S-3

As filed with the Securities and Exchange Commission on April 26, 2002

Registration No. 333-            

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form S-3

REGISTRATION STATEMENT

UNDER THE

SECURITIES ACT OF 1933

Emulex Corporation

(Exact name of Registrant as specified in its charter)

3535 Harbor Boulevard

Costa Mesa, California 92626

(714) 662-5600

(Address, including zip code, and telephone number, including area code, of Registrant’s principal executive offices)

Delaware	51-0300558
(State or Other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification Number)

PAUL F. FOLINO

President and Chief Executive Officer

Emulex Corporation

3535 Harbor Boulevard

Costa Mesa, California 92626

(714) 662-5600

(Name and address, including zip code, and telephone number, including area code, of agent for service)

Copy to:

Robert M. Steinberg, Esq.

Jeffer, Mangels, Butler & Marmaro LLP

2121 Avenue of the Stars, 10th Floor

Los Angeles, California 90067

(310) 203-8080

Fax: (310) 203-0567

      Approximate Date of Commencement of Proposed Sale to the Public: As soon as practicable after this Registration Statement becomes effective.

      If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, other than securities offered only in connection with dividend or interest reinvestment plans, check the following box:     þ

      If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.     o             

      If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.     o

      If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box.     o

CALCULATION OF REGISTRATION FEE

	Amount	Proposed Maximum			Proposed Maximum			Amount of
Title of Each Class of	to be	Offering Price			Aggregate			Registration
Securities to be Registered	Registered	Per Share			Offering Price			Fee
1.75% convertible subordinated notes due February 1, 2007	$345,000,000		100%		$	345,000,000		$	31,740
Common stock, $.10 par value	6,408,030 shares(1)		—	(2)		—	(2)		—	(2)

(1)

This number represents the number of shares of common stock that are initially issuable upon conversion of the 1.75% convertible subordinated notes due February 1, 2007 (the “Notes”) registered hereby. For purposes of estimating the number of shares of common stock to be included in the registration statement upon the conversion of the Notes, we calculated the number of shares issuable upon conversion of the Notes based on a conversion rate of 18.574 shares per $1,000 principal amount of the Notes. In addition to the shares set forth in the table, pursuant to Rule 416 of the Securities Act of 1933, as amended, this registration statement also shall cover any additional shares of common stock which become issuable in connection with the shares registered for sale hereby by reason of any stock dividend, stock split, recapitalization or other similar transaction effected without the receipt of consideration which results in an increase in the number of our outstanding shares of common stock.

(2)

No additional consideration will be received for the common stock, and therefore, no registration fee is required pursuant to Rule 457(i).

      The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until this Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.

The information in this prospectus is not complete and may be changed. These securities may not be sold until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.

SUBJECT TO COMPLETION, DATED APRIL 26, 2002

PRELIMINARY PROSPECTUS

$345,000,000

Emulex Corporation

1.75% Convertible Subordinated Notes

Due February 1, 2007

and

6,408,030 Shares of Common Stock

Issuable Upon Conversion of the Notes

        Holders of our 1.75% Convertible Subordinated Notes due February 1, 2007 may offer for sale the notes and the shares of our common stock into which the notes are convertible at any time at market prices prevailing at the time of sale or at privately negotiated prices. The selling securityholders may sell the notes or the common stock directly to purchasers or through underwriters, broker-dealers or agents, who may receive compensation in the form of discounts, concessions or commissions.

      The holders of the notes may convert the notes into shares of our common stock at any time at a conversion price of $53.84 per share, subject to certain adjustments. This is equivalent to a conversion ratio of approximately 18.574 shares per $1,000 principal amount of notes. Interest on the notes is payable on February 1 and August 1 of each year, commencing on August 1, 2002. On or after February 5, 2005, we may redeem the notes, in whole or in part, at the redemption prices set forth in this prospectus.

      In the event of a change of control of Emulex, as defined in this prospectus, we may be required to repurchase the notes from holders at 100% of the principal amount of the notes plus accrued interest.

      The notes are our unsecured obligations and are subordinated to all of our existing and future senior indebtedness. In addition, the notes will be effectively subordinated to any future indebtedness and other liabilities, including trade payables, of our subsidiaries.

      Our common stock is quoted on the Nasdaq National Market under the symbol “EMLX.” The last reported sale price of our common stock on the Nasdaq National Market on April 25, 2002 was $29.29 per share.

      Investing in our notes and common stock involves risks. Prospective purchasers of our notes and shares of common stock should carefully read the risk factors beginning on page 4 and the sections entitled “Risk Factors” in the documents we file with the Securities and Exchange Commission that are incorporated by reference in this prospectus.

      Neither the Securities and Exchange Commission nor any state securities regulators have approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

The date of this Prospectus is                     , 2002

TABLE OF CONTENTS

EXHIBIT 4.8

EXHIBIT 4.9

EXHIBIT 4.10

EXHIBIT 5.1

EXHIBIT 10.16

EXHIBIT 12.1

EXHIBIT 23.1

EXHIBIT 25.1

TABLE OF CONTENTS

	Page
Where You Can Find More Information		ii
Incorporation of Certain Documents by Reference		ii
Forward-Looking Statements		iii
Summary		1
Recent Developments		1
Risk Factors		4
Ratio of Earnings to Fixed Charges		19
Use of Proceeds		19
Selling Securityholders		19
Plan of Distribution		22
Description of the Notes		24
Description of Capital Stock		38
Certain United States Federal Income Tax Considerations		40
Legal Matters		46
Experts		46

WHERE YOU CAN FIND MORE INFORMATION

      We file annual, quarterly and special reports, proxy statements and other information with the Securities and Exchange Commission (“SEC”). Our SEC filings are available to the public over the Internet at the SEC’s website at http://www.sec.gov. You may read and copy any materials that we have filed with the SEC at its Public Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549. You can also obtain copies of the documents at prescribed rates by writing to the Public Reference Section of the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549. You can obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330.

      This prospectus is part of a registration statement on Form S-3 that we filed with the SEC and omits portions of the information contained in the registration statement as permitted by the SEC. Additional information regarding us and our common stock is contained in the registration statement. You can obtain a copy of the registration statement from the SEC at the street address or Internet site listed in the above paragraph.

INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE

      The SEC allows us to “incorporate by reference” into this prospectus the information we file with them, which means that we can disclose important information to you by referring you to those documents. The information incorporated by reference is considered to be part of this prospectus except for any information superseded by information contained directly in this prospectus or in later-filed documents incorporated by reference in this prospectus. We incorporate by reference the documents listed below and any future filings we make with the SEC under Sections 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), after the date of this prospectus and prior to the time that all of the securities offered by this prospectus are sold:

•  Our Annual Report on Form 10-K for the fiscal year ended July 1, 2001;

•  Our Quarterly Reports on Form 10-Q for the quarters ended September 30, 2001 and December 30, 2001;

•  Our Current Reports on Form 8-K, filed on January 24, 2002 and January 28, 2002;

•  The description of our common stock contained in our registration statement on Form 8-A filed March 28, 1983 pursuant to Section 12 of the Exchange Act, including any amendments or reports filed for the purposes of updating such description;

•  The description of our preferred stock purchase rights contained in our Registration Statement on Form 8-A dated February 2, 1986, including any amendments or reports filed for the purposes of updating such description; and

•  Our Definitive Proxy Statement, filed October 12, 2001, relating to our annual meeting of stockholders held on November 15, 2001.

      A copy of these filings will be provided to you at no cost if you request them by writing or telephoning us at the following address:

Emulex Corporation

3535 Harbor Boulevard

Costa Mesa, California 92626

Attention: Investor Relations

Phone: (714) 662-5600

      You should rely only on the information contained or incorporated by reference in this prospectus. We have not authorized anyone to provide you with information that is different from what is contained in this prospectus. We are not making an offer of these securities in any jurisdiction where the offer is not permitted. You should not assume that the information in this prospectus is accurate as of any date other than the date on the cover of this prospectus.

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FORWARD-LOOKING STATEMENTS

      With the exception of historical facts, the statements contained in this prospectus, including the sections entitled “Summary” and “Risk Factors,” are forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act, and are subject to the “safe harbor” provisions created by these statutes. These forward-looking statements include, but are not limited to, statements that relate to:

•  our future revenue;

•  product development;

•  demand, acceptance and market share;

•  competitiveness;

•  gross margins;

•  levels of research and development and operating expenses;

•  management’s plans and objectives for current and future operations; and

•  the sufficiency of financial resources to support future operations and capital expenditures.

      These statements are based on current expectations and are subject to risks, uncertainties and changes in condition, significance, value and effect, including those discussed under the headings “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this document and in the documents we file from time to time with the SEC, including our annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K. These risks, uncertainties and changes in condition, significance, value and effect could cause actual results to differ materially from those expressed in this prospectus and in ways not readily foreseeable.

      You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this prospectus and of information currently and reasonably known. We undertake no obligation to release any revisions to these forward-looking statements which may be made to reflect events or circumstances which occur after the date of this prospectus or to reflect the occurrence or effect of anticipated or unanticipated events.

      Discussion contained in this document include forward-looking statements that involve known and unknown risks and uncertainties. Our actual results, levels of activity, performance or achievements may be materially different from any future results, levels of activity, performance or achievements expressed or implied by such forward-looking statements. Factors that may cause or contribute to this difference include, among others things, those risk factors set forth in the section entitled “Risk Factors.” We identify forward-looking statements by words such as “may,” “will,” “should,” “could,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential” or “continue” or similar terms that refer to the future. We cannot guarantee future results, levels of activity, performance or achievements.

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SUMMARY

      The following summary contains basic information about this offering. It may not contain all the information that may be important to you. You should read the entire prospectus, as well as the information to which we refer you and the information incorporated by reference, before making an investment decision. When used in this prospectus, the terms “Emulex,” “we,” “our” and “us” refer to Emulex Corporation and its consolidated subsidiaries, unless otherwise specified. All references to years refer to our fiscal years ended July 1, 2001, July 2, 2000 and June 27, 1999, as applicable, unless the calendar year is specified.

Emulex Corporation

      We are a leading developer and supplier of host bus adapters, or HBAs, that provide intelligent connectivity solutions for storage area networks, or SANs, network attached storage, or NAS, and redundant array of independent disks, or RAID, storage. HBAs are the data communication products that enable servers to connect to storage networks by offloading communications processing task as information is delivered and sent to the network. Our products are based on internally developed application specific computer chips, or ASICs, firmware and software technology, and can be deployed across a wide range of SAN protocols, configurations, system interfaces and operating systems. Our architecture offers a stable applications program interface, or API, that has been preserved across multiple generations of HBAs and to which many of the world’s leading Original Equipment Manufacturers, or OEMs, have customized software for mission-critical server and storage system applications.

      In recent years, the majority of our revenues have been comprised of products based on Fibre Channel technology. Our Fibre Channel development efforts began in 1992 and we shipped our first Fibre Channel product in volume in 1996. According to IDC and Dataquest, in calendar 2000 we were the world’s largest provider of Fibre Channel host bus adapters in terms of both revenue and units shipped. We have focused on maximizing the management features and performance of our Fibre Channel solutions and believe our LightPulse HBAs offer the critical reliability, scalability and performance required for mission-critical enterprise storage and computing networks.

      In March 2001, we acquired Giganet, Inc., a leading developer of storage networking products based on Ethernet and Internet Protocol, or IP, technologies. We intend to leverage our leading market position and established APIs to address emerging market opportunities for new interconnect technologies such as iSCSI, an internet transfer protocol for Small Computer Systems Interface, and Virtual Interface, or VI. We began shipping products based on VI in the fourth quarter of fiscal 2001 and expect initial commercial shipments of our iSCSI products in calendar 2002.

      Our customers include the world’s leading storage and server suppliers, including Compaq, Dell, EMC, Fujitsu-Siemens, Groupe Bull, Hewlett-Packard, Hitachi Data Systems, IBM, NEC, Network Appliance and Unisys. In addition, we have formed strategic partnerships with industry leaders such as Brocade, Intel, INRANGE, Legato, McDATA, Microsoft, and Veritas.

      Our executive offices are located at 3535 Harbor Boulevard, Costa Mesa, California 92626; Phone: (714) 662-5600.

RECENT DEVELOPMENTS

      On April 18, 2002, we released operating results for the third quarter of fiscal 2002. Revenues for the third fiscal quarter of 2002 ended March 31, 2002 were $69.6 million, up 15% from the $60.4 million reported for the same quarter a year ago. For the third fiscal quarter, we reported a net loss of $16.5 million, or $0.20 per share, compared with a net loss of $24.5 million, or $0.32 per share for the prior year’s period.

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The Offering

Securities Offered	$345,000,000 principal amount of 1.75% Convertible Subordinated Notes due February 1, 2007, plus 6,408,030 shares of our common stock issuable upon conversion of the notes.
Interest	The notes bear interest at an annual rate of 1.75%. Interest is payable on February 1 and August 1 of each year, beginning August 1, 2002.
Maturity Date	February 1, 2007.
Conversion Rights	The notes are convertible at any time prior to maturity into shares of our common stock at a conversion price of $53.84 per share, subject to certain adjustments. This is equivalent to a conversion rate of approximately 18.574 shares per $1,000 principal amount of notes. Upon conversion, holders will not receive any cash representing accrued interest. See “Description of the Notes — Conversion of Notes.”
Optional Redemption	We may redeem the notes on or after February 5, 2005 at the redemption prices set forth in this prospectus, plus accrued and unpaid interest to, but excluding, the redemption date.
Sinking Fund	None.
Purchase of Notes Upon Change in Control	Upon a change in control, holders may require us to purchase their notes at 100% of the principal amount of the notes, plus accrued and unpaid interest to, but excluding, the purchase date. We may not have sufficient funds to pay the purchase price for all duly tendered notes upon a change in control.
Subordination	The notes will be general unsecured obligations of Emulex. The notes will be subordinated in right of payment to any future senior indebtedness. The notes will also be effectively subordinated to the future indebtedness and other liabilities, including trade payables, of our subsidiaries. As of March 31, 2002, we have no senior indebtedness outstanding for purposes of the indenture. We and our subsidiaries are not prohibited from incurring senior indebtedness or other debt under the indenture.
Use of Proceeds	We will not receive any of the proceeds of the resale of the notes by the selling securityholders or the common stock into which the notes may be converted.
Trading	The notes are eligible for trading in the PORTAL market. However, we can give no assurance as to the liquidity of or trading market for the notes. Our common stock is traded on The Nasdaq National Market under the symbol “EMLX.”
Registration Rights	Pursuant to a registration rights agreement, we have filed a shelf registration statement, of which this prospectus is a part, with the SEC with respect to the notes and the common stock issuable upon conversion of the notes. See “Description of the Notes — Registration Rights.”

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Indenture and Trustee We have issued the notes under an indenture dated as of January 29, 2002, between us and State Street Bank and Trust Company of California, N.A., as trustee.

Risk Factors

      Investment in the notes involves risk. You should carefully consider the information under “Risk Factors” and all other information included in this prospectus and our SEC reports before investing in the notes and the common stock into which the notes are convertible offered through this prospectus.

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RISK FACTORS

      You should carefully consider the risks described below. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also impair our operations. If any of the following risks actually occur, our business, financial condition or results of operations could be materially and adversely affected. In such case, the trading price of our common stock could decline, and you may lose all or part of your investment. (All dollar amounts in this risk factors section are in thousands, except share and per share data.)

Risks Related to Our Business

Our business depends upon the continued development of the storage networking market, and our revenues will be limited if such development does not occur or occurs more slowly than we anticipate.

