tenant shall once again shall have the right to post a letter of credit in place of one-half (1/2) of a cash Security Deposit so long as Tenant is not then in default. In any event Tenant will be obligated to replenish the amount drawn to restore the Security Deposit to its original amount as provided for in Paragraph 4F. If any portion of the letter of credit is used or applied pursuant hereto, Tenant shall, within ten (10) days after receipt of a written demand therefor from Landlord, restore and replace the value of such security by either (i) depositing cash with Landlord in the amount equal to the sum drawn down under the letter of credit, or (ii) increasing the letter of credit to its value immediately prior to such application. Tenant’s failure to replace

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the value of the security as provided in the preceding sentence shall be a material breach of its obligation under this Lease.

     51. ALTERATIONS MADE BY TENANT: The provisions of this Paragraph 51 shall modify Paragraphs 5 and 6:

          A. As used herein, the term “Alteration” shall mean any alteration, addition or improvement made by Tenant to the Premises during the term of the Lease, but shall not include Tenant’s trade fixtures so long as such trade fixtures are not installed in such a manner that they have become an integral part of the building.

          B. Tenant shall not construct any Alterations or otherwise alter the Premises without Landlord’s prior written approval: (i) if Tenant is in default under this Lease or any of the Existing Leases, or (ii) if Tenant is not in default under this Lease or any of the Existing Leases and if the total cost of such Alterations exceeds $20,000 per the scope of any single remodeling job to the Premises, or if such Alteration is structural in nature. Any other non-structural Alteration of less than $20,000 for the total cost of the remodeling job may be undertaken by Tenant without Landlord’s prior written approval but with the understanding that Tenant shall be obligated to restore the Premises as set forth in Paragraph 5 at the termination of this Lease, except as otherwise provided in Paragraph 51.D. Notwithstanding the foregoing, Tenant shall have the right to reconfigure modular freestanding walls and partitions without Landlord’s prior consent, which have been installed by Tenant and paid for by Tenant.

          C. At all times during the Lease Term (i) Tenant shall maintain and keep up dated “as-built” plans for all Alterations constructed by Tenant, and (ii) Tenant shall provide to Landlord copies of such “as-built” plans as such Alterations are made.

          D. Provided Tenant is not in default under this Lease or under any of the Existing Leases, Tenant shall have the right to remove at any time during the Lease term or prior to the expiration thereof any (i) process equipment such as clean hoods, thermal cycling chambers, freon piping, high temperature furnaces, air handlers and special air-conditioning, and (ii) process systems such as compressed air or processed exhaust systems and (iii) the clean room modules and all related process equipment which are paid for 100% by Tenant (excluding building standard HVAC, electrical, plumbing and other building standard systems which are an integral part of the building not related to Tenant’s clean room modules or other special purpose process equipment or systems), which systems, equipment and modules the parties agree for the purposes of this Lease shall be deemed to be trade fixtures, so long as Tenant repairs all damage caused by the installation and/or removal thereof, returns the Premises prior to the termination of the Lease to the condition existing prior to the installation of such item, and repairs and restores any so-called “doughnuts” or gaps in the roof and/or floor tiles and/or ceiling and lighting resulting from such removal. At the time Tenant requests the consent of Landlord to approve the installation of an Alteration requiring the consent of Landlord, Tenant shall seek from Landlord a written statement of whether or not Landlord will require Tenant to remove such Alteration and restore all or part of the Premises as required by Landlord in accordance with this paragraph and Paragraph 5 at the expiration or earlier termination of the term of the Lease. If Tenant does not obtain from Landlord a statement in writing that Landlord will not require such Alteration to be removed, then at the expiration or sooner termination of the term of the Lease, it is agreed that

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Tenant may be required to remove all or part of such Alterations, and return the Premises to the condition existing prior to the Installation of such Alterations as provided for in Paragraph 5 above. In addition, if Tenant has installed Alterations without Landlord’s consent, if Landlord so requires, Tenant shall also remove all or part of such Alterations so installed without Landlord’s consent as Landlord may designate and return the Premises to the condition existing prior to the installation of such Alteration. Alterations for which Landlord has given its written consent to Tenant that such Alteration need not be removed, shall not be removed by Tenant at the expiration or earlier termination of the term of the Lease.

          E. At all times during the term of the Lease, Tenant shall have the right to install and remove trade fixtures as defined in the Lease and installed and paid for by Tenant, so long as Tenant repairs all damage caused by the installation thereof and returns the Premises to the condition existing prior to the installation of such fixtures and repairs and restores any so called “doughnuts” or gaps in the roof and/or floor (including floor structure, sub-floor and appropriate floor covering for said area) and/or floor tiles and/or ceiling tiles and lighting resulting from such removal.

     52. STRUCTURAL CAPITAL COSTS REGULATED BY GOVERNMENTAL AGENCIES AFTER THE COMMENCEMENT OF THIS LEASE NOT CAUSED BY TENANT OR TENANT’S USES OR REMODELING OF THE PREMISES: The provisions of this Paragraph 53 shall modify Paragraphs 7 and 14:

          A. If during the last five (5) years of the term of the Lease if Tenant has not extended the Lease as provided for in Paragraphs 41 and 42, or during either of the five (5) year extension periods permitted by Paragraphs 41 and 42 or Paragraph 40.C., it becomes necessary (due to any governmental requirement for continued occupancy of the Premises) to make structural improvements required by laws enacted or legal requirements imposed by governmental agency(s) after the Commencement Date, and the cost for each required work or improvements exceeds $100,000, then if such legal requirement is not imposed because of Tenant’s specific use of the Premises and is not “triggered” by Tenant’s Alterations or Tenant’s application for a building permit or any other governmental approval (in which instance Tenant shall be responsible for 100% of the cost of such improvements), Landlord shall be responsible for paying the cost of such improvement and constructing such improvement, subject to a cash contribution from Tenant of a portion of the cost thereof as provided for and calculated in Paragraph 52B.

          B. When Landlord makes an improvement pursuant to Paragraph 52A, and as a condition to Landlord’s obligation to construct such improvement, Tenant shall make the following contribution in cash to Landlord for the cost thereof prior to the commencement of the work by Landlord. It is agreed that Tenant shall pay to Landlord 100% of the cost of the first $100,000.00 worth of each improvement. After the first $100,000.00, all costs above $100,000.00 shall be divided by 15 and multiplied by the time period remaining in the last five years of the Lease term from the date work on such improvement commences.

     For example, if the cost of such improvement was $400,000 and there was one year and six months remaining in the Lease term when the work commenced, then Tenant would be responsible for reimbursing Landlord in cash $130,000.00 computed as follows:

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Total Cost of Work	$	400,000.00
Tenant Responsible for 1st $100,000		-100.000.00
Total Amount To Be Amortized	$	300,000.00
$300,000.00/15 = $20,000.00/yr. x 1.5 yrs =	$	30,000.00
Tenant responsible for $100,000 + $30,000.00 =	$	130,000.00

          C. If Landlord has made improvements, for which Tenant has reimbursed Landlord for the cost thereof pursuant to Paragraph 52B, and the term of this Lease is subsequently extended pursuant to the exercise by Tenant of an option to renew pursuant to Paragraph 41, or 42, upon the exercise of any such option by Tenant, Tenant shall pay to Landlord an additional sum equal to the total amount of said improvement less the amount previously paid for by Tenant. Using the example in Paragraph 52B above, Tenant would owe Landlord the additional amount of $270,000.00 ($400,000.00 - $130,000.00 = $270,000.00).

     53. REAL PROPERTY TAXES: Paragraph 9 is modified by the following:

          A. The term “Real Property Taxes” shall not include charges, levies or fees directly related to the use, storage, disposal or release of hazardous materials on the Premises unless directly related to Tenant’s activities, which subject is exclusively governed by Paragraph 44.

          B. If any assessments for public improvements are levied against the Premises, Landlord may elect either to pay the assessment in full or to allow the assessment to go to bond If Landlord pays the assessment in full, Tenant shall pay to Landlord or any assignee or purchaser of the Premises each time payment of Real Property Taxes is made a sum equal to that which would have been payable (as both principal and interest) had Landlord allowed the assessment to go to bond.

          C. Tenant at its cost shall have the right, at any time, to seek a reduction in the assessed valuation of the Premises or to contest any Real Property Taxes that are to be paid by Tenant. If Tenant seeks a reduction or contests such Real Property Taxes, the failure on Tenant’s part to pay such Real Property Taxes being so contested shall not constitute a default so long as Tenant complies with the provisions of this Paragraph. Landlord shall not be required to join in any proceeding or contest brought by Tenant unless the provisions of any law require that the proceeding or contest be brought by or in the name of Landlord. In that case Landlord shall join in the proceedings or contest or permit it to be brought in Landlord’s name as long as Landlord is not required to bear any cost. Tenant, on final determination of the proceeding or contest, shall immediately pay or discharge its share of any Real Property Taxes determined by any decision or judgment rendered, together with all costs, charges, interest, and penalties incidental to the decision or judgment. If Tenant does not pay the Real Property Taxes when due pursuant to the Lease and Tenant seeks a reduction or contests them as provided in this paragraph, before the commencement of the proceeding or contest Tenant shall furnish to Landlord a surety bond in form reasonably satisfactory to Landlord issued by an insurance company qualified to do business in California. The amount of the bond shall equal 125% of the

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total amount of Real Property Taxes in dispute and any such bond shall be assignable to any lender or purchaser of the Premises. The bond shall hold Landlord and the Premises harmless from any damage arising out of the proceeding or contest and shall insure the payment of any judgment that may be rendered.

     54. PROPERTY INSURANCE: Paragraph 12 is modified by the following:

          A. If Tenant so elects, Tenant may obtain from a third party insurance company the insurance required to be carried by Landlord pursuant to Paragraph 12 so long as each of the following conditions is satisfied: (i) the Landlord is not the John Arrillaga and Richard T. Peery Separate Property Trusts or an affiliated entity; (ii) the insurance to be carried by Tenant to satisfy this requirement strictly complies with all of the provisions of Paragraph 12; (iii) such insurance shall name Landlord as the insured and provide that it is to be payable to Landlord in the same manner as if such insurance had been carried by Landlord pursuant to Paragraph 12 (subject to the rights of any lender holding a mortgage or deed of trust encumbering the Premises); (iv) each lender holding a mortgage or deed of trust encumbering the Premises shall have given its written consent to Tenant carrying such insurance and such insurance shall comply with the requirements of any such lender; (v) Tenant must notify Landlord, by certified mail, no later than one hundred eighty (180) days prior to the expiration date of Landlord’s insurance policy (which expiration date is currently 3/13/xx of a given year and is subject to change; Landlord shall notify Tenant in the event Landlord’s insurance year changes) that Tenant will directly obtain the required insurance coverage for the insurance year commencing 3/14/XX through 3/13/XX and each insurance year through the termination date of this Lease, or until Tenant is no longer able to comply with all of the provisions of this paragraph 55; (vi) the annual premium must be paid in full at the commencement of the policy; (vii) the insurance policy must be issued for a one-year period following the expiration date of Landlord’s insurance policy (i.e., from 3/14/XX to 3/13/XX; (viii) any and all deductibles required under the policy will be paid entirely by Tenant; (ix) the terms of the coverage must be broad form and cover all items to be covered as set forth in Paragraph 12 of this Lease; (x) the Building and Premises must be insured for their full replacement cost; (xi) the insurance policy containing the required coverage in accordance with the provisions of this paragraph must be sent to Landlord for retention within thirty (30) days prior to the expiration date of Landlord’s insurance policy, and may not be terminated or altered without thirty (30) days written notice to Landlord by the company providing such insurance (it is agreed that if the insurance policy is cancelled or altered, Landlord will have the right to obtain the property insurance coverage on said building, and Landlord will bill the Tenant for the related insurance premium); and (xii) at all times while Tenant is so carrying such insurance, Tenant is Quantum Corporation or a successor entity and the then net worth of such corporation is substantially the same as the net worth of Quantum corporation as of the date of this Lease is executed by Landlord and Tenant. Tenant shall provide such evidence as is required by Landlord and any lender to establish that the insurance that Tenant carries pursuant to this Paragraph 54 has been obtained and meets the requirement of this Paragraph 54. Such insurance carried by Tenant shall be in form and provided by an insurance company that is reasonably acceptable to Landlord, which must be rated “A plus” or better by Best’s Insurance Service (or an equivalent rating from another rating agency should Best’s no longer provide such service). A copy of any such policy shall be delivered to Landlord. If Tenant elects to insure and such insurance provided by Tenant does not

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satisfy the requirements of Paragraph 12, in the event of a subsequent casualty, Tenant shall be responsible for and shall pay for that portion of the restoration cost, in excess of the insurance proceeds actually available that would have been covered by insurance satisfying the requirements of Paragraph 12.

          B. Tenant shall not be obligated to contribute to the cost of earthquake insurance more than an amount equal to six (6) times the then annual cost of fire and “all risk” insurance per year. For example, if the 1994 annual premium for fire and “all risk” insurance is $9,000, then Tenant’s share of the cost of any premium for earthquake insurance for the following year (1995) shall be limited to $54,000 ($9,000 x 6). Tenant shall have the right to require earthquake insurance providing it is available if Tenant agrees to pay full cost thereof.

     55. ASSIGNMENT AND SUBLETTING: The following modifications are made to Paragraph 16:

          A. In the event that Tenant seeks to make any assignment or sublease, then Landlord, by giving Tenant written notice of its election within fifteen (15) days after Tenant’s notice of intent to assign or sublease has been given to Landlord, shall have the right to elect (i) to withhold its consent to such assignment or sublease, as permitted pursuant to Paragraph 1, or (ii) to permit Tenant to so assign the Lease or sublease such part of the Premises, in which event Tenant may do so, but without being released of its liability for the performance of all of its obligations under the Lease, and the following shalt apply (except the following shall not apply to a “Permitted Transfer” described in Paragraph 56):

               (1) If Tenant assigns its interest in this Lease, then in addition to the rental provided for in this Lease, Tenant shall pay to Landlord fifty percent (50%) of all consideration received by Tenant over and above (i) the assignee’s agreement to assume the obligations of Tenant under this Lease and (ii) all “Permitted Transfer Costs” (as defined herein) related to such assignment. As used herein, the term “Permitted Transfer Costs” shall mean all reasonable leasing commissions paid to third parties not affiliated with Tenant in order to obtain the assignment or sublease in question.

               (2) If Tenant sublets all or part of the Premises, then Tenant shall pay to Landlord in addition to the rental provided for in this Lease fifty percent (50%) of the positive difference, if any, between (i) all rent and other consideration paid by the subtenant to Tenant, less (ii) all rent paid by Tenant to Landlord pursuant to this Lease which is allocable to the area so sublet and all Permitted Transfer Costs related to such sublease. After Tenant has recovered all Permitted Transfer Costs Tenant shall pay to Landlord the amount specified in the preceding sentence on the same basis, whether periodic or in lump sum, that such rent and other consideration is paid to Tenant by its subtenant, within seven (7) days after it is received by Tenant.

               (3) Tenant’s obligations under this subparagraph shall survive any assignment or sublease. At the time Tenant makes any payment to Landlord required by this subparagraph, Tenant shall deliver an itemized statement of the method by which the amount to which Landlord is entitled was calculated, certified by Tenant as true and correct. Landlord shall have the right to inspect Tenant’s books and records relating to the payments due pursuant to this

34

subparagraph. Upon request therefor, Tenant shall deliver to Landlord copies of all bills, invoices or other documents upon which its calculations are based.

               (4) As used herein, the term “consideration” shall mean any consideration of any kind received, or to be received, by Tenant as a result of the assignment or sublease, if such sums are paid for Tenant’s interest in this Lease or in the Premises.

     56. PERMITTED ASSIGNMENTS AND SUBLEASES: Notwithstanding anything contained in Paragraph 1, so long as Tenant otherwise complies with the provisions of Paragraph 1 and the Permitted Transfer does not release Tenant from its obligations hereunder, Tenant may enter into any of the following transfers (a “Permitted Transfer”) without Landlord’s prior written consent, and the provisions of Paragraph 55A shall not apply to any such Permitted Transfer:

          A. Tenant may sublease all or part of the Premises or assign its interest in this Lease to any corporation which controls, is controlled by, or is under common control with Tenant by means of an ownership interest of more than fifty percent (50%) providing Tenant remains liable for the payment of rent and full performance of the lease;

          B. Tenant may assign its interest in the Lease to a corporation which results from a merger, consolidation or other reorganization in which Tenant is not the surviving corporation so long as 95% of all assets of Tenant are permanently transferred to such assignee. In the event there is not a permanent transfer of 95% or more of the assets and liabilities from Tenant to a third party, and Tenant continues to exist as a separate entity, both companies shall be jointly and severally liable for the full terms and conditions of the Lease;

          C. Tenant may assign this Lease to a corporation which purchases or otherwise acquires 95% or more of the assets of Tenant so long as 95% of all assets of Tenant are permanently transferred to such assignee (in the event there is not a permanent transfer of 95% or more of the assets and liabilities from Tenant to a third party and Tenant continues to exist as a separate entity, both companies shall be jointly and severally liable for the full terms and conditions of the Lease).

     57. SUBORDINATION AND MORTGAGES: Paragraph 17 is modified to provide that this Lease shall not be subordinate to a mortgage or deed of trust unless the Lender holding such mortgage or deed of trust enters into a written subordination, non-disturbance and attornment agreement in which the Lender agrees that notwithstanding any subordination of this Lease to such Lender’s mortgage or deed of trust, (i) such Lender shall recognize all of Tenant’s rights under this Lease, and (ii) in the event of a foreclosure this Lease shall not be terminated so long as Tenant is not in material default of its obligations under this Lease, but shall continue in effect and Tenant and such Lender (or any party acquiring the Premises through such foreclosure) shall each be bound to perform the respective obligations of Tenant and Landlord with respect to the Premises arising after such foreclosure.

     58. LANDLORD’S RIGHT TO ENTER: Notwithstanding the provisions of Paragraph 18, (i) except in the event of an emergency, Landlord shall give Tenant twenty-four (24) hours notice prior to entering the Premises, agrees to comply with any reasonably safety

35

and/or security regulations imposed by Tenant with respect to such entry, and shall only enter the Premises when accompanied by Tenant or its agent (so long as Tenant makes itself reasonably available for this purpose), and (ii) Landlord may install “for lease” signs relating to the Premises only during the last 150 days of the Lease term. Landlord agrees to use its reasonable, good faith efforts such that any entry by Landlord, and Landlord’s agents, employees, contractors and invitees shall be performed in a manner with as minimal interference as possible with Tenant’s business at the Premises. Subject to the foregoing, Tenant agrees to cooperate with Landlord and Landlord’s agents, employees and contractors so that responsibilities of Landlord under the Lease can be fulfilled in a reasonable manner during normal business hours so that no extraordinary costs are incurred by Landlord.

     59. BANKRUPTCY AND DEFAULT: Paragraph 19 is modified to provide that with respect to non-monetary defaults not involving Tenant’s failure to pay Basic Rent or Additional Rent, Tenant shall not be in default of any non-monetary obligation if (i) more than thirty (30) days is required to cure such non-monetary default, and (ii) Tenant commences cure of such default as soon as reasonably practicable after receiving written notice of such default from Landlord and thereafter continuously and with due diligence prosecutes such cure to completion.

     60. ABANDONMENT: Paragraph 20 is modified to provide that Tenant shall not be in default under the Lease if it leaves all or any part of Premises vacant so long as (i) Tenant is performing all of its other obligations under the Lease including the obligation to pay Basic Rent and Additional Rent (ii) Tenant provides on-site security during normal business hours for those parts of the Premises left vacant, (iii) such vacancy does not materially and adversely affect the validity or coverage of any policy of insurance carried by Landlord with respect to the Premises, and (iv) the utilities and heating and ventilation system are operated to the extent necessary to prevent damage to the Premises or its systems.

     61. DESTRUCTION: Paragraph 21 is modified by the following:

          A. Except as provided in Paragraph 61B, Landlord may not terminate the Lease if the Premises are damaged by a peril that is covered by the insurance carried by Landlord pursuant to Paragraph 12, but instead shall restore the Premises in the manner described by Paragraph 21.

          B. If the Premises are damaged by a peril covered by the insurance carried by Landlord pursuant to Paragraph 12, Landlord shall have the option to terminate the Lease if each of the following conditions is satisfied: (i) the cost to repair or the damage exceeds thirty-three percent (33%) of the then replacement cost of the Premises; and (ii) the damage occurs at a time when there is less than five (5) years remaining in the term of the Lease. Notwithstanding the foregoing, if such damage occurs at a time when there is less than five (5) years remaining in the term of the Lease and Landlord notifies Tenant of Landlord’s election to terminate the Lease pursuant to the provisions of this Paragraph 61B, if Tenant has the right to extend the term of this Lease pursuant to either Paragraph 41 or 42 such that the remaining term of the Lease (including the option period) will be more than five (5) years following the date of such damage, this Lease shall not terminate if Tenant notifies Landlord in writing of Tenant’s exercise of an option to extend granted to Tenant by either Paragraph 41 or 42. In such event, this Lease shall not

36

terminate, the term shall be so extended, and Landlord shall restore the Premises in the manner provided in Paragraph 21.

          C. If the Premises are damaged by any peril, then as soon as reasonably practicable, Landlord shall furnish Tenant with the written opinion of Landlord’s architect or construction consultant as to when the restoration work required of Landlord may be completed. Tenant shall have the option to terminate this Lease in the event any of the following occurs, which option may be exercised only by delivery to Landlord of a written notice of election to terminate within seven (7) days after Tenant receives from Landlord the estimate of the time needed to complete such restoration:

               (1) The Premises are damaged by any peril and, in the reasonable opinion of Landlord’s architect or construction consultant, the restoration of the Leased Premises cannot be substantially completed within 180 days after the date of such damage; or

               (2) The Premises are damaged by any peril within twelve (12) months of the last day of the Lease term and provided Tenant has not exercised an option to renew pursuant to the provisions of Paragraph 41 or 42, and, in the reasonable opinion of Landlord’s architect or construction consultant, the restoration of the Leased Premises cannot be substantially completed within sixty (60) days after the date of such damage.

     62. EMINENT DOMAIN: Paragraph 22 is modified by the following:

     Landlord may not terminate the Lease if less than one third (1/3) of the building is taken by condemnation or if a taking by condemnation is only threatened.

     63. TRANSFER BY LANDLORD: The provisions of Paragraph 23 of the Lease to the contrary notwithstanding, Landlord shall not be relieved of its obligations under the Lease which may accrue after the date of a sale or other transfer unless and until (i) the transferee agrees to assume and be bound by the terms of this Lease and to perform all obligations of the Landlord under the Lease which may accrue after the date of such transfer, and (ii) Landlord transfers the Security Deposit to its successor in interest (transferee) in accordance with the provisions of California Civil Code Section 1950.7, as amended or recodified.

     64. LANDLORD’S LIEN WAIVER: Landlord, within thirty (30) days after demand from Tenant, shall execute and deliver such lien waiver documents that are reasonably required by any supplier, lessor, or lender in connection with the installation in the Premises of the Tenant’s personal property or trade fixtures providing Landlord approves the form of any such waiver and Landlord’s rights under this Lease are not materially and adversely affected.

37

QUANTUM CORPORATION,		JOHN ARRILLAGA SEPARATE
a Delaware corporation		PROPERTY TRUST
By	/s/ Deborah E. Barber	By	/s/ John Arrillaga
			John Arrillaga, Trustee
Title	Vice President, Human Resources	RICHARD T. PEERY SEPARATE
		PROPERTY TRUST
		By	/s/ Richard T. Peery
			Richard T. Peery, Trustee

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Quantum 5

AMENDMENT NO. 1
TO LEASE

     THIS AMENDMENT NO. 1 is made and entered into this 16th day of April, 1997, by and between JOHN ARRILLAGA, Trustee, or his Successor Trustee UTA dated 7/20/77 (JOHN ARRILLAGA SURVIVOR’S TRUST) (previously known as the “John Arrillaga Separate Property Trust”) as amended, and RICHARD T. PEERY, Trustee, or his Successor Trustee UTA dated 7/2/77 (RICHARD T. PEERY SEPARATE PROPERTY TRUST) as amended, collectively as LANDLORD and QUANTUM CORPORATION, a Delaware corporation, as TENANT.