      The size of our potential market is dependent upon the broad acceptance of our storage networking technologies as alternatives to other technologies traditionally utilized for network and storage communications. The storage networking market, while rapidly evolving and attracting an increasing number of market participants, is still at an early stage of deployment. We believe the storage networking market will continue to expand and that our investment in the storage networking market represents our greatest opportunity for revenue growth and profitability in the future. However, we cannot be certain that storage networking products will gain broader market acceptance or that customers will choose our technology and products. Additionally, since our products are sold as parts of integrated systems, our products’ demand is driven by the demand for these integrated systems, including other companies’ complementary products. A lack of demand for the integrated systems or a lack of complementary products required for these integrated systems could have a material adverse effect on our business, results of operations and financial condition. Among our storage networking products, Fibre Channel products accounted for 96 percent and IP Storage Networking products accounted for two percent of total net revenues for the quarter ended December 30, 2001. If the storage networking market fails to develop, develops more slowly than anticipated, attracts more competitors than we expect, as discussed below, or if our products do not achieve market acceptance, our business, results of operations and financial condition would be materially adversely affected.

      Alternative existing technologies such as Small Computer Systems Interface, or SCSI, compete with our Fibre Channel and IP Storage Networking technologies for customers. Some SCSI technology companies already have well-established relationships with our current and potential customers, have extensive knowledge of the markets we serve and have better name recognition and more extensive development, sales and marketing resources than we have. Our success also depends both on our own ability and on the ability of our OEM customers to develop storage networking solutions that are competitive with legacy technologies. Ultimately, however, our business depends upon our ability, along with the ability of our OEM customers, to convince end users to adopt and implement our storage networking products.

      While we have secured numerous design wins for our storage networking products from OEM customers, several of these customers are still at the early stages of incorporating our storage networking products throughout their product offerings. If our customers are unable to or otherwise do not ship systems that incorporate our products, or if their shipped systems are not commercially successful, our business, results of operations and financial condition would be materially adversely affected.

Our operating results are difficult to forecast and may be adversely affected by many factors.

      Our revenues and results of operations have varied on a quarterly basis in the past and potentially may vary significantly in the future. Accordingly, we believe that period-to-period comparisons of our results of operations are not necessarily meaningful, and you should not rely on such comparisons as

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indications of our future performance. Our revenues and results of operations are difficult to forecast and could be adversely affected by many factors, including, among others:

•  The size, timing and terms of customer orders;

•  The relatively long sales and deployment cycles for our products, particularly those sold through our OEM sales channels;

•  Changes in our operating expenses;

•  Our ability to develop and market new products;

•  The ability of our contract manufacturers to produce and distribute our products in a timely fashion;

•  The integration of additional contract manufacturers or additional sites of our current contract manufacturers;

•  Component shortages experienced by us, or reduced demand from our customers if our customers are unable to acquire the components used in conjunction with our products in their deployments;

•  The market acceptance of our new products;

•  The timing of the introduction or enhancement of products by us, our OEM customers and our competitors;

•  The level of product and price competition;

•  Our ability to expand our relationships with OEMs and distributors;

•  Activities of, and acquisitions by, our competitors, customers and strategic partners;

•  Acquisitions or strategic investments made by us;

•  Changes in technology, industry standards or consumer preferences;

•  Changes in interest rates;

•  Changes in the mix of sales channels;

•  The level of international sales;

•  Seasonality;

•  Personnel changes;

•  Changes in customer budgeting and spending;

•  Foreign currency exchange rates;

•  Slower than expected market growth; and

•  General economic conditions.

      As a result of these and other factors, our business, results of operations and financial condition could be materially adversely affected.

      There are other factors that contribute to the variability of our sales as well. Historically, we have generally shipped products quickly after we receive orders, meaning that we do not always have a significant backlog of unfilled orders. As a result, our revenues in a given quarter may depend substantially on orders booked in that quarter. Alternatively, orders already in backlog may be deferred or cancelled. Also, we have typically generated a large percentage of our quarterly revenues in the last month of the quarter. Additionally, individual OEM customer purchases can vary significantly from quarter to quarter.

      A decrease in the number of orders we receive is likely to adversely and disproportionately affect our quarterly results of operations. This is because our expense levels are partially based on our expectations of

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future sales and our expenses may be disproportionately large as compared to sales in a quarter with reduced orders. Hence, we may be unable to adjust spending in a timely manner to compensate for any unexpected revenue shortfall.

      Any shortfall in sales in relation to our quarterly expectations or any delay of customer orders would likely have an immediate and adverse impact on our business, quarterly results of operations and financial condition.

Terrorist activities and resulting military and other actions could adversely affect our business.

      The terrorist attacks in New York and Washington, D.C. have disrupted commerce throughout the United States and Europe. The continued threat of terrorism within the United States and Europe and the military action and heightened security measures in response to such threat may cause significant disruption to commerce throughout the world. To the extent that such disruptions result in delays or cancellations of customer orders, delays in collecting cash, a general decrease in corporate spending on information technology, or our inability to effectively market, manufacture or ship our products, our business and results of operations could be materially and adversely affected. We are unable to predict whether the threat of terrorism or the responses thereto will result in any long-term commercial disruptions or if such activities or responses will have any long-term material adverse effect on our business, results of operations or financial condition.

A significant decrease or delay in orders from one or more of our customers could adversely affect our business.

      We experienced a downturn in Fibre Channel HBA demand first evidenced by order deferrals experienced and disclosed by us in early February of calendar 2001. In the event such deferrals were to occur again, our business, results of operations and financial condition could be materially adversely affected.

The loss of one or more customers could adversely affect our business.

      We rely almost exclusively on OEMs and sales through distribution channels for our revenue. For the six months ended December 30, 2001, we derived approximately 78 percent of our net revenues from OEMs and 22 percent from sales through distribution. For the same six-month period of fiscal 2001, we derived approximately 83 percent of our net revenues from OEMs and 17 percent from distribution sales. We cannot be certain that we will retain our current OEM and distributor customers or that we will be able to recruit additional or replacement customers. As is common in an emerging technology industry, our agreements with OEMs and distributors are typically non-exclusive, have no volume commitments, and often may be terminated by either party without cause. Indeed, many of our OEM and distributor customers carry or utilize competing product lines. If we were to suddenly lose one or more important OEM or distributor customers to a competitor, our business, results of operations and financial condition could be materially adversely affected.

      For the six months ended December 30, 2001, direct sales to Compaq and IBM accounted for 29 percent and 18 percent of our total net revenues, respectively. Direct sales to no other customer accounted for more than 10 percent of total net revenues. Additionally, some of our larger OEM customers purchased products indirectly through distributors, resellers or other third parties. Total net revenues, including direct sales to our customers and their customer-specific models purchased indirectly through other distribution channels, amounted to 29 percent of our total net revenues for Compaq, 26 percent for IBM, and 20 percent for EMC for the six months ended December 30, 2001. For the same six-month period of fiscal 2001, direct sales to Compaq, IBM and EMC accounted for 27 percent, 18 percent, and 13 percent of our total net revenues, respectively. Direct sales to no other customer accounted for more than 10 percent of total net revenues during this period. Total net revenues, including direct sales to our customers and their customer-specific models purchased indirectly through other distribution channels, amounted to 27 percent of our total net revenues for IBM, 27 percent for Compaq,

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and 22 percent for EMC for the same six-month period of fiscal 2001. Direct sales to our top five customers accounted for 67 percent of total net revenues for the six months ended December 30, 2001, and 73 percent for the same six-month period of fiscal 2001. Recently, Compaq and Hewlett-Packard announced their intention to merge. Although we cannot predict the effects of such merger on our business, to the extent that such merger results in decreased demand or margins for our products, our business, results of operations and financial condition could be materially and adversely affected. Although we have attempted to expand our base of customers, we believe our revenues in the future will continue to be similarly derived from a limited number of customers, especially given the consolidation the industry has recently experienced. As a result, to the extent that sales to any of our significant customers are reduced or impaired, our business, results of operations, and financial condition could be materially and adversely affected.

The failure of one or more of our significant customers to make payments could adversely affect our business.

      We are also subject to credit risk associated with the concentration of our accounts receivable from our customers. Our days sales outstanding, or DSOs, were 46 days and 40 days at December 30, 2001, and December 31, 2000, respectively. There can be no assurance they will remain at this level or improve. If we were to lose one of our current significant customers or did not receive their payments due to us, we could experience a material adverse effect on our business, results of operations and financial condition.

A decrease in the demand for high performance computer and storage systems could adversely affect our business.

      Our Fibre Channel and IP Storage Networking products are currently used in high-performance computer and storage systems. The demand for our Fibre Channel products, which represent 97 percent of our revenues for the six months ended December 30, 2001, has been supported by the demand for sophisticated networking and data storage solutions that support enterprise computing requirements, including on-line transaction processing, data mining, data warehousing, multimedia and Internet applications. Should there be a slowing in the growth of demand for such systems, our business, results of operations and financial condition could be materially adversely affected.

We have experienced losses in our history.

      We have experienced losses in our history, most recently a net loss of $68,299 for the six months ended December 30, 2001, and $23,603 for the fiscal year ended July 1, 2001. The net loss for the six months ended December 30, 2001 included $78,128 ($76,897, net of tax) of amortization of goodwill and other intangibles related to the acquisition of Giganet, Inc. and an excess and obsolete inventory charge of $13,635, or $8,454 net of tax. The net loss for the fiscal year ended July 1, 2001, included $22,280 of in-process research and development expenses and $52,085 of amortization of goodwill and other intangibles related to the acquisition of Giganet, Inc. We are amortizing goodwill and other intangibles related to the acquisition of Giganet, Inc. over periods of two to seven years, and the resulting recurring quarterly charges are expected to approximate or exceed our current level of pretax earnings, until we adopt Financial Accounting Standards Board Statement No. 142, or Statement 142, “Goodwill and Other Intangible Assets,” in the first quarter of fiscal 2003, potentially generating a net loss for us in upcoming quarters. We cannot be certain that revenues will remain at current levels or improve or that we will be profitable at such revenue levels.

Some of our suppliers or our OEM customers could become competitors.

      Some of our suppliers or our OEM customers currently have, and others could develop, products internally that would replace our products. The resulting production delays or reductions in sales of our products could have a material adverse effect on our business, results of operations and financial condition.

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Our industry is subject to rapid technological change, and we must keep pace with the changes to successfully compete.

      The markets for our products are characterized by rapidly changing technology, evolving industry standards and the frequent introduction of new products and enhancements. Our future success depends in a large part on our ability to enhance our existing products and to introduce new products on a timely basis to meet changes in customer preferences and evolving industry standards. Currently, proposed new technologies such as 10 Gigabit optics; Infiniband; PCI-X; 3GIO; iSCSI; SCSI over IP, or SOIP; VI; and iWarp; are still in the early development stages and it is impossible to know what the end technology will provide. We cannot be certain that we will be successful in developing, manufacturing and marketing new products or product enhancements that respond to such changes in a timely manner and achieve market acceptance. We also cannot be certain that we will be able to develop the underlying core technologies necessary to create new products and enhancements, or that we will be able to license the core technologies with commercially reasonable terms from third parties.

      A key element of our business strategy is to develop multiple ASICs in order to increase system performance and reduce manufacturing costs, thereby enhancing the price/ performance of our storage networking products. We cannot be certain that we will be successful at developing and incorporating ASICs effectively and in a timely manner. Furthermore, as our customers migrate from one platform to the enhanced price/ performance of the next platform, we may experience reduced revenue, gross profit and gross margin levels associated with lower average selling prices and higher relative product costs associated with improved performance. Also, economic conditions during platform migration periods can have a significant impact on results. This was evidenced in late September 2001, as some of our major customers made announcements that general economic conditions, exacerbated by the increase in economic uncertainty in the aftermath of the terrorist events of September 11, 2001, were having a negative impact on their financial results. The announcements made, and forecasts received, indicated deteriorating demand for our one gigabit products as these customers are expected to migrate to two gigabit products for future purchases. As a result, we recorded an excess and obsolete inventory charge totaling $13,635 during the quarter ended September 30, 2001. Additionally, changes in technology and consumer preference could potentially render our current products uncompetitive or obsolete. If we are unable, for technological or other reasons, to develop new products, enhance existing products, or consume existing products in a timely and cost-effective manner in response to technological and market changes, our business, results of operations and financial condition would be materially adversely affected.

The failure of our OEM customers to keep up with rapid technological change could adversely affect our business.

      Our revenues depend significantly upon the ability and willingness of our OEM customers to develop, promote and deliver, on a timely basis, products that incorporate our technology. The ability and willingness of OEM customers to develop, promote and deliver such products are significantly influenced by a number of factors, such as:

•  The timely development by us and our OEM customers of new products with new functionality, increased speed and enhanced performance at acceptable prices;

•  The development costs facing our OEM customers;

•  The compatibility of new products with both existing and emerging industry standards;

•  Technological advances;

•  The ability to acquire all required components;

•  Intellectual property issues; and

•  Competition in general.

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      We cannot be certain of the ability or willingness of our OEM customers to continue developing, marketing and selling products that incorporate our technology. Our business is dependent on our relationships with our OEM and distributor customers, so the inability or unwillingness of any of our significant customers to develop or promote products that use our technology would have a material adverse effect on our business, results of operations and financial condition.

Rapid changes in the evolution of technology could adversely affect our business.

      Historically, the electronics industry has developed higher performance ASICs that create chip level solutions that replace selected board level solutions at a significantly lower average selling price. We have previously offered ASICs to certain customers for certain applications which has effectively resulted in a lower-priced solution when compared to an HBA solution. We anticipate that this transition will occur for our products in certain applications as well. If this transition is more abrupt or is more widespread than anticipated, there can be no assurance that we will be able to modify our business model in a timely manner, if at all, in order to mitigate the effects of this transition on our business, results of operations and financial position.

Our markets are highly competitive.

      The markets for our products are highly competitive and are characterized by rapid technological advances, price erosion, frequent new product introductions and evolving industry standards. Our current and potential competition consists of major domestic and international companies, many of which have substantially greater financial, technical, marketing and distribution resources than we have. We also expect that an increasing number of companies will enter the markets for our storage networking products. Furthermore, larger companies in other related industries may develop or acquire technologies and apply their significant resources, such as distribution channels and brand recognition, to acquire significant market share. Emerging companies attempting to obtain a share of the existing markets act as potential competition as well. Additionally, our competitors continue to introduce products with improved price/ performance characteristics, and we will have to do the same to remain competitive. Increased competition could result in significant price competition, reduced revenues, lower profit margins or loss of market share, any of which would have a material adverse effect on our business, results of operations and financial condition. Our Fibre Channel products may also compete at the end-user level with other technology alternatives such as SCSI, which are available from companies such as Adaptec, LSI Logic and Qlogic. In the future, other technologies that we are not currently developing may evolve to address the applications served by Fibre Channel today.

      As is common in an emerging technology industry with non-exclusive development arrangements, many of our OEM customers arrange second source agreements to meet their requirements. Furthermore, in the future, our OEM customers may develop products that compete with ours or purchase such products from our competitors and may terminate their relationships with us as a result.

A decrease in the average unit selling prices of our Fibre Channel products could adversely affect our business.

      Since we first introduced our Fibre Channel products, we have experienced downward pressure on their average unit selling prices. To the extent that average unit selling prices of our Fibre Channel products decrease without a corresponding decrease in the costs of such products, our gross margins and financial performance could be materially adversely affected.

Delays in product development could adversely affect our business.

      We have experienced delays in product development in the past and may experience similar delays in the future. Given the short product life cycles in the markets for our products, any delay or unanticipated difficulty associated with new product introductions or product enhancements could have a material

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adverse effect on our business, results of operations and financial condition. Prior delays have resulted from numerous factors, such as:

•  Changing OEM product specifications;

•  Difficulties in hiring and retaining necessary personnel;

•  Difficulties in reallocating engineering resources and other resource limitations;

•  Difficulties with independent contractors;

•  Changing market or competitive product requirements;

•  Unanticipated engineering complexity;

•  Undetected errors or failures in software and hardware; and

•  Delays in the acceptance or shipment of products by OEM customers.

Our joint development activities may result in products that are not commercially successful or that are not available in a timely fashion.

      We have engaged in joint development projects with third parties in the past and we expect to continue doing so in the future. Joint development creates several risks for us, including the loss of control over development of aspects of the jointly-developed products and over the timing of product availability. Accordingly, we face the risk that joint development activities will result in products that are not commercially successful or that are not available in a timely fashion.