RECITALS

     A. WHEREAS, by Lease Agreement dated March 23, 1994 Landlord leased to Tenant all o that certain 94,484 ± square foot building located at 1101 Sumac Drive, Milpitas, California, the details of which are more particularly set forth in said March 23, 1994 Lease Agreement, and

     B. WHEREAS, said Lease was amended by the Commencement Letter dated December I5, 1994 which established the January 1, 1995 Commencement Date of the Lease, and the Termination Date of September 30, 2006, and,

     C. WHEREAS, it is now the desire of the parties hereto to amend the Lease by (i) extending, the Term for five (5) years pursuant to Lease Paragraph 41 (“First Five-Year Option to Extend”), (ii) amending the Basic Rent schedule and Aggregate Rent, (iii) adding a Third Option to Extend, (vi) amending Paragraphs 47 (“Cross Default”) and 12 (“Property Insurance”), (v) replacing Lease Paragraph 52 (“Structural Capital Costs Regulated by Governmental Agencies After the Commencement of this Lease not Caused by Tenant or Tenant’s Uses or Remodeling of the Premises”) and (vi) amending and/or replacing certain provisions of the Lease commencing as of the commencement of the Third Extended Term of said Lease Agreement as hereinafter set forth.

AGREEMENT

     NOW THEREFORE, for valuable consideration, receipt of which is hereby acknowledged, and in consideration of the hereinafter mutual promises, the parties hereto do agree as follows:

     1. TERM OF LEASE: It is agreed between the parties that Tenant has exercised its First Five-Year Option to Extend said Lease as detailed in Lease Paragraph 41. Pursuant to the terms of said Paragraph 41, the Term of said Lease Agreement shall be extended for an additional five (5) year period from the schedule Lease Termination Date of September 30, 2006; therefore the Lease Termination Date shall be changed from September 30, 2006 to September 30, 2011.

     2. CONCURRENT EXERCISE OF OPTION TO EXTEND: Pursuant to Lease Paragraph 40C (“Lease Terms Co-Extensive”), it is understood between the parties that if Tenant exercises its Option to Extend this Lease, the terms of the Building 1, Building 2, Building 3 and

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Quantum 5

Building 4 Leases (the “Existing Leases”) are to be extended accordingly. The monthly Basic Rent during the extended term under each of the Leases shall be increased by $.05 per square foot on the commencement date of the extended term and thereafter on each and every anniversary of the respective lease commencement date; therefore, concurrently with the execution of this Amendment No. 1, Landlord and Tenant shall execute amendments to the Existing Leases, extending the terms of each of the Existing Leases for five years pursuant to said lease’s respective First Five-Year Option to Extend. It is also understood that in the event Tenant (i) exercises any of its Options to Extend this Lease, or if Tenant exercises any of its Options to Extend any of the Existing Leases, each of the five Leases shall be extended accordingly.

     3. BASIC RENTAL FOR EXTENDED TERM OF LEASE: The monthly Basic Rental for the Extended Term of Lease shall be as follows:

     On October 1, 2006, the sum of ONE HUNDRED EIGHTY ONE THOUSAND FOUR HUNDRED NINE AND 28/100 DOLLARS ($181,409.28) shall be due, and a like sum due on the first day of each month thereafter through and including September 1, 2007.

     On October 1, 2007, the sum of ONE HUNDRED EIGHTY SIX THOUSAND ONE HUNDRED THIRTY THREE AND 48/100 DOLLARS ($186,133.48) shall be due, and a like sum due on the first day of each month thereafter through and including September 1, 2008.

     On October 1, 2008, the sum of ONE HUNDRED NINETY THOUSAND EIGHT HUNDRED FIFTY SEVEN AND 68/100 DOLLARS ($190,857,68) shall be due, and a like sum due on the first day of each month thereafter through and including September 1, 2009.

     On October 1, 2009, the sum of ONE HUNDRED NINETY FIVE THOUSAND FIVE HUNDRED EIGHTY ONE AND 88/100 DOLLARS ($195,581.88) shall be due, and a like sum due on the first day of each month thereafter through and including September 1, 2010.

     On October 1, 2010, the sum of TWO HUNDRED THOUSAND THREE HUNDRED SIX AND 08/100 DOLLARS ($200,306.08) shall be due, and a like sum due on the first day of each month thereafter through and including September 1, 2011.

     The Aggregate Basic Rent for the Lease shall be increased by $11,451,460.80 or from $21,171,029.88 to $32,622,490.68.

     4. THIRD FIVE-YEAR OPTION TO EXTEND: Provided Tenant has extended the Lease for an additional five (5) year period pursuant to Lease Paragraph 42 (“Second Five Year Option To Extend”), Landlord hereby grants to Tenant a third option to extend the Term of this Lease for an additional five (5) year period upon the following terms and conditions:

          A. Tenant shall give Landlord written notice of Tenant’s exercise of this option to extend at least one hundred eighty (180) days prior to the expiration of the Lease Term as extended pursuant to Lease Paragraph 42 (“Second Five Year Option To Extend”), in which event the Lease shall be considered extended for an additional five (5) year period upon the same terms and conditions as this Lease, absent this Paragraph 4 and subject to the Rental as set forth below. In the event that Tenant fails to timely exercise Tenant’s option as set forth herein in

2

Quantum 5

writing, Tenant shall have no further option to extend this Lease or the Other Leases, and this Lease shall continue in full force and effect for the full remaining term hereof, absent this Paragraph 4.

          B. The monthly Basic Rent for the option period shall be as follows in the event the option is exercised:

Period	Monthly Basic Rent
Months 1-12	$2.42/sf
Months 13-24	$2.47/sf
Months 25-36	$2.52/sf
Months 37-48	$2.57/sf
Months 49-60	$2.62/sf

          C. Notwithstanding anything contained herein, Tenant may not exercise the option to extend granted by this Paragraph 4 at any time that Tenant is in default (default for monetary and material default for non-monetary) of its obligations under this Lease, if Tenant has received written notice from Landlord that Tenant is in default, and such default has not been timely cured within the time period provided for in this Lease; provided, however, that if such default of Tenant is not for money due under this Lease and cannot be cured, and if Landlord does not elect to terminate this Lease as a result of such non-curable default by Tenant, Tenant may exercise the option to extend granted by this Paragraph 4 notwithstanding such non-curable default.

     5. CROSS DEFAULT: Notwithstanding anything to the contrary in Paragraph 47 of this Lease, said Paragraph 47 is hereby amended to include the following: “Landlord shall have the option of considering a default under this Lease or a default under any of the Existing Leases (i.e. The Leases for Building 1, Building 2, Building 3 and Building 4) to be a default under all such leases, only with respect to such leases under which Landlord is also the ‘Landlord’ at the time such default occurs. By way of example, if at the time a default of Tenant occurs under this Lease, Landlord has sold the premises described in any of the Existing Leases and is no longer the ‘Landlord’ thereunder, then a default under this Lease shall not constitute a default under any of such Existing Leases so sold by Landlord (unless the premises leased under this Lease and the Existing Leases are sold to the same entity), and a default by Tenant under any of such Existing Leases so sold by Landlord shall not constitute a default under this Lease or any other of the Existing Leases then remaining between Landlord and Tenant. However, if the Landlord under this Lease and the Existing Leases is one in the same at the time of said default, said cross default provisions shall apply.”

     6. PROPERTY INSURANCE: Lease Paragraph 12 (“Property Insurance”) is hereby amended to include the following: “Tenant acknowledges that as part of the cost of insurance policies for the Premises, Tenant is responsible for the payment of insurance deductibles on insurance claims as they relate to the Premises subject to the limitations provided in Lease Paragraph 54 (“Property Insurance”) which limitations are applicable only during the

3

Quantum 5

initial Lease Term and the First Lease Extension Period and the Second Lease Extension Period. Said limitation provided for in Lease Paragraph 54 are null and void at the commencement of the Third Lease Extended Term”.

     7. STRUCTURAL CAPITAL COSTS REGULATED BY GOVERNMENTAL AGENCIES AFTER THE COMMENCEMENT OF THIS LEASE NOT CAUSED BY TENANT OR TENANT’S USES OR REMODELING OF THE PREMISES: Lease Paragraph 52 (“Structural Capital Costs Regulated by Governmental Agencies after the Commencement of this Lease Not Caused by Tenant or Tenant’s Uses or Remodeling of the Premises”) is hereby deleted and replaced with the following:

     “52. STRUCTURAL CAPITAL COSTS REGULATED BY GOVERNMENTAL AGENCIES AFTER THE COMMENCEMENT OF THIS LEASE NOT CAUSED BY TENANT OR TENANT’S USES OR REMODELING OF THE PREMISES: The provisions of this Paragraph 52 shall modify Paragraphs 7 and 14:

     A. If (i) during the last five (5) years of the First Extended Term of the Lease if said Lease has not been extended as provided for in Lease Paragraph 42 (“Second Five Year Option To Extend”) or in Paragraph 4 (“Third Five Year Option to Extend”) above or Lease Paragraph 40C (“Lease Terms Co-Extensive”), or (ii) during either of the five (5) year extension periods permitted by Lease Paragraph 42 or Paragraph 4 above, or Lease Paragraph 40C above, it becomes necessary (due to any governmental requirement for continued occupancy of the Premises) to make structural improvements required by laws enacted or legal requirements imposed by governmental agency(s) after the Commencement Date, and the cost for each required work or improvements exceeds $100,000, then if such legal requirement is not imposed because of Tenant’s specific use of the Premises and is not “triggered” by Tenant’s Alterations or Tenant’s application for a building permit or any other governmental approval (collectively “Tenant’s Actions”) in which instance Tenant shall be responsible for 100% of the cost of such improvements, Landlord shall be responsible for paying the cost of such improvement and constructing such improvement, subject to a cash contribution from Tenant of a portion of the cost thereof as provided for and calculated in Paragraph 52B.

     B. When Landlord makes an improvement pursuant to Paragraph 52A, and as a condition to Landlord’s obligation to construct such improvement, Tenant shall make the following contribution in cash to Landlord for the cost thereof prior to the commencement of the work by Landlord. It is agreed that Tenant shall pay to Landlord 100% of the cost of the first $100,000.00 worth of each improvement. After the first $100,000.00, all costs above $100,000.00 shall be divided by 15 and multiplied by the time period remaining in the last five years of the Lease Term from the date work on such improvement commences.

4

quantum 5

     For example, if the improvement is not required as a result of Tenant’s Actions and if the cost of such improvement was $400,000 and there was one year and six months remaining in the Lease term when the work commenced, then Tenant would be responsible for reimbursing Landlord in cash $130,000.00 computed as follows:

Total Cost of Work	$	400,000.00
Tenant Responsible for 1st $100,000		-100.000.00
Total Amount To Be Amortized	$	300,000.00
$300,000.00/15 = $20,000.00/yr. x 1.5 yrs =	$	30,000.00
Tenant responsible for $100,000 + $30,000.00 =	$	130,000.00

     C. If Landlord has made improvements, for which Tenant has reimbursed Landlord for the cost thereof pursuant to Paragraph 52B, and the term of this Lease is subsequently extended pursuant to the exercise by Tenant of an option to renew pursuant to Lease Paragraph 42 or Paragraph 4 above, upon the exercise of any such option by Tenant, Tenant shall pay to Landlord an additional sum equal to the total amount of said improvement less the amount previously paid for by Tenant. Using the example in Paragraph 52B above, Tenant would owe Landlord the additional amount of $270,000.00 ($400,000.00 — $130,000.00 = $270,000.00).”

     8. THIRD OPTION PERIOD — LEASE PROVISION CHANGES: In the event Tenant exercises its Third Option to Extend as provided for in Paragraph 4 above, the following amendments (contained within Paragraphs 9 through 18) are herein made to the Lease to be effective upon the commencement of the third option period (“Third Option Period”), or during any period following the expiration of the Lease Term or expiration of the Lease when Tenant is in possession of the Premises.

     9. LATE CHARGE: Effective as of the first day of the Third Option Period, the Late Charge referenced in Lease Paragraph 4.D (“Late Charge”) shall be changed from five percent (5%) to ten percent (10%), and Lease Paragraph 49 (“Limitation on Late Charge”) shall be deleted in its entirety and of no further force or effect.

     10. MANAGEMENT FEE: Notwithstanding anything to the contrary in the Lease, effective as of the first day of the Third Option Period, and on the first day of each month thereafter, Tenant shall pay to Landlord, in addition to the Basic Rent and Additional Rent, a fixed monthly management fee (“Management Fee”) equal to one percent (1%) of the Basic Rent due for each month during the Lease Term.

     11. HAZARDOUS MATERIALS: Effective as of the first day of the Third Option Period, Lease Paragraph 44 (“Hazardous Materials”) shall be deleted in its entirety and replaced with the following:

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Quantum 5

     ”44. HAZARDOUS MATERIALS: Landlord and Tenant agree as follows with respect to the existence or use of “Hazardous Materials” (as defined herein) on, in, under or about the Premises and real property located beneath said Premises, which includes the entire parcel of land on which the Premises are located as shown in Green on Exhibit A to the Lease (hereinafter collectively referred to as the “Property”):

     A. As used herein, the term “Hazardous Materials” shall mean any material, waste, chemical, mixture or byproduct which is or hereafter is defined, listed or designated under Environmental Laws (defined below) as a pollutant, or as a contaminant, or as a toxic or hazardous substance, waste or material, or any other unwholesome, hazardous, toxic, biohazardous, or radioactive material, waste, chemical, mixture or byproduct, or which is listed, regulated or restricted by any Environmental Law (including, without limitation, petroleum hydrocarbons or any distillates or derivatives or fractions thereof, polychlorinated biphenyls, or asbestos). As used herein, the term “Environmental Laws” shall mean any applicable Federal State of California or local government law (including common law), statute, regulation, rule, ordinance, permit, license, order, requirement, agreement, or approval, or any determination, judgment, directive, or order of any executive or judicial authority at any level of Federal, State of California or local government (whether now existing or subsequently adopted or promulgated) relating to pollution or the protection of the environment, ecology, natural resources, or public health and safety.

     B. Tenant shall notify Landlord prior to the occurrence of any Tenant’s Hazardous Materials Activities (defined below). Landlord acknowledges that Tenant shall use, in compliance with applicable Environmental Laws, customary household and office supplies (Tenant shall first provide Landlord with a list of said materials use), such as mild cleaners, lubricants and copier toner. Any and all of Tenant’s Hazardous Materials Activities shall be conducted in conformity with this Paragraph 44, Paragraph 14 of this Lease, and in compliance with all Environmental Laws and regulations. As used herein, the term “Tenant’s Hazardous Materials Activities” shall mean any and all use, handling, generation, storage, disposal, treatment, transportation, release, discharge, or emission of any Hazardous Materials on, in, beneath, to, from, at or about the Property, in connection with Tenant’s use of the Property, or by Tenant or by any of Tenant’s agents, employees, contractors, vendors, invitees, visitors or its future subtenants or assignees or other third parties (including “dumping” by others) (or which Hazardous Materials originate on the surface of the Premises any time on or after the Commencement Date of this Lease, but excluding Hazardous Materials on the Premises prior to the Lease Commencement Date because of the storage, use, disposal, or transportation of such materials or waste by any of Landlord’s contractors or otherwise arising out of construction work performed by or under the direction of Landlord on the Premises and Landlord shall be responsible for all required actions with respect to such materials or wastes). Tenant agrees to provide Landlord with prompt written notice of any spill or release of Hazardous Materials at the Property during the term of the

6

Quantum 5

Lease of which Tenant becomes aware, and further agrees to provide Landlord with prompt written notice of any violation of Environmental Laws in connection with Tenant’s Hazardous Materials Activities of which Tenant becomes aware. If Tenant’s Hazardous Materials Activities involve Hazardous Materials other than normal use of customary household and office supplies, Tenant also agrees at Tenant’s expense: (i) to install such Hazardous Materials monitoring, storage and containment devices as may be required by Environmental Laws, regulations and/or governing agencies; (ii) to provide Landlord with a written inventory of such Hazardous Materials, including an update of same each year upon the anniversary date of the Commencement Date of the Lease (“Anniversary Date”); and (iii) on each Anniversary Date to provide to Landlord copies of all documentation and records, required by applicable Environmental Laws to be prepared and submitted to governmental authorities, relating to use at the Property of Hazardous Materials or to Tenant’s Hazardous Materials Activities, if any. If upon completion of Landlord’s review of said documentation and records, Landlord reasonably questions if Tenant is in compliance with all applicable Environmental Laws with respect to Tenant’s Hazardous Materials Activities, Tenant agrees within thirty (30) days following receipt of written notice from Landlord, to retain a qualified environmental consultant, acceptable to Landlord, to evaluate whether Tenant is in compliance with all applicable Environmental Laws with respect to Tenant’s Hazardous Materials Activities. Tenant, at its expense, shall submit to Landlord a report from such environmental consultant which discusses the environmental consultant’s findings within two (2) months of each Anniversary Date. Tenant, at its expense, shall promptly undertake and complete any and all steps necessary, and in full compliance with applicable Environmental Laws, to fully correct any and all problems or deficiencies identified by the environmental consultant, and promptly provide Landlord with documentation of all such corrections.

     C. Prior to termination or expiration of the Lease, Tenant, at its expense, shall (i) properly remove from the Property all Hazardous Materials which come to be located at the Property in connection with Tenant’s Hazardous Materials Activities, and (ii) fully comply with and complete all facility closure requirements of applicable Environmental Laws regarding Tenant’s Hazardous Materials Activities, including but not limited to (x) properly restoring and repairing the Property to the extent damaged by such closure activities, and (y) obtaining from the local Fire Department or other appropriate governmental authority with any legal or regulatory jurisdiction a written concurrence that closure has been completed in compliance with applicable Environmental Laws. Tenant shall promptly provide Landlord with copies of any claims, notices, work plans, data and reports prepared, received or submitted in connection with any such closure activities.

     D. If Landlord, upon consultation with Tenant, reasonably concludes that the Property has become contaminated as a result of Tenant’s Hazardous Materials Activities, Landlord in addition to any other rights it may have under this Lease or under Environmental Laws or other laws, may enter upon the

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Quantum 5

Property and conduct inspection, sampling and analysis, including but not limited to obtaining and analyzing samples of soil and groundwater, for the purpose of determining the nature and extent of such contamination except to the extent that such activities may be inconsistent with Tenant’s compliance with Environmental Laws. Tenant shall promptly reimburse Landlord for the costs of such an investigation, including but not limited to reasonable attorneys’ fees Landlord incurs with respect to such investigation to the extent, and only to the extent, that it that discloses Hazardous Materials contamination for which Tenant is liable under this Lease. Except as may be required of Tenant by applicable Environmental Laws, Tenant shall not perform any sampling, testing, or drilling to identify the presence of any Hazardous Materials at the Property, without Landlord’s prior written consent which shall not be unreasonably withheld. Tenant shall promptly provide Landlord with copies of any claims, notices, work plans, data and reports prepared, received or submitted in connection with any sampling, testing or drilling performed pursuant to the preceding sentence.

     E. Tenant shall indemnify, defend (with legal counsel acceptable to Landlord, whose consent shall not unreasonably be withheld) and hold harmless Landlord, its employees, assigns, successors, successors-in-interest, agents and representatives from and against any and all claims (including but not limited to third party claims from a private party or a government authority), liabilities, obligations, losses, causes of action, demands, governmental proceedings or directives, fines, penalties, expenses, costs (including but not limited to reasonable attorneys’, consultants’ and other experts’ fees and costs), and damages, which arise from or relate to: (i) Tenant’s Hazardous Materials Activities; (ii) any Hazardous Materials contamination caused by Tenant prior to the Commencement Date of the Lease; or (iii) the breach of any obligation of Tenant under this Paragraph 44 (collectively, “Tenant’s Environmental Indemnification”). Tenant’s Environmental Indemnification shall include but is not limited to the obligation to promptly and fully reimburse Landlord for losses in or reductions to rental income, and diminution in fair market value of the Property. Tenant’s Environmental Indemnification shall further include but is not limited to the obligation to diligently and properly implement to completion, at Tenant’s expense, any and all environmental investigation, removal, remediation, monitoring, reporting, closure activities, or other environmental response action as may be required by applicable Environmental Laws, regulations or governing agencies (collectively, “Response Actions”). Tenant shall promptly provide Landlord with copies of any claims, notices, work plans, data and reports prepared, received or submitted in connection with any Response Actions.

     F. Landlord hereby makes the following representations to Tenant, each of which is made only to the best of Landlord’s knowledge as of the date Landlord executes this Lease, without any inquiry or investigation having been made or required by Landlord regarding this subject, nor does Landlord have any obligation to investigate or make inquiry regarding the subject:

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          (1) The soil and ground water on or under the Premises does not contain Hazardous Materials in amounts which violate any laws to the extent that any governmental entity could require either Landlord or Tenant to take any remedial action with respect to such Hazardous Materials.

          (2) During the time that Landlord has owned the Premises, Landlord has received no notice of (i) any violation, or alleged violation, of any law that has not been corrected to the satisfaction of the appropriate authority (ii) any pending claims relating to the presence of Hazardous Material on the Premises, or (iii) any pending investigation by any governmental agency concerning the Premises relating to Hazardous Materials.

     G. Landlord and Tenant shall each give written notice to the other as soon as reasonably practicable of (i) any communication received from any governmental authority concerning Hazardous Materials which relates to the Premises, and (ii) any contamination of the Premises by Hazardous Materials which constitutes a violation of any law. Attached as Exhibit “C” to the Lease is a list of Hazardous Materials that Tenant intends to use at the Premises. If during the Lease Term Tenant proposes to use other Hazardous Materials at the Premises, Tenant shall inform Landlord of such use, identifying the Hazardous Materials and the manner of their use, storage and disposal, and shall agree (i) to use, store and dispose of such Hazardous Materials strictly in compliance with all laws, regulations and governing agencies and (ii) that the indemnity set forth in Paragraph 44 shall be applicable to Tenant’s use of such Hazardous Material.

     H. Landlord or Tenant may, at any time, cause testing wells to be installed on the Premises, and may cause the ground water to be tested to detect the presence of Hazardous Material by the use of such tests as are then customarily used for such purposes. Testing wells installed by Tenant shall be paid for by Tenant. If tests conducted by Landlord disclose that Tenant has violated any Hazardous Materials laws, or Tenant or parties on the Premises during the Term of this Lease have contaminated the Premises as determined by regulatory agencies pursuant to Hazardous Materials laws, or that Tenant has liability to Landlord pursuant to Paragraph 44A, then Tenant shall pay for 100 percent of the cost of the test and all related expense. Prior to the expiration of the Lease Term, Tenant shall remove any testing wells it has installed at the Premises, and return the Premises to the condition existing prior to the installation of such wells, unless Landlord requests in writing that Tenant leave all or some of the testing wells in which instance the wells requested to be left shall not be removed.

     I. If any tests performed by Tenant or Landlord prior to the Commencement Date disclose Hazardous Materials at the Premises, Landlord at its expense will promptly take all reasonable action required by law with respect to the existence of such Hazardous Materials at the Premises. The Commencement Date shall not be delayed because of such action by Landlord unless occupation of the Premises is prohibited by law.

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     J. The obligations of Landlord and Tenant under this Paragraph 44 shall survive the expiration or earlier termination of the Term of this Lease. The rights and obligations of Landlord and Tenant with respect to issues relating to Hazardous Materials are exclusively established by this Paragraph 44.”

     12. REAL ESTATE TAXES: Effective as of the first day of the Third Option Period, Lease Paragraph 53 (“Real Estate Taxes”) shall be deleted in its entirety and replaced with the following:

     ”53. REAL PROPERTY TAXES: Paragraph 9 is modified by the following:

     A. The term “Real Property Taxes” shall not include charges, levies or fees directly related to the use, storage, disposal or release of Hazardous Materials on the Premises unless directly related to Tenant’s Activities at this site or on other sites leased and/or owned by Tenant; however, Tenant shall be responsible for general or special tax and/or assessments (related to Hazardous Materials and/or toxic waste) imposed on the Property provided said special tax and/or assessment is not imposed due to on-site originated contamination on the Property (by third parties not related to Tenant) prior to the Lease Commencement Date. Subject to the terms and conditions stated herein, Tenant shall be responsible for paying one hundred percent (100%) of said taxes and/or assessments allocated to the Property.

     B. If any assessments for public improvements are levied against the Premises, Landlord may elect either to pay the assessment in full or to allow the assessment to go to bond. If Landlord pays the assessment in full, Tenant shall pay to landlord or any assignee or purchaser of the Premises each time payment of Real Property Taxes is made a sum equal to that which would have been payable (as both principal and interest) had Landlord allowed the assessment to go to bond.

     C. Tenant at its cost shall have the right, at any time, to seek a reduction in the assessed valuation of the Premises or to contest any Real Property Taxes that are to be paid by Tenant. If Tenant seeks a reduction or contests such Real Property Taxes, the failure on Tenant’s part to pay such Real Property Taxes being so contested shall not constitute a default so long as Tenant complies with the provisions of this Paragraph. Landlord shall not be required to join in any proceeding or contest brought by Tenant unless the provisions of any law require that the proceeding or contest be brought by or in the name of Landlord. In that case Landlord shall join in the proceedings or contest or permit it to be brought in Landlord’s name as long as Landlord is not required to bear any cost. Tenant, on final determination of the proceeding or contest, shall immediately pay or discharge its share of any Real Property Taxes determined by any decision or judgment rendered, together with all costs, charges, interest, and penalties incidental to the decision or judgment. If Tenant does not pay the Real Property Taxes when due pursuant to the Lease and Tenant seeks a reduction or contests

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them as provided in this paragraph, before the commencement of the proceeding or contest Tenant shall furnish to Landlord a surety bond in form reasonably satisfactory to Landlord issued by an insurance company qualified to do business in California. The amount of the bond shall equal 125% of the total amount of Real Property Taxes in dispute and any such bond shall be assignable to any lender or purchaser of the Premises. The bond shall hold Landlord and the Premises harmless from any damage arising out of the proceeding or contest and shall insure the payment of any judgment that may be rendered.”

     13. PROPERTY INSURANCE: Effective as of the first day of the Third Option Period, section B of Lease Paragraph 54 (“Property Insurance”) shall be deleted in its entirety and be of no further force or effect.

     14. ASSIGNMENT AND SUBLETTING: Effective as of the first day of the Third Option Period, Lease Paragraph 55 (“Assignment and Subletting”) shall be deleted in its entirety and replaced with the following:

     ”55. ASSIGNMENT AND SUBLETTING: The following modifications are made to Paragraph 16:

     In the event that Tenant seeks to make any assignment or sublease, then Landlord, by giving Tenant written notice of its election within fifteen (15) days after Tenant’s notice of intent to assign or sublease has been given to Landlord, shall have the right to elect (i) to withhold its consent to such assignment or sublease, as permitted pursuant to Paragraph 16, or (ii) to permit Tenant to so assign the Lease or sublease such part of the Premises, in which event Tenant may do so, but without being released of its liability for the performance of all of its obligations under the Lease, and the following shall apply (except the following shall not apply to a “Permitted Transfer” described in Paragraph 56):

          (1) If Tenant assigns its interest in this Lease, then in addition to the rental provided for in this Lease, Tenant shall pay to Landlord fifty percent (50%) of all Rent and other consideration received by Tenant over and above (i) the assignee’s agreement to assume the obligations of Tenant under this Lease and (ii) all “Permitted Transfer Costs” (as defined herein) related to such assignment. As used herein, the term “Permitted Transfer Costs” shall mean all reasonable leasing commissions paid to third parties not affiliated with Tenant in order to obtain the assignment or sublease in question.

          (2) If Tenant sublets all or part of the Premises, then Tenant shall pay to Landlord in addition to the Rent provided for in this Lease fifty percent (50%) of the positive difference, if any, between (i) all rent and other consideration paid or provided to Tenant by the subtenant, less (ii) all Rent paid by Tenant to Landlord pursuant to this Lease which is allocable to the area so sublet and all Permitted Transfer Costs related to such sublease. After Tenant has recovered all Permitted Transfer Costs Tenant shall pay to Landlord the amount specified in the preceding sentence on the same basis, whether periodic or in lump

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sum, that such rent and other consideration is paid to Tenant by its subtenant, within seven (7) days after it is received by Tenant.

          (3) Tenant’s obligations under this subparagraph shall survive any assignment or sublease. At the time Tenant makes any payment to Landlord required by this subparagraph, Tenant shall deliver an itemized statement of the method by which the amount to which Landlord is entitled was calculated, certified by Tenant as true and correct. Landlord shall have the right to inspect Tenant’s books and records relating to the payments due pursuant to this subparagraph. Upon request therefor, Tenant shall deliver to Landlord copies of all bills, invoices or other documents upon which its calculations are based.

          (4) As used herein, the term “consideration” shall mean any consideration of any kind received, or to be received (including, but not limited to, services rendered and/or value received) by Tenant as a result of the assignment or sublease, if such sums are paid or provided to Tenant for Tenant’s interest in this Lease or in the Premises.

          (5) This Paragraph 55. A does not apply to a “Permitted Transfer”, as provided in Paragraph 56 hereof. The parties agree that if any of the following transactions occur and do not qualify as “Permitted Transfers”, Tenant must obtain Landlord’s consent to such transaction and if Landlord consents to any of the following transactions which do not otherwise qualify as “Permitted Transfers”, then the provisions of this Paragraph 55.A shall not apply to the following transactions: (i) a merger, consolidation or other reorganization in which Tenant is not the surviving corporation so long as 95% of all assets and liabilities of Tenant are permanently transferred to such assignee; and (ii) an assignment of this Lease to a corporation which purchases or otherwise acquires 95% or more of the assets of Tenant so long as 95% of all assets and liabilities of Tenant are permanently transferred to such assignee and Tenant remains liable and responsible under the Lease to the extent Tenant continues in existence following such transaction.”

     15. PERMITTED ASSIGNMENTS AND SUBLEASES: Effective as of the first day of the Third Option Period, Lease Paragraph 56 (“Permitted Assignments and Subleases”) shall be deleted in its entirety and replaced with the following:

     ”56. PERMITTED ASSIGNMENTS AND SUBLEASES: Notwithstanding anything contained in Paragraph 16, so long as Tenant otherwise complies with the provisions of Paragraph 16 and the Permitted Transfer does not release Tenant from its obligations hereunder, Tenant may enter into any of the following transfers (a “Permitted Transfer”) without Landlord’s prior written consent, and the provisions of Paragraph 55A shall not apply to any such Permitted Transfer:

     A. Tenant may sublease all or part of the Premises or assign its interest in this Lease to any corporation which controls, is controlled by, or is

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under common control with Tenant by means of an ownership interest of more than fifty percent (50%) providing Tenant remains liable for the payment of Rent and full performance of the Lease;

     B. Tenant may assign its interest in the Lease to a corporation which results from a merger, consolidation or other reorganization in which Tenant is not the surviving corporation so long as (i) 95% of all assets and liabilities of Tenant are permanently transferred to such assignee, and (ii) immediately prior to the merger, consolidation or other reorganization, the corporation into which Tenant is be merged has a net worth equal to or greater than the net worth of Tenant at the time of Lease execution or at the time of such assignment, merger, consolidation or reorganization (whichever is greater), or if it does not, Landlord is provided guaranty of the Lease (in a form reasonably acceptable to Landlord) from a corporation (a) that is the parent of, or is otherwise affiliated with, the corporation into which Tenant is to be merged, and (b) which has a current net worth equal to or greater than the net worth of Tenant at the time of Lease execution or at the time of such assignment, merger, consolidation or reorganization (whichever is greater). In the event there is not a permanent transfer of 95% or more of the assets and liabilities from Tenant to a third party, and Tenant continues to exist as a separate entity, both companies shall be jointly and severally liable for the full terms and conditions of the Lease;

     C. Tenant may assign this Lease to a corporation which purchases or otherwise acquires 95% or more of the assets of Tenant so long as 95% of all assets and liabilities of Tenant are permanently transferred to such assignee (in the event there is not a permanent transfer of 95% or more of the assets and liabilities from Tenant to a third party and Tenant continues to exist as a separate entity, both companies shall be jointly and severally liable for the full terms and conditions of the Lease), and provided that immediately prior to such assignment said corporation, has a net worth equal to or greater than the net worth of Tenant (a) at the time of Lease execution or (b) at the time of such assignment (whichever is greater), or if it does not, Landlord is provided a guaranty of the Lease (in a form reasonably acceptable to Landlord) from a corporation (a) that is the parent of, or is otherwise affiliated with, said corporation and (b) which has a current net worth equal to or greater than the net worth of Tenant at the time of Lease execution or at the time of such assignment, (whichever is greater).”

     16. DESTRUCTION: Effective as of the first day of the Third Option Period, Lease Paragraph 61 (“Destruction”) shall be deleted in its entirety and replaced with the following:

     ”61. DESTRUCTION: Paragraph 21 is modified by the following:

     A. Notwithstanding anything to the contrary within Paragraph 21, Landlord may terminate this Lease in the event of an uninsured event or if insurance proceeds, net of the deductible, are insufficient to cover one hundred percent of the rebuilding costs; provided, however, Tenant shall have the right to

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elect, in its discretion, to contribute such excess funds to permit Landlord to repair the Premises.

     B. Except as provided in Paragraph 61C, Landlord may not terminate the Lease if the Premises are damaged by a peril whereby the cost to replace and/or repair is one hundred percent (100%) covered by the insurance carried by Landlord pursuant to Paragraph 12, but instead shall restore the Premises in the manner described by Paragraph 21.

     C. If the Premises are damaged by a peril covered by the insurance carried by Landlord pursuant to Paragraph 12, Landlord shall have the option to terminate the Lease if each of the following conditions is satisfied: (i) the cost to repair or the damage exceeds thirty-three percent (33%) of the then replacement cost of the Premises; and (ii) the damage occurs at a time when there is less than five (5) years remaining in the term of the Lease.

     D. If Landlord fails to obtain insurance as required pursuant to Paragraph 12, and said insurance would have been available to cover any damage or destruction to the Premises, Landlord shall be required to rebuild, at its cost, net of the deductible which would have been required under said insurance policy (which deductible Tenant is required to pay).

     E. If the Premises are damaged by any peril, then as soon as reasonably practicable, Landlord shall furnish Tenant with the written opinion of Landlord’s architect or construction consultant as to when the restoration work required of Landlord may be completed. Tenant shall have the option to terminate this Lease in the event any of the following occurs, which option may be exercised only by delivery to Landlord of a written notice of election to terminate within seven (7) days after Tenant receives from Landlord the estimate of the time needed to compete such restoration:

          (1) The Premises are damaged by any peril (not caused by or resulting from an action of Tenant or Tenant’s agents, employees, contractors or invitees) and, in the reasonable opinion of Landlord’s architect or construction consultant, the restoration of the Leased Premises cannot be substantially completed within 180 days after the date of such damage (subject to force majeure conditions); or

          (2) The Premises are damaged by any peril (not caused by or resulting from an action of Tenant or Tenant’s agents, employees, contractors or invitees) within twelve (12) months of the last day of the Lease term, and, in the reasonable opinion of Landlord’s architect or construction consultant, the restoration of the Leased Premises cannot be substantially completed within sixty (60) days after the date of such damage and Tenant has not exercised its Option to Extend said Term (or Extended Term as the case may be).”

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     17. LIABILITY INSURANCE: Effective as of the first day of the Third Option Period, the first sentence of Lease Paragraph 10 (“Liability Insurance”) shall be deleted and replaced with the following: ‘Tenant, at Tenant’s expense, agrees to keep in force during the Term of this Lease a policy of commercial general liability insurance with combined single limit coverage of not less than Two Million Dollars ($2,000,000) per occurrence for bodily injury and property damage occurring in, on or about the Premises, including parking and landscaped areas.”

     18. LIMITATION OF LIABILITY: Effective as of the first day of the Third Option Period, Lease Paragraph 36 (“Limitation of Liability”) shall be deleted in its entirety and replaced with the following:

     ”36. 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:

(i) the sole and exclusive remedy shall be against Landlord’s interest in the Premises leased herein;

(ii) 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);

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

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

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

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

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

(viii) these covenants and agreements are enforceable both by 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.”

     EXCEPT AS MODIFIED HEREIN, all other terms, covenants, and conditions of said March 23, 1994 Lease Agreement shall remain in full force and effect.

(This Space Left Blank Intentionally)

15

     IN WITNESS WHEREOF, Landlord and Tenant have executed this Amendment No. 1 to Lease as of the day and year last written below.

LANDLORD:		TENANT:
JOHN ARRILLAGA SURVIVOR’S TRUST		QUANTUM CORPORATION
		a Delaware corporation
By	/s/ John Arrillaga	By	/s/ Andrew Kryder
	John Arrillaga, Trustee
Date:	June 30, 1997	Andrew Kryder
		Print or Type Name
RICHARD T. PEERY SEPARATE		Title:	Vice President Finance and Corp.
PROPERTY TRUST			General Counsel
		Date:	June 25, 1997
By	/s/ Richard T. Peery
	Richard T. Peery, Trustee
Date:	June 26, 1997

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AMENDMENT NO. 2
TO LEASE

     THIS AMENDMENT NO. 2 is made and entered into this 22nd day of March, 2001, by and between JOHN ARRILLAGA, Trustee, or his Successor Trustee UTA dated 7/20/77 (JOHN ARRILLAGA SURVIVOR’S TRUST) (previously known as the “John Arrillaga Separate Property Trust”) as amended, and RICHARD T. PEERY, Trustee, or his Successor Trustee UTA dated 7/20/77 (RICHARD T. PEERY SEPARATE PROPERTY TRUST) as amended, collectively as LANDLORD, and MAXTOR CORPORATION, a Delaware corporation, as “ASSIGNEE” or “MAXTOR”.

RECITALS

     A. WHEREAS, by Lease Agreement dated March 23, 1994 Landlord leased to QUANTUM CORPORATION, a Delaware corporation (“ASSIGNOR” or “QUANTUM”) all of that certain 94,484 ± square foot building located at 1101 Sumac Drive, Milpitas, California, the details of which are more particularly set forth in said March 23, 1994 Lease Agreement, and

     B. WHEREAS, said Lease was amended by the Commencement Letter dated December 15, 1994 which established the January 1, 1995 Commencement Date of the Lease, and the Termination Date of September 30, 2006, and,

     C. WHEREAS, said Lease was amended by Amendment No. 1 dated April 16, 1997, which amended the Lease by (i) extending the Term for five (5) years pursuant to Lease Paragraph 41 (“First Five-Year Option to Extend”), (ii) amending the Basic Rent schedule and Aggregate Rent, (iii) adding a Third Option to Extend, (vi) amending Paragraphs 47 (“Cross Default”) and 12 (“Property Insurance”), (v) replacing Lease Paragraph 52 (“Structural Capital Costs Regulated by Governmental Agencies After the Commencement of this Lease not Caused by Tenant or Tenant’s Uses or Remodeling of the Premises”), and (vi) amending and/or replacing certain provisions of the Lease commencing as of the commencement of the Third Extended Term, and

     D. WHEREAS, the Lease, together with those certain Amendments described above in Recitals B and C shall hereinafter collectively be referred to as “the Lease Agreement”, and

     E. WHEREAS, it is now the desire of the parties hereto to amend the Lease by (i) acknowledging Landlord’s consent to the assignment of said Lease from “Quantum Corporation, a Delaware corporation” to “Maxtor Corporation, a Delaware corporation”, and (ii) replacing Lease Paragraph 42 (“Second Five Year Option to Extend”) and Paragraph 4 to Amendment No. 1 dated April 16, 1997 (“Third Five Year Option to Extend”) as hereinafter set forth.

AGREEMENT

     NOW THEREFORE, for valuable consideration, receipt of which is hereby acknowledged, and in consideration of the hereinafter mutual promises, the parties hereto do agree as follows:

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     1. ASSIGNMENT OF TENANT’S INTEREST: Notwithstanding anything to the contrary contained in the Lease Agreement, Landlord hereby understands that based on Quantum’s notice to Landlord, Landlord hereby acknowledges that the following transactions have occurred:

          A. Quantum has operated its business at the Premises through two separate business groups: Quantum HDD, tracked by Quantum HDD common stock, and Quantum DSS, tracked by Quantum DSS common stock.

          B. On or about, October 3, 2000, Quantum and Maxtor entered into that certain an Amended and Restated Agreement and Plan of Merger and Reorganization, dated as of October 3, 2000 (the “Merger Agreement’), wherein they agreed that:

               (i) Quantum will separate its Quantum HDD business from its Quantum DSS and transfer the assets of Quantum HDD to a newly-formed subsidiary, Insula Corporation, a Delaware corporation (“Insula”), in exchange for all of Insula’s common stock and Insula’s agreement to be entirely responsible for all of the Quantum HDD obligations and liabilities.

               (ii) Immediately after such separation, each currently outstanding share of Quantum HDD common stock will be redeemed in return for a share of Insula common stock, such that the holders of Quantum HDD common stock shall own all of the common stock of Insula.

               (iii) Immediately after said redemption, Insula will merge into Maxtor and each share of the Insula’s common stock will be converted into the right to receive approximately 1.52 shares of Maxtor common stock, subject to possible adjustment as described in the Merger Agreement.

          C. As part of the legal separation of the Quantum HDD business from the Quantum DSS business, all of the right title and interest of Quantum in the Lease will be assigned by Quantum to Insula and Insula will assume and agree to be liable for all of the obligations of Quantum, as Tenant, under the Lease.

     As a result of said merger transaction, as of April 2, 2001, the effective date of the merger, Maxtor will become the Tenant under the Lease Agreement, and Maxtor shall assume all obligations of Tenant under the Lease Agreement dated March 23, 1994, as amended.

     Landlord hereby consents to the foregoing transactions (“Landlord’s Consent”). Except as expressly set forth below, Landlord’s Consent shall in no way void or alter any of the terms of the Lease Agreement by and between Landlord and Tenant, nor shall Landlord’s Consent alter or diminish in any way Tenant’s obligations to Landlord.

     Landlord has not reviewed the terms of any agreement between Quantum, Insula and/or Maxtor, and Landlord shall not be bound by any agreement other than the terms of the Lease Agreement between Landlord and Tenant. Landlord does not make any warranties or representations as to the condition of the Leased Premises or the terms of the Lease Agreement between Landlord and Quantum. Landlord’s consent to the assignment shall in no way obligate

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Landlord to any further consents or agreements between Quantum and/or Assignee. So long as Quantum continues to exist as a Delaware corporation, it is agreed that both Quantum and Maxtor will be jointly and severally liable for all the terms and conditions of the Lease and all Amendments thereto; provided, however, that so long as Quantum remains liable for said Lease, no material amendment to the Lease Agreement after the date hereof shall be binding upon Quantum without the prior written consent of Quantum, which consent shall not be unreasonably withheld, and Quantum’s approval shall not be required on transactions related to Landlord’s Waivers, Landlord’s Consents to Sublease and/or Landlord’s Consents to Alterations. The foregoing, however, shall not prevent Tenant and Landlord from entering into any such modification or amendment between themselves.

     It is further understood that the Security Deposit of Quantum is being transferred to Maxtor.

     2. OPTIONS TO EXTEND: As consideration for the consent of Landlord herein set forth, Lease Paragraph 42 (“Second Five Year Option to Extend”) and Paragraph 4 to Amendment No. 1 dated April 16, 1997 (“Third Five Year Option to Extend”) are hereby deleted in their entirety and shall be replaced with the following:

          A. SECOND FIVE YEAR OPTION TO EXTEND: Landlord hereby grants to Tenant an option to extend this Lease Agreement (“Option to Extend” or the “Option”) for an additional five years (“Second Extended Term”) upon the following terms and conditions:

               1) Tenant shall give Landlord written notice of Tenant’s exercise of this Option to Extend at least one hundred eighty (180) days prior to the expiration of the Lease Term pursuant to Paragraph A hereof (not later than April 3, 2011), in which event the Term of the Lease shall be considered extended for an additional five (5) years, subject to the Basic Rent set forth below and with: (i) the Basic Rent to be determined pursuant to Paragraph 2) below; (ii) management fee and the terms and conditions subject to amendment by Landlord (Landlord, in its sole and absolute discretion, may, but is not required to, incorporate its then current Lease provisions that are standard in Landlord’s leases for comparable buildings as of the date of Tenant’s exercise of its Option to Extend); and (iii) this Paragraph 2.A thereafter deleted. In the event that Tenant fails to timely exercise Tenant’s Option as set forth herein in writing, Tenant shall have no further Option to Extend this Lease, and the Lease shall continue in full force and effect for the full remaining term hereof, absent this Paragraph 2.

               2) In the event Tenant timely exercises Tenant’s Option to Extend as set forth herein, Landlord shall, within fifteen (15) days after receipt of Tenant’s exercise of the Option, advise Tenant of any changes in the management fee and the terms and conditions as referenced in Paragraph 2.A.1(ii) above) and the Basic Rent (which shall not be less than the Basic Rent for the fifth year the current Term) required for the Extended Term of the Lease to make the Basic Rent for the Premises comparable to the then current market triple net basic rent for comparable properties either (i) then owned in whole or in part by the above mentioned Landlord or by members of its immediate family in the vicinity of the Premises or (ii) if not owned by Landlord or its family as stated herein, other third party properties in the vicinity of the Premises. Tenant shall have five (5) days after receipt from the Landlord of said new terms and conditions and Basic Rent in which to accept said new terms and conditions and Basic Rent and

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enter into written documentation confirming same. In the event Tenant fails to execute said written documentation confirming said new terms and conditions and Basic Rent for the Second Extended Term of Lease within said five (5) day period, Tenant shall have no further Option to Extend this Lease, and this Lease shall continue in full force and effect for the full remaining term hereof absent of this Paragraph 2, with Landlord having no further responsibility or obligation to Tenant with respect to Tenant’s Option to Extend.

               3) It is agreed that if Tenant is at any time prior to exercising its Option to Extend in default of this Lease and has failed to cure the default in the time period allowed, this Paragraph 2 shall be null and void and Tenant will have no further rights under this Paragraph. It is further agreed that if Tenant has exercised its Option to Extend and is subsequently in default, and has failed to cure the default in the time period allowed by the Lease at any time prior to, or at the time the lease commences on the Second Extended Term, Landlord may at its sole and absolute discretion, cancel Tenant’s Option to Extend, and this Lease will continue in full force and effect for the full remaining Term hereof, absent of this Paragraph 2.

               4) The Option rights of Tenant under this Paragraph 2.A, and the Second Extended Term thereunder, are granted for Tenant’s personal benefit and may not be assigned or transferred by Tenant: except as provided for in Lease Paragraph 56 (“Permitted Assignments and Subleases”), either voluntarily or by operation of law, in any manner whatsoever.

               5) Notwithstanding anything to the contrary in this Paragraph, this Option to Extend is automatically forfeited by Tenant (without notice from Landlord) in the event Tenant is, at any time during the Term of this Lease, in default of said Lease and if Tenant does not completely cure said default within five days for a monetary default and thirty days for a non-monetary default (or such longer time as permitted by cure in the Lease Agreement). In the event said Option to Extend is forfeited as stated herein, Tenant shall have no further Option to Extend this Lease.