The loss of third-party suppliers or our contract manufacturers could adversely affect our business.

      We rely on third-party suppliers for components that are used in our products, and we have experienced delays or difficulty in securing components in the past. Delays or difficulty in securing components may be caused by numerous factors including, but not limited to:

•  Discontinued production by a vendor;

•  Undetected errors or failures;

•  Natural disasters;

•  Disruption in shipping channels;

•  Difficulties associated with foreign operations; and

•  Market shortages.

      Additionally, key components that we use in our products may only be available from single sources with which we do not have contracts. For example, Intel is currently our sole supplier for microprocessors used in our Fibre Channel products, and IBM is currently our sole supplier for components that enable some of our older-generation Fibre Channel products to connect to networks. In addition, we design our own semiconductors that are embedded in our products, and these are manufactured by third-party semiconductor foundries such as LSI Logic and QuickLogic. In addition to hardware, we design software to provide functionality to our hardware products. We also license software from third party providers for use with our traditional networking products. Most of these providers are the sole source for this software. The loss of one or more of our sole suppliers or third party foundries could have a material effect on our business, results of operations and financial condition.

      Because we outsource the production of our products to contract manufacturers, such as Suntron Corporation (formerly known as K*TEC Electronics) and Manufacturers’ Services Ltd., or MSL, we only manage the supply of a small number of our product components. Suntron manufactures for us within the United States, while MSL manufactures for us in both the United States and in Europe at its Global Manufacturing Services production facility in Valencia, Spain. Currently, we rely upon Suntron and MSL

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to complete the majority of the component purchases for our products. Consequently, we cannot be certain that the necessary components will be available to meet our future requirements at favorable prices, if at all. Moreover, because we rely upon Suntron and MSL to manufacture, store and ship our products, if Suntron or MSL are unable or unwilling to complete production runs for us in the future, or experience any significant delays in completing production runs or shipping product, the manufacturing and sale of our products would be temporarily suspended. An interruption in supply of our products and the cost of qualifying and shifting production to an alternative manufacturing and distribution facility would have a material adverse effect on our business, results of operations and financial condition.

The inadequacy of our intellectual property protections could adversely affect our business.

      We believe that our continued success depends primarily on continuing innovation, marketing and technical expertise, as well as the quality of product support and customer relations. At the same time, our success is partially dependent on the proprietary technology contained in our products. We currently rely on a combination of patents, copyrights, trademarks, trade secret laws and contractual provisions to establish and protect our intellectual property rights in our products. For a more complete description of our intellectual property, you should read “Business — Intellectual Property” contained in our most recently filed Form 10-K.

      We cannot be certain that the steps we take to protect our intellectual property will adequately protect our proprietary rights, that others will not independently develop or otherwise acquire equivalent or superior technology, or that we can maintain such technology as trade secrets. In addition, the laws of some of the countries in which our products are or may be developed, manufactured or sold may not protect our products and intellectual property rights to the same extent as the laws of the United States or at all. Our failure to protect our intellectual property rights could have a material adverse effect on our business, results of operations and financial condition.

Third-party claims of intellectual property infringement could adversely affect our business.

      We believe that our products and technology do not infringe on the intellectual property rights of others or upon intellectual property rights that may be granted in the future pursuant to pending applications. We occasionally receive communications from third parties alleging patent infringement, and there is always the chance that third parties may assert infringement claims against us. Any such claims, with or without merit, could result in costly litigation, cause product shipment delays or require us to enter into royalty or licensing agreements, which may or may not be available. However, we have in the past, and may be required in the future, to obtain licenses of technology owned by other parties. We cannot be certain that the necessary licenses will be available or that they can be obtained on commercially reasonable terms. If we were to fail to obtain such royalty or licensing agreements in a timely manner and on reasonable terms, our business, results of operations and financial condition would be materially adversely affected.

The loss of key technical personnel could adversely affect our business.

      Our success depends to a significant degree upon the performance and continued service of engineers involved in the development of our storage networking technologies and technical support of our storage networking products and customers. Our future success depends upon our ability to attract, train and retain such personnel. We will need to increase the number of technical staff members with experience in high-speed networking applications as we further develop our storage networking product lines. Competition for such highly skilled employees in our local community as well as our industry is intense, and we cannot be certain that we will be successful in recruiting and retaining such personnel. In addition, employees may leave our company and subsequently compete against us. If we are unable to attract new technical employees, or are unable to retain our current key technical employees, our business, results of operations and financial condition could be materially adversely affected.

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Our international business activities subject us to risks that could adversely affect our business.

      For the six months ended December 30, 2001, sales in the United States accounted for 59 percent of our total net revenues, sales in Europe accounted for 36 percent of our total net revenues, and sales in the Pacific Rim countries accounted for five percent of our total net revenues. For the six months ended December 30, 2000, sales in the United States accounted for 64 percent of total net revenues, sales in Europe accounted for 32 percent of our total net revenues, and sales in the Pacific Rim countries accounted for four percent of our total net revenues. We expect that sales in the United States and Europe will continue to account for the substantial majority of our net revenues for the foreseeable future. All of our sales are currently denominated in U.S. dollars. As a result, if the value of the U.S. dollar increases relative to foreign currencies, our products could become less competitive in international markets. Additionally, some of our products are produced at a MSL production facility in Valencia, Spain and as a result we are subject to the risks inherent in international operations.

      Our international business activities could be limited or disrupted by any of the following factors:

•  The imposition of governmental controls and regulatory requirements;

•  The costs and risks of localizing products for foreign countries;

•  Restrictions on the export of technology;

•  Financial and stock market dislocations;

•  Increases in interest rates;

•  Longer accounts receivable payment cycles;

•  Potentially adverse tax consequences;

•  The burden of complying with a wide variety of foreign laws;

•  Changes in the value of local currencies relative to our functional currency;

•  Trade restrictions;

•  Changes in tariffs;

•  General economic and social conditions within foreign countries; and

•  Political instability or terrorism.

      In addition, the revenues we earn in various countries in which we do business may be subject to taxation by more than one jurisdiction, thereby adversely affecting our earnings. These factors could harm future sales of our products to international customers and have a material adverse effect on our business, results of operations and financial condition.

Export restrictions may adversely affect our business.

      Our products are subject to U.S. Department of Commerce export control restrictions. Neither our customers nor we may export such products without obtaining an export license. These U.S. export laws also prohibit the export of our products to a number of countries deemed by the United States to be hostile. These restrictions may make foreign competitors facing less stringent controls on their products more competitive in the global market than we or our customers are. The U.S. government may not approve any pending or future export license requests. In addition, the list of products and countries for which export approval is required, and the regulatory policies with respect thereto, could be revised. The sale of our products could be harmed by our failure or the failure of our customers to obtain the required licenses or by the costs of compliance.

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We may need additional capital in the future and such additional financing may not be available.

      We currently anticipate that our available cash resources will be sufficient to meet our expected working capital and capital expenditure requirements for at least the next 12 months. However, we cannot assure you that such resources will be sufficient for anticipated or unanticipated working capital and capital expenditure requirements. We may need to raise additional funds through public or private debt or equity financings in order to:

•  Take advantage of unanticipated opportunities, including more rapid international expansion or acquisitions of complementary businesses or technologies;

•  Develop new products or services;

•  Repay outstanding indebtedness; or

•  Respond to unanticipated competitive pressures.

      We may also raise additional funds through public or private debt or equity financings if such financings become available on favorable terms. We cannot assure you that any additional financing we may need will be available on terms favorable to us, or at all. If adequate funds are not available or are not available on acceptable terms, we may not be able to take advantage of unanticipated opportunities, develop new products or services or otherwise respond to unanticipated competitive pressures. In any such case, our business, results of operations and financial condition could be materially adversely affected.

Potential acquisitions or strategic investments may be more costly or less profitable than anticipated and may adversely affect the price of our common stock.

      In addition to the risks related to our acquisition of Giganet, Inc., discussed below, we may pursue additional acquisitions or strategic investments that could provide new technologies, products or service offerings. Future acquisitions or strategic investments may involve the use of significant amounts of cash, potentially dilutive issuances of equity or equity-linked securities, incurrence of debt and amortization of intangible assets with determinable lives. Moreover, to the extent that any proposed acquisition or strategic investment is not favorably received by stockholders, analysts and others in the investment community, the price of our common stock could be adversely affected. In addition, acquisitions or strategic investments involve numerous risks, including:

•  Difficulties in the assimilation of the operations, technologies, products and personnel of the acquired company;

•  The diversion of management’s attention from other business concerns;

•  Risks of entering markets in which we have limited or no prior experience; and

•  The potential loss of key employees of the acquired company.

      In the event that an acquisition or strategic investment does occur and we are unable to successfully integrate operations, technologies, products or personnel that we acquire, our business, results of operations and financial condition could be materially adversely affected.

Our stock price is volatile, which has and may result in lawsuits against us and our officers and directors.

      The stock market in general, and the stock prices in technology-based companies in particular, have experienced extreme volatility that often has been unrelated to the operating performance of any specific public company. The market price of our common stock has fluctuated in the past and is likely to

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fluctuate in the future as well. Factors which could have a significant impact on the market price of our common stock include, but are not limited to, the following:

•  Quarterly variations in operating results;

•  Announcements of new products by us or our competitors;

•  The gain or loss of significant customers;

•  Changes in analysts’ earnings estimates;

•  Rumors or dissemination of false information;

•  Pricing pressures;

•  Short selling of our common stock;

•  Dilution resulting from conversion of outstanding convertible subordinated notes into shares of our common stock;

•  General conditions in the computer, storage or communications markets; or

•  Events affecting other companies that investors deem to be comparable to us.

      In the past, companies that have experienced volatility in the market price of their stock have been the object of securities class action litigation. In this regard, we and certain of our officers and directors have been named as defendants in a number of securities class action lawsuits filed in the United States District Court, Central District of California. The plaintiffs in the actions purport to represent purchasers of our common stock during various periods ranging from January 18, 2001, through February 9, 2001. The complaints allege that we and certain of our officers and directors made misrepresentations and omissions in violation of sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended. The complaints generally seek compensatory damages, costs and attorney’s fees in an unspecified amount. Pursuant to a Stipulation and Court Order, the actions have been consolidated. On August 24, 2001, an Amended and Consolidated Complaint was filed which asserts the same claims as discussed above. The defendants filed a motion to dismiss the Amended and Consolidated Complaint, which was denied by way of an order dated March 7, 2002. Defendants have filed a motion for reconsideration of that order, which is scheduled to be heard on May 6, 2002. As a result of these class action lawsuits, a number of derivative cases were filed in state courts in California and Delaware, and in federal court in California, alleging that certain officers and directors breached their fiduciary duties to the Company in connection with the events alleged in the class action lawsuits. The derivative cases filed in California state courts have been consolidated in Orange County and plaintiffs filed a consolidated and amended complaint on January 31, 2002. The defendants have filed demurrers to the complaint, which are scheduled to be heard on May 10, 2002. The derivative suit in Delaware was dismissed on August 28, 2001. The defendants filed a motion to dismiss or stay the California federal derivative action and, on March 15, 2002, the court ordered that further proceedings should be stayed pending resolution of the class action lawsuit described above. All of these complaints generally seek compensatory damages, costs and attorney’s fees in an unspecified amount. Such litigation could result in substantial costs to us and a diversion of our management’s attention and resources. While we believe that the lawsuits are without legal merit and intend to defend them vigorously, because the lawsuits are at an early stage, it is not possible to predict whether we will incur any material liability in connection with such lawsuits. We have received inquiries about events giving rise to the lawsuits from the Securities and Exchange Commission and the Nasdaq Stock Market.

Our corporate offices and principal product development facilities are located in a region that is subject to earthquakes and other natural disasters.

      Our California facilities, including our corporate offices and principal product development facilities, are located near major earthquake faults. The Company is not specifically insured for earthquakes, or other such natural disasters. Any personal injury or damage to the facilities as a result of such occurrences could have a material adverse effect on our business, results of operations and financial condition.

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We do not plan to pay cash dividends on our common stock.

      We have never paid cash dividends on our common stock and do not anticipate paying any cash dividends in the foreseeable future. We intend to retain future earnings, if any, to finance the growth and expansion of our business and for general corporate purposes.

Our stockholder rights plan, certificate of incorporation and Delaware law could adversely affect the performance of our stock.

      Our stockholder rights plan and provisions of our certificate of incorporation and of the Delaware General Corporation Law could make it more difficult for a third party to acquire us, even if doing so would be beneficial to our stockholders. The stockholder rights plan and these provisions of our certificate of incorporation and Delaware law are intended to encourage potential acquirers to negotiate with us and allow our board of directors the opportunity to consider alternative proposals in the interest of maximizing stockholder value. However, such provisions may also discourage acquisition proposals or delay or prevent a change in control, which could harm our stock price. You should read Note 10 to the Consolidated Financial Statements in our most recently filed Annual Report on Form 10-K, our certificate of incorporation and Delaware law for more information on the anti-takeover effects of provisions of our stockholder rights plan.

Although we expect that our acquisition of Giganet, Inc. will result in benefits, those benefits may not be realized and our stock price may decline as a result.

      On March 1, 2001, we completed our acquisition of Giganet, Inc. Effective July 2, 2001, Giganet was merged with and into Emulex Corporation, a California corporation that is the primary operating subsidiary of the Company. Achieving the benefits of the acquisition will depend in part on our ability to integrate the technology, operations and personnel of the two companies in a timely and efficient manner so as to minimize the risk that the acquisition will result in the loss of customers or key employees. Integrating Emulex and Giganet will be a complex, time consuming and expensive process and may disrupt Emulex’s and Giganet’s business if not completed in a timely and efficient manner.

Integrating two companies like Emulex and Giganet involves a number of risks, including:

•  Diverting management’s attention from ongoing operations;

•  Difficulties and expenses in combining the operations, technology and systems of the two companies;

•  Difficulties and expenses in assimilating and retaining employees, including integrating teams that have not previously worked together;

•  Difficulties in creating and maintaining uniform standards, controls, procedures and policies;

•  Different geographic locations of the principal operations of Emulex and Giganet;

•  Challenges in attracting new customers;

•  Difficulties in demonstrating to existing customers that the acquisition will not result in adverse changes to product quality, lead time for product deliveries or customer service standards; and

•  Potential adverse short-term effects on operating results, primarily as a result of increased costs resulting from the integration of the operations of the two companies.

      We may not be able to successfully integrate the operations of Giganet or realize any of the anticipated benefits of an acquisition. A failure to do so could have a material adverse effect on our business, financial condition and operating results.

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The purchase accounting treatment of the acquisition of Giganet resulted in a sizable one-time in-process research and development charge, and in sizable recurring amortization charges for acquisition-related intangibles and other items, which have generated and will likely continue to generate net losses for us.

      We incurred a one-time charge of $22,280 for in-process research and development upon the close of the acquisition, which negatively impacted our results of operations in fiscal 2001. In addition, we have and will continue to incur acquisition-related expenses associated with the amortization of goodwill and other intangibles until the adoption of Financial Accounting Standards Board, or FASB, Statement 142 as well as noncash compensation charges arising out of Giganet options assumed by the Company. Furthermore, based on the overall decline in the valuations of technology companies and general economic conditions, as well as the extensive effort needed to comply with FASB Statements 141 and 142, it is reasonably possible that upon the adoption of FASB Statements 141 and 142, we will have a transitional impairment loss. The valuation of the acquisition was approximately $689,000 which resulted in approximately $642,000 of goodwill and other intangibles related to the acquisition. We are amortizing these intangibles over periods of two to seven years, and the resulting recurring quarterly charges are expected to exceed our current level of pretax earnings, until we adopt FASB Statement 142, potentially generating a net loss for us in upcoming quarters.

Competitors of Emulex and Giganet may increase their competitive pressures on the integrated businesses, or make announcements challenging the expected benefits of the acquisition, causing our stock price to decline.