          B. THIRD FIVE (5)-YEAR OPTION PERIOD: Provided Tenant has extended the Lease for an additional five year period as set forth in Paragraph A above, Landlord hereby grants to Tenant another Option to Extend the Lease Agreement upon the following terms and conditions;

               1) Tenant shall give Landlord written notice of Tenant’s exercise of this Option to Extend at least one hundred eighty (180) days prior to the expiration of the Basic Term hereof (not later than April 3, 2016), in which event the Term of the Lease shall be considered extended for an additional five (5) years (“Third Extended Term”) subject to the Basic Rent set forth below and with: (i) the Basic Rent to be determined pursuant to Paragraph 2) below; (ii) the management fee and the terms and conditions subject to amendment by Landlord (Landlord, in its sole and absolute discretion, may, but is not required to, incorporate its then current Lease provisions that are standard in Landlord’s leases for comparable buildings as of the date of Tenant’s exercise of its Option to Extend); and (iii) this Paragraph 2.B thereafter deleted. In the event that Tenant fails to timely exercise Tenant’s Option as set forth herein in writing, Tenant shall have no further Option to Extend this Lease,

20

Quantum 5

and the Lease shall continue in full force and effect for the full remaining term hereof, absent this Paragraph 2.B.

               2) In the event Tenant timely exercises Tenant’s Option to Extend as set forth herein, Landlord shall, within fifteen (15) days after receipt of Tenant’s exercise of option, advise Tenant of any changes in the management fee and the terms and conditions as referenced in Paragraph 2.B.1(ii) above and Basic Rent (which shall not be less than the Basic Rent for the fifth year of the Second Extended Term) required for the Third Extended Term of the Lease to make the Basic Rent for the Premises comparable to the then current market triple net basic rent for comparable properties either (i) then owned in whole or in part by the above mentioned Landlord or by members of its immediate family in the vicinity of the Premises or (ii) if not owned by Landlord or its family as stated herein, other third party properties in the vicinity of the Premises. Tenant shall have five (5) days after receipt from the Landlord of said new terms and conditions and Basic Rent in which to accept said new terms and conditions and Basic Rent and enter into written documentation confirming same. In the event Tenant fails to execute said written documentation confirming said new terms and conditions and Basic Rent for the Third Extended Term of Lease within said five (5) day period, Tenant shall have no further Option to Extend this Lease, and this Lease shall continue in full force and effect for the full remaining term hereof absent of this Paragraph 2.B, with Landlord having no further responsibility or obligation to Tenant with respect to Tenant’s Option to Extend.

               3) It is agreed that if Tenant is at any time prior to exercising its Option to Extend in default of this Lease and has failed to cure the default in the time period allowed, this Paragraph 2.B will be null and void and Tenant will have no further rights under this Paragraph. It is further agreed that if Tenant has exercised its Option to Extend and is subsequently in default, and has failed to cure the default in the time period allowed by the Lease at any time prior to, or at the scheduled Commencement Date of the Third Extended Term, Landlord may at its sole and absolute discretion, cancel Tenant’s Option to Extend, and this Lease will continue in full force and effect for the full remaining Term hereof, absent of this Paragraph 2.B.

               4) The Option rights of Tenant under this Paragraph 2.B and the Third Extended Term thereunder, are granted for Tenant’s personal benefit and may not be assigned or transferred by Tenant, except as provided for in Lease Paragraph 56 (“Permitted Assignments and Subleases”), either voluntarily or by operation of law, in any manner whatsoever.

               5) Notwithstanding anything to the contrary in this Paragraph 2.B, this Option to Extend is automatically forfeited by Tenant (without notice from Landlord) in the event Tenant is, at any time during the Term of this Lease, in default of said Lease and if Tenant does not completely cure said default within five days for a monetary default and thirty days for a non-monetary default (or such longer time as permitted by cure in the Lease Agreement). In the event said Option to Extend is forfeited as stated herein, Tenant shall have no further Option to Extend this Lease.

     EXCEPT AS MODIFIED HEREIN, all other terms, covenants, and conditions of said March 23, 1994 Lease Agreement shall remain in full force and effect.

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Quantum 5

     IN WITNESS WHEREOF, Landlord and Tenant have executed this Amendment No. 2 to Lease as of the day and year last written below.

LANDLORD:		ASSIGNE	E/MAXTOR:
JOHN ARRILLAGA SURVIVOR’S TRUST		MAXTOR CORPORATION
		a Delaware corporation
By	/s/ John Arrillaga by Richard T. Peery his attorney in fact	By	/s/ Glenn H. Stevens
	John Arrillaga, Trustee
Date:	March 30, 2001		Glenn H. Stevens
			Print or Type Name
RICHARD T. PEERY SEPARATE		Title:	V.P., General Counsel and Secretary
PROPERTY TRUST
		Date:	April 1, 2001
By	/s/ Richard T. Peery
	Richard T. Peery, Trustee
Date:	March 30, 2001	ASSIGNOR/QUANTUM:
		QUANTUM CORPORATION
		a Delaware corporation
		By	/s/ Norm Claus
		Print or Type Name
		Title:	V.P. Real Estate
		Date:	March 30, 2001

22

Quantum 2

LEASE AGREEMENT

     THIS LEASE, made this 16th day of April, 1997 between JOHN ARRILLAGA, Trustee, or his Successor Trustee, UTA dated 7/20/77 (JOHN ARRILLAGA SURVIVOR’S TRUST) as amended, and RICHARD T. PERRY, Trustee, or his Successor Trustee, UTA dated 7/20/77 (RICHARD T. PERRY SEPARATE PROPERTY TRUST) as amended, hereinafter called Landlord and QUANTIM CORPORATION, a Delaware corporation, 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 land containing approximately 9,656 ± acres and that certain 182,355 ± square foot two-story building (“Building 6”) and parking appurtenant thereto, to be constructed and installed by Landlord as shown within the area outlined in Green on Exhibit A to be located on Sumac Drive, Milpitas, California, 95035. Said Premises is more particularly shown within the area outlined in Red on Exhibit A attached hereto and incorporated herein by this reference. The interior of the Leased Premises shall be improved by Landlord in the configuration as shown in Red on Exhibit B to be attached hereto and incorporated herein by this reference. The building shell shall be constructed in accordance with the shell and site improvement specifications set forth on Exhibit A, and the general building elevation set forth on Exhibit A.

     The word “Premises” as used throughout this lease is hereby defined to include the Hetch-Hetchy Land as described in Paragraph 49, the nonexclusive use of landscaped areas, sidewalks and driveways in front of or adjacent to the Premises, and the nonexclusive use of the area directly underneath or over such sidewalks and driveways. The gross leasable area of the building shall be measured from 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 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 and observance.

     1. USE: Tenant shall use the Premises only in conformance with applicable governmental laws, regulations, rules and ordinances for the purpose of office, sales and R&D, and related uses necessary for the use of Tenant or any approved assignee or subtenant to conduct its business providing any and all uses of the Premises shall be subject to and in conformance with all governmental laws and ordinances, and for no other purpose without Landlord’s prior written consent, 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 without the prior

written consent of Landlord, and provided Tenant bears any cost related to such increased rate 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 on 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 which 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 indemnity, defend and hold landlord harmless against any loss, expense, damage, reasonable attorneys’ fees, or liability arising out of failure of Tenant to comply with any applicable law that governs Tenant’s use of the Premises. Tenant shall comply with any covenant, condition, or restriction (“CC&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 AND COMMENCEMENT DATE OF LEASE: See Paragraph 40, 41 and 42 of this Lease.

     3. POSSESSION: If Landlord, for any reason whatsoever other than Landlord’s default cannot deliver possession of said premises to Tenant at the commencement of the said term, as hereinbefore specified, this 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 dales 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 of delivery of the Premises shall not exceed 180 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

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as Basic Rent for the leased premises the total sum of the amount for the original Lease Term to be calculated pursuant to Paragraph 39.

          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 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 data 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 to 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 days for taxes and insurance and within thirty (30) days for all other Additional Rent items 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 within 180 days of the end of each calendar year or more frequently if Landlord elects to do so at Landlord’s sole and absolute discretion as compared to Landlord’s

3

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 crediting to Tenant’s account (providing Tenant is not in default in the performance of any of the terms, covenants and conditions of this Lease, in which case such amount shall be held by Landlord as a credit for Tenant’s account until such default has been cured) any amount of estimated payments made by Tenant in excess of Landlord’s actual expenditures for said Additional Rent items.

          E. Fixed Management Fee: Beginning with the Commencement Date of the Term of this Lease, Tenant shall pay to Landlord, in addition to the Basic Rent, a fixed monthly management fee (“Management Fee”) equal to 1% of the Basic Rent due for each month during the Lease Term.

     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 actual 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.

          F. 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 Peery/Arrillaga, File 1504, P.O. Box 60000, San Francisco, CA 94160 or to such other person or to such other place as Landlord may from time to time designate in writing.

          G. Security Deposit: Concurrently with Tenant’s execution of this Lease, Tenant shall deposit with Landlord the sum of SEVEN HUNDRED ELEVEN THOUSAND ONE HUNDRED EIGHTY FOUR AND 50/100 Dollars ($711,184.50). Said sum shall be held by Landlord as a Security Deposit for the faithful performance by Tenant of all of 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 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 its 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 shaft transfer said Deposit to Landlord’s successor in interest whereupon Tenant agrees

4

     to release Landlord from liability for the return of such Deposit or the accounting therefor. See Paragraph 50

     5. ACCEPTANCE AND SURRENDER OF 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 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 accoustical ceiling tiles replaced; all windows washed; the airconditioning 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 ninety (90) 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 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. It the Premises be 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. See Paragraph 51

     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.

5

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, airconditioning, floor to ceiling 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 alteration 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 Tenant receives notice of 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. See Paragraph 51.

     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 airconditioning 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 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. See Paragraph 52

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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 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.

     9. TAXES:

          A. Notwithstanding the following, Tenant is responsible for paying all real estate taxes and assessments assessed on the Premises leased hereunder from November 1, 1995. 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 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 nonresponsibility 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 or assessed 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 dale of this Lease shall be altered so that in lieu

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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, than only that part of such Real Property Tax that is fairy 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. See Paragraph 53.

          B. Taxes on Tenant’s Property: Tenant shall be liable for and shall pay ten 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 commercial general liability insurance with combined single limit coverage of not less than Two Million Dollars ($2,000,000) per occurrence for bodily injury and property damage occurring in, on or about the Premises, including parking and landscaped areas. 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 certificate of insurance of said policy shall 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.

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     11. TENANT’S PERSONAL PROPERTY INSURANCE AND WORKMAN’S 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 workman’s compensation insurance and any other employee benefit insurance sufficient to comply with all laws.

     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 (or Landlord’s agent if so directed by 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 deductibles on insurance claims and 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 (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 to 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, than 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 or 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 willful misconduct or 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 to the extent arising from the willful misconduct or the negligence of Landlord, its agents, servants, employees, invitees or contractors, and subject to the last two sentences of Paragraph 12, 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.

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     14. COMPLIANCE: Tenant, at its sole cost and expense, shall promptly comply with all Laws, statutes, ordinances and governmental rules, regulations of 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 officer; 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 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 sole 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. See Paragraphs 44 and 52

     15. LIENS: Tenant shall keep the Premises free from any liens arising out of any work performed, materials furnished or obligation incurred by Tenant. In the event that Tenant shall not, within ten (10) days following Tenant’s receipt of notice of 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. 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 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 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 shall require Tenant to pay all reasonable expenses in connection with the assignment and Landlord shall 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 the Lease. See Paragraphs 55 and 56

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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. 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. See Paragraph 57.

     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 nonresponsibility; 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 under any circumstances be construed or deemed 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. See Paragraph 58

     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

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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 ten (10) 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 thirty (30) 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 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.

               (b) The rights and remedies provided by California Civil Code Section 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 relet 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) To the extent permitted by law, the right and power, after compliance with all statutory requirements and in any event on not less than three (3) business days prior written notice, 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 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 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

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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 first to payment of indebtedness other than rent due hereunder from Tenant to Landlord; second, to the payment of any costs of such subletting and of such alterations and repairs; third to payment of rent due and unpaid hereunder; and the residue, if any, shall be held by Landlord and 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) end 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 than 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. No taking possession of the Premises by Landlord, shall be construed as an election on its part to terminate this Lease unless a written notice of such intention be given to Tenant. Notwithstanding any such subletting without termination Landlord may at anytime 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 to Landlord pursuant to subparagraph d. above. See Paragraph 59

     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 said 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. See Paragraph 60.

     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 embargo, rainy or stormy weather, inability to obtain materials, supplies or fuels, acts of contractors or

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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 fixtures, 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. See Paragraph 61

     22. EMINENT DOMAIN: If all or any part of the Premises shall be taken by any public or quasi-public authority under the power of eminent domain or conveyance in lieu thereof, this Lease shall terminate as to any portion of the Premises so taken or conveyed on the date when title vests in the condemnor, and Landlord shall be entitled to any and all payment, income, rent, award, or any interest therein whatsoever which may be paid or made in connection with such taking or conveyance, and Tenant shall have no claim against Landlord or otherwise for the value of any unexpired term of this Lease. Notwithstanding the foregoing paragraph, any compensation specifically awarded Tenant for loss of business, Tenant’s personal property, moving cost or loss of goodwill, shall be and remain the property of Tenant.

     If any action or proceeding is commenced for such taking of the Premises or any part thereof, or if Landlord is advised in writing by any entity or body having the right or power of condemnation of its intention to condemn the premises or any portion thereof, then Landlord shall have the right to terminate this Lease by giving Tenant written notice thereof within sixty (60) days of the date of receipt of said written advice, or commencement of said action or proceeding, or taking conveyance, which termination shall take place as of the first to occur of the last day of the calendar month next following the month in which such notice is given or the date on which title to the Premises shall vest in the condemnor.

     In the event of such a partial taking or conveyance of the Premises, if the portion of the Premises taken or conveyed is so substantial that the Tenant can no longer reasonably conduct its business, Tenant shall have the privilege of terminating this Lease within sixty (60) days from the date of such taking or conveyance, upon written notice to Landlord of its intention so to do, and upon giving of such notice 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 the rent from the date of such taking or conveyance to the date of termination.

     If a portion of the Premises be taken by condemnation or conveyance in lieu thereof and neither Landlord nor Tenant shall terminate this Lease as provided herein, this Lease shall

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continue in full force and effect as to the part of the Premises not so taken or conveyed, and the rent herein shall be apportioned as of the data of such taking or conveyance so that thereafter the rent to be paid by Tenant shall be in the ratio that the area of the portion of the Premises not so taken or conveyed bears to the total area of the Premises prior to such taking. See Paragraph 62

     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. See Paragraph 63

     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 tee 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 the term 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 the 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 Basic Rent shall be increased to an amount equal to one hundred twenty five (125%) percent of the monthly Basis Rent required during the last month of the Lease term.

     26. CERTIFICATE OF ESTOPPEL: Either party shall at any time upon not less than ten (10) days prior written notice from the other party execute, acknowledge and deliver to the requesting party 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 the best of such party’s knowledge, any uncured defaults on the part of the other party 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. A party’s failure to deliver such statement within such time shall be conclusive upon the party receiving such request that this Lease is in full force and effect, without modification except as may be represented by Landlord;

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that there are no uncured defaults in the requesting party’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 the Tenant shall be performed or observed by the 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 and such failure shall continue for five (5) days after written notice thereof by Landlord, or shall fail to perform any other term or covenant hereunder on its part to be performed and such failure shall continue for thirty (30) 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 either Landlord or Tenant 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 the other party 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 a reasonable attorney’s fee.

     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

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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 of if sent by United Stated 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 Peery/Arrillaga, 2560 Mission College Blvd., Suite 101, Santa Clara, CA 95054. 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 this 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 (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 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. INTENTIONALLY LEFT BLANK

     36. 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:

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               (a) the sole and exclusive remedy shall be against Landlord’s interest in the Premises leased herein;

               (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 maybe 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 lime without hearing;

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

               (h) these covenants and agreements are enforceable both by 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.

     37. 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 was place a sign in, on, or about the Premises, upon expiration or other 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 reasonably 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.

     38. 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.

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           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: The term “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, and the provisions of this Lease shall inure to the benefit of and bind such heirs, executors, administrators, successors and permitted assigns.

     The term “person” includes the plural as well as the singular and individuals, firms, associations, partnerships and corporations. Words used in any gender include other genders. If there be more than one Tenant the obligations of Tenant hereunder are joint and several. The paragraph headings of this Lease are for convenience of reference only and shall have no effect upon the construction or interpretation of any provision hereof.

           D. Time of Essence: Time is of the essence of this Lease and of each and all of its provisions.

           E. 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 dead 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.

           F. 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.

           G. Recording: Landlord and Tenant shall record a short form memorandum hereof in the form attached hereto as Exhibit C.

           H. Amendments for Financing: Tenant further agrees to execute any reasonable amendments required by a lender to enable Landlord to obtain financing, so long as Tenant’s rights hereunder are not materially affected and there is no change in the Basic Rent, Options to Renew, Lease Term or Construction obligations of Landlord.

           I. Additional Paragraphs: Paragraphs 39 through 65 are added hereto and are included as a part of this lease.

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           J. 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.

           K. 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 his Lease, entitle Tenant to any reduction of rent hereunder or result in any liability of Landlord to Tenant

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     IN WITNESS WHEREOF, Landlord and Tenant have executed and delivered this Lease as of the day and year last written below.

LANDLORD:		TENANT:
JOHN ARRILLAGA SURVIVOR’S TRUST		QUANTUM CORPORATION a Delaware corporation
By	/s/ John Arrillaga	By	/s/ Andrew Kryder
	John Arrillaga, Trustee		Andrew Kryder, Vice President Finance and Corporate General Counsel
Date:	June 30, 1997	Date:	June 25, 1997
RICHARD T. PEERY SEPARATE PROPERTY TRUST
By	/s/ Richard T. Peery	By	/s/ Norm Claus
	Richard T. Peery, Trustee		Norm Claus, Vice President Real Estate and Corporate Services
Date:	June 26, 1997	Date:	June 25, 1997

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Paragraphs 39 through 65 to Lease Agreement dated April 16, 1997, By and Between THE JOHN ARRILLAGA SURVIVOR’S TRUST AND THE RICHARD T. PEERY SEPARATE PROPERTY, as Landlord, and QUANTUM CORPORATION, a Delaware corporation, as Tenant for 182,355+ Square Feet of Space Located on Sumac Drive, Milpitas, California.

     39. BASIC RENT: In accordance with Paragraph 4A, and subject to the provisions of Paragraphs 40 and 41, Basic Rent shall be payable as follows during the indicated months of the term of the Lease based upon the gross leasable area within the building that is part of the Premises:

Period	Monthly Basic Rent
Months 1-12 (plus the partial calendar month, if any, following the Commencement Date *)	$1.60/sf
Months 13-24	$1.65/sf
Months 25-36	$1.70/sf
Months 37-48	$1.75/sf
Months 49-60	$1.80/sf
Months 61-72	$1.85/sf
Months 73-84	$1.90/sf
Months 85-96	$1.95/sf
Months 97-108	$2.00/sf
Months 109-120	$2.05/sf
Months 121-132	$2.10/sf
Months 133-144	$2.15/sf
Months 145-156	$2.20/sf
Months 157-168	$2.25/sf
Months 169-180	$2.30/sf

     Example of calculation of Basic Rent per month for the period commencing with the first through the twelfth months of said Lease:

Square footage of Building		182,355
Per square foot Basic Monthly Rent		x $1.60
Basic Rent per Month	$	291,768.00

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     It is agreed in the event said Lease commences on a date other than the first day of the month the Term of the Lease will be extended to account for the number of days in the partial month. The Basic Rent during the resulting partial month will be pro-rated (for the number of days in the partial month) at the Basis Rent rate scheduled for the projected Commencement Date as shown above.

     40. LEASE TEEM AND COMMENCEMENT DATE: The following provisions relate to the commencement and duration of the term of this Lease:

          A. Lease Term: The term of this Lease shall commence on the “Commencement Date” (as defined herein) which is projected to be May 1, 1998, and shall continue for a period of fifteen (15) years plus the partial calendar month, if any, in which the Commencement Date occurs, subject to the terms of this Lease and subject to (i) earlier termination rights of Landlord in accordance with the provisions of this Lease, and (ii) extension pursuant to the options to renew granted by Paragraphs 41 and 42 and the provisions of this Paragraph 40.C.

          B. Commencement Date Defined: As used herein, the term “Commencement Date” shall mean the later to occur of the following: (i) the date upon which the “Improvements” are “Substantially Completed” or (ii) May 1, 1998, subject to (a) delays caused by Tenant and/or Tenant’s agents and (b) provided, however, that if prior to the later of such dates Tenant’s operating personnel enter into occupancy of the Premises and commence the operation of Tenant’s business within the Premises, the Commencement Date shall be the date such personnel of Tenant so enter into occupancy of the Premises. The term “Substantially Completed” and/or “Substantial Completion” shall mean the date when all of the following have occurred with respect to the Improvements in question: (i) the construction of the Improvements in question has been substantially completed in accordance with the approved plans therefor except for punch list items which do not prevent Tenant from reasonably using the Premises to conduct Tenant’s business; (ii) Landlord has executed a certificate or statement representing that the Improvements in question, for which Landlord is responsible, have been substantially completed in accordance with the plans and specifications therefor except for the punch list items which do not prevent Tenant from reasonably using the Premises to conduct Tenant’s business; and (iii) the Building Department of the City of Milpitas has completed its final inspection of such Improvements and has “signed off” the building inspection card approving such work as complete except for punch list items which do not prevent Tenant from reasonably using the Premises to conduct Tenant’s business. Notwithstanding the foregoing, Substantial Completion of the Interior Improvements shall not be deemed to have occurred until Landlord has obtained final or conditional approval from the Fire Department of the City of Milpitas that the Improvements have been completed in accordance with such department’s requirements (subject only to conditions that do not prevent Tenant from occupying the Improvements).

          C. Lease Terms Co-extensive: It is acknowledged that (i) Landlord has granted Tenant, pursuant to a separate Option Agreement of even date herewith, an Option to Lease an additional building on the parcel adjacent to the Premises ( the “Building 7 Lease”), and (ii) it is the intention of the parties that the Term of this Lease be co-extensive with the term of the Building 7 Lease, such that the terms of both leases (“the Leases”) expire on the same date. In the event Tenant exercises its Option to Lease Building 7 (pursuant to the terms and

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conditions of the Option Agreement), it is hereby agreed that following the date upon which the Commencement Date of the Building 7 Lease becomes established as a date certain following completion of improvements and satisfaction of any other conditions related to determining such date, the Term of this Lease shall be extended such that the scheduled Termination Date of this Lease coincides with the scheduled termination date of the Building 7 Lease. As soon as the parties are able to implement the provisions of this Paragraph because the Commencement Date of the Building 7 Lease has been determined following completion of improvements and satisfaction of other appropriate conditions, the parties shall execute an amendment to this Lease (i) extending the initial Term of this Lease (if necessary) to be co-terminous with the initial termination date of the Building 7 Lease and (ii) adjusting the Options to Extend accordingly. The monthly Basic Rent on this Lease during the Extension Period shall be increased by $.05 per square foot on the commencement date of said Extension Period. For example, if the Building 7 Lease commences on May 1, 2004, and this Lease commences the scheduled Commencement Date of May 1, 1998, the initial Term of this Lease shall be extended by one year and the per square foot monthly Basic Rent during the Extension Period shall be $[Illegible].35 per square foot. The provisions of this Paragraph 40C also requires the terms of both of the Leases to be extended accordingly if Tenant exercises its Option to Extend under either of the Leases. The monthly Basic Rent during the extended term under each of the Leases shall be increased by $.05 per square foot on the commencement date of the extended term and thereafter on each and every anniversary of the respective lease Commencement Date.