      As integrated businesses, Emulex and Giganet will face the combined competitive pressure from existing competitors of both companies. Some of these competitors may see the integrated businesses as a new threat and exert greater competitive pressures than either company currently faced previously. Some competitors may join together, through agreements or acquisitions, to face the challenge or perceived challenge that the acquisition presents. If we are not able to adequately respond to this increased competition, the companies’ integrated businesses, financial conditions and operating results would be adversely affected.

      In addition, competitors may make public announcements that challenge or question our expectation that the acquisition will result in benefits. Such announcements could cause our stock price to decline. In addition, if such announcements require a response from us, such announcements could disrupt and delay our attempts to integrate the two companies, which could have a material adverse effect on our business, financial condition and operating results.

Risks Related to the Notes

These notes are unsecured and will be subordinated to any future senior indebtedness.

      The notes are general unsecured obligations of Emulex and will be subordinated in right of payment to all of our existing and future senior indebtedness. In the event of our bankruptcy, liquidation or reorganization or upon acceleration of the notes due to an event of default under the indenture and in certain other events, our assets will be available to pay obligations on the notes only after all senior indebtedness has been paid. As a result, there may not be sufficient assets remaining to pay amounts due on any or all of the outstanding notes. In addition, we will not make any payments on the notes in the event of payment defaults on any future senior indebtedness that we may incur.

      The notes also will be effectively subordinated to the liabilities, including trade payables, of our subsidiaries. We conduct a significant portion of our operations through subsidiaries. As of March 31, 2002, we had no senior indebtedness outstanding to which the notes would have been effectively subordinated.

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We and our subsidiaries are not restricted pursuant to the terms of the indenture from incurring substantially more debt. This could adversely affect our ability to pay our obligations on the notes.

      We and our subsidiaries may be able to incur substantial additional indebtedness in the future. Neither we nor our subsidiaries are restricted from incurring additional debt, including senior indebtedness, under the indenture. If we or our subsidiaries were to incur additional debt or liabilities, our ability to pay our obligations on the notes could be adversely affected. In addition, we are not restricted from paying dividends or issuing or repurchasing our securities under the indenture.

Use of the proceeds of the note offering may require us to raise additional capital in order to repay the notes.

      To the extent that we utilize the proceeds from the original private placement of the notes in a manner that results in us not having sufficient liquidity and capital resources to repay the principal amounts of the notes when due, we may not have sufficient capital resources to repay the notes. As a result, we may be forced to raise additional funds through public or private debt or equity financings, which may not be available on favorable terms, if at all. If such financings were not available on favorable terms, our results of operations and financial condition could be materially adversely affected.

We may be unable to meet the requirements under the indenture to purchase the notes upon a change in control.

      Upon a change in control, as defined in the indenture, the note holders may require us to purchase all or a portion of their notes. If a change in control were to occur, we may not have enough funds to pay the purchase price for all tendered notes. Future credit agreements or other agreements relating to our indebtedness might prohibit the redemption or repurchase of the notes and provide that a change in control constitutes an event of default. If a change in control occurs at a time when we are prohibited from purchasing the notes, we could seek the consent of our lenders to purchase the notes or could attempt to refinance this debt. If we do not obtain a consent, we could not purchase the notes. Our failure to purchase tendered notes would constitute an event of default under the indenture, which might constitute a default under the terms of other future debt. In such circumstances, the subordination provisions of the indenture would possibly limit or prohibit payments to the note holders. The term “change in control” is limited to certain specified transactions and may not include other events that might harm our financial condition. Our obligation to offer to purchase the notes upon a change in control would not necessarily afford the note holder protection in the event of a highly leveraged transaction, reorganization, merger or similar transaction involving us.

Our stock price is subject to volatility.

      Prior to electing to convert the notes, the note holder should compare the price at which our common stock is trading in the market to the conversion price of the notes. Our common stock trades on The Nasdaq National Market under the symbol “EMLX.” On April 25, 2002, the last reported sale price of our common stock on Nasdaq was $29.29 per share. The initial conversion price of the notes is $53.84 per share. There have been previous quarters in which we have experienced shortfalls in revenue and earnings from levels expected by securities analysts and investors, which have had an immediate and significant adverse effect on the trading price of our common stock. The market prices of our securities are subject to significant fluctuations. Such fluctuations, as well as economic conditions generally, may adversely affect the market price of our securities, including our common stock and the notes.

We are a holding company and depend on the business of our subsidiaries to satisfy our obligations under the notes.

      We are a holding company. Our subsidiaries conduct substantially all of our consolidated operations and own substantially all of our consolidated assets. Consequently, our cash flow and our ability to pay our debts depends on our subsidiaries’ cash flow and their payment of funds to us. In addition, our subsidiaries’

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ability to make any payments to us will depend on their earnings, the terms of their indebtedness, business and tax considerations, legal and regulatory restrictions and economic conditions.

An active trading market for the notes may not develop.

      We cannot assure you that an active trading market for the notes will develop or as to the liquidity or sustainability of any such market, the ability of holders to sell their notes or the price at which holders of the notes will be able to sell their notes. Future trading prices of the notes will depend on many factors, including, among other things, prevailing interest rates, our operating results, the price of our common stock and the market for similar securities.

The notes may not be rated or may receive a lower rating than anticipated.

      We believe it is unlikely that the notes will be rated. However, if one or more rating agencies rates the notes and assigns the notes a rating lower than the rating expected by investors, or reduces their rating in the future, the market price of the notes and our common stock would be harmed.

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RATIO OF EARNINGS TO FIXED CHARGES

      The ratio of earnings to fixed charges for each of the periods indicated is as follows:

	Year Ended										Six Months
											Ended
	June 27,		June 28,		June 27,		July 2,		July 1,		December 30,
	1997		1998		1999		2000		2001		2001
Ratio of earnings to fixed charges		4		N/A		34		319		51		N/A

      For the purposes of computing the ratio of earnings to fixed charges, earnings consist of income before provision for income taxes plus fixed charges. Fixed charges consist of interest charges and that portion of rental expense we believe to be representative of interest. Earnings, as defined, were not sufficient to cover fixed charges by 10,926 in fiscal 1998 and by 64,261 for the six months ended December 30, 2001.

USE OF PROCEEDS

      We will not receive any proceeds from the sale of the notes or the shares of common stock issuable upon conversion of the notes by the selling securityholders.

SELLING SECURITYHOLDERS

      The notes were originally issued by us and sold to the initial purchasers in a private placement on January 29, 2002. The initial purchasers resold the notes in transactions exempt from the registration requirements of the Securities Act to persons reasonably believed by the initial purchasers to be qualified institutional buyers within the meaning of Rule 144A under the Securities Act. Selling securityholders, including their transferees, pledgees or donees or their successors, may from time to time offer and sell pursuant to this prospectus any or all of the notes and common stock into which the notes are convertible.

      The following table sets forth information with respect to the selling securityholders and the principal amounts of notes beneficially owned by each selling securityholder that may be offered under this prospectus. The information is based on information provided by or on behalf of the selling securityholders to us in a selling securityholder questionnaire and is as of the date specified by the holders in those questionnaires. The selling securityholders may offer all, some or none of the notes or common stock into which the notes are convertible. Because the selling securityholders may offer all or some portion of the notes or the common stock, no estimate can be given as to the amount of the notes or the common stock that will be held by the selling securityholders upon termination of any sales. In addition, the selling securityholders identified below may have sold, transferred or otherwise disposed of all or a portion of their notes since the date on which they provided the information regarding their notes in transactions exempt from the registration requirements of the Securities Act. As of April 22, 2002, we had $345,000,000 in principal amount of the notes and                     shares of common stock outstanding. As of April 22, 2002, no selling securityholder named in the table below beneficially owns 1% or more of our common stock assuming conversion of a selling securityholder’s notes.

	Principal								Shares of
	Amount of								Common
	Notes				Shares of		Shares of		Stock Owned
	Beneficially				Common		Common		After
	Owned That		Percentage		Stock Owned		Stock That		Completion
	May Be		of Notes		Prior to the		May Be		of the
Name of Beneficial Owner	Offered		Outstanding		Offering(1)(2)		Offered(2)		Offering
1976 Distribution Trust FBO A.R. Lauder/ Zinterhofer	$	13,000		*		241		241		—
1976 Distribution Trust FBO Jane A. Lauder		24,000		*		445		445		—
2000 Revocable Trust FBO A.R. Lauder/ Zinterhofer		12,000		*		222		222		—

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	Principal									Shares of
	Amount of									Common
	Notes					Shares of		Shares of		Stock Owned
	Beneficially					Common		Common		After
	Owned That		Percentage			Stock Owned		Stock That		Completion
	May Be		of Notes			Prior to the		May Be		of the
Name of Beneficial Owner	Offered		Outstanding			Offering(1)(2)		Offered(2)		Offering
Advent Convertible Master Cayman L.P.	$	5,070,000		1.47	%		94,170		94,170		—
AFTRA Health Fund		170,000		*			3,157		3,157		—
Alpha US Sub Fund 4, LLC		625,000		*			11,608		11,608		—
Alta Partners Holdings LDC		10,000,000		2.90	%		185,740		185,740		—
Allentown City Firefighters Pension Plan		43,000		*			798		798		—
Allentown City Officers and Employees Pension Fund		15,000		*			278		278		—
Allentown City Police Pension Plan		81,000		*			1,504		1,504		—
Amaranth LLC		28,630,000		8.30	%		531,773		531,773		—
American Motorist Insurance Company		969,000		*			17,998		17,998		—
Arapahoe County Colorado		94,000		*			1,745		1,745		—
Arkansas Teachers Retirement System		3,352,000		*			62,260		62,260		—
Baptist Health of South Florida		554,000		*			10,289		10,289		—
Black Diamond Offshore Ltd.		720,000		*			13,373		13,373		—
Black Diamond Convertible Offshore LDC		724,000		*			13,447		13,447		—
British Virgin Islands Social Security Board		135,000		*			2,507		2,507		—
City of New Orleans		388,000		*			7,206		7,206		—
City University of New York		214,000		*			3,974		3,974		—
Double Black Diamond Offshore LDC		4,206,000		1.2	%		78,122		78,122		—
Engineers Joint Pension Fund		453,000		*			8,414		8,414		—
Grace Brothers Management, LLC		2,500,000		*			46,435		46,435		—
Grace Brothers, Ltd.		1,000,000		*			18,574		18,574		—
Grady Hospital Foundation		205,000		*			3,807		3,807		—
Granville Capital Corporation		5,000,000		1.5	%		92,870		92,870		—
HFR Convertible Arbitrage Account		525,000		*			9,751		9,751		—
Highbridge International LLC		20,000,000		5.8	%		371,480		371,480		—
Innovest Finanzdienstleistungs AG		450,000		*			8,358		8,358		—
KBC Financial Products (Cayman Islands) Limited		95,000,000		27.5	%		1,764,530		1,764,530		—
KBC Financial Products USA, Inc.		2,850,000		*			52,935		52,935		—
LDG Limited		500,000		*			9,287		9,287		—
Lumberman’s Mutual Casualty		486,000		*			9,026		9,026		—
Lyxor		375,000		*			6,965		6,965		—
Mainstay Convertible Fund		2,270,000		*			42,162		42,162		—

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	Principal									Shares of
	Amount of									Common
	Notes					Shares of		Shares of		Stock Owned
	Beneficially					Common		Common		After
	Owned That		Percentage			Stock Owned		Stock That		Completion
	May Be		of Notes			Prior to the		May Be		of the
Name of Beneficial Owner	Offered		Outstanding			Offering(1)(2)		Offered(2)		Offering
Mainstay VP Convertible Portfolio	$	740,000		*			13,744		13,744		—
Minnesota Power and Light		165,000		*			3,064		3,064		—
Motion Pictures Industry		533,000		*			9,899		9,899		—
Municipal Employees		350,000		*			6,500		6,500		—
New Orleans Firefighters Pension/Relief Fund		210,000		*			3,900		3,900		—
New York Life Insurance Company		3,550,000		1.0	%		65,937		65,937		—
New York Life Separate Account #7		270,000		*			5,014		5,014		—
Nicholas Applegate Convertible Fund		1,413,000		*			26,245		26,245		—
Occidental Petroleum Corporation		396,000		*			7,355		7,355		—
Physicians Life		177,000		*			3,287		3,287		—
Policeman and Firemen Retirement System of the City of Detroit		961,000		*			17,849		17,849		—
Pro-Mutual		1,151,000		*			21,378		21,378		—
Robertson Stevens		3,000,000		*			55,722		55,722		—
San Diego City Retirement		1,063,000		*			19,744		19,744		—
San Diego County Convertible		1,620,000		*			30,089		30,089		—
Screen Actors Guild Pension Convertible		490,000		*			9,101		9,101		—
Shell Pension Trust		611,000		*			11,348		11,348		—
Sunrue Partners LLC		12,270,000		3.6	%		227,902		227,902		—
The Grable Foundation		181,000		*			3,361		3,361		—
TQA Master Fund LTD		4,000,000		1.2	%		74,296		74,296		—
TQA Master Plus Fund LTD		4,000,000		1.2	%		74,296		74,296		—
Trustmark Insurance Company		529,000		*			9,825		9,825		—
Wake Forest University		667,000		*			12,388		12,388		—
Writers Guild-Industry Health Fund		290,000		*			5,386		5,386		—
Wyoming State Treasurer		952,000		*			17,682		17,682		—
Zurich Institutional Purchaser Mutual Fund Limited		500,000		*			9,287		9,287		—
Any other holders of notes or future transferee from any holder(3)(4)		117,258,000		34.0	%		2,177,980		2,177,980
Total	$	345,000,000		100	%		6,408,030		6,408,030		0

  * Less than one percent.

(1)	Includes common stock into which the notes are convertible.
(2)	Assumes a conversion rate of 18.574 shares per $1,000 principal amount of notes and a cash payment in lieu of any fractional interest.

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(3)	Information concerning other selling securityholders of notes and shares of common stock issuable upon conversion of the notes will be set forth in prospectus supplements from time to time, if required.
(4)	Assumes that any other holders of notes or any future transferee from any holder does not beneficially own any common stock other than common stock into which the notes are convertible at the conversion rate of 18.574 shares per $1,000 principal amount of notes.

      None of the selling securityholders nor any of their affiliates, officers, directors or principal equity holders has held any position or office or has had any material relationship with us within the past three years. We sold the notes to the initial purchaser in a private transaction on January 29, 2002. The selling securityholders purchased the notes from the initial purchasers in transactions exempt from the registration requirements of the Securities Act. All of the notes were “restricted securities” under the Securities Act prior to this registration.

      Information concerning the selling securityholders may change from time to time and any changed information will be set forth in supplements to this prospectus if and when necessary. In addition, the conversion rate, and therefore, the number of shares of common stock issuable upon conversion of the notes, is subject to adjustment under certain circumstances. Accordingly, the aggregate principal amount of notes and the number of shares of common stock into which the notes are convertible may increase or decrease. See, “Description of the Notes — Conversion of the Notes.”

PLAN OF DISTRIBUTION

      The selling securityholders and their successors, including their transferees, pledgees or donees or their successors, may sell the notes and the common stock into which the notes are convertible directly to purchasers or through underwriters, broker-dealers or agents, who may receive compensation in the form of discounts, concessions or commissions from the selling securityholders or the purchasers. These discounts, concessions or commissions as to any particular underwriter, broker-dealer or agent may be in excess of those customary in the types of transactions involved.

      The notes and the common stock into which the notes are convertible may be sold in one or more transactions at fixed prices, at prevailing market prices at the time of sale, at prices related to the prevailing market prices, at varying prices determined at the time of sale, or at negotiated prices. These sales may be effected in transactions, which may involve crosses or block transactions:

•  on any national securities exchange or U.S. inter-dealer system of a registered national securities association on which the notes or the common stock may be listed or quoted at the time of sale;

•  in the over-the-counter market;

•  in transactions other than on these exchanges or systems or in the over-the-counter market;

•  through the writing of options, whether the options are listed on an options exchange or otherwise; or

•  through the settlement of short sales.

      In connection with the sale of the notes and the common stock into which the notes are convertible or otherwise, the selling securityholders may enter into hedging transactions with broker-dealers or other financial institutions, which may in turn engage in short sales of the notes or the common stock into which the notes are convertible in the course of hedging the positions they assume. The selling securityholders may also sell the notes or the common stock into which the notes are convertible short and deliver these securities to close out their short positions, or loan or pledge the notes or the common stock into which the notes are convertible to broker-dealers that in turn may sell these securities.

      The aggregate proceeds to the selling securityholders from the sale of the notes or common stock into which the notes are convertible offered by them will be the purchase price of the notes or common stock

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less discounts and commissions, if any. Each of the selling securityholders reserves the right to accept and, together with their agents from time to time, to reject, in whole or in part, any proposed purchase of notes or common stock to be made directly or through agents. We will not receive any of the proceeds from this offering.

      Our outstanding common stock is listed for trading on the Nasdaq National Market. We do not intend to list the notes for trading on any national securities exchange or on the Nasdaq National Market and can give no assurance about the development of any trading market for the notes.

      In order to comply with the securities laws of some states, if applicable, the notes and common stock into which the notes are convertible may be sold in these jurisdictions only through registered or licensed brokers or dealers. In addition, in some states the notes and common stock into which the notes are convertible may not be sold unless they have been registered or qualified for sale or an exemption from registration or qualification requirements is available and is complied with.

      The selling securityholders and any underwriters, broker-dealers or agents that participate in the sale of the notes and common stock into which the notes are convertible may be “underwriters” within the meaning of Section 2(11) of the Securities Act. Any discounts, commissions, concessions or profit they earn on any resale of the shares may be underwriting discounts and commissions under the Securities Act. Selling securityholders who are “underwriters” within the meaning of Section 2(11) of the Securities Act will be subject to the prospectus delivery requirements of the Securities Act. The selling securityholders have acknowledged that they understand their obligations to comply with the provisions of the Exchange Act and the rules thereunder relating to stock manipulation, particularly Regulation M.

      In addition, any securities covered by this prospectus which qualify for sale pursuant to Rule 144 or Rule 144A of the Securities Act may be sold under Rule 144 or Rule 144A rather than pursuant to this prospectus. A selling securityholder may not sell any notes or common stock described in this prospectus and may not transfer, devise or gift these securities by other means not described in this prospectus.

      To the extent required, the specific notes or common stock to be sold, the names of the selling securityholders, the respective purchase prices and public offering prices, the names of any agent, dealer or underwriter, and any applicable commissions or discounts with respect to a particular offer will be set forth in an accompanying prospectus supplement or, if appropriate, a post-effective amendment to the registration statement of which this prospectus is a part.

      We entered into a registration rights agreement for the benefit of holders of the notes to register their notes and common stock under applicable federal and state securities laws under specific circumstances and at specific times. The registration rights agreement provides for cross-indemnification of the selling securityholders and us and our respective directors, officers and controlling persons against specific liabilities in connection with the offer and sale of the notes and the common stock, including liabilities under the Securities Act. We will pay substantially all of the expenses incurred by the selling securityholders incident to the offering and sale of the notes and the common stock.

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DESCRIPTION OF THE NOTES

      We issued the notes under an indenture dated as of January 29, 2002 between us and State Street Bank and Trust Company of California, N.A., as trustee. The following summarizes some, but not all, provisions of the notes and the indenture and the registration rights agreement. We urge you to read the indenture and the registration rights agreement because they, and not this description, define the rights of holders of the notes. A copy of the form of the registration rights agreement, the indenture and the form of certificate evidencing the notes will be made available to holders upon request.

      In this section of the prospectus entitled “Description of the Notes,” when we refer to “Emulex,” “we,” “our,” or “us,” we are referring to Emulex Corporation and not any of its subsidiaries.

General

      The notes are general unsecured obligations of Emulex and are subordinate in right of payment as described under “Subordination of Notes.” The notes are convertible into common stock as described under “Conversion of Notes.” The notes are limited to $345,000,000 aggregate principal amount.

      The notes are issued only in denominations of $1,000 or in multiples of $1,000. The notes will mature on February 1, 2007, unless earlier redeemed at our option or purchased by us at the holders’ option upon a change in control.

      Neither we nor our subsidiaries are restricted from paying dividends, incurring debt, or issuing or repurchasing our securities under the indenture. In addition, there are no financial covenants in the indenture. Holders are not protected under the indenture in the event of a highly leveraged transaction or a change in control of Emulex, except to the extent described under “Purchase of Notes Upon a Change in Control.”

      The notes bear interest at the annual rate of 1.75%, which rate may be increased as described in “Registration Rights” below, from January 29, 2002. Interest will be payable on February 1 and August 1 of each year, beginning August 1, 2002, subject to limited exceptions if the notes are converted, redeemed or purchased prior to the interest payment date. The record dates for the payment of interest will be January 15 and July 15. We may, at our option, pay interest on the notes by check mailed to the holders. However, a holder with an aggregate principal amount in excess of $2 million will be paid by wire transfer in immediately available funds upon its election if the holder has provided us with wire transfer instructions at least 10 business days prior to the payment date. Interest will be computed on the basis of a 360-day year comprised of twelve 30-day months. We will not be required to make any payment on the notes due on any day which is not a business day until the next succeeding business day. The payment made on the next succeeding business day will be treated as though it were paid on the original due date and no interest will accrue on the payment for the additional period of time.

      On our behalf, the trustee maintains an office in the City of New York where the notes may be presented for registration, transfer, exchange or conversion. Except under limited circumstances described below, the notes are issued only in fully-registered book-entry form, without coupons, and are represented by one or more global notes. There is no service charge for any registration of transfer or exchange of notes. We may, however, require holders to pay a sum sufficient to cover any tax or other governmental charge payable in connection with certain transfers or exchanges.

Conversion of Notes

      Holders will have the right, at their option, to convert their notes into shares of our common stock at any time prior to maturity, unless previously redeemed or purchased, at the conversion price of $53.84 per share, subject to the adjustments described below. This is equivalent to a conversion rate of approximately 18.574 shares per $1,000 principal amount of notes.

      Except as described below, we will not make any payment or other adjustment for accrued interest or dividends on any common stock issued upon conversion of the notes. If holders submit their notes for

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conversion between a record date and the opening of business on the next interest payment date (except for notes or portions of notes called for redemption or subject to purchase following a change in control on a redemption date or a purchase date, as the case may be, occurring during the period from the close of business on a record date and ending on the opening of business on the first business day after the next interest payment date, or if this interest payment date is not a business day, the second business day after the interest payment date), holders must pay funds equal to the interest payable on the principal amount being converted. As a result of the foregoing provisions, if the exception described in the preceding sentence does not apply and holders surrender their notes for conversion on a date that is not an interest payment date, holders will not receive any interest for the period from the interest payment date next preceding the date of conversion or for any later period.

      We will not issue fractional shares of common stock upon conversion of notes. Instead, we will pay cash for the fractional amount based upon the closing market price of the common stock on the last trading day prior to the date of conversion.

      If the notes are called for redemption or are subject to purchase following a change in control, the conversion rights of holders on the notes called for redemption or so subject to purchase will expire at the close of business on the last business day before the redemption date or purchase date, as the case may be, or such earlier date as the notes are presented for redemption or for purchase, unless we default in the payment of the redemption price or purchase price, in which case, the conversion rights will terminate at the close of business on the date the default is cured and the notes are redeemed or purchased. Holders who have submitted their notes for purchase upon a change in control may only convert their notes if they withdraw their election in accordance with the indenture.

      The conversion price will be adjusted upon the occurrence of:

      (1) the issuance of shares of our common stock as a dividend or distribution on our common stock;

      (2) the subdivision or combination of our outstanding common stock;

      (3) the issuance to all or substantially all holders of our common stock of rights or warrants entitling them for a period of not more than 60 days to subscribe for or purchase our common stock, or securities convertible into our common stock, at a price per share or a conversion price per share less than the then current market price per share, provided that the conversion price will be readjusted to the extent that such rights or warrants are not exercised prior to the expiration;

      (4) the distribution to all or substantially all holders of our common stock of shares of our capital stock, evidences of indebtedness or other non-cash assets, or rights or warrants, excluding:

 (A)  dividends, distributions and rights or warrants referred to in clause (1) or (3) above;

(B)	dividends or distributions exclusively in cash referred to in clause (5) below; and
(C)	distribution of rights to all holders of common stock pursuant to an adoption of a shareholder rights plan;

      (5) the dividend or distribution to all or substantially all holders of our common stock of all-cash distributions in an aggregate amount that together with:

 (A)  any cash and the fair market value of any other consideration payable in respect of any tender offer by us or any of our subsidiaries for our common stock consummated within the preceding 12 months not triggering a conversion price adjustment; and

 (B)  all other all-cash distributions to all or substantially all holders of our common stock made within the preceding 12 months not triggering a conversion price adjustment, exceeds an amount equal to 10% of our market capitalization on the business day immediately preceding the day on which we declare such distribution; and

25

      (6) the purchase of our common stock pursuant to a tender offer made by us or any of our subsidiaries to the extent that the same involves aggregate consideration that together with:

(A)  any cash and the fair market value of any other consideration payable in respect of any tender offer by us or any of our subsidiaries for our common stock consummated within the preceding 12 months not triggering a conversion price adjustment; and

(B)  all-cash distributions to all or substantially all holders of our common stock made within the preceding 12 months not triggering a conversion price adjustment, exceeds an amount equal to 10% of our market capitalization on the expiration date of such tender offer.

      To the extent that our rights plan is still in effect, upon conversion of the notes into common stock, the holders will receive, in addition to the common stock, the rights described in our rights plan, whether or not the rights have separated from the common stock at the time of conversion, subject to certain limited exceptions. See “Description of Capital Stock.” If we implement a new rights plan, we will be required under the indenture to provide that the holders of notes will receive the rights upon conversion of the notes, whether or not these rights were separated from the common stock prior to conversion, subject to certain limited exceptions.

      In the event of:

•  any reclassification of our common stock;

•  a consolidation, merger or combination involving Emulex; or

•  a sale or conveyance to another person of the property and assets of Emulex as an entirety or substantially as an entirety,

in which holders of our outstanding common stock would be entitled to receive stock, other securities, other property, assets or cash for their common stock, holders of notes will generally be entitled to convert their notes into the same type of consideration received by common stock holders immediately prior to one of these types of events.

      Holders may, in some circumstances, be deemed to have received a distribution or dividend subject to United States federal income tax as a result of an adjustment or the nonoccurrence of an adjustment to the conversion price. See “Certain United States Federal Income Tax Considerations.”

      We are permitted to reduce the conversion price of the notes by any amount for a period of at least 20 days if our board of directors determines that such reduction would be in our best interest. We are required to give at least 15 days prior notice of any reduction in the conversion price. We may also reduce the conversion price to avoid or diminish income tax to holders of our common stock in connection with a dividend or distribution of stock or similar event.

      No adjustment in the conversion price will be required unless it would result in a change in the conversion price of at least one percent. Any adjustment not made will be taken into account in subsequent adjustments. Except as stated above, we will not adjust the conversion price for the issuance of our common stock or any securities convertible into or exchangeable for our common stock or the right to purchase our common stock or such convertible or exchangeable securities.

Subordination of Notes

      The payment of the principal of, premium, if any, and interest on the notes is subordinated to the prior payment in full, in cash or other payment satisfactory to the holders of any future senior indebtedness. If we dissolve, wind-up, liquidate or reorganize, or if we are the subject of any bankruptcy, insolvency, receivership or similar proceedings, we will pay the holders of senior indebtedness in full in cash or other payment satisfactory to the holders of senior indebtedness before we pay the holders of the notes. If the notes are accelerated because of an event of default we must pay the holders of senior indebtedness in full all amounts due and owing thereunder before we pay the note holders. The indenture

26

requires that we must promptly notify holders of senior indebtedness if payment of the notes is accelerated because of an event of default under the indenture.

      We may not make any payment on the notes or purchase or otherwise acquire the notes if:

•  a default in the payment of any designated senior indebtedness occurs and is continuing beyond any applicable period of grace, or

•  any other default of designated senior indebtedness occurs and is continuing that permits holders of the designated senior indebtedness to accelerate its maturity and the trustee receives a payment blockage notice from us or other persons permitted to give such notice under the indenture.

We are required to resume payments on the notes:

•  in case of a payment default, upon the date on which such default is cured or waived or ceases to exist, and

•  in case of a nonpayment default, the earlier of the date on which such nonpayment default is cured or waived or ceases to exist or 179 days after the date on which the payment blockage notice is received.

No new period of payment blockage may be commenced for a default unless:

•  365 days have elapsed since the effectiveness of the immediately prior payment blockage notice, and

•  all scheduled payments on the notes that have come due have been paid in full in cash.

No nonpayment default that existed or was continuing on the date of delivery of any payment blockage notice shall be the basis for a subsequent payment blockage notice.

      As a result of these subordination provisions, in the event of our bankruptcy, dissolution or reorganization, holders of senior indebtedness may receive more, ratably, and holders of the notes may receive less, ratably, than our other creditors. These subordination provisions will not prevent the occurrence of any event of default under the indenture.

      If either the trustee or any holder of notes receives any payment or distribution of our assets in contravention of these subordination provisions before all senior indebtedness is paid in full, then such payment or distribution will be held by the recipient in trust for the benefit of holders of senior indebtedness to the extent necessary to make payment in full of all senior indebtedness remaining unpaid.

      A portion of our operations are conducted through subsidiaries. As a result, our cash flow and our ability to service our debt, including the notes, would depend upon the earnings of our subsidiaries. In addition, we would be dependent on the distribution of earnings, loans or other payments by our subsidiaries to us.

      Our subsidiaries are separate and distinct legal entities. Our subsidiaries have no obligation to pay any amounts due on the notes or to provide us with funds for our payment obligations, whether by dividends, distributions, loans or other payments. In addition, any payment of dividends, distributions, loans or advances by our subsidiaries will also be contingent upon our subsidiaries’ earnings and could be subject to contractual or statutory restrictions.

      Our right to receive any assets of any of our subsidiaries upon their liquidation or reorganization, and therefore the right of the holders of the notes to participate in those assets, will be structurally subordinated to the claims of that subsidiary’s creditors, including trade creditors. In addition, even if we were a creditor of any of our subsidiaries, our rights as a creditor would be subordinate to any security interest in the assets of our subsidiaries and any indebtedness of our subsidiaries senior to that held by us.

      As of March 31, 2002, we and our subsidiaries had no senior indebtedness outstanding to which the notes would be effectively subordinated.

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      Neither we nor our subsidiaries are limited from incurring senior indebtedness or additional debt under the indenture. If we incur additional debt, our ability to pay our obligations on the notes could be affected. We expect from time to time to incur additional indebtedness and other liabilities.

      We are obligated to pay reasonable compensation to the trustee. We will indemnify the trustee against any losses, liabilities or expenses incurred by it in connection with its duties. The trustee’s claims for such payments will be senior to the claims of the note holders.

      Certain defined terms set forth herein have the following meanings:

      “Designated senior indebtedness” means any senior indebtedness in which the instrument creating or evidencing the indebtedness, or any related agreements or documents to which we are a party, expressly provides that such indebtedness is “designated senior indebtedness” for purposes of the indenture (provided that the instrument, agreement or other document may place limitations and conditions on the right of the senior indebtedness to exercise the rights of designated senior indebtedness).