     41. FIRST FIVE-YEAR OPTION TO EXTEND: Landlord hereby grants to Tenant an option to extend the term of this Lease for an additional five (5) year period upon the following terms and conditions:

          A. If Tenant elects to exercise the option to extend, Tenant shall give Landlord written notice of Tenant’s exercise of this option to extend at least one hundred eighty (180) days prior to the expiration of the Basic Term hereof, in which event the Lease shall be considered extended for an additional five (5) year period upon the same terms and conditions as this Lease, absent this Paragraph 41 and subject to the rental as set forth below. In the event that Tenant fails to timely exercise Tenant’s option as set forth herein in writing, Tenant shall have no further option to extend this Lease or the Building 7 Lease, and this Lease shall continue in full force and effect for the full remaining term hereof, absent this Paragraph 41.

          B. The monthly Basic Rent for the option period shall be as follows in the event the option is exercised:

Period	Monthly Basic Rent
Months 1-12	$2.35/sf
Months 13-24	$2.40/sf
Months 25-36	$2.45/sf
Months 37-48	$2.50/sf
Months 49-60	$2.55/sf

          C. Notwithstanding anything contained herein, Tenant may not exercise the option to renew granted by this Paragraph 41 at any time that Tenant is in default (default for monetary and material default for non-monetary) of its obligations under this Lease, if Tenant

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has received written notice from Landlord that Tenant is in default, and such default has not been timely cured within the time period provided for in this Lease; provided, however, that if such default of Tenant is not for money due under this Lease and cannot be cured, and if Landlord does not elect to terminate this Lease as a result of such non-curable default by Tenant, Tenant may exercise the option to extend granted by this Paragraph 41 notwithstanding such non-curable default.

     42. SECOND FIVE-YEAR OPTION TO EXTEND: Provided Tenant has extended the Lease for an additional five (5) year period as set forth in Paragraph 41, Landlord hereby grants to Tenant an option to extend the Term of this Lease for an additional five (5) year period upon the following terms and conditions:

          A. Tenant shall give Landlord written notice of Tenant’s exercise of this option to extend at least one hundred eighty (180) days prior to the expiration of the Lease term as extended pursuant to Paragraph 41, in which event the Lease shall be considered extended for an additional five (5) year period upon the same terms and conditions as this Lease, absent this Paragraph 42.A and subject to the Rental as set forth below. In the event that Tenant fails to timely exercise Tenant’s option as set forth herein in writing, Tenant shall have no further option to extend this Lease or the Building 7 Lease, and this Lease shall continue in full force and effect for the full remaining term hereof, absent this Paragraph 42.

          B. The monthly Basic Rent for the option period shall be as follows in the event the option is exercised:

Period	Monthly Basic Rent
Months 1-12	$2.60/sf
Months 13-24	$2.65/sf
Months 25-36	$2.70/sf
Months 37-48	$2.75/sf
Months 49-60	$2.80/sf

          C. Notwithstanding anything contained herein, Tenant may not exercise the option to extend granted by this Paragraph 42 at any time that Tenant is in default (default for monetary and material default for non-monetary) of its obligations under this Lease, if Tenant has received written notice from Landlord that Tenant is in default, and such default has not been timely cured within the time period provided for in this Lease; provided, however, that if such default of Tenant is not for money due under this Lease and cannot be cured, and if Landlord does not elect to terminate this Lease as a result of such non-curable default by Tenant, Tenant may exercise the option to extend granted by this Paragraph 42 notwithstanding such non-curable default.

     43. ASSESSMENT CREDITS: The demised property herein is subject to a special assessment levied by the City of Milpitas in Improvement District No. 12. As a part of said special assessment proceedings, additional bonds were sold and assessments levied to provide for construction contingencies and reserve funds. Interest will be earned on such funds created for contingencies and on reserve funds which will be credited for the benefit of said assessment district. To the extent surpluses are created in said district through unused contingency funds,

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interest earnings or reserve funds, such surpluses shall be deemed the property of Landlord. Notwithstanding that such surpluses may be credited on assessments otherwise due against the demised premises, Tenant shall pay to Landlord, as additional rent if, and at the time of any such credit of surpluses, an amount equal to all such surpluses so credited.

     44. HAZARDOUS MATERIALS: Landlord and Tenant agree as follows with respect to the existence or use of “Hazardous Materials” (as defined herein) on, in, under or about the Premises and real property located beneath said Premises, which includes the entire parcel of land on which the Premises are located as shown in Green on Exhibit A attached hereto (hereinafter collectively referred to as the “Property”):

          A. As used herein, the term “Hazardous Materials” shall mean any material, waste, chemical, mixture or byproduct which is or hereafter is defined, listed or designated under Environmental Laws (defined below) as a pollutant, or as a contaminant, or as a toxic or hazardous substance, waste or material, or any other unwholesome, hazardous, toxic, biohazardous, or radioactive material, waste, chemical, mixture or byproduct, or which is listed, regulated or restricted by any Environmental Law (including, without limitation, petroleum hydrocarbons or any distillates or derivatives or fractions thereof, polychlorinated biphenyls, or asbestos). As used herein, the term “Environmental Laws” shall mean any applicable Federal, State of California or local government law (including common law), statute, regulation, rule, ordinance, permit, license, order, requirement, agreement, or approval, or any determination, judgment, directive, or order of any executive or judicial authority at any level of Federal, State of California or local government (whether now existing or subsequently adopted or promulgated) relating to pollution or the protection of the environment, ecology, natural resources, or public health and safety.

          B. Tenant shall notify Landlord prior to the occurrence of any Tenant’s Hazardous Materials Activities (defined below). Landlord acknowledges that Tenant shall use, in compliance with applicable Environmental Laws, customary household and office supplies (Tenant shall first provide Landlord with a list of said materials use), such as mild cleaners, lubricants and copier toner. Any and all of Tenant’s Hazardous Materials Activities shall be conducted in conformity with this Paragraph 44, Paragraph 14 of this Lease, and in compliance with all Environmental Laws and regulations. As used herein, the term “Tenant’s Hazardous Materials Activities” shall mean any and all use, handling, generation, storage, disposal, treatment, transportation, release, discharge, or emission of any Hazardous Materials on, in, beneath, to, from, at or about the Property, in connection with Tenant’s use of the Property, or by Tenant or by any of Tenant’s agents, employees, contractors, vendors, invitees, visitors or its future subtenants or assignees or other third parties (including “dumping” by others) (or which Hazardous Materials originate from on the surface of the Premises any time after November 1, 1995, the date of the Option Agreement related to said Lease, and before the Commencement Date of this Lease, but excluding Hazardous Materials on the Premises prior to the Lease Commencement Date because of the storage, use, disposal, or transportation of such materials or waste by any of Landlord’s contractors or otherwise arising out of construction work performed by or under the direction of Landlord on the Premises and Landlord shall be responsible for all required actions with respect to such materials or wastes). Tenant agrees to provide Landlord with prompt written notice of any spill or release of Hazardous Materials at the Property during the term of the Lease of which Tenant becomes aware, and further agrees to provide Landlord

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with prompt written notice of any violation of Environmental Laws in connection with Tenant’s Hazardous Materials Activities of which Tenant becomes aware. If Tenant’s Hazardous Materials Activities involve Hazardous Materials other than normal use of customary household and office supplies, Tenant also agrees at Tenant’s expense: (i) to install such Hazardous Materials monitoring, storage and containment devices as may be required by Environmental Laws, regulations and/or governing agencies; (ii) to provide Landlord with a written inventory of such Hazardous Materials, including an update of same each year upon the anniversary date of the Commencement Date of the Lease (“Anniversary Date”); and (iii) on each Anniversary Date to provide to Landlord copies of all documentation and records, required by applicable Environmental Laws to be prepared and submitted to governmental authorities, relating to use at the Property of Hazardous Materials or to Tenant’s Hazardous Materials Activities, if any. If upon completion of Landlord’s review of said documentation and records, Landlord reasonably questions if Tenant is in compliance with all applicable Environmental Laws with respect to Tenant’s Hazardous Materials Activities, Tenant agrees within thirty (30) days following receipt of written notice from Landlord, to retain a qualified environmental consultant, acceptable to Landlord, to evaluate whether Tenant is in compliance with all applicable Environmental Laws with respect to Tenant’s Hazardous Materials Activities. Tenant, at its expense, shall submit to Landlord a report from such environmental consultant which discusses the environmental consultant’s findings within two (2) months of each Anniversary Date. Tenant, at its expense, shall promptly undertake and complete any and all steps necessary, and in full compliance with applicable Environmental Laws, to fully correct any and all problems or deficiencies identified by the environmental consultant, and promptly provide Landlord with documentation of all such corrections.

          C. Prior to termination or expiration of the Lease, Tenant, at its expense, shall (i) properly remove from the Property all Hazardous Materials which come to be located at the Property in connection with Tenant’s Hazardous Materials Activities, and (ii) fully comply with and complete all facility closure requirements of applicable Environmental Laws regarding Tenant’s Hazardous Materials Activities, including but not limited to (x) properly restoring and repairing the Property to the extent damaged by such closure activities, and (y) obtaining from the local Fire Department or other appropriate governmental authority with any legal or regulatory jurisdiction a written concurrence that closure has been completed in compliance with applicable Environmental Laws. Tenant shall promptly provide Landlord with copies of any claims, notices, work plans, data and reports prepared, received or submitted in connection with any such closure activities.

          D. If Landlord, upon consultation with Tenant, reasonably concludes that the Property has become contaminated as a result of Tenant’s Hazardous Materials Activities, Landlord in addition to any other rights it may have under this Lease or under Environmental Laws or other laws, may enter upon the Property and conduct inspection, sampling and analysis, including but not limited to obtaining and analyzing samples of soil and groundwater, for the purpose of determining the nature and extent of such contamination except to the extent that such activities may be inconsistent with Tenant’s compliance with Environmental Laws. Tenant shall promptly reimburse Landlord for the costs of such an investigation, including but not limited to reasonable attorneys’ fees Landlord incurs with respect to such investigation to the extent, and only to the extent,-that it that discloses Hazardous Materials contamination for which Tenant is liable under this Lease. Except as may be required of Tenant by applicable Environmental Laws,

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Tenant shall, not perform any sampling, testing, or drilling to identify the presence of any Hazardous Materials at the Property, without Landlord’s prior written consent which shall not be unreasonably withheld. Tenant shall promptly provide Landlord with copies of any claims, notices, work plans, data and reports prepared, received or submitted in connection with any sampling, testing or drilling performed pursuant to the preceding sentence.

          E. Tenant shall indemnify, defend (with legal counsel acceptable to Landlord, whose consent shall not unreasonably be withheld) and hold harmless Landlord, its employees, assigns, successors, [Illegible], and representatives from and against any and all claims (including but not limited to third party claims from a private party or a government authority), liabilities, obligations, losses, causes of action, demands, governmental proceedings or directives, fines, penalties, expenses, costs (including but not limited to reasonable attorneys’, consultants’ and other experts’ fees and costs), and damages, which arise from or relate to: (i) Tenant’s Hazardous Materials Activities; (ii) any Hazardous Materials contamination caused by Tenant prior to the Commencement Date of the Lease; or (iii) the breach of any obligation of Tenant under this Paragraph 44 (collectively, “Tenant’s Environmental Indemnification”). Tenant’s Environmental Indemnification shall include but is not limited to the obligation to promptly and fully reimburse Landlord for losses in or reductions to rental income, and diminution in fair market value of the Property. Tenant’s Environmental Indemnification shall further include but is not limited to the obligation to diligently and properly implement to completion, at Tenant’s expense, any and all environmental investigation, removal, remediation, monitoring, reporting, closure activities, or other environmental response action as may be required by applicable Environmental Laws, regulations or governing agencies (collectively, “Response Actions”). Tenant shall promptly provide Landlord with copies of any claims, notices, work plans, data and reports prepared, received or submitted in connection with any Response Actions.

          F. Landlord hereby makes the following representations to Tenant, each of which is made only to the best of Landlord’s knowledge as of the date Landlord executes this Lease, without any inquiry or investigation having been made or required by Landlord regarding this subject, nor does Landlord have any obligation to investigate or make inquiry regarding the subject:

               (1) The soil and ground water on or under the Premises does not contain Hazardous Materials in amounts which violate any laws to the extent that any governmental entity could require either Landlord or Tenant to take any remedial action with respect to such Hazardous Materials.

               (2) During the time that Landlord has owned the Premises, Landlord has received no notice of (i) any violation, or alleged violation, of any law that has not been corrected to the satisfaction of the appropriate authority, (ii) any pending claims relating to the presence of Hazardous Material on the Premises, or (iii) any pending investigation by any governmental agency concerning the Premises relating to Hazardous Materials.

          G. Landlord and Tenant shall each give written notice to the other as soon as reasonably practicable of (i) any communication received from any governmental authority concerning Hazardous Materials which relates to the Premises, and (ii) any contamination of the

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Premises by Hazardous Materials which constitutes a violation of any law. Attached as Exhibit “D” hereto is a list of Hazardous Materials that Tenant intends to use at the Premises. If during the Lease Term Tenant proposes to use other Hazardous Materials at the Premises, Tenant shall inform Landlord of such use, identifying the Hazardous Materials and the manner of their use, storage and disposal, and shall agree (i) to use, store and dispose of such Hazardous Materials strictly in compliance with all laws, regulations and governing agencies and (ii) that the indemnity set forth in Paragraph 44 shall be applicable to Tenant’s use of such Hazardous Material.

          H. Landlord or Tenant may, at any time, cause testing wells to be installed on the Premises, and may cause the ground water to be tested to detect the presence of Hazardous Material by the use of such tests as are then customarily used for such purposes. Testing wells installed by Tenant shall be paid for by Tenant. If tests conducted by Landlord disclose that Tenant has violated any Hazardous Materials laws, or Tenant or parties on the Premises during the Term of this Lease have contaminated the Premises as determined by regulatory agencies pursuant to Hazardous Materials laws, or that Tenant has liability to Landlord pursuant to Paragraph 44A, then Tenant shall pay for 100 percent of the cost of the test and all related expense. Prior to the expiration of the Lease Term, Tenant shall remove any testing wells it has installed at the Premises, and return the Premises to the condition existing prior to the installation of such wells, unless Landlord requests in writing that Tenant leave all or some of the testing wells in which instance the wells requested to be left shall not be removed.

          I. If any tests performed by Tenant or Landlord prior to the Commencement Date disclose Hazardous Materials at the Premises, Landlord at its expense will promptly take all reasonable action required by law with respect to the existence of such Hazardous Materials at the Premises. The Commencement Date shall not be delayed because of such action by Landlord unless occupation of the Premises is prohibited by law.

          J. The obligations of Landlord and Tenant under this Paragraph 44 shall survive the expiration or earlier termination of the Term of this Lease. The rights and obligation of Landlord and Tenant with respect to issues relating to Hazardous Materials are exclusively established by this Paragraph 44.

     45. APPROVALS: Whenever this Lease requires the approval or consent of either Landlord or Tenant before an action may be taken, such approval or consent shall not be unreasonably withheld or delayed.

     46. LANDLORD’S RIGHT TO TERMINATE: It is understood that the Premises to be leased by Tenant are to be constructed by Landlord, and that Landlord is required to obtain the necessary building permits for the building shell before construction of said Premises can commence. Therefore, it is agreed that in the event Landlord cannot obtain all the necessary building permits for the building shell by December 31, 1997, then either Landlord or Tenant can terminate this Lease by written notice to the other party given within thirty (30) days thereafter, without any liability to the other party of any type whatsoever, and that this Lease Agreement shall be null and void as of the date of receipt of such notice. Landlord agrees to use its best efforts to obtain the required permits by December 31, 1997.

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     47. CROSS DEFAULT: As set forth in Paragraph 40C, Landlord and Tenant have entered an Option Agreement related to Building 7. In the event Tenant exercises its option to lease Building 7, and as a material part of the consideration for the execution of this Lease by Landlord, it is agreed between Landlord and Tenant that a default under this Lease, or a default under the Building 7 Lease may, at the option of Landlord, be considered a default under both leases, in which event Landlord shall be entitled (but in no event required) to apply all rights and remedies of Landlord under the terms of one lease to both of the Leases including, but not limited to, the right to terminate the Building 7 Lease or this Lease by reason of a default under the Building 7 Lease or hereunder.

     48. ADDRESS FOR LEASED PREMISES: It is understood that the address for the Premises will be assigned by the City of Milpitas (the “City”) upon issuance of a building permit for the Interior Improvements. Once the address has been assigned to the Premises by the City, this Lease shall thereafter be amended to reflect the assigned address for the Premises leased hereunder.

     49. HETCH-HETCHY LAND: Landlord hereby assigns to Tenant during the Term of this Lease, all of Landlord’s right, title, and interest, in and to the property owned by the City and County of San Francisco shown in Orange on Exhibit A attached hereto, and Tenant hereby assumes all responsibilities and liabilities (including, but not limited to a fee and/or tax for the right to use said property including any use provided for in the Deed attached hereto as Exhibit E) that may be imposed by the City and County of San Francisco pertaining to their property and Tenant’s use and occupancy thereof. Tenant’s right to use the area outlined in Orange will continue until this right to use said property is revoked or terminated by the City and County of San Francisco, at which time said property outlined in Orange belonging to the City and County of San Francisco will no longer be available for Tenant’s use, and this lease will continue in full force and effect excluding Tenant’s right to use the property outlined in Orange on Exhibit A attached hereto.

     Tenant’s use of the property owned by the City and County of San Francisco shall be governed by the terms and conditions of the Deed dated February 5, 1951 between Chinn Oyama Takeda and George Shoji Takeda, as Grantors, and the City and County of San Francisco, as Grantee (the ‘Deed”). Said Deed is attached hereto as Exhibit E. Among the provisions of said Deed is the restriction that the property shall not be used for parking, and Tenant understands that at no time during the Term of the Lease shall Tenant be allowed to use said property for parking.

     Notwithstanding the foregoing Tenant may use the Hetch-Hetchy Land for such additional uses as may not be permissible to the [Illegible] provided Tenant (i) obtains written permission from the City and County of San Francisco to do so in form reasonably acceptable to landlord, (ii) removes the “bridge” which is contemplated to go over said Hetch-Hetchy Land if requested by the City and County of San Francisco and/or if Landlord requires said “bridge” to be removed by the Lease Termination Date, (iii) pays all costs and expenses imposed by the City and County of San Francisco in connection with such permission and use, and (iv) Tenant indemnifies and holds harmless Landlord from any loss, expense, cost, claim, or liability arising in connection with such permission or any use pursuant to such permission of the Hetch-Hetchy Land undertaken by Tenant, its agents, employees, contractors, invitees, visitors, subtenants

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and/or assignees. Landlord and Tenant agree that if the City of Milpitas will not issue a building permit for Building 6 in the configuration and location for which it is designed as of the date of this Lease because of the proximity to the Hetch-Hetchy Land or for any other reason, then Tenant shall have the option to cause Building 6 to be relocated on the land and redesigned in a new configuration acceptable to the City, Landlord and Tenant, provided the square footage of the relocated and redesigned building is no less than approximately 182,355 square feet and the parking allocation is not reduced due to said redesign and/or relocation.

     50. SECURITY DEPOSIT: The following provisions shall modify Paragraph 4G:

          A. Within thirty (30) days after the expiration or earlier termination of the Lease term and after Tenant has vacated the Premises, Landlord shall return to Tenant the entire Security Deposit except for amounts that Landlord has deducted therefrom that are needed by Landlord to cure defaults of Tenant under the Lease or compensate Landlord for damages for which Tenant is liable pursuant to this Lease. The use or disposition of the Security Deposit shall be subject to the provisions of California Civil Code Section 1950.7.

          B. During the first thirty (30) days following execution of this Lease Agreement, and only during said thirty day period, Tenant shall have the one-time option of satisfying its obligation with respect to an amount equal to one-half (1/2) ($355,592.25) of the $711,184.50 Security Deposit required under Paragraph 4.G. by providing to Landlord, at Tenant’s sole cost, a letter of credit which: (i) is drawn upon an institutional lender reasonably acceptable and accessible to Landlord in form and content reasonably satisfactory to Landlord; (ii) is in the amount of one-half (1/2) of the Security Deposit; (iii) is for a term of at lease twelve (12) months; (iv) with respect to any letter of credit in effect within the six month period immediately prior to the expiration of the Lease term, shall provide that the term of such letter of credit shall extend at least forty five (45) days past the Lease expiration date (including any extensions thereof); and (v) may be drawn upon by Landlord upon submission of a declaration of Landlord that Tenant is in default (as defined in Paragraph 19 and as modified by Paragraph 59). Landlord shall not be obligated to furnish proof of default to such institutional lender, and Landlord shall only be required to give the institutional lender written notification that Tenant is in default and upon receiving such written notification from Landlord the institutional lender shall be obligated to immediately deliver cash to Landlord equal to the amount Landlord may spend or become obligated to spend by reason of Tenant’s default or to compensate Landlord for any loss or damage which Landlord may suffer by reason of Tenant’s default up to 1/2 of the total Security Deposit required under Paragraph 4.G. Said letter of credit shall provide that if the letter of credit is not renewed, replaced or extended within twenty (20) days prior to its expiration date the issuer of the credit shall automatically issue a cashiers check payable to Landlord in the amount of the letter of credit after the date which is twenty (20) days before the expiration date, and no later than the expiration date, without Landlord being required to make demand upon the letter of credit. If Tenant provides Landlord with a letter of credit, within thirty (30) days of the execution of this Lease, meeting the foregoing requirements, one-half (1/2) of the cash Security Deposit (i.e., $355.592.25 of the $711,184.50 Security Deposit) shall be returned to Tenant by Landlord inasmuch as the cash deposit remaining and the Letter of Credit equal the total Security Deposit required in Paragraph 4G. If Tenant defaults with respect to any provisions of this Lease, including but not limited to provisions relating to the payment of Rent, Landlord may (but shall not be required to) draw down on the letter of credit for payment of any

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sum which Landlord may spend or become obligated to spend by reason of Tenant’s default, or to compensate Landlord for any loss or damage which Landlord may suffer by reason of Tenant’s default. Landlord and Tenant acknowledge that such letter of credit will be treated as if it were a cash security deposit, and such letter of credit may be drawn down upon by Landlord upon demand and presentation of evidence of the identity of Landlord to the issuer, in the event that Tenant defaults with respect to any provisions of the Lease and such default is not cured within any applicable cure period. Notwithstanding anything to the contrary in this Lease, Landlord shall not be obligated to furnish proof of default to such institutional lender and Landlord is only required to give the institutional lender written notification that Tenant is in default and upon receiving such written notification from Landlord the institutional lender shall be obligated to immediately deliver cash to Landlord equal to the amount Landlord may spend or become obligated to spend by reason of Tenant’s default, or to compensate Landlord for any loss or damage which Landlord may suffer by reason of Tenant’s default up to 1/2 of the total Security Deposit. Landlord acknowledges that it is not entitled to draw down such letter of credit unless Landlord would have been entitled to draw upon the cash security deposit pursuant to the terms of Paragraph 4G of the Lease. Concurrently with the delivery of the required information to the issuer, Landlord shall deliver to Tenant written evidence of the default upon which the draw down was based, together with evidence that Landlord has provided to Tenant the written notice of such default which was required under the applicable provision of the Lease, and evidence of the failure of Tenant to cure such default within the applicable grace period following receipt of such notice of default. Any proceeds received by Landlord by drawing upon the letter of credit shall be applied in accordance with the provisions governing the Security Deposit imposed by Paragraph 4G and this Paragraph 50. If Landlord draws upon the letter of credit, thereafter Tenant shall once again have the right to post a letter of credit in place of one-half (1/2) of a cash Security Deposit so long as Tenant is not then in default. In any event Tenant will be obligated to replenish the amount drawn to restore the Security Deposit to its original amount as provided for in Paragraph 4G. If any portion of the letter of credit is used or applied pursuant hereto, Tenant shall, within ten (10) days after receipt of a written demand therefor from Landlord, restore and replace the value of such security by either (i) depositing cash with Landlord in the amount equal to the sum drawn down under the letter of credit, or (ii) increasing the letter of credit to its value immediately prior to such application. Tenant’s failure to replace the value of the security as provided in the preceding sentence shall be a material breach of its obligation under this Lease.