      “Indebtedness” means:

      (1) all of our indebtedness, obligations and other liabilities, contingent or otherwise, (A) for borrowed money, including overdrafts, foreign exchange contracts, currency exchange agreements, interest rate protection agreements, and any loans or advances from banks, whether or not evidenced by notes or similar instruments, or (B) evidenced by credit or loan agreements, bonds, debentures, notes or similar instruments, whether or not the recourse of the lender is to the whole of the assets of Emulex or to only a portion thereof, other than any account payable or other accrued current liability or obligation incurred in the ordinary course of business in connection with the obtaining of materials or services;

      (2) all of our reimbursement obligations and other liabilities, contingent or otherwise, with respect to letters of credit, bank guarantees or bankers’ acceptances;

      (3) all of our obligations and liabilities, contingent or otherwise, in respect of leases required, in conformity with generally accepted accounting principles, to be accounted for as capitalized lease obligations on our balance sheet;

      (4) all of our obligations and other liabilities, contingent or otherwise, under any lease or related document, including a purchase agreement, conditional sale or other title retention agreement, in connection with the lease of real property or improvements thereon (or any personal property included as part of any such lease) which provides that we are contractually obligated to purchase or cause a third party to purchase the leased property or pay an agreed upon residual value of the leased property, including our obligations under such lease or related document to purchase or cause a third party to purchase such leased property or pay an agreed upon residual value of the leased property to the lessor;

      (5) all of our obligations, contingent or otherwise, with respect to an interest rate or other swap, cap, floor or collar agreement or hedge agreement, forward contract or other similar instrument or agreement or foreign currency hedge, exchange, purchase or similar instrument or agreement;

      (6) all of our direct or indirect guaranties or similar agreements by us in respect of, and all of our obligations or liabilities to purchase or otherwise acquire or otherwise assure a creditor against loss in respect of, indebtedness, obligations or liabilities of another person of the kinds described in clauses (1) through (5);

      (7) any and all deferrals, renewals, extensions, refinancings and refundings of, or amendments, modifications or supplements to, any indebtedness, obligation or liability of the kinds described in clauses (1) through (6).

      “Senior indebtedness” means the principal of, premium, if any, interest, including any interest accruing after the commencement of any bankruptcy or similar proceeding, whether or not a claim for post-petition interest is allowed as a claim in the proceeding, and rent payable on or in connection with,

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and all fees, costs, expenses and other amounts accrued or due on or in connection with, indebtedness of Emulex whether secured or unsecured, absolute or contingent, due or to become due, outstanding on the date of the indenture or thereafter created, incurred, assumed, guaranteed or in effect guaranteed by Emulex, including all deferrals, renewals, extensions or refundings of, or amendments, modifications or supplements to, the foregoing. Senior indebtedness does not include:

      (1) indebtedness that expressly provides that such indebtedness shall not be senior in right of payment to the notes or expressly provides that such indebtedness is on the same basis or junior to the notes; and

      (2) any indebtedness to any of our majority-owned subsidiaries, other than indebtedness to our subsidiaries arising by reason of guarantees by us of indebtedness of such subsidiary to a person that is not our subsidiary.

Optional Redemption by Emulex

      We may redeem the notes on or after February 5, 2005, on at least 20 days and no more than 60 days notice, in whole or in part, at the following redemption prices expressed as percentages of the principal amount:

	Redemption
Period	Price
Beginning on February 5, 2005, through January 31, 2006		100.44	%
Beginning on February 1, 2006, and thereafter		100.00	%

In each case, together with accrued interest up to but not including the redemption date; provided that if the redemption date falls after an interest payment record date and on or before an interest payment date, then the interest payment shall be payable to holders of record on the relevant record date.

      If we decide to redeem fewer than all of the notes, the trustee will select the notes to be redeemed by lot, or in its discretion, on a pro rata basis. If any note is to be redeemed in part only, a new note in principal amount equal to the unredeemed principal portion will be issued. If a portion of a holders’ notes are selected for partial redemption and a holder convert a portion of its notes, the converted portion will be deemed to be part of the portion selected for redemption.

      No sinking fund is provided for the notes.

Purchase of Notes upon a Change in Control

      If a change in control occurs, holders will have the right to require us to purchase all or any part of their notes 30 business days after the occurrence of such change in control at a purchase price equal to 100% of the principal amount of the notes together with accrued and unpaid interest to, but excluding, the purchase date. Notes submitted for purchase must be in integral multiples of $1,000 principal amount.

      We will mail to the trustee and to each holder a written notice of the change in control within 10 business days after the occurrence of such change in control. This notice shall state certain specified information, including:

•  information about and the terms and conditions of the change in control;

•  information about the holders’ right to convert the notes;

•  the holders’ right to require us to purchase the notes;

•  the procedures required for exercise of the purchase option upon the change in control; and

•  the name and address of the paying and conversion agents.

      Holders must deliver written notice of their exercise of this purchase right to the paying agent at any time prior to the close of business on the business day prior to the change in control purchase date. The

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written notice must specify the notes for which the purchase right is being exercised. A holder who wishes to withdraw this election must provide a written notice of withdrawal to the paying agent at any time prior to the close of business on the business day prior to the change in control purchase date.

      A change in control will be deemed to have occurred if any of the following occurs:

•  any “person” or “group” is or becomes the “beneficial owner,” directly or indirectly, of shares of our voting stock representing 50% or more of the total voting power of all outstanding classes of our voting stock or has the power, directly or indirectly, to elect a majority of the members of our board of directors;

•  we consolidate with, or merge with or into, another person or we sell, assign, convey, transfer, lease or otherwise dispose of all or substantially all of our assets, or any person consolidates with, or merges with or into, us, in any such event other than pursuant to a transaction in which the persons that “beneficially owned,” directly or indirectly, the shares of our voting stock immediately prior to such transaction “beneficially own,” directly or indirectly, shares of our voting stock representing at least a majority of the total voting power of all outstanding classes of voting stock of the surviving or transferee person; or

•  the holders of our capital stock approve any plan or proposal for the liquidation or dissolution of Emulex (whether or not otherwise in compliance with the indenture).

      However, a change in control will not be deemed to have occurred if either:

•  the last sale price of our common stock for any five trading days during the ten trading days immediately preceding the change in control is at least equal to 105% of the conversion price in effect on such day; or

•  in the case of a merger or consolidation, all of the consideration (excluding cash payments for fractional shares and cash payments pursuant to dissenters’ appraisal rights) in the merger or consolidation constituting the change in control consists of common stock traded on a United States national securities exchange or quoted on the Nasdaq National Market (or which will be so traded or quoted when issued or exchanged in connection with such change in control) and as a result of such transaction or transactions the notes become convertible solely into such common stock.

For purposes of this change in control definition:

•  “person” or “group” have the meanings given to them for purposes of Sections 13(d) and 14(d) of the Exchange Act or any successor provisions, and the term “group” includes any group acting for the purpose of acquiring, holding or disposing of securities within the meaning of Rule 13d-5(b)(1) under the Exchange Act, or any successor provision;

•  a “beneficial owner “will be determined in accordance with Rule 13d-3 under the Exchange Act, as in effect on the date of the indenture, except that the number of shares of our voting stock will be deemed to include, in addition to all outstanding shares of our voting stock and unissued shares deemed to be held by the “person” or “group” or other person with respect to which the change in control determination is being made, all unissued shares deemed to be held by all other persons;

•  “beneficially own” and “beneficially owned” have meanings correlative to that of beneficial owner;

•  “unissued shares” means shares of voting stock not outstanding that are subject to options, warrants, rights to purchase or conversion privileges exercisable within 60 days of the date of determination of a change in control; and

•  “voting stock” means any class or classes of capital stock or other interests then outstanding and normally entitled (without regard to the occurrence of any contingency) to vote in the election of the board of directors, managers or trustees.

      The term “all or substantially all” as used in the definition of change in control will likely be interpreted under applicable state law and will be dependent upon particular facts and circumstances.

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There may be a degree of uncertainty in interpreting this phrase. As a result, we cannot give any assurance as to how a court would interpret this phrase under applicable law if holders elect to exercise their rights following the occurrence of a transaction which holders believe constitutes a transfer of “all or substantially all” of our assets.

      We will under the indenture:

•  comply with the provisions of Rule 13e-4 and Rule 14e-1, if applicable, under the Exchange Act;

•  file a Schedule TO or any successor or similar schedule, if required, under the Exchange Act; and

•  otherwise comply with all federal and state securities laws in connection with any offer by us to purchase the notes upon a change in control.

      This change in control purchase feature may make more difficult or discourage a takeover of us and the removal of incumbent management. We are not, however, aware of any specific effort to accumulate shares of our common stock or to obtain control of us by means of a merger, tender offer, solicitation or otherwise. In addition, the change in control purchase feature is not part of a plan by management to adopt a series of anti-takeover provisions. Instead, the change in control purchase feature is a result of negotiations between us and the initial purchasers.

      We could, in the future, enter into certain transactions, including recapitalizations, that would not constitute a change in control but would increase the amount of debt, including senior indebtedness, outstanding or otherwise adversely affect a holder. Neither we nor our subsidiaries are prohibited from incurring debt, including senior indebtedness, under the indenture. The incurrence of significant amounts of additional debt could adversely affect our ability to service our debt, including the notes.

      We could enter into future debt agreements that may prohibit our redemption or repurchase of the notes and provide that a change in control constitutes an event of default.

      We may not purchase any note at any time when the subordination provisions of the indenture otherwise would prohibit us from making such repurchase. If we fail to repurchase the notes when required, this failure will constitute an event of default under the indenture whether or not repurchase is permitted by the subordination provisions of the indenture.

      If a change in control were to occur, we may not have sufficient funds to pay the change in control purchase price for the notes tendered by holders. In addition, we may in the future incur debt that has similar change of control provisions that permit holders of this debt to accelerate or require us to repurchase this debt upon the occurrence of events similar to a change in control. Our failure to repurchase the notes upon a change in control will result in an event of default under the indenture, whether or not the purchase is permitted by the subordination provisions of the indenture.

Events of Default

      Each of the following will constitute an event of default under the indenture:

      (1) we fail to pay principal or premium, if any, on any note when due, whether or not prohibited by the subordination provisions of the indenture;

      (2) we fail to pay any interest, including any additional interest, on any note when due if such failure continues for 30 days, whether or not prohibited by the subordination provisions of the indenture;

      (3) we fail to perform any other covenant required of us in the indenture if such failure continues for 60 days after notice is given in accordance with the indenture;

      (4) we fail to pay the purchase price of any note when due, whether or not prohibited by the subordination provisions of the indenture;

      (5) we fail to provide timely notice of;

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      (6) any indebtedness for money borrowed by us or one of our significant subsidiaries (all or substantially all of the outstanding voting securities of which are owned, directly, or indirectly, by us) in an outstanding principal amount in excess of $35 million is not paid at final maturity or upon acceleration and such indebtedness is not discharged, or such default in payment or acceleration is not cured or rescinded within 30 days after written notice as provided in the indenture; and

      (7) certain events in bankruptcy, insolvency or reorganization of us or any of our significant subsidiaries.

      If an event of default, other than an event of default described in clause (7) above with respect to us, occurs and is continuing, either the trustee or the holders of at least 25% in aggregate principal amount of the outstanding notes may declare the principal amount of the notes to be due and payable immediately. If an event of default described in clause (7) above occurs with respect to us, the principal amount of the notes will automatically become immediately due and payable. Any payment by us on the notes following any acceleration will be subject to the subordination provisions described above.

      After any such acceleration, but before a judgment or decree based on acceleration, the holders of a majority in aggregate principal amount of the notes may, under certain circumstances, rescind and annul such acceleration if all events of default, other than the non-payment of accelerated principal, have been cured or waived.

      Subject to the trustee’s duties in the case of an event of default, the trustee will not be obligated to exercise any of its rights or powers at the request of the holders, unless the holders have offered to the trustee reasonable indemnity. Subject to the indenture, applicable law and the trustee’s indemnification, the holders of a majority in aggregate principal amount of the outstanding notes will have the right to direct the time, method and place of conducting any proceeding for any remedy available to the trustee or exercising any trust or power conferred on the trustee with respect to the notes.

      No holder will have any right to institute any proceeding under the indenture, or for the appointment of a receiver or a trustee, or for any other remedy under the indenture unless:

•  the holder has previously given the trustee written notice of a continuing event of default;

•  the holders of at least 25% in aggregate principal amount of the notes then outstanding have made a written request and have offered reasonable indemnity to the trustee to institute such proceeding as trustee; and

•  the trustee has failed to institute such proceeding within 60 days after such notice, request and offer, and has not received from the holders of a majority in aggregate principal amount of the notes then outstanding a direction inconsistent with such request within 60 days after such notice, request and offer.

      However, the above limitations do not apply to a suit instituted by a holder for the enforcement of payment of the principal of or any premium or interest on any note on or after the applicable due date or the right to convert the note in accordance with the indenture.

      Generally, the holders of not less than a majority of the aggregate principal amount of outstanding notes may waive any default or event of default unless:

•  we fail to pay principal, premium or interest on any note when due;

•  we fail to convert any note into common stock; or

•  we fail to comply with any of the provisions of the indenture that would require the consent of the holder of each outstanding note affected.

      We are required to furnish to the trustee, on an annual basis, a statement by our officers as to whether or not Emulex, to the officer’s knowledge, is in default in the performance or observance of any of the terms, provisions and conditions of the indenture, specifying any known defaults.

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Modification and Waiver

      We and the trustee may amend or supplement the indenture or the notes with the consent of the holders of a majority in aggregate principal amount of the outstanding notes. In addition, the holders of a majority in aggregate principal amount of the outstanding notes may waive our compliance in any instance with any provision of the indenture without notice to the note holders. However, no amendment, supplement or waiver may be made without the consent of the holder of each outstanding note if such amendment, supplement or waiver would:

•  change the stated maturity of the principal of, or interest on, any note;

•  reduce the principal amount of or any premium or interest on any note;

•  reduce the amount of principal payable upon acceleration of the maturity of any note;

•  change the place or currency of payment of principal of, or any premium or interest on, any note;

•  impair the right to institute suit for the enforcement of any payment on, or with respect to, any note;

•  modify the provisions with respect to the purchase right of the holders upon a change in control in a manner adverse to holders;

•  modify the subordination provisions in a manner materially adverse to the holders of notes;

•  adversely affect the right of holders to convert notes other than as provided in the indenture;

•  reduce the percentage in principal amount of outstanding notes required for modification or amendment of the indenture;

•  reduce the percentage in principal amount of outstanding notes necessary for waiver of compliance with certain provisions of the indenture or for waiver of certain defaults; or

•  modify provisions with respect to modification and waiver (including waiver of events of default), except to increase the percentage required for modification or waiver or to provide for consent of each affected note holder.

      We and the trustee may amend or supplement the indenture or the notes without notice to, or the consent of, the note holders to, among other things, cure any ambiguity, defect or inconsistency or make any other change that does not adversely affect the rights of any note holder.

Consolidation, Merger and Sale of Assets

      We may not consolidate with or merge into any person in a transaction in which we are not the surviving person or convey, transfer or lease our properties and assets substantially as an entirety to any successor person, unless:

•  the successor person, if any, is a corporation organized and existing under the laws of the United States, any state of the United States, or the District of Columbia and assumes our obligations on the notes and under the indenture; and

•  immediately after giving effect to the transaction, no default or event of default shall have occurred and be continuing; and other conditions specified in the indenture are met.

Registration Rights

      The following description is a summary of the material terms of the registration rights agreement. Holders should refer to the registration rights agreement and the notes for a full description of the registration rights that apply to the notes.

      We have agreed to file this shelf registration statement under the Securities Act not later than 90 days after the first date of the original issuance of the notes to register resales of the notes and the

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shares of common stock into which the notes are convertible. The notes and the common stock issuable upon conversion of the notes are referred to collectively as “registrable securities.” We will use our best efforts to have this shelf registration statement declared effective as promptly as practicable but not later than 180 days after the first date of the original issuance of the notes, and to keep it effective until the earliest of:

      (1) two years from the date we file the shelf registration statement;

      (2) the date when all registrable securities shall have been registered under the Securities Act and disposed of; and

      (3) the date on which all registrable securities held by non-affiliates are eligible to be sold to the public pursuant to Rule 144(k) under the Securities Act.

      A holder of registrable securities that sells registrable securities pursuant to the shelf registration statement generally will be required to provide information about itself and the specifics of the sale, be named as a selling securityholder in the related prospectus, deliver a prospectus to purchasers, be subject to relevant civil liability provisions under the Securities Act in connection with such sales and be bound by the provisions of the registration rights agreement which are applicable to such holder.

      If:

      (1) on or prior to the 90th day after the latest date of original issuance of the notes, the shelf registration statement has not been filed with the SEC;

      (2) on or prior to the 180th day after the latest date of original issuance of the notes, the shelf registration statement has not been declared effective by the SEC;

      (3) after the shelf registration statement has been declared effective but (A) the shelf registration statement thereafter ceases to be effective or (B) the shelf registration statement or the prospectus ceases to be usable in accordance with and during the periods specified in the registration rights agreement (subject to certain exceptions),

(we refer to each such event described above in clauses (1) through (3) as a registration default), additional interest will accrue on the notes that are registrable securities in addition to the rate set forth in the title of the notes, from and including the date on which any such registration default occurs to, but excluding, the date on which the registration default has been cured, at the rate of 0.5% per year. However, a registration default pursuant to (3) above, shall be deemed not to have occurred and be continuing in relation to the shelf registration statement or the related prospectus if we proceed promptly and in good faith to amend or supplement the shelf registration statement and related prospectus so as to cure any defects that cause it not to be usable; provided, however, that in any case if a registration default occurs (1) for a period in excess of 45 days in any 90 day period or (ii) for an aggregate of 90 days in any 12 month period, additional interest shall be payable in accordance with the preceding sentence from the day such registration default occurs until such registration default is cured. In addition, pursuant to the terms of the registration rights agreement, in the sole event that the SEC does not permit us to include a holder as a selling securityholder in the shelf registration statement after it has been declared effective and we are required to file a new registration statement, we will not be deemed to be in default pursuant to (3) above from the date we are notified by the SEC until the date the new registration statement is declared effective.

      We have given notice of our intention to file the shelf registration statement, which we refer to as a filing notice, to each of the holders of the notes in the same manner as we would give notice to holders of notes under the indenture.

      We will give notice to all holders who have provided us with the notice and questionnaire described below of the effectiveness of the shelf registration statement. Holders are required to deliver a notice and questionnaire prior to the effectiveness of the shelf registration statement so that they can be named as selling securityholders in the prospectus. Upon receipt of completed questionnaires from holders after the

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effectiveness of the shelf registration statement, we will, as promptly as practicable, file any amendments or supplements to the shelf registration statement so that holders may use the prospectus.

      We will pay all registration expenses of the shelf registration, provide each holder that is selling registrable securities pursuant to the shelf registration statement copies of the shelf registration statement and related prospectus and take other actions as are required to permit, subject to the foregoing, unrestricted resales of the registrable securities.

Satisfaction and Discharge

      We may discharge our obligations under the indenture while notes remain outstanding if (1) all outstanding notes have or will become due and payable at their scheduled maturity within one year or (2) all outstanding notes are scheduled for redemption within one year, and, in either case, we have deposited with the trustee an amount sufficient to pay and discharge all outstanding notes on the date of their scheduled maturity or the scheduled date of redemption.

Transfer and Exchange

      We have initially appointed the trustee as the security registrar, paying agent and conversion agent, acting through its corporate trust office. We reserve the right to:

•  vary or terminate the appointment of the security registrar, paying agent or conversion agent;

•  appoint additional paying agents or conversion agents; or

•  approve any change in the office through which any security registrar or any paying agent or conversion agent acts.

Purchase and Cancellation

      All notes surrendered for payment, redemption, registration of transfer or exchange or conversion shall, if surrendered to any person other than the trustee, be delivered to the trustee. All notes delivered to the trustee shall be cancelled promptly by the trustee. No notes shall be authenticated in exchange for any notes cancelled as provided in the indenture.

      We may, to the extent permitted by law, purchase notes in the open market or by tender offer at any price or by private agreement. Any notes purchased by us may, to the extent permitted by law, be reissued or resold or may, at our option, be surrendered to the trustee for cancellation. Any notes surrendered for cancellation may not be reissued or resold and will be promptly cancelled. Any notes held by us or one of our subsidiaries shall be disregarded for voting purposes in connection with any notice, waiver, consent or direction requiring the vote or concurrence of note holders.

Replacement of Notes

      We will replace mutilated, destroyed, stolen or lost notes at the holder’s expense upon delivery to the trustee of the mutilated notes, or evidence of the loss, theft or destruction of the notes satisfactory to us and the trustee. In the case of a lost, stolen or destroyed note, indemnity satisfactory to the trustee and us may be required at the expense of the holder of such note before a replacement note will be issued.

Governing Law

      The indenture and the notes will be governed by, and construed in accordance with, the law of the State of New York, without regard to conflicts of laws principles.

Concerning the Trustee

      State Street Bank and Trust Company of California, N.A. has agreed to serve as the trustee under the indenture. The trustee will be permitted to deal with us and any of our affiliates with the same rights

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as if it were not trustee. However, under the Trust Indenture Act, if the trustee acquires any conflicting interest and there exists a default with respect to the notes, the trustee must eliminate such conflict or resign.

      The holders of a majority in principal amount of all outstanding notes will have the right to direct the time, method and place of conducting any proceeding for exercising any remedy or power available to the trustee. However, any such direction may not conflict with any law or the indenture, may not be unduly prejudicial to the rights of another holder or the trustee and may not involve the trustee in personal liability.

Book-Entry, Delivery and Form

      We initially issued the notes in the form of one or more global securities. The global security was deposited with the trustee as custodian for The Depository Trust Company, or DTC, and registered in the name of a nominee of DTC. Except as set forth below, the global security may be transferred, in whole and not in part, only to DTC or another nominee of DTC. Holders may hold their beneficial interests in the global security directly through DTC if they have an account with DTC or indirectly through organizations that have accounts with DTC. Notes in definitive certificated form (called “certificated securities”) will be issued only in certain limited circumstances described below.

      DTC has advised us that it is:

•  a limited purpose trust company organized under the laws of the State of New York;

•  a member of the Federal Reserve System;

•  a “clearing corporation” within the meaning of the New York Uniform Commercial Code; and

•  a “clearing agency” registered pursuant to the provisions of Section 17A of the Exchange Act.

      DTC was created to hold securities of institutions that have accounts with DTC (called “participants”) and to facilitate the clearance and settlement of securities transactions among its participants in such securities through electronic book-entry changes in accounts of the participants, thereby eliminating the need for physical movement of securities certificates. DTC’s participants include securities brokers and dealers, which may include the initial purchasers, banks, trust companies, clearing corporations and certain other organizations. Access to DTC’s book-entry system is also available to others such as banks, brokers, dealers and trust companies (called, the “indirect participants”) that clear through or maintain a custodial relationship with a participant, whether directly or indirectly.

      We expect that pursuant to procedures established by DTC upon the deposit of the global security with DTC, DTC will credit, on its book-entry registration and transfer system, the principal amount of notes represented by such global security to the accounts of participants. The accounts to be credited shall be designated by the initial purchasers. Ownership of beneficial interests in the global security will be limited to participants or persons that may hold interests through participants. Ownership of beneficial interests in the global security will be shown on, and the transfer of those beneficial interests will be effected only through, records maintained by DTC (with respect to participants’ interests), the participants and the indirect participants. The laws of some jurisdictions may require that certain purchasers of securities take physical delivery of such securities in definitive form. These limits and laws may impair the ability to transfer or pledge beneficial interests in the global security.

      Owners of beneficial interests in global securities who desire to convert their interests into common stock should contact their brokers or other participants or indirect participants through whom they hold such beneficial interests to obtain information on procedures, including proper forms and cut-off times, for submitting requests for conversion.

      So long as DTC, or its nominee, is the registered owner or holder of a global security, DTC or its nominee, as the case may be, will be considered the sole owner or holder of the notes represented by the global security for all purposes under the indenture and the notes. In addition, no owner of a beneficial

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interest in a global security will be able to transfer that interest except in accordance with the applicable procedures of DTC. Except as set forth below, as owners of a beneficial interest in the global security, holders will not be entitled to have the notes represented by the global security registered in their name, will not receive or be entitled to receive physical delivery of certificated securities and will not be considered to be the owner or holder of any notes under the global security. We understand that under existing industry practice, if an owner of a beneficial interest in the global security desires to take any action that DTC, as the holder of the global security, is entitled to take, DTC would authorize the participants to take such action, and the participants would authorize beneficial owners owning through such participants to take such action or would otherwise act upon the instructions of beneficial owners owning through them.

      We will make payments of principal, premium, if any, and interest (including any additional interest) on the notes represented by the global security registered in the name of and held by DTC or its nominee to DTC or its nominee, as the case may be, as the registered owner and holder of the global security. Neither we, the trustee nor any paying agent will have any responsibility or liability for any aspect of the records relating to or payments made on account of beneficial interests in the global security or for maintaining, supervising or reviewing any records relating to such beneficial interests.

      We expect that DTC or its nominee, upon receipt of any payment of principal of, premium, if any, or interest (including additional interest) on the global security, will credit participants’ accounts with payments in amounts proportionate to their respective beneficial interests in the principal amount of the global security as shown on the records of DTC or its nominee. We also expect that payments by participants or indirect participants to owners of beneficial interests in the global security held through such participants or indirect participants will be governed by standing instructions and customary practices and will be the responsibility of such participants or indirect participants. We will not have any responsibility or liability for any aspect of the records relating to, or payments made on account of, beneficial interests in the global security for any note or for maintaining, supervising or reviewing any records relating to such beneficial interests or for any other aspect of the relationship between DTC and its participants or indirect participants or the relationship between such participants or indirect participants and the owners of beneficial interests in the global security owning through such participants.

      Transfers between participants in DTC will be effected in the ordinary way in accordance with DTC rules and will be settled in same-day funds.

      DTC has advised us that it will take any action permitted to be taken by a holder of notes only at the direction of one or more participants to whose account the DTC interests in the global security is credited and only in respect of such portion of the aggregate principal amount of notes as to which such participant or participants has or have given such direction. However, if DTC notifies us that it is unwilling to be a depository for the global security or ceases to be a clearing agency or there is an event of default under the notes, DTC will exchange the global security for certificated securities which it will distribute to its participants and which will be legended, if required, as set forth under the heading “Transfer Restrictions.”

      Although DTC is expected to follow the foregoing procedures in order to facilitate transfers of interests in the global security among participants of DTC, it is under no obligation to perform or continue to perform such procedures, and such procedures may be discontinued at any time. Neither we nor the trustee will have any responsibility, or liability for the performance by DTC or the participants or indirect participants of their respective obligations under the rules and procedures governing their respective operations.

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DESCRIPTION OF CAPITAL STOCK

Common Stock

      As of April 22, 2002, there were 81,638,427 shares of our common stock outstanding that were held of record by approximately 671 stockholders. The holders of common stock are entitled to one vote for each share held of record on all matters submitted to a vote of the stockholders. Our stockholders do not have cumulative voting rights in the election of directors, and accordingly, holders of a majority of the shares voting are able to elect all of the directors. Subject to preferences that may be granted to any then outstanding preferred stock, holders of common stock are entitled to receive ratably such dividends as may be declared by the board of directors out of funds legally available therefor as well as any distributions to the stockholders. In the event of our liquidation, dissolution or winding up, holders of common stock are entitled to share ratably in all our assets remaining after payment of liabilities and the liquidation preference of any then outstanding preferred stock. Holders of common stock have no preemptive or other subscription or conversion rights. There are no redemption or sinking fund provisions applicable to the common stock.

Preferred Stock

      Our Certificate of Incorporation authorizes our board of directors to issue up to 1,000,000 shares of preferred stock without any vote or action by our stockholders. Our board of directors may issue preferred stock in one or more series and determine the dividend rights, conversion rights, voting rights, redemption rights, liquidation preferences, sinking fund terms and the designation of, and the number of shares constituting each series. The preferred stock that can be authorized by our board of directors could have preference over our common stock with respect to dividends and other distributions and upon our liquidation. In addition, the voting power of our outstanding common stock may become diluted in the event that the board of directors issues preferred stock with voting rights.

      In connection with our Rights Agreement, described below, our board of directors has designated and reserved for issuance 150,000 shares of Series A Junior Participating Preferred Stock, par value $0.01 per share. We may issue these shares of Series A Junior Participating Preferred Stock under certain circumstances if, as discussed below, the rights distributed to our stockholders pursuant to the Rights Agreement become exercisable. We have no present plans to issue, or reserve for issuance, any other series of preferred stock.

Anti-Takeover Effects of Provisions of Our Charter, Bylaws, Rights Agreement and Delaware Law

Certificate of Incorporation and Bylaws

      Our Certificate of Incorporation provides that our board of directors may issue, without stockholder action, up to 1,000,000 shares of preferred stock with voting or other rights. As described above, our board of directors has designated 150,000 shares of preferred stock as Series A Junior Participating Preferred Stock in connection with a Rights Agreement. Our Certificate of Incorporation also provides that our stockholders do not have cumulative voting rights, and stockholders representing a majority of the shares of common stock outstanding are able to elect all of the directors. Our Bylaws provide that only our President, our board of directors and the Chairman of our board of directors may call a special meeting of stockholders. These and other provisions may have the effect of deterring hostile takeovers or delaying changes in control of our management. These provisions are intended to enhance the likelihood of continued stability in the composition of the board of directors and in the policies furnished by the board of directors and to discourage certain types of transactions that may involve an actual or threatened change of control. These provisions are designed to reduce our vulnerability to an unsolicited acquisition proposal. The provisions also are intended to discourage certain tactics that may be used in proxy fights. However, such provisions could have the effect of discouraging others from making tender offers for our shares and, as a consequence, they also may inhibit fluctuations in the market price of our shares that could result from actual or rumored takeover attempts.

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Rights Agreement

      Emulex has a rights agreement with Chase Mellon Shareholder Services LLC as rights agent. The following description of the rights agreement is qualified in its entirety by reference to the terms and conditions of the rights agreement. Under the rights agreement, rights attached to each share of Emulex common stock outstanding and, when they become exercisable, entitle the registered holder to purchase, from Emulex, a unit consisting of one one-hundredths of a share of Series A Junior Participating Preferred stock, par value $0.01 per share at a price of $300.00 per unit subject to adjustment.

      The rights will become exercisable if:

•  A person or a group of affiliated or associated persons (an “Acquiring Person”) has acquired or obtained the right to acquire 20% or more of Emulex’s common stock then outstanding;

•  A person becomes the beneficial owner of 30% or more of the then outstanding shares of Emulex common stock;

•  An Acquiring Person engages in one or more self-dealing transactions with Emulex; or

•  An event occurs resulting in an Acquiring Person’s interest being increased by more than 1%.

      These rights will expire on January 19, 2009 (the “Expiration Date”) unless the date is extended or unless the rights are earlier redeemed or exchanged by Emulex as summarized below. Upon exercise and payment of the purchase price for the rights, the rights holder (other than an Acquiring Person) will have the right to receive Emulex common stock (or, in certain circumstances, cash, property or other securities of Emulex) equal to two times the purchase price. Emulex is entitled to redeem all, but not less than all of the then-outstanding rights at a redemption price of $0.01 per right, subject to adjustment, at any time prior to the close of business on the Expiration Date, or 10 days following the time that a person has acquired beneficial ownership of 20 or more of the shares of Emulex stock then outstanding.

      The rights may have anti-takeover effects. The rights will cause substantial dilution to a person or group of persons that attempts to acquire Emulex on terms not approved by the Emulex board of directors. The rights should not interfere with any merger or other business combination approved by the Emulex board of directors prior to the time that a person or group has acquired such 20% beneficial ownership since the rights may be redeemed or amended by the board of directors until that time.