     51. ALTERATIONS MADE BY TENANT: The provisions of this Paragraph 51 shall modify Paragraphs 5 and 6:

          A. As used herein, the term “Alteration” shall mean any alteration, addition or improvement made by Tenant to the Premises during the term of the Lease, but shall not include Tenant’s trade fixtures so long as such trade fixtures are not installed in such a manner that they have become an integral part of the building.

          B. Tenant shall not construct any Alterations or otherwise alter the Premises without Landlord’s prior written approval: (i) if Tenant is in default under this Lease or any of the Existing Leases, or (ii) if Tenant is not in default under this Lease or the Building 7 Lease (if Tenant has exercised its Option to lease Building 7) and if the total cost of such Alterations exceeds $20,000 per the scope of any single remodeling job to the Premises, or if such Alteration

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is structural in nature and provided Tenant gives Landlord notice of the planned alterations and a 1/8” scale sepia reflecting said alterations ten (10) business days prior to the commencement of construction of said alterations. Any other non-structural Alteration of less than $20,000 for the total cost of the remodeling job may be undertaken by Tenant without Landlord’s prior written approval, except as noted herein, but with the understanding that Tenant shall be obligated to restore the Premises as set forth in Paragraph 5 at the termination of this Lease, except as otherwise provided in Paragraph 51.D. Notwithstanding the foregoing, Tenant shall have the right to reconfigure modular freestanding walls and partitions without Landlord’s prior consent, which are not part of the original Interior Improvements shown on Exhibit B and which have been installed by Tenant and paid for by Tenant. Notwithstanding the above, Tenant shall not have the right, without Landlord’s prior written consent, to remove any floor-to-ceiling partitions within the Premises.

          C. At all times during the Lease Term (i) Tenant shall maintain and keep up dated “as-built” plans for all Alterations constructed by Tenant, and (ii) Tenant shall provide to Landlord copies of such “as-built” plans as such Alterations are made.

          D. Provided Tenant is not in default under this Lease or under any of the Existing Leases, Tenant shall have the right to remove at any time during the Lease term or prior to the expiration thereof any process equipment such as clean hoods, thermal cycling chambers, freon piping, high temperature furnaces, air handlers, which equipment the parties agree for the purposes of this Lease shall be deemed to be trade fixtures, so long as Tenant repairs all damages caused by the insulation and/or removal thereof, returns the Premises prior to the termination of the Lease to the condition existing prior to the installation of such item, and repairs and restores any so-called “doughnuts” or gaps in the roof and/or floor tiles and/or ceiling and lighting resulting from such installation and/or removal. At the time Tenant requests the consent of Landlord to approve the installation of an Alteration requiring the consent of Landlord, Tenant shall seek from Landlord a written statement of whether or not Landlord will require Tenant to remove such Alteration and restore all or part of the Premises as required by Landlord in accordance with this paragraph and Paragraph 5 at the expiration or earlier termination of the term of the Lease. If Tenant does not obtain from Landlord a statement in writing that Landlord will not require such Alteration to be removed, then at the expiration or sooner termination of the term of the Lease, it is agreed that Tenant may be required by Landlord to remove all or part of such Alterations, and return the Premises to the condition existing prior to the installation of such Alterations as provided for in Paragraph 5 above. In addition, if Tenant has installed Alterations without Landlord’s consent, if Landlord so requires, Tenant shall also remove all or part of such Alterations so installed without Landlord’s consent as Landlord may designate and return the Premises to the condition existing prior to the installation of such Alteration. Alterations for which Landlord has given its written consent to Tenant that such Alteration need not be removed, shall not be removed by Tenant at the expiration or earlier termination of the term of the Lease.

          E. At all times during the term of the Lease, Tenant shall have the right to install and remove trade fixtures as defined in the Lease and installed and paid for by Tenant, so long as Tenant repairs all damage caused by the installation and removal thereof and returns the Premises to the condition existing prior to the installation of such fixtures and repairs and restores any so called “doughnuts” or gaps in the roof and/or floor (including floor structure, sub-

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floor and appropriate floor covering for said area) and/or floor tiles, and/or ceiling tiles, wall damage and lighting resulting from such removal.

          F. Notwithstanding anything to the contrary herein, Tenant shalt be one hundred percent (100%) responsible and liable for obtaining any and all permits (and the cost related thereto) required by the governing agencies for any and all alterations and/or modifications Tenant makes to the Leased Premises.

     52. STRUCTURAL CAPITAL COSTS REGULATED BY GOVERNMENTAL AGENCIES AFTER THE COMMENCEMENT OF THIS LEASE NOT CAUSED BY TENANT OR TENANT’S USES OR REMODELING OF THE PREMISES: The provisions of this Paragraph 53 shall modify Paragraphs 7 and 14:

          A. If during the last five (5) years of the term of the Lease if Tenant has not extended the Lease as provided for in Paragraphs 41 and 42, or during either of the five (5) year extension periods permitted by Paragraphs 41 and 42 or Paragraph 40.C., it becomes necessary (due to any governmental requirement for continued occupancy of the Premises) to make structural improvements required by laws enacted or legal requirements imposed by governmental agency(s) after the Commencement Date, and the cost for each required work or improvements exceeds $100,000, then if such legal requirement is not imposed because of Tenant’s specific use of the Premises and is not “triggered” by Tenant’s Alterations or Tenant’s application for a building permit or any other governmental approval (collectively “Tenant’s Actions”) in which instance Tenant shall be responsible for 100% of the cost of such improvements, Landlord shall be responsible for paying the cost of such improvement and constructing such improvement, subject to a cash contribution from Tenant of a portion of the cost thereof as provided for and calculated in Paragraph 52B.

          B. When Landlord makes an improvement pursuant to Paragraph 52A, and as a condition to Landlord’s obligation to construct such improvement, Tenant shall make the following contribution in cash to Landlord for the cost thereof prior to the commencement of the work by Landlord. It is agreed that Tenant shall pay to Landlord 100% of the cost of the first $100,000.00 worth of each improvement. After the first $100,000.00, all costs above $100,000.00 shall be divided by 15 and multiplied by the time period remaining in the last five years of the Lease term from the date work on such improvement commences. [Illegible]

          For example, if the improvement is not required as a result of Tenant’s Actions and if the cost of such improvement was $400,000 and there was one year and six months remaining in the Lease term when the work commenced, then Tenant would be responsible for reimbursing Landlord in cash $130,000.00 computed as follows:

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Total Cost of Work	$	400,000.00
Tenant Responsible for 1st $100,000		-100.000.00
Total Amount To Be Amortized	$	300,000.00
$300,000.00/15 = $20,000.00/yr. x 1.5 yrs =	$	30,000.00
Tenant responsible for $100,000 + $30,000.00 =	$	130,000.00

          C. If Landlord has made improvements, for which Tenant has reimbursed Landlord for the cost thereof pursuant to Paragraph 52B, and the term of this Lease is subsequently extended pursuant to the exercise by Tenant of an option to renew pursuant to Paragraph 41, or 42, upon the exercise of any such option by Tenant, Tenant shall pay to Landlord an additional sum equal to the total amount of said improvement less the amount previously paid for by Tenant. Using the example in Paragraph 52B above, Tenant would owe Landlord the additional amount of $270,000.00 ($400,000.00 - $130,000.00 = $270,000.00).

     53. REAL PROPERTY TAXES: Paragraph 9 is modified by the following:

          A. The term “Real Property Taxes” shall not include charges, levies or fees directly related to the use, storage, disposal or release of Hazardous Materials on the Premises unless directly related to Tenant’s Activities at this site or on other sites leased and/or owned by Tenant; however, Tenant shall be responsible for general or special tax and/or assessments (related to Hazardous Materials and/or toxic waste) imposed on the Property provided said special tax and/or assessment is not imposed due to on-site originated contamination on the Property (by third parties not related to Tenant) prior to the Lease Commencement Date. Subject to the terms and conditions stated herein, Tenant shall be responsible for paying one hundred percent (100%) of said taxes and/or assessments allocated to the Property.

          B. If any assessments for public improvements are levied against the Premises, Landlord may elect either to pay the assessment in full or to allow the assessment to go to bond. If Landlord pays the assessment in full, Tenant shall pay to Landlord or any assignee or purchaser of the Premises each time payment of Real Property Taxes is made a sum equal to that which would have been payable (as both principal and interest) had Landlord allowed the assessment to go to bond.

          C. Tenant at its cost shall have the right, at any time, to seek a reduction in the assessed valuation of the Premises or to contest any Real Property Taxes that are to be paid by Tenant. If Tenant seeks a reduction or contests such Real Property Taxes, the failure on Tenant’s part to pay such Real Property Taxes being so contested shall not constitute a default so long as Tenant complies with the provisions of this Paragraph. Landlord shall not be required to join in any proceeding or contest brought by Tenant unless the provisions of any law require that the proceeding or contest be brought by or in the name of Landlord. In that case Landlord shall join in the proceedings or contest or permit it to be brought in Landlord’s name as long as Landlord is not required to bear any cost. Tenant, on final determination of the proceeding or contest, shall immediately pay or discharge its share of any Real Property Taxes determined by any decision or judgment rendered, together with all costs, charges, interest, and penalties

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incidental to the decision or judgment. If Tenant does not pay the Real Property Taxes when due pursuant to the Lease and Tenant seeks a reduction or contests them as provided in this paragraph, before the commencement of the proceeding or contest Tenant shall furnish to Landlord a surety bond in form reasonably satisfactory to Landlord issued by an insurance company qualified to do business in California. The amount of the bond shall equal 125% of the total amount of Real Property Taxes in dispute and any such bond shall be assignable to any lender or purchaser of the Premises. The bond shall hold Landlord and the Premises harmless from any damage arising out of the proceeding or contest and shall insure the payment of any judgment that may be rendered.

     54. PROPERTY INSURANCE: Paragraph 12 is modified by the following:

          A. If Tenant so elects, Tenant may obtain from a third party insurance company the insurance required to be carried by Landlord pursuant to Paragraph 12 so long as each of the following conditions is satisfied: (i) the Landlord is not the John Arrillaga Survivor’s Trust and/or the Richard T. Peery Separate Property Trust or an affiliated entity or entities as the case may be; (ii) the insurance to be carried by Tenant to satisfy this requirement strictly complies with all of the provisions of Paragraph 12; (iii) such insurance shall name Landlord as the insured and provide that it is to be payable to Landlord in the same manner as if such insurance had been carried by Landlord pursuant to Paragraph 12 (subject to the rights of any lender holding a mortgage or deed of trust encumbering the Premises); (iv) each lender holding a mortgage or deed of trust encumbering the Premises shall have given its written consent to Tenant carrying such insurance and such insurance shall comply with the requirements of any such lender; (v) Tenant must notify Landlord, by certified mail, no later than one hundred eighty (180) days prior to the expiration date of Landlord’s insurance policy (which expiration date is currently 3/13/xx of a given year and is subject to change; Landlord shall notify Tenant in the event Landlord’s insurance year changes) that Tenant will directly obtain the required insurance coverage for the insurance year commencing 3/14/XX through 3/13/XX and each insurance year through the termination date of this Lease, including any extensions thereof, or until Tenant is no longer able to comply with all of the provisions of this paragraph 55; (vi) the annual premium must be paid in full at the commencement of the policy; (vii) the insurance policy must be issued for a one-year period following the expiration date of Landlord’s insurance policy (i.e., from 3/14/XX to 3/13/XX; (viii) any and all deductibles required under the policy will be paid entirely by Tenant; (ix) the terms of the coverage must be broad form and cover all items to be covered as set forth in Paragraph 12 of this Lease; (x) the Building and Premises must be insured for their full replacement cost; (xi) the insurance policy containing the required coverage in accordance with the provisions of this paragraph must be sent to Landlord for retention within thirty (30) days prior to the expiration date of Landlord’s insurance policy, and may not be terminated or altered without thirty (30) days written notice to Landlord by the company providing such insurance (it is agreed that if the insurance policy is canceled or altered, Landlord will have the right to obtain the property insurance coverage on said building, and Landlord will bill the Tenant for the related insurance premium); and (xii) at all times while Tenant is so carrying such insurance, Tenant is Quantum Corporation or a successor entity and the then net worth of such corporation is equal to or greater than the net worth of Quantum corporation as of the date of this Lease is executed by Landlord and Tenant. Tenant shall provide such evidence as is required by Landlord and any lender to establish that the insurance that Tenant carries pursuant to this Paragraph 54 has been obtained and meets the requirement of this Paragraph 54. Such insurance

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carried by Tenant shall be in form and provided by an insurance company that is reasonably acceptable to Landlord, which must be rated “A plus” or better by Best’s Insurance Service (or an equivalent rating from another rating agency should Best’s no longer provide such service). A copy of any such policy shall be delivered to Landlord. If Tenant elects to insure and such insurance provided by Tenant does not satisfy the requirements of Paragraph 12, in the event of a subsequent casualty, Tenant shall be responsible for and shall pay for that portion of the restoration cost, in excess of the insurance proceeds actually available, that would have been covered by insurance satisfying the requirements of Paragraph 12.

     55. ASSIGNMENT AND SUBLETTING: The following modifications are made to Paragraph 16:

          A. In the event that Tenant seeks to make any assignment or sublease, then Landlord, by giving Tenant written notice of its election within fifteen (15) days after Tenant’s notice of intent to assign or sublease has been given to Landlord, shall have the right to elect (i) to withhold its consent to such assignment or sublease, as permitted pursuant to Paragraph I, or (ii) to permit Tenant to so assign the Lease or sublease such part of the Premises, in which event Tenant may do so, but without being released of its liability for the performance of all of its obligations under the Lease, and the following shall apply (except the following shall not apply to a “Permitted Transfer” described in Paragraph 56):

                    (1) If Tenant assigns its interest in this Lease, then in addition to the rental provided for in this Lease, Tenant shall pay to Landlord fifty percent (50%) of all Rent and other consideration received by Tenant over and above (i) the assignee’s agreement to assume the obligations of Tenant under this Lease and (ii) all “Permitted Transfer Costs” (as defined herein) related to such assignment. As used herein, the term “Permitted Transfer Costs” shall mean all reasonable leasing commissions paid to third parties not affiliated with Tenant in order to obtain the assignment or sublease in question.

                    (2) If Tenant sublets all or part of the Premises, then Tenant shall pay to Landlord in addition to the Rent provided for in this Lease fifty percent (50%) of the positive difference, if any, between (i) all rent and other consideration paid or provided to Tenant by the subtenant, less (ii) all Rent paid by Tenant to Landlord pursuant to this Lease which is allocable to the area so sublet and all Permitted Transfer Costs related to such sublease. After Tenant has recovered all Permitted Transfer Costs Tenant shall pay to Landlord the amount specified in the preceding sentence on the same basis, whether periodic or in lump sum, that such rent and other consideration is paid to Tenant by its subtenant, within seven (7) days after it is received by Tenant.

                    (3) Tenant’s obligations under this subparagraph shall survive any assignment or sublease. At the time Tenant makes any payment to Landlord required by this subparagraph, Tenant shall deliver an itemized statement of the method by which the amount to which Landlord is entitled was calculated, certified by Tenant as true and correct. Landlord shall have the right to inspect Tenant’s books and records relating to the payments due pursuant to this subparagraph. Upon request therefor, Tenant shall deliver to Landlord copies of all bills, invoices or other documents upon which its calculations are based.

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                    (4) As used herein, the term “consideration shall mean any consideration of any kind received, or to be received (including, but not limited to, services rendered and/or value received) by Tenant as a result of the assignment or sublease, if such sums are paid or provided to Tenant for Tenant’s interest in this Lease or in the Premises.

                    (5) This Paragraph 55.A does not apply to a “Permitted Transfer”, as provided in Paragraph 56 hereof. The parties agree that if any of the following transactions occur and do not qualify as “Permitted Transfers”, Tenant must obtain Landlord’s consent to such transaction and if Landlord consents to any of the following transactions which do not otherwise qualify as “Permitted Transfers”, then the provisions of this Paragraph 55.A shall not apply to the following transactions: (i) a merger, consolidation or other reorganization in which Tenant is not the surviving corporation so long as 95% of all assets and liabilities of Tenant are permanently transferred to such assignee; and (ii) an assignment of this Lease to a corporation which purchases or otherwise acquires 95% or more of the assets of Tenant so long as 95% of all assets and liabilities of Tenant are permanently transferred to such assignee and Tenant remains liable and responsible under the Lease to the extent Tenant continues in existence following such transaction.

     56. PERMITTED ASSIGNMENTS AND SUBLEASES: Notwithstanding anything contained in Paragraph 16, so long as Tenant otherwise complies with the provisions of Paragraph 16 and the Permitted Transfer does not release Tenant from its obligations hereunder, Tenant may enter into any of the following transfers (a “Permitted Transfer”) without Landlord’s prior written consent, and the provisions of Paragraph 55A shall not apply to any such Permitted Transfer:

          A. Tenant may sublease all or part of the Premises or assign its interest in this Lease to any corporation which controls, is controlled by, or is under common control with Tenant by means of an ownership interest of more than fifty percent (50%) providing Tenant remains liable for the payment of Rent and full performance of the Lease;

          B. Tenant may assign its interest in the Lease to a corporation which results from a merger, consolidation or other reorganization in which Tenant is not the surviving corporation so long as (i) 95% of all assets and liabilities of Tenant are permanently transferred to such assignee, and (ii) immediately prior to the merger, consolidation or other reorganization, the corporation into which Tenant is to be merged [Illegible] the net worth of the Tenant at the time of lease execution or [Illegible] whichever is greater), or if it does not, Landlord is provided a guaranty of the Lease (in a form reasonably acceptable to Landlord) from a corporation (a) that is the parent of, or is otherwise affiliated with, the corporation into which Tenant is to be merged, and (b) which has a current net worth equal to or greater than the net worth of Tenant at the time of Lease execution or at the time of such assignment, merger, consolidation or reorganization (whichever is greater). In the event there is not a permanent transfer of 95% or more of the assets and liabilities from Tenant to a third party, and Tenant continues to exist as a separate entity, both companies shall be jointly and severally liable for the full terms and conditions of the Lease;

          C. Tenant may assign this Lease to a corporation which purchases or otherwise acquires 95% or more of the assets of Tenant so long as 95% of all assets and

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liabilities of Tenant are permanently transferred to such assignee (in the event there is not a permanent transfer of 95% or more of the assets and liabilities from Tenant to a third party and Tenant continues to exist as a separate entity, both companies shall be jointly and severally liable for the full terms and conditions of the Lease), and provided that immediately prior to such assignment said corporation, has a net worth equal to or greater than the net worth of Tenant (a) at the time of Lease execution or (b) at the time of such assignment (whichever is greater), or if it does not, Landlord is provided a guaranty of the Lease (in a form reasonably acceptable to Landlord) from a corporation (a) that is the parent of, or is otherwise affiliated with, said corporation and (b) which has a current net worth equal to or greater than the net worth of Tenant at the time of Lease execution or at the time of such assignment, (whichever is greater).

     57. SUBORDINATION AND MORTGAGES: Paragraph 17 is modified to provide that this Lease shall not be subordinate to a mortgage or deed of trust unless the Lender holding such mortgage or deed of trust enters into a written subordination, non-disturbance and attornment agreement in which the Lender agrees that notwithstanding any subordination of this Lease to such Lender’s mortgage or deed of trust, (i) such Lender shall recognize all of Tenant’s rights under this Lease, and (ii) in the event of a foreclosure this Lease shall not be terminated so long as Tenant is not in material default of its obligations under this Lease, but shall continue in effect and Tenant and such Lender (or any party acquiring the Premises through such foreclosure) shall each be bound to perform the respective obligations of Tenant and Landlord with respect to the Premises arising after such foreclosure.

     58. LANDLORD’S RIGHT TO ENTER: Notwithstanding the provisions of Paragraph 18, (1) except in the event of an emergency, Landlord shall give Tenant twenty-four (24) hours notice prior to entering the Premises, agrees to comply with any reasonably safety and/or security regulations imposed by Tenant with respect to such entry, and shall only enter the Premises when accompanied by Tenant or its agent (so long as Tenant makes itself reasonably available for this purpose), and (ii) Landlord may install “for lease” signs relating to the Premises only during the last 150 days of the Lease term. Landlord agrees to use its reasonable, good faith efforts such that any entry by Landlord, and Landlord’s agents, employees, contractors and invitees shall be performed in a manner with as minimal interference as possible with Tenant’s business at the Premises. Subject to the foregoing, Tenant agrees to cooperate with Landlord and Landlord’s agents, employees and contractors so that responsibilities of Landlord under the Lease can be fulfilled in a reasonable manner during normal business hours so that no extraordinary costs are incurred by Landlord.

     59. BANKRUPTCY AND DEFAULT: Paragraph 19 is modified to provide that with respect to non-monetary defaults not involving Tenant’s failure to pay Basic Rent or Additional Rent, Tenant shall not be in default of any non-monetary obligation if (i) more than thirty (30) days is required to cure such non-monetary default, and (ii) Tenant commences cure of such default as soon as reasonably practicable after receiving written notice of such default from Landlord and thereafter continuously and with due diligence prosecutes such cure to completion.

     60. ABANDONMENT: Paragraph 20 is modified to provide that Tenant shall not be in default under the Lease if it leaves all or any part of Premises vacant so long as (i) Tenant is performing all of its other obligations under the Lease including the obligation to pay Basic Rent

39

and Additional Rent, (ii) Tenant provides on-site security during normal business hours for those parts of the Premises left vacant, (iii) such vacancy does not materially and adversely affect the validity or coverage of any policy of insurance carried by Landlord with respect to the Premises, and (iv) the utilities and heating and ventilation system are operated to the extent necessary to prevent damage to the Premises or its systems.

     61. DESTRUCTION: Paragraph 21 is modified by the following:

          A. Notwithstanding anything to the contrary within Paragraph 21, Landlord may terminate this Lease in the event of an uninsured event or if insurance proceeds, net of the deductible, are insufficient to cover one hundred percent of the rebuilding costs; provided, however, Tenant shall have the right to elect, in its discretion, to contribute such excess funds to permit Landlord to repair the Premises.

          B. Except as provided in Paragraph 61C, Landlord may not terminate the Lease if the Premises are damaged by a peril whereby the cost to replace and/or repair is one hundred percent (100%) covered by the insurance carried by Landlord pursuant to Paragraph 12, but instead shall restore the Premises in the manner described by Paragraph 21.

          C. If the Premises are damaged by a peril covered by the insurance carried by Landlord pursuant to Paragraph 12, Landlord shall have the option to terminate the Lease if each of the following conditions is satisfied: (i) the cost to repair or the damage exceeds thirty-three percent (33%) of the then replacement cost of the Premises; and (ii) the damage occurs at a time when there is less than five (5) years remaining in the term of the Lease. Notwithstanding the foregoing, if such damage occurs at a time when there is less than five (5) years remaining in the term of the Lease and Landlord notifies Tenant of Landlord’s election to terminate the Lease pursuant to the provisions of this Paragraph 61B, if Tenant has the right to extend the term of this Lease pursuant to either Paragraph 41 or 42 such that the remaining term of the Lease (including the option period) will be more than five (5) years following the date of such damage, this Lease shall not terminate if Tenant notifies Landlord in writing of Tenant’s exercise of an option to extend granted to Tenant by either Paragraph 41 or 42. In such event, this Lease shall not terminate, the term shall be so extended, and Landlord shall restore the Premises in the manner provided in Paragraph 21.

     D. If Landlord fails to obtain insurance as required pursuant to Paragraph 12, and said insurance would have been available to cover any damage or destruction to the Premises, Landlord shall be required to rebuild, at its cost, net of the deductible which would have been required under said insurance policy (which deductible Tenant is required to pay).

     E. If the Premises are damaged by any peril, then as soon as reasonably practicable, Landlord shall furnish Tenant with the written opinion of Landlord’s architect or construction consultant as to when the restoration work required of Landlord may be completed. Tenant shall have the option to terminate this Lease in the event any of the following occurs, which option may be exercised only by delivery to Landlord of a written notice of election to terminate within seven (7) days after Tenant receives from Landlord the estimate of the time needed to complete such restoration:

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                    (1) The Premises are damaged by any peril (not caused by or resulting from an action of Tenant or Tenant’s agents, employees, contractors or invitees) and, in the reasonable opinion of Landlord’s architect or construction consultant, the restoration of the Leased Premises cannot be substantially completed within 180 days after the date of such damage (subject to force majeure conditions); or

                    (2) The Premises are damaged by any peril (not caused by or resulting from an action of Tenant or Tenant’s agents, employees, contractors or invitees) within twelve (12) months of the last day of the Lease term and provided Tenant has not exercised an option to renew pursuant to the provisions of Paragraph 41 or 42, and, in the reasonable opinion of Landlord’s architect or construction consultant, the restoration of the Leased Premises cannot be substantially completed within sixty (60) days after the date of such damage and Tenant has not exercised its Option to Extend said Term (or Extended Term as the case may be).

     62. EMINENT DOMAIN: Paragraph 22 is modified by the following:

     Landlord may not terminate the Lease if less than one third (1/3) of the building is taken by condemnation or if a taking by condemnation is only threatened.

     63. TRANSFER BY LANDLORD: The provisions of Paragraph 23 of the Lease to the contrary notwithstanding, Landlord shall not be relieved of its obligations under the Lease which may accrue after the date of a sale or other transfer unless and until (i) the transferee agrees to assume and be bound by the terms of this Lease and to perform all obligations of the Landlord under the Lease which may accrue after the date of such transfer, and (ii) Landlord transfers the cash balance of the Security Deposit (net of any offsets used to cure defaults under the Lease) to its successor in interest (transferee) in accordance with the provisions of California Civil Code Section 1950.7, as amended or recodified.

     64. LANDLORD’S LIEN WAIVER: Landlord, within thirty (30) days after demand from Tenant, shall execute and deliver such lien waiver documents that are reasonably required by any supplier, lessor, or lender in connection with the installation in the Premises of the Tenant’s personal property or trade fixtures providing Landlord approves the form of any such waiver and Landlord’s rights under this Lease are not materially and adversely affected.

     65. AUTHORITY TO EXECUTE: The parties executing this Lease Agreement hereby warrant and represent that they are properly authorized to execute this Lease Agreement and bind the parties on behalf of whom they execute this Lease Agreement and to all of the terms, covenants and conditions of this Lease Agreement as they relate to the respective parties hereto.

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QUANTUM CORPORATION, a Delaware corporation		JOHN ARRILLAGA SURVIVOR’S TRUST
By	/s/ Andrew Kryder	By	/s/ John Arrillaga
	Andrew Kryder, Vice President Finance and Corporate General Counsel		John Arrillaga, Trustee
Date:	June 25, 1997	Date:	June 30, 1997
		RICHARD T. PEERY SEPARATE PROPERTY TRUST
By	/s/ Norm Claus	By	/s/ Richard T. Peery
	Norm Claus, Vice President Real Estate and Corporate Services		Richard T. Peery, Trustee
Date:	June 25, 1997	Date:	June 26, 1997

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AMENDMENT NO. 1
TO LEASE

     THIS AMENDMENT NO. 1 is made and entered into this 15th day of April, 1998, by and between JOHN ARRILLAGA, Trustee, or his Successor Trustee UTA dated 7/20/77 (JOHN ARRILLAGA SURVIVOR’S TRUST) as amended, and RICHARD T. PEERY, Trustee, or his Successor Trustee UTA dated 7/20/77 (RICHARD T. PEERY SEPARATE PROPERTY TRUST) as amended, collectively as LANDLORD, and QUANTUM CORPORATION, a Delaware corporation, as TENANT.

RECITALS

     A. WHEREAS, by Lease Agreement dated April 16, 1997 and the related Construction Agreement of even date therewith, Landlord leased to Tenant all of that certain 182,355 ± square foot building to be constructed by Landlord for Tenant and to be located on Sumac Drive in Milpitas, California, the details of which are more particularly set forth in said April 16, 1997 Lease Agreement, and

     B. WHEREAS, it is now the desire of the parties hereto to amend the Lease by: (i) changing the square footage of the Leased Premises pursuant to the Architect’s final measurement; (ii) setting a fixed Commencement Date for the Lease; (iii) establishing the Basic Rent Schedule and Aggregate Rent under said Lease Agreement; (iv) increasing the Security Deposit requirement under the Lease pursuant to the change in the square footage of the Premises; and (v) amending Lease Paragraphs 41 (“First Five-Year Option to Extend”) and 42 (“Second Five-Year Option to Extend”) as hereinafter set forth.

AGREEMENT

     NOW THEREFORE, for valuable consideration, receipt of which is hereby acknowledged, and in consideration of the hereinafter mutual promises, the parties hereto do agree as follows:

     1. LEASED PREMISES SQUARE FOOTAGE: The parties hereto agree, that upon final approval of the Definitive Shell Plans (as defined in Section 3.A. of the Construction Agreement) the actual square footage of the Premises, as measured by the Architect in accordance with said Section 3.A of the Construction Agreement, shall be 187,134 square feet. This square footage shall be the basis for calculating the Basic Rent due under the Lease, the Security Deposit required under the Lease and Landlord’s Tenant Improvement Allowance as provided for in the Construction Agreement.

     2. COMMENCEMENT DATE: The parties hereto agree that the Commencement Date of the Lease shall be June 1, 1998, regardless of the status of the construction of the Interior Improvements. Said June 1, 1998, is the date on which the Interior Improvements would have been completed, absent changes requested by Tenant to the Interior Improvements which have caused delays in the construction.

     3. BASIC RENT SCHEDULE: The Basic Rent schedule for the Initial Lease Term shall be as follows:

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     On June 1, 1998, the sum of TWO HUNDRED NINETY NINE THOUSAND FOUR HUNDRED FOURTEEN AND 40/100 DOLLARS ($299,414.40) shall be due, and a like sum due on the first day of each month thereafter, through and including May 1, 1999.

     On June 1, 1999, the sum of THREE HUNDRED EIGHT THOUSAND SEVEN HUNDRED SEVENTY ONE AND 10/100 DOLLARS ($308,771.10) shall be due, and a like sum due on the first day of each month thereafter, through and including May 1,2000.

     On June 1, 2000, the sum of THREE HUNDRED EIGHTEEN THOUSAND ONE HUNDRED TWENTY SEVEN AND 80/100 DOLLARS ($318,127.80) shall be due, and a like sum due on the first day of each month thereafter, through and including May 1, 2001.

     On June 1, 2001, the sum of THREE HUNDRED TWENTY SEVEN THOUSAND FOUR HUNDRED EIGHTY FOUR AND 50/100 DOLLARS ($327,484.50) shall be due, and a like sum due on the first day of each month thereafter, through and including May 1, 2002.

     On June 1, 2002, the sum of THREE HUNDRED THIRTY SIX THOUSAND EIGHT HUNDRED FORTY ONE AND 20/100 DOLLARS ($336,841.20) shall be due, and a like sum due on the first day of each month thereafter, through and including May 1, 2003.

     On June 1, 2003, the sum of THREE HUNDRED FORTY SIX THOUSAND ONE HUNDRED NINETY SEVEN AND 90/100 DOLLARS ($346,197.90) shall be due, and a like sum due on the first day of each month thereafter, through and including May 1, 2004.

     On June 1, 2004, the sum of THREE HUNDRED FIFTY FIVE THOUSAND FIVE HUNDRED FIFTY FOUR AND 60/100 DOLLARS ($355,554.60) shall be due, and a like sum due on the first day of each month thereafter, through and including May 1, 2005.

     On June 1, 2005, the sum of THREE HUNDRED SIXTY FOUR THOUSAND NINE HUNDRED ELEVEN AND 30/100 DOLLARS ($364,911.30) shall be due and a like sum due on the first day of each month thereafter, through and including May 1, 2006.

     On June 1, 2006, the sum of THREE HUNDRED SEVENTY FOUR THOUSAND TWO HUNDRED SIXTY EIGHT AND NO/100 DOLLARS ($374,268.00) shall be due, and a like sum, due on the first day of each month thereafter, through and including May 1, 2007.

     On June 1, 2007, the sum of THREE HUNDRED EIGHTY THREE THOUSAND SIX HUNDRED TWENTY FOUR AND 70/100 DOLLARS ($383,624.70) shall be due, and a like sum due on the first day of each month thereafter, through and including May 1, 2008.

     On June 1, 2008, the sum of THREE HUNDRED NINETY TWO THOUSAND NINE HUNDRED EIGHTY ONE AND 40/100 DOLLARS ($392,981.40) shall be due, and a like sum due on the first day of each month thereafter, through and including May 1, 2009.

     On June 1, 2009, the sum of FOUR HUNDRED TWO THOUSAND THREE HUNDRED THIRTY EIGHT AND 10/100 DOLLARS ($402,338.10) shall be due, and a like sum due on the first day of each month thereafter, through and including May 1, 2010.

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     On June 1, 2010, the sum of FOUR HUNDRED ELEVEN THOUSAND SIX HUNDRED NINETY FOUR AND 80/100 DOLLARS ($411,6194.80) shall be due, and a like sum due on the first day of each month thereafter, through and including May 1, 2011.

     On June 1, 2011, the sum of FOUR HUNDRED TWENTY ONE THOUSAND FIFTY ONE AND 50/100 DOLLARS ($421,051.50) shall be due, and a like sum due on the first day of each month thereafter, through and including May 1, 2012.

     On June 1, 2012, the sum of FOUR HUNDRED THIRTY THOUSAND FOUR HUNDRED EIGHT AND 20/100 DOLLARS ($430,408.20) shall be due, and a like sum due on the first day of each month thereafter, through and including May 1, 2013.

     The Aggregate Basic Rent for the Initial Lease Term shall be $65,684,034.00.

     4. SECURITY DEPOSIT: Due to the increase in the total square footage of the Premises, the Security Deposit required under the Lease shall be increased by $18,638.10, or from $711,184.50 to $729,822.60, payable upon Tenant’s execution of this Amendment No. 1.

     5. FIRST FIVE-YEAR OPTION TO EXTEND: Subject to the terms of Lease Paragraph 41, the latest date Tenant may exercise its First Five-Year Option to Extend, as provided for in Lease Paragraph 41, shall be December 2, 2012. In the event Tenant timely exercises its First Five-Year Option to Extend, the monthly Basic Rent for the First Option Period shall be as follows:

Period	Rate PSF		Monthly Basic Rent
06/01/13-05/31/14	$	2.35	$	439,764.90
06/01/14-05/31/15	$	2.40	$	449,121.60
06/01/15-05/31/16	$	2.45	$	458,478.30
06/01/16-05/31/17	$	2.50	$	467,835.00
06/01/17-05/31/18	$	2.55	$	477,191.70

     6. SECOND FIVE-YEAR OPTION TO EXTEND: Provided Tenant has extended the Lease for an additional five year period as set forth in Lease Paragraph 41 (as amended above), and subject to the terms of Lease Paragraph 42, the latest date Tenant may exercise its Second Five-Year Option to Extend, as provided for in Lease Paragraph 42, shall be December 2, 2017. In the event Tenant timely exercises its Second Five-Year Option to Extend, the monthly Basic Rent for the Second Option Period shall be as follows:

Period	Rate PSF		Monthly Basic Rent
06/01/18-05/31/19	$	2.60	$	486,548.40
06/01/19-05/31/20	$	2.65	$	495,905.10
06/01/20-05/31/21	$	2.70	$	505,261.80
06/01/21-05/31122	$	2.75	$	514,618.50
06/01/22-05/31/23	$	2.80	$	523,975.20

     EXCEPT AS MODIFIED HEREIN, all other terms, covenants, and conditions of said April 16, 1997 Lease Agreement shall remain in full force and effect.

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     IN WITNESS WHEREOF, Landlord and Tenant have executed this Amendment No. 1 to Lease as of the day and year last written below.

LANDLORD:		TENANT:
JOHN ARRILLAGA SURVIVOR’S TRUST		QUANTUM CORPORATION a Delaware corporation
By	/s/ John Arrillaga	By	/s/ Andrew Kryder
	John Arrillaga, Trustee
		Andrew Kryder
		Print or Type Name
Date:	May 15, 1998	Title:	General Counsel
RICHARD T. PEERY SEPARATE
PROPERTY TRUST
By	/s/ Richard T. Peery	Date:	May 13, 1998
	Richard T. Peery, Trustee
Date:	May 14, 1998
		/s/ Norm Claus
		May 13, 1998

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AMENDMENT NO. 2
TO LEASE

     THIS AMENDMENT NO. 2 is made and entered into this 22nd day of March, 2001, by and between JOHN ARRILLAGA, Trustee, or his Successor Trustee UTA dated 7/20/77 (JOHN ARRILLAGA SURVIVOR’S TRUST) as amended, and RICHARD T. PEERY, Trustee, or his Successor Trustee UTA dated 7/20/77 (RICHARD T. PEERY SEPARATE PROPERTY TRUST) as amended, collectively as LANDLORD, and MAXTOR CORPORATION, a Delaware corporation, as “ASSIGNEE” or “MAXTOR”.

RECITALS

     A. WHEREAS, by Lease Agreement dated April 16, 1997 and the related Construction Agreement of even date therewith, Landlord leased to QUANTUM CORPORATION, a Delaware corporation (the “ASSIGNOR or “QUANTUM”) all of that certain 182,355+ square foot building to be constructed by Landlord for Tenant and to be located on Sumac Drive in Milpitas, California, (also to be identified as 601 McCarthy Boulevard, Milpitas, CA) the details of which are more particularly set forth in said April 16, 1997 Lease Agreement, and

     B. WHEREAS, said Lease was amended by Amendment No. 1 dated April 15, 1998, which amended the Lease by: (i) changing the square footage of the Leased Premises pursuant to the Architect’s final measurement; (ii) setting a fixed Commencement Date of June 1, 1998 and a Termination Date of May 31, 2012 for the Lease; (iii) establishing the Basic Rent Schedule and Aggregate Rent under said Lease Agreement; (iv) increasing the Security Deposit requirement under the Lease pursuant to the change in the square footage of the Premises; and (v) amending Lease Paragraphs 41 (“First Five-Year Option to Extend”) and 42 (“Second Five-Year Option to Extend”), and

     C. WHEREAS, the Lease, together with those certain Amendments described above in Recital B shall hereinafter collectively be referred to as “the Lease Agreement”, and

     D. WHEREAS, it is now the desire of the parties hereto to amend the Lease by (i) acknowledging Landlord’s consent to the assignment of said Lease from “Quantum Corporation, a Delaware corporation” to “Maxtor Corporation, a Delaware corporation”, and (ii) replacing Lease Paragraphs 41 (“First Five Year Option to Extend”) and 42 (“Second Five Year Option to Extend”) as hereinafter set forth.

AGREEMENT

     NOW THEREFORE, for valuable consideration, receipt of which is hereby acknowledged, and in consideration of the hereinafter mutual promises, the parties hereto do agree as follows:

     1. ASSIGNMENT OF TENANT’S INTEREST: Notwithstanding anything to the contrary contained in the Lease Agreement, Landlord hereby understands that based on Quantum’s notice to Landlord, Landlord hereby acknowledges that the following transactions have occurred:

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          A. Quantum has operated its business at the Premises through two separate business groups: Quantum HDD, tracked by Quantum HDD common stock, and Quantum DSS, tracked by Quantum DSS common stock.

          B. On or about, October 3, 2000, Quantum and Maxtor entered into that certain an Amended and Restated Agreement and Plan of Merger and Reorganization, dated as of October 3, 2000 (the “Merger Agreement’), wherein they agreed that:

               (i) Quantum will separate its Quantum HDD business from its Quantum DSS and transfer the assets of Quantum HDD to a newly-formed subsidiary, Insula Corporation, a Delaware corporation (“Insula”), in exchange for all of Insula’s common stock and Insula’s agreement to be entirely responsible for all of the Quantum HDD obligations and liabilities.

               (ii) Immediately after such separation, each currently outstanding share of Quantum HDD common stock will be redeemed in return for a share of Insula common stock such that the holders of Quantum HDD common stock shall own all of the common stock of Insula.

               (iii) Immediately after said redemption, Insula will merge into Maxtor and each share of the Insula’s common stock will be converted into the right to receive approximately 1.52 shares of Maxtor common stock, subject to possible adjustment as described in the Merger Agreement.

          C. As part of the legal separation of the Quantum HDD business from the Quantum DSS business, all of the right title and interest of Quantum in the Lease will be assigned by Quantum to Insula and Insula will assume and agree to be liable for all of the obligations of Quantum, as Tenant, under the Lease.

          D. Because the actual physical separation of the Quantum HDD business from the Quantum DSS business cannot be completed prior to the closing of the foregoing transactions described above, Insula has agreed to provide to Quantum with a limited license for the use of the premises subject to the Leases, identified as “License Back” Leases in attached Exhibit A for a period of time not exceeding the number of months specified in attached Exhibit A.

     As a result of said merger transaction, as of April 2, 2001, the effective date of the merger, Maxtor will become the Tenant under the Lease Agreement, and Maxtor shall assume all obligations of Tenant under the Lease Agreement dated April 16, 1997, as amended.

     Landlord hereby consents to the foregoing transactions (“Landlord’s Consent”). Except as expressly set forth below, Landlord’s Consent shall in no way void or alter any of the terms of the Lease Agreement by and between Landlord and Tenant, nor shall Landlord’s Consent alter or diminish in any way Tenant’s obligations to Landlord.

     Landlord has not reviewed the terms of any agreement between Quantum, Insula and/or Maxtor, and Landlord shall not be bound by any agreement other than the terms of the Lease Agreement between Landlord and Tenant. Landlord does not make any warranties or

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representations as to the condition of the Leased Premises or the terms of the Lease Agreement between Landlord and Quantum. Landlord’s consent to the assignment shall in no way obligate Landlord to any further consents or agreements between Quantum and/or Assignee. So long as Quantum continues to exist as a Delaware corporation, it is agreed that both Quantum and Maxtor will be jointly and severally liable for all the terms and conditions of the Lease and all Amendments thereto; provided, however, that so long as Quantum remains liable for said Lease, no material amendment to the Lease Agreement after the date hereof shall be binding upon Quantum without the prior written consent of Quantum, which consent shall not be unreasonably withheld, and Quantum’s approval shall not be required on transactions related to Landlord’s Waivers, Landlord’s Consents to Sublease and/or Landlord’s Consents to Alterations. The foregoing, however, shall not prevent Tenant and Landlord from entering into any such modification or amendment between themselves.

     It is further understood that the Security Deposit of Quantum is being transferred to Maxtor.

     2. OPTIONS TO EXTEND: As consideration for the consent of Landlord herein set forth, Lease Paragraph 41 (“First Five Year Option to Extend”), as amended by Paragraph 6 to Amendment No. 1, and Lease Paragraph 42 (“Second Five Year Option to Extend”), as amended by Paragraph 7 to Amendment No. 1, are hereby deleted in their entirety and shall be replaced with the following:

          A. FIRST FIVE YEAR OPTION TO EXTEND: Landlord hereby grants to Tenant an option to extend this Lease Agreement (“Option to Extend” or the “Option”) for an additional five years (“First Extended Term”) upon the following terms and conditions:

                    (1) Tenant shall give Landlord written notice of Tenant’s exercise of this Option to Extend at least one hundred eighty (180) days prior to the expiration of the Lease Term pursuant to Paragraph A hereof (not later than December 3, 2011), in which event the Term of the Lease shall be considered extended for an additional five (5) years, subject to the Basic Rent set forth below and with: (i) the Basic Rent to be determined pursuant to Paragraph 2) below; (ii) management fee and the terms and conditions subject to amendment by Landlord (Landlord, in its sole and absolute discretion, may, but is not required to, incorporate its then current Lease provisions that are standard in Landlord’s leases for comparable buildings as of the date of Tenant’s exercise of its Option to Extend); and (iii) this Paragraph 2.A thereafter deleted. In the event that Tenant fails to timely exercise Tenant’s Option as set forth herein in writing, Tenant shall have no further Option to Extend this Lease, and the Lease shall continue in full force and effect for the full remaining term hereof, absent this Paragraph 2.

                    (2) In the event Tenant timely exercises Tenant’s Option to Extend as set forth herein, Landlord shall, within fifteen (15) days after receipt of Tenant’s exercise of the Option, advise Tenant of any changes in the management fee and the terms and conditions as referenced in Paragraph 2.A.1(ii) above) and the Basic Rent (which shall not be less than the Basic Rent for the fifth year of the current Term) required for the Extended Term of the Lease to make the Basic Rent for the Premises comparable to the then current market triple net basic rent for comparable properties either (i) then owned in whole or in part by the above mentioned Landlord or by members of its immediate family in the vicinity of the Premises or (ii)

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if not owned by Landlord or its family as stated herein, other third party properties in the vicinity of the Premises. Tenant shall have five (5) days after receipt from the Landlord of said new terms and conditions and Basic Rent in which to accept said new terms and conditions and Basic Rent and enter into written documentation confirming same. In the event Tenant fails to execute said written documentation confirming said new terms and conditions and Basic Rent for the Second Extended Term of Lease within said five (5) day period, Tenant shall have no further Option to Extend this Lease, and this Lease shall continue in full force and effect for the full remaining term hereof absent of this Paragraph 2, with Landlord having no further responsibility or obligation to Tenant with respect to Tenant’s Option to Extend.

                    (3) It is agreed that if Tenant is at any time prior to exercising its Option to Extend in default of this Lease and has failed to cure the default in the time period allowed, this Paragraph 2 shall be null and void and Tenant will have no further rights under this Paragraph. It is further agreed that if Tenant has exercised its Option to Extend and is subsequently in default, and has failed to cure the default in the time period allowed by the Lease at any time prior to, or at the time the lease commences on the Second Extended Term, Landlord may at its sole and absolute discretion, cancel Tenant’s Option to Extend, and this Lease will continue in full force and effect for the full remaining Term hereof, absent of this Paragraph 2.

                    (4) The Option rights of Tenant under this Paragraph 2.A, and the First Extended Term thereunder, are granted for Tenant’s personal benefit and may not be assigned or transferred by Tenant, except as provided for in Lease Paragraph 56 (“Permitted Assignments and Subleases”), either voluntarily or by operation of law, in any manner whatsoever.

                    (5) Notwithstanding anything to the contrary in this Paragraph, this Option to Extend is automatically forfeited by Tenant (without notice from Landlord) in the event Tenant is, at any time during the Term of this Lease, in default of said Lease and if Tenant does not completely cure said default within five days for a monetary default and thirty days for a non-monetary default (or such longer time as permitted by cure in the Lease Agreement). In the event said Option to Extend is forfeited as stated herein, Tenant shall have no further Option to Extend this Lease.

          B. SECOND FIVE (5)-YEAR OPTION PERIOD: Provided Tenant has extended the Lease for an additional five year period as set forth in Paragraph A above, Landlord hereby grants to Tenant another Option to Extend the Lease Agreement upon the following terms and conditions;

                    (1) Tenant shall give Landlord written notice of Tenant’s exercise of this Option to Extend at least one hundred eighty (180) days prior to the expiration of the Basic Term hereof (not later than December 3, 2016), in which event the Term of the Lease shall be considered extended for an additional five (5) years (“Second Extended Term”) subject to the Basic Rent set forth below and with: (i) the Basic Rent to be determined pursuant to Paragraph 2) below; (ii) the management fee and the terms and conditions subject to amendment by Landlord (Landlord, in its sole and absolute discretion, may, but is not required to, incorporate its then current Lease provisions that are standard in Landlord’s leases for comparable buildings as of the date of Tenant’s exercise of its Option to Extend); and (iii) this

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Quantum 6

Paragraph 2.B thereafter deleted. In the event that Tenant fails to timely exercise Tenant’s Option as set forth herein in writing, Tenant shall have no further Option to Extend the Lease, and the Lease shall continue in full force and effect for the full remaining term hereof, absent this Paragraph 2.B.

                    (2) In the event Tenant timely exercises Tenant’s Option to Extend as set forth herein, Landlord shall, within fifteen (15) days after receipt of Tenant’s exercise of option, advise Tenant of any changes in the management fee and the terms and conditions as referenced in Paragraph 2.B.1(ii) above and Basic Rent (which shall not be less than the Basic Rent for the fifth year of the First Extended Term) required for the Second Extended Term of the Lease to make the Basic Rent for the Premises comparable to the then current market triple net basic rent for comparable properties either (i) then owned in whole or in part by the above mentioned Landlord or by members of its immediate family in the vicinity of the Premises or (ii) if not owned by Landlord or its family as stated herein, other third party properties in the vicinity of the Premises. Tenant shall have five (5) days after receipt from the Landlord of said new terms and conditions and Basic Rent in which to accept said new terms and conditions and Basic Rent and enter into written documentation confirming same. In the event Tenant fails to execute said written documentation confirming said new terms and conditions and Basic Rent for the Third Extended Term of Lease within said five (5) day period, Tenant shall have no further Option to Extend this Lease, and this Lease shall continue in full force and effect for the full remaining term hereof absent of this Paragraph 2.B, with Landlord having no further responsibility or obligation to Tenant with respect to Tenant’s Option to Extend.

                    (3) It is agreed that if Tenant is at any time prior to exercising its Option to Extend in default of this Lease and has failed to cure the default in the time period allowed, this Paragraph 2.B will be null and void and Tenant will have no further rights under this Paragraph. It is further agreed that if Tenant has exercised its Option to Extend and is subsequently in default, and has failed to cure the default in the time period allowed by the Lease at any time prior to, or at the scheduled Commencement Date of the Third Extended Term, Landlord may at its sole and absolute discretion, cancel Tenant’s Option to Extend, and this Lease will continue in full force and effect for the full remaining Term hereof, absent of this Paragraph 2.B.

                    (4) The Option rights of Tenant under this Paragraph 2.B and the Second Extended Term thereunder, are granted for Tenant’s personal benefit and may not be assigned or transferred by Tenant, except as provided for in Lease Paragraph 56 (“Permitted Assignments and Subleases”), either voluntarily or by operation of law, in any manner whatsoever.

                    (5) Notwithstanding anything to the contrary in this Paragraph 2.B, this Option to Extend is automatically forfeited by Tenant (without notice from Landlord) in the event Tenant is, at any time during the Term of this Lease, in default of said Lease and if Tenant does not completely cure said default within five days for a monetary default and thirty days for a non-monetary default (or such longer time as permitted by cure in the Lease Agreement). In the event said Option to Extend is forfeited as stated herein, Tenant shall have no further Option to Extend this Lease.

5

Quantum 6

     EXCEPT AS MODIFIED HEREIN, all other terms, covenants, and conditions of said April 16, 1997 Lease Agreement shall remain in full force and effect.

     IN WITNESS WHEREOF, Landlord and Tenant have executed this Amendment No. 2 to Lease as of the day and year last written below.

LANDLORD:		ASSIGNEE/MAXTOR:
JOHN ARRILLAGA SURVIVOR’S TRUST		MAXTOR CORPORATION a Delaware corporation
By	/s/ John Arrillaga by Richard T. Peery	By	/s/ Glenn H. Stevens
	his attorney in fact
	John Arrillaga, Trustee	Glenn H. Stevens
Date:	March 30, 2001	Print or Type Name
RICHARD T. PEERY SEPARATE PROPERTY TRUST		Title:	Vice President, General Counsel and Secretary
By	/s/ Richard T. Peery	Date:	April 1, 2001
	Richard T. Peery, Trustee
Date:	March 30, 2001
		ASSIGNEE/QUANTUM:
		QUANTUM CORPORATION a Delaware corporation
		By	/s/ Norm Claus
		Print or Type Name
		Title:	V.P. Real Estate
		Date:	March 30, 2001

10

EX-10.62 6 f17527exv10w62.htm EXHIBIT 10.62

2006 Annual Incentive Plan

OBJECTIVES: The primary objectives of the Annual Incentive Plan are to:

• Drive Maxtor profitability,

• Align participants’ performance objectives with successful achievement of corporate financial goals and initiatives,

• Provide reward opportunities consistent and competitive with the data storage/computer peripheral industry, and

• Set direction in the event the Seagate merger is terminated.

ELIGIBILITY: Each participant will have a target incentive expressed as a percentage of base salary. Participation and the participant’s target incentive percentage are determined on grade level/position responsibilities and program design basis; most professional and executive levels are documented in their offer letters. Participation for one year at a specific incentive percentage does not guarantee either participation or a specific incentive percentage for a subsequent year. Participants hired during the Plan year will participate on a pro-rata basis. Participants hired or rehired on or after October 1, 2006, are not eligible to participate in the 2006 Plan. Participants promoted on or after 10/1/06 will not have a change in their target incentive for the current fiscal year. A change in position, prior to 10/1/06, to a position that has a different target incentive percentage will result in a pro-rata target incentive calculation based on the percent of the year at the different incentive percentage. Further, participants that are off work due to personal leave or disability (excluding workers compensation) in excess of 30 days will have their incentive payout reduced proportionally relative to the percent of the fiscal year not worked. Part-time participants working 20 hours a week or more will participate on a pro-rata basis. Interns, contractors, or temporary employees are not eligible to participate. Employees eligible for sales-related commissions are also not eligible under this Plan. Employees with a current Performance Rating of “Needs Improvement” or “Unsatisfactory” are ineligible to participate in the Plan. The Internal Compensation Committee of Maxtor, in its sole discretion, can suspend eligibility if national laws or labor contracts would substantially affect the Plan’s purpose or effect.

INCENTIVE TARGET: Each participant will have a target incentive expressed as a percentage of base salary. No payment shall be due or payable under this Plan if the second payment under the Retention Bonus Program becomes payable.

CORPORATE FINANCIAL PERFORMANCE: Corporate financial performance must be at the Board of Directors approved threshold or higher to generate an incentive payout under this Plan. Individual awards will be paid only if the Company’s financial performance threshold is met or exceeded. The Compensation Committee of the Board of Directors shall determine if performance thresholds are met and authorize the level of payout, if any, under the Plan.

pg 1

PERFORMANCE RATING: The participant’s overall performance rating from the Performance Evaluation (Meets, Exceeds or Outstanding) is a primary factor in determining the potential incentive payout from the pool. The incentive modifier is as follows:

Performance	Incentive Modifier Range
Outstanding		110%- 120	%
Exceeds		100%- 110	%
Meets		85% - 100	%

The manager assigns the specific value within the range.

INCENTIVE CALCULATION: The following two examples demonstrate how the incentive payout would be calculated at two different corporate and individual performance results:

Base Salary	$	60,000
Target Incentive Percentage		10	%
Incentive Opportunity	$	6,000

Hypothetical Corporate Financial Results		80	%		110	%
Target Incentive Opportunity	$	6,000		$	6,000
Corp Results Modified Incentive	$	4,800		$	6,600
Individual Performance Modifier	Meets at 90		%	Exceeds at 100%
Hypothetical Payout	$	4,320		$	6,600

DISCRETIONARY ADJUSTMENTS AND ADMINISTRATION: The Compensation Committee of the Board of Directors has the right to modify, cancel any awards, amend the Plan or the performance thresholds or any other provisions under the Plan at any time at its discretion and to reflect the impact of significant, unbudgeted acquisitions/divestitures, unusual or extraordinary accounting items or significant, unplanned changes in the business environment. The CEO must approve the incentive targets for the various position levels. The Senior Vice President, Human Resources is responsible for interpretation and administration of all provisions of the Plan.

INCENTIVE PAY OUT: Awards will be determined after the release of earnings for fiscal year 2006 and after the Compensation Committee of the Board of Directors’ approval, which is expected to be in the second quarter 2007. Payments from the Plan, if applicable, will be in the April time frame, or later as determined by the Compensation Committee of the Board of Directors. Payout is conditioned on the termination of the merger agreement with Seagate prior to closing of the merger. Participants who are involuntarily terminated (layoff or not for cause only) after 12/31/06 but before payout date will be paid on payout date. All other participants must be employed on date of payout to receive any award. The maximum payout cannot exceed 2.0 times a participant’s target incentive percentage.

TERMINATION OF THE PLAN: Seagate and Maxtor have entered into a merger agreement. This Plan will terminate at the closing of the merger and upon such closing, there shall be no rights for any payments under this Plan. If the merger is terminated, then this Plan will remain in effect for 2006.

Pg 2

EX-12.1 7 f17527exv12w1.htm EXHIBIT 12.1

EXHIBIT 12.1

     The following table sets forth our historical ratios of earnings to fixed charges for the periods indicated:

STATEMENT REGARDING COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(IN THOUSANDS)

	YEARS ENDED
	2001			2002			2003		2004			2005
Pre-tax income (loss) from continuing operations	$	(565.2	)	$	(260.2	)	$	102.4	$	(183.7	)	$	(41.2	)
Fixed charges:
Interest expense		25.1			26.6			30.2		31.8			34.4
Interest included in rental
payments (1)		9.1			8.5			10.1		10.5			9.5
Total fixed charges	$	34.2		$	35.1		$	40.3	$	42.3		$	43.9
Pre-tax income (loss) from continuing operations plus fixed charges	$	(531.0	)	$	(225.1	)	$	142.7		(141.4	)	$	2.7
Ratio of earnings to fixed charges		—	(2)		—	(3)		3.5		—	(4)		—	(5)

(1)	Represents appropriate portion (1/3) of rentals.
(2)	Due to the Company’s loss in 2001, the ratio coverage was less than 1:1. The Company must generate additional earnings of $565.2 million to achieve a coverage of 1:1.
(3)	Due to the Company’s loss in 2002, the ratio coverage was less than 1:1. The Company must generate additional earnings of $260.2 million to achieve a coverage of 1:1.
(4)	Due to the Company’s loss in 2004, the ratio coverage was less than 1:1. The Company must generate additional earnings of $183.7 million to achieve a coverage of 1:1.
(5)	Due to the Company’s loss for the 12 months ended December 31, 2005, the ratio coverage was less than 1:1. The Company must generate additional earnings of $41.2 million to achieve a coverage of 1:1.

EX-21.1 8 f17527exv21w1.htm EXHIBIT 21.1

Exhibit 21.1

MAXTOR CORPORATION SUBSIDIARIES 2005-2006

FOREIGN SUBSIDIARIES:

Maxtor Disc Drives Pty. Limited	Australia
Maxtor Global Ltd.	Bermuda
Maxtor Technology (Suzhou) Co. Ltd.	China
Maxtor Europe S.àr.l	France
Maxtor GmbH	Germany
Maxtor (Gibraltar) Limited	Gibraltar
Maxtor Asia Pacific Limited	Hong Kong
Maxtor Ireland Limited	Ireland
Maxtor (Japan) Ltd.	Japan
Maxtor Korea Ltd. Maxtor Luxembourg	Korea Luxembourg
Maxtor Peripherals (S) Pte. Limited	Singapore
Maxtor International S.àr.l	Switzerland
Maxtor International Manufacturing S.àr.l	Switzerland
Maxtor Europe Limited	United Kingdom
DOMESTIC SUBSIDIARIES:
Old SDI Sub	California
Maxtor Realty Corporation	Delaware

EX-23.1 9 f17527exv23w1.htm EXHIBIT 23.1

EXHIBIT 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We hereby consent to the incorporation by reference in the Registration Statement on Form S-8 (Nos. 333-08181, 333-61011, 333-87041, 333-58742, 333-124979 and 333-126455) and the Registration Statement on Form S-3 (No. 333-129477) of Maxtor Corporation of our report dated February 21, 2006 relating to the financial statements, financial statement schedule, management’s assessment of the effectiveness of internal control over financial reporting and the effectiveness of internal control over financial reporting, which appears in this Form 10-K.

PricewaterhouseCoopers LLP
San Jose, California
February 21, 2006

EX-31.1 10 f17527exv31w1.htm EXHIBIT 31.1

EXHIBIT 31.1

CERTIFICATIONS

I, Dr. C.S. Park, certify that:

     1. I have reviewed this annual report on Form 10-K of Maxtor Corporation;

     2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

     3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

     4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

     (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

     (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

     (c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

     (d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

     5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

     (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

     (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

	/s/ C.S. Park
	Dr. C.S. Park
	Chairman and Chief Executive Officer
Date: February 21, 2006

EX-31.2 11 f17527exv31w2.htm EXHIBIT 31.2

EXHIBIT 31.2

CERTIFICATIONS

I, Duston M. Williams, certify that:

     1. I have reviewed this annual report on Form 10-K of Maxtor Corporation;

     2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

     3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

     4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

     (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

     (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

     (c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

     (d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

     5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

     (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

     (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

	/s/ Duston M. Williams
	Duston M. Williams Executive Vice President, Finance and Chief Financial Officer
Date: February 21, 2006

EX-32.1 12 f17527exv32w1.htm EXHIBIT 32.1

EXHIBIT 32.1

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

     In connection with the Annual Report of Maxtor Corporation (the “Company”) on Form 10-K for the year ended December 31, 2005, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Dr. C.S. Park, Chairman and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (“Section 906”), that:

     (1) The Report fully complies with the requirements of section 13(a) of the Securities Exchange Act of 1934 (15 U.S.C. 78m); and

     (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

	/s/ C.S. Park
	Dr. C.S. Park
	Chairman and Chief Executive Officer
Date: February 21, 2006

A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

EX-32.2 13 f17527exv32w2.htm EXHIBIT 32.2

EXHIBIT 32.2

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

     In connection with the Annual Report of Maxtor Corporation (the “Company”) on Form 10-K for the year ended December 31, 2005, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Duston M. Williams, Executive Vice President, Finance and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (“Section 906”), that:

     (1) The Report fully complies with the requirements of section 13(a) of the Securities Exchange Act of 1934 (15 U.S.C. 78m); and

     (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

	/s/ Duston M. Williams
	Duston M. Williams Executive Vice President, Finance and Chief Financial Officer
Date: February 21, 2006

A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

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EX-10.62

2006 Annual Incentive Plan

OBJECTIVES: The primary objectives of the Annual Incentive Plan are to:

• Drive Maxtor profitability,

• Align participants’ performance objectives with successful achievement of corporate financial goals and initiatives,

• Provide reward opportunities consistent and competitive with the data storage/computer peripheral industry, and

• Set direction in the event the Seagate merger is terminated.

ELIGIBILITY: Each participant will have a target incentive expressed as a percentage of base salary. Participation and the participant’s target incentive percentage are determined on grade level/position responsibilities and program design basis; most professional and executive levels are documented in their offer letters. Participation for one year at a specific incentive percentage does not guarantee either participation or a specific incentive percentage for a subsequent year. Participants hired during the Plan year will participate on a pro-rata basis. Participants hired or rehired on or after October 1, 2006, are not eligible to participate in the 2006 Plan. Participants promoted on or after 10/1/06 will not have a change in their target incentive for the current fiscal year. A change in position, prior to 10/1/06, to a position that has a different target incentive percentage will result in a pro-rata target incentive calculation based on the percent of the year at the different incentive percentage. Further, participants that are off work due to personal leave or disability (excluding workers compensation) in excess of 30 days will have their incentive payout reduced proportionally relative to the percent of the fiscal year not worked. Part-time participants working 20 hours a week or more will participate on a pro-rata basis. Interns, contractors, or temporary employees are not eligible to participate. Employees eligible for sales-related commissions are also not eligible under this Plan. Employees with a current Performance Rating of “Needs Improvement” or “Unsatisfactory” are ineligible to participate in the Plan. The Internal Compensation Committee of Maxtor, in its sole discretion, can suspend eligibility if national laws or labor contracts would substantially affect the Plan’s purpose or effect.

INCENTIVE TARGET: Each participant will have a target incentive expressed as a percentage of base salary. No payment shall be due or payable under this Plan if the second payment under the Retention Bonus Program becomes payable.

CORPORATE FINANCIAL PERFORMANCE: Corporate financial performance must be at the Board of Directors approved threshold or higher to generate an incentive payout under this Plan. Individual awards will be paid only if the Company’s financial performance threshold is met or exceeded. The Compensation Committee of the Board of Directors shall determine if performance thresholds are met and authorize the level of payout, if any, under the Plan.

pg 1

PERFORMANCE RATING: The participant’s overall performance rating from the Performance Evaluation (Meets, Exceeds or Outstanding) is a primary factor in determining the potential incentive payout from the pool. The incentive modifier is as follows:

Performance	Incentive Modifier Range
Outstanding		110%- 120	%
Exceeds		100%- 110	%
Meets		85% - 100	%

The manager assigns the specific value within the range.

INCENTIVE CALCULATION: The following two examples demonstrate how the incentive payout would be calculated at two different corporate and individual performance results:

Base Salary	$	60,000
Target Incentive Percentage		10	%
Incentive Opportunity	$	6,000

Hypothetical Corporate Financial Results		80	%		110	%
Target Incentive Opportunity	$	6,000		$	6,000
Corp Results Modified Incentive	$	4,800		$	6,600
Individual Performance Modifier	Meets at 90		%	Exceeds at 100%
Hypothetical Payout	$	4,320		$	6,600

DISCRETIONARY ADJUSTMENTS AND ADMINISTRATION: The Compensation Committee of the Board of Directors has the right to modify, cancel any awards, amend the Plan or the performance thresholds or any other provisions under the Plan at any time at its discretion and to reflect the impact of significant, unbudgeted acquisitions/divestitures, unusual or extraordinary accounting items or significant, unplanned changes in the business environment. The CEO must approve the incentive targets for the various position levels. The Senior Vice President, Human Resources is responsible for interpretation and administration of all provisions of the Plan.

INCENTIVE PAY OUT: Awards will be determined after the release of earnings for fiscal year 2006 and after the Compensation Committee of the Board of Directors’ approval, which is expected to be in the second quarter 2007. Payments from the Plan, if applicable, will be in the April time frame, or later as determined by the Compensation Committee of the Board of Directors. Payout is conditioned on the termination of the merger agreement with Seagate prior to closing of the merger. Participants who are involuntarily terminated (layoff or not for cause only) after 12/31/06 but before payout date will be paid on payout date. All other participants must be employed on date of payout to receive any award. The maximum payout cannot exceed 2.0 times a participant’s target incentive percentage.

TERMINATION OF THE PLAN: Seagate and Maxtor have entered into a merger agreement. This Plan will terminate at the closing of the merger and upon such closing, there shall be no rights for any payments under this Plan. If the merger is terminated, then this Plan will remain in effect for 2006.

Pg 2

EX-12.1

EXHIBIT 12.1

     The following table sets forth our historical ratios of earnings to fixed charges for the periods indicated:

STATEMENT REGARDING COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(IN THOUSANDS)

	YEARS ENDED
	2001			2002			2003		2004			2005
Pre-tax income (loss) from continuing operations	$	(565.2	)	$	(260.2	)	$	102.4	$	(183.7	)	$	(41.2	)
Fixed charges:
Interest expense		25.1			26.6			30.2		31.8			34.4
Interest included in rental
payments (1)		9.1			8.5			10.1		10.5			9.5
Total fixed charges	$	34.2		$	35.1		$	40.3	$	42.3		$	43.9
Pre-tax income (loss) from continuing operations plus fixed charges	$	(531.0	)	$	(225.1	)	$	142.7		(141.4	)	$	2.7
Ratio of earnings to fixed charges		—	(2)		—	(3)		3.5		—	(4)		—	(5)

(1)	Represents appropriate portion (1/3) of rentals.
(2)	Due to the Company’s loss in 2001, the ratio coverage was less than 1:1. The Company must generate additional earnings of $565.2 million to achieve a coverage of 1:1.
(3)	Due to the Company’s loss in 2002, the ratio coverage was less than 1:1. The Company must generate additional earnings of $260.2 million to achieve a coverage of 1:1.
(4)	Due to the Company’s loss in 2004, the ratio coverage was less than 1:1. The Company must generate additional earnings of $183.7 million to achieve a coverage of 1:1.
(5)	Due to the Company’s loss for the 12 months ended December 31, 2005, the ratio coverage was less than 1:1. The Company must generate additional earnings of $41.2 million to achieve a coverage of 1:1.

EX-21.1

Exhibit 21.1

MAXTOR CORPORATION SUBSIDIARIES 2005-2006

FOREIGN SUBSIDIARIES:

Maxtor Disc Drives Pty. Limited	Australia
Maxtor Global Ltd.	Bermuda
Maxtor Technology (Suzhou) Co. Ltd.	China
Maxtor Europe S.àr.l	France
Maxtor GmbH	Germany
Maxtor (Gibraltar) Limited	Gibraltar
Maxtor Asia Pacific Limited	Hong Kong
Maxtor Ireland Limited	Ireland
Maxtor (Japan) Ltd.	Japan
Maxtor Korea Ltd. Maxtor Luxembourg	Korea Luxembourg
Maxtor Peripherals (S) Pte. Limited	Singapore
Maxtor International S.àr.l	Switzerland
Maxtor International Manufacturing S.àr.l	Switzerland
Maxtor Europe Limited	United Kingdom
DOMESTIC SUBSIDIARIES:
Old SDI Sub	California
Maxtor Realty Corporation	Delaware

EX-23.1

EXHIBIT 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We hereby consent to the incorporation by reference in the Registration Statement on Form S-8 (Nos. 333-08181, 333-61011, 333-87041, 333-58742, 333-124979 and 333-126455) and the Registration Statement on Form S-3 (No. 333-129477) of Maxtor Corporation of our report dated February 21, 2006 relating to the financial statements, financial statement schedule, management’s assessment of the effectiveness of internal control over financial reporting and the effectiveness of internal control over financial reporting, which appears in this Form 10-K.

PricewaterhouseCoopers LLP
San Jose, California
February 21, 2006

EX-31.1

EXHIBIT 31.1

CERTIFICATIONS

I, Dr. C.S. Park, certify that:

     1. I have reviewed this annual report on Form 10-K of Maxtor Corporation;

     2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

     3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

     4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

     (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

     (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

     (c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

     (d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

     5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

     (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

     (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

	/s/ C.S. Park
	Dr. C.S. Park
	Chairman and Chief Executive Officer
Date: February 21, 2006

EX-31.2

EXHIBIT 31.2

CERTIFICATIONS

I, Duston M. Williams, certify that:

     1. I have reviewed this annual report on Form 10-K of Maxtor Corporation;

     2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

     3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

     4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

     (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

     (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

     (c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

     (d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

     5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

     (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

     (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

	/s/ Duston M. Williams
	Duston M. Williams Executive Vice President, Finance and Chief Financial Officer
Date: February 21, 2006

EX-32.1

EXHIBIT 32.1

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

     In connection with the Annual Report of Maxtor Corporation (the “Company”) on Form 10-K for the year ended December 31, 2005, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Dr. C.S. Park, Chairman and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (“Section 906”), that:

     (1) The Report fully complies with the requirements of section 13(a) of the Securities Exchange Act of 1934 (15 U.S.C. 78m); and

     (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

	/s/ C.S. Park
	Dr. C.S. Park
	Chairman and Chief Executive Officer
Date: February 21, 2006

A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

EX-32.2

EXHIBIT 32.2

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

     In connection with the Annual Report of Maxtor Corporation (the “Company”) on Form 10-K for the year ended December 31, 2005, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Duston M. Williams, Executive Vice President, Finance and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (“Section 906”), that:

     (1) The Report fully complies with the requirements of section 13(a) of the Securities Exchange Act of 1934 (15 U.S.C. 78m); and

     (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

	/s/ Duston M. Williams
	Duston M. Williams Executive Vice President, Finance and Chief Financial Officer
Date: February 21, 2006

A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.