Delaware Law

      We are subject to Section 203 of the Delaware General Corporation Law, which, subject to certain exceptions, prohibits a Delaware corporation from engaging in any “business combination” with an “interested stockholder” for a period of three years following the date that such stockholder became an interested stockholder, unless:

•  the board of directors of the corporation approves either the business combination or the transaction that resulted in the stockholder becoming an interested stockholder, prior to the date the interested stockholder attained that status;

•  upon consummation of the transaction that resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced, excluding for purposes of determining the number of shares outstanding those shares owned (i) by persons who are directors and also officers and (ii) by employee stock plans in which employee participants do not have the right to determine confidentially whether shares held subject to the plan will be tendered in a tender or exchange offer; or

•  at or subsequent to such time, the business combination is approved by the board of directors and authorized at an annual or special meeting of stockholders, and not by written consent, by the affirmative vote of at least two-thirds of the outstanding voting stock that is not owned by the interested stockholder.

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In general, Section 203 defines a business combination to include:

•  any merger or consolidation involving the corporation and the interested stockholder;

•  any sale, transfer, pledge or other disposition of 10% or more of the assets of the corporation involving the interested stockholder;

•  subject to certain exceptions, any transaction that results in the issuance or transfer by the corporation of any stock of the corporation to the interested stockholder;

•  any transaction involving the corporation that has the effect of increasing the proportionate share of the stock or any class or series of the corporation beneficially owned by the interested stockholder; or

•  the receipt by the interested stockholder of the benefit of any loans, advances, guarantees, pledges or other financial benefits provided by or through the corporation.

      In general, Section 203 defines an interested stockholder as an entity or person beneficially owning 15% or more of the outstanding voting stock of the corporation and any entity or person affiliated with or controlling or controlled by such entity or person.

CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS

      The following is a general discussion of certain U.S. federal income tax considerations relevant to holders of the notes and common stock into which the notes may be converted. This discussion is based upon the Internal Revenue Code of 1986, as amended (the “Code”), Treasury Regulations, Internal Revenue Service (“IRS”) rulings and judicial decisions now in effect, all of which are subject to change (possibly with retroactive effect) or different interpretations. There can be no assurance that the IRS will not challenge one or more of the tax consequences described herein, and we have not obtained, nor do we intend to obtain, a ruling from the IRS with respect to the U.S. federal income tax consequences of acquiring or holding notes or common stock. This discussion does not purport to deal with all aspects of U.S. federal income taxation that may be relevant to a particular holder in light of the holder’s circumstances (for example, persons subject to the alternative minimum tax provisions of the Code or a holder whose “functional currency” is not the U.S. dollar). Also, it is not intended to be wholly applicable to all categories of investors, some of which (such as dealers in securities or currencies, traders in securities that elect to use a mark-to-market method of accounting, banks, thrifts, regulated investment companies, insurance companies, tax-exempt organizations, and persons holding notes or common stock as part of a hedging or conversion transaction or straddle or persons deemed to sell notes or common stock under the constructive sale provisions of the Code) may be subject to special rules. The discussion also does not discuss any aspect of state, local or foreign law, or U.S. federal estate and gift tax law as applicable to the holders of the notes and common stock into which the notes may be converted. In addition, this discussion is limited to holders who will hold the notes and common stock as “capital assets” within the meaning of Section 1221 of the Code. This summary also assumes that the IRS will respect the classification of the notes as indebtedness for federal income tax purposes.

      All prospective purchasers of the notes are advised to consult their own tax advisors regarding the federal, state, local and foreign tax consequences of the purchase, ownership and disposition of the notes and the common stock in their particular situations.

U.S. Holders

      As used herein, the term “U.S. Holder” means a beneficial holder of a note or common stock that for United States federal income tax purposes is (i) a citizen or resident (as defined in Section 7701(b)of the Code) of the United States (unless such person is not treated as a resident of the U.S. under an applicable income tax treaty), (ii) a corporation formed under the laws of the United States or any political subdivision thereof, (iii) an estate the income of which is subject to U.S. federal income taxation regardless of its source and (iv) in general, a trust subject to the primary supervision of a court within the

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United States and the control of a United States person as described in Section 7701(a)(30)of the Code. A “Non-U.S. Holder” is any holder of a note or common stock other than a U.S. Holder or a foreign or domestic partnership.

      If a partnership (including for this purpose any entity, domestic or foreign, treated as a partnership for U.S. tax purposes) is a beneficial owner of the notes or common stock into which the notes may be converted, the U.S. tax treatment of a partner in the partnership will generally depend on the status of the partner and the activities of the partnership. As a general matter, income earned through a foreign or domestic partnership is attributed to its owners. A holder of the notes or common stock into which the notes may be converted that is a partnership and partners in such partnership should consult their individual tax advisors about the U.S. federal income tax consequences of holding and disposing of the notes and the common stock into which the notes may be converted.

Interest

      Interest on the notes will generally be included in a U.S. Holder’s gross income as ordinary income for U.S. federal tax purposes at the time it is paid or accrued in accordance with the U.S. Holder’s regular method of accounting. In general, if the terms of a debt instrument entitle a holder to receive payments other than fixed periodic interest that exceed the issue price of the instrument, the holder may be required to recognize additional interest as “original issue discount” over the term of the instrument. If the amount or timing of any additional payments on a note is contingent, the note could be subject to special rules that apply to contingent debt instruments. These rules generally require a holder to accrue interest income at a rate higher than the stated interest rate on the note and to treat as ordinary income, rather than capital gain, any gain recognized on a sale, exchange or retirement of a note before the resolution of the contingencies. In certain circumstances, holders of our notes could receive payments in excess of stated principal or interest. First, if we call the notes for optional redemption, holders would be entitled to receive a payment in excess of stated principal and interest. Second, if we do not comply with our obligations under the registration rights agreement, such non-compliance may result in the payment of predetermined additional amounts in the manner described in the section “Description of Notes.” We do not believe that the notes should be treated as contingent debt instruments because of these potential additional payments. Therefore, for purposes of filing tax or information returns with the IRS, we will not treat the notes as contingent debt instruments or as having original issue discount. Our position in this regard is binding on U.S. Holders unless they disclose their contrary position.

      In the event we pay additional amounts because we have not complied with our obligations under the registration rights agreement, we intend to take the position that such additional amounts will be taxable to a U.S. Holder as ordinary income in accordance with such U.S. Holder’s method of accounting for U.S. income tax purposes. The IRS, however, may take a different position, which could effect the timing of a U.S. Holder’s income.

      Under section 279 of the Code, deductions otherwise allowable to a corporation for interest may be reduced or eliminated with respect to “corporation acquisition indebtedness,” which is generally defined to include subordinated convertible debt issued to provide consideration for the acquisition of stock or two-thirds of the assets (excluding money) of another corporation, and either (i) the acquiring corporation has a debt to-equity ratio (with assets measured by reference to tax basis for this purpose) that exceeds two-to-one or (ii) the projected earnings (the average annual earnings, determined with certain adjustments, for the three-year period ending on the last day of the taxable year in which the corporation issues an obligation) of the corporation (and possibly the acquired corporation) do not exceed three times the annual interest costs of the corporation (and possibly the acquired corporation). Our deductions for interest on the notes could be reduced or eliminated if the notes meet the definition of corporate acquisition indebtedness in the year of issue. In addition, the notes could become corporate acquisition indebtedness in a later year if we initially meet the debt-to-equity ratio and earnings tests, but fail one or both tests in a later year during which we issue indebtedness for corporate acquisitions. The availability of an interest deduction with respect to the notes was not determinative in our issuance of the notes.

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Conversion of Notes Into Common Stock

      A U.S. Holder generally will not recognize any income, gain or loss upon conversion of a note into common stock except with respect to cash received in lieu of a fractional share of common stock. Cash received in lieu of a fractional share of common stock should generally be treated as a payment in exchange for such fractional share rather than as a dividend. Gain or loss recognized on the receipt of cash paid in lieu of such fractional share generally will equal the difference between the amount of cash received and the amount of tax basis allocable to the fractional share. The adjusted basis of shares of common stock received on conversion will equal the adjusted basis of the note converted (reduced by the portion of adjusted basis allocated to any fractional share of common stock exchanged for cash). The holding period of such common stock received on conversion will generally include the period during which the converted notes were held prior to conversion.

      The conversion price of the notes is subject to adjustment under certain circumstances. Section 305 of the Code and the Treasury Regulations issued thereunder may treat the holders of the notes as having received a constructive distribution, resulting in ordinary income (subject to a possible dividends received deduction in the case of corporate holders) to the extent of our current and/or accumulated earnings and profits, if, and to the extent that certain adjustments in the conversion price, which may occur in limited circumstances (particularly an adjustment to reflect a taxable dividend to holders of common stock), increase the proportionate interest of a holder of notes in the fully diluted common stock, whether or not such holder ever exercises its conversion privilege. Therefore, U.S. Holders may recognize income in the event of a deemed distribution even though they may not receive any cash or property. Moreover, if there is not a full adjustment to the conversion ratio of the notes to reflect a stock dividend or other event increasing the proportionate interest of the holders of outstanding common stock in our assets or earnings and profits, then such increase in the proportionate interest of the holders of the common stock generally will be treated as a distribution to such holders, taxable as ordinary income (subject to a possible dividends received deduction in the case of corporate holders) to the extent of our current and/or accumulated earnings and profits. Adjustments to the conversion price made pursuant to a bona fide reasonable adjustment formula which has the effect of preventing dilution in the interest of the holders of the debt instruments, however, will generally not be considered to result in a constructive dividend distribution.

Sale, Exchange or Retirement of the Notes

      Each U.S. Holder generally will recognize gain or loss upon the sale, exchange (other than by exercise of the conversion privilege), redemption, retirement or other disposition of notes measured by the difference (if any) between (i) the amount of cash and the fair market value of any property received (except to the extent that such cash or other property is attributable to the payment of accrued interest not previously included in income, which amount will be taxable as ordinary income) and (ii) such holder’s adjusted tax basis in the notes. Subject to the discussion under “Market Discount” below, any such gain or loss recognized on the sale, exchange, redemption, retirement or other disposition of a note should be capital gain or loss and will generally be long-term capital gain or loss if the note has been held or deemed held for more than 12 months at the time of the sale or exchange. Generally, the maximum long term capital gains rate for individuals is 20%. Capital gain that is not long term capital gain is taxed at ordinary income rates. A U.S. Holder’s adjusted tax basis in a note generally will equal the cost of the note to such holder less any principal payments received by such holder increased by any “market discount” previously included in income and decreased by any amortized premium. The deductibility of capital losses is subject to certain limitations.

Market Discount

      A note will be treated as purchased at a market discount (a “market discount note”) if the note’s stated redemption price at maturity exceeds the U.S. Holder’s adjusted tax basis in the note by at least  1/4 of 1% of such note’s stated redemption price at maturity multiplied by the number of complete years from the date of such purchase to the note’s maturity. If such excess is not sufficient to cause the note to be a

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market discount note, then such excess constitutes “de minimus market discount” and the note is not subject to the rules discussed in the following paragraph.

      Any gain recognized on the maturity or disposition of a market discount note will be treated as ordinary income to the extent that such gain does not exceed the accrued market discount on such note. Alternatively, a U.S. Holder of a market discount note may elect to include market discount in income currently over the life of the note. Such an election applies to all debt instruments with market discount acquired by the electing U.S. Holder on or after the first day of the first taxable year to which the election applies, and may not be revoked without the consent of the IRS. Market discount on a market discount note will accrue on a straight-line basis unless the U.S. Holder elects to accrue such market discount on a constant-yield method. Such an election shall apply only to the note with respect to which it is made and may not be revoked. A U.S. Holder of a market discount note that does not elect to include market discount in income currently generally will be required to defer deductions for interest on borrowings allocable to such note, in an amount not exceeding the accrued market discount on such note, until the maturity or disposition of the note. If a U.S. Holder acquires a note with market discount and receives common stock upon conversion of the note, the amount of accrued market discount not previously included in income with respect to the converted note through the date of conversion will be treated as ordinary income upon the disposition of the common stock.

Notes Purchased at a Premium

      A U.S. Holder that purchases a note for an amount in excess of its principal amount, disregarding any amount paid for the note that is attributable to its conversion feature, may elect to treat such excess as “amortizable bond premium,” in which case the amount required to be included in the U.S. Holder’s income each year with respect to interest on the note will be reduced by the amount of amortizable bond premium allocable (based on the note’s yield to maturity) to such year. The amount attributable to the conversion feature is generally equal to the value of the conversion option. Any election to amortize bond premium shall apply to all bonds (other than bonds the interest on which is excludible from gross income) held by the U.S. Holder at the beginning of the first taxable year to which the election applies or thereafter acquired by the U.S. Holder, and is irrevocable without the consent of the IRS.

The Common Stock

      Distributions, if any, paid on the common stock, to the extent made from our current and/or accumulated earnings and profits, as determined under U.S. federal income tax principles, will be included in a U.S. Holder’s income as ordinary income (subject to a possible dividends received deduction in the case of corporate holders) as they are paid. Gain or loss realized on the sale or exchange of common stock will equal the difference between the amount realized on such sale or exchange and the U.S. Holder’s adjusted tax basis in such common stock. Subject to the discussion under “Market Discount” above, any such gain or loss will generally be long-term capital gain or loss if the holder has held or is deemed to have held the common stock for more than twelve months. The deductibility of capital losses is subject to certain limitations.

Information Reporting and Backup Withholding

      A U.S. Holder of notes or common stock may be subject to “backup withholding” at a rate currently of 30% (which percent will be reduced periodically to 28 percent in 2006) with respect to certain “reportable payments,” including interest payments, dividend payments, proceeds from the disposition of the notes or common stock to or through a broker and, under certain circumstances, principal payments on the notes. These backup withholding rules apply if the holder, among other things, (i) fails to furnish a social security number or other taxpayer identification number (“TIN”) certified under penalties of perjury within a reasonable time after the request therefor, (ii) fails to report properly interest or dividends, (iii) under certain circumstances, fails to provide a certified statement, signed under penalties of perjury, that the TIN furnished is the correct number and that such holder is not subject to backup withholding or if (iv) the IRS provides notification that the U.S. Holder has furnished us with an incorrect TIN. Any

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amount withheld from a payment to a holder under the backup withholding rules is creditable against the holder’s federal income tax liability, provided that the required information is furnished to the IRS. Backup withholding will not apply, however, with respect to payments made to certain holders, including corporations, tax exempt organizations and certain foreign persons, provided their exemptions from backup withholding are properly established.

      We will report to the U.S. Holders of notes and common stock and to the IRS the amount of our “reportable payments” for each calendar year and the amount of tax withheld, if any, with respect to such payments.

Non-U.S. Holders

      The following discussion is limited to the U.S. federal income tax consequences relevant to a Non-U.S. Holder (as defined above).

      For purposes of withholding tax on interest and dividends discussed below, a Non-U.S. Holder includes a nonresident fiduciary of an estate or trust. For purposes of the following discussion, interest, dividends and gain on the sale, exchange or other disposition of a note or common stock will be considered to be “U.S. trade or business income” if such income or gain is (i) effectively connected with the conduct of a U.S. trade or business and (ii) in the case of a Non-U.S. Holder eligible for the benefits of an applicable U.S. bilateral income tax treaty, attributable to a permanent establishment (or, in the case of an individual, a fixed base) in the United States.

Interest

      Generally any interest paid to a Non-U.S. Holder of a note that is not U.S. trade or business income will not be subject to U.S. tax if the interest qualifies as “portfolio interest.” Generally interest on the notes will qualify as portfolio interest if (i) the Non-U.S. Holder does not actually or constructively own 10% or more of the total voting power of all of our voting stock and is not a “controlled foreign corporation” with respect to which we are a “related person” within the meaning of the applicable provisions of the Code and (ii) the withholding agent receives a qualifying statement that the owner is not a U.S. resident and does not have actual knowledge or reason to know otherwise. To satisfy the qualifying statement requirements referred to in (ii) above, the beneficial owner of a note must provide a properly executable Form W-8BEN (or appropriate substitute form) prior to payment of interest.

      The gross amount of payments of interest to a Non-U.S. Holder of interest that does not qualify for the portfolio interest exemption and that is not U.S. trade or business income will be subject to U.S. federal income tax at the rate of 30%, unless a U.S. income tax treaty applies to reduce or eliminate withholding. U.S. trade or business income will be taxed at regular U.S. income tax rates rather than be subject to withholding at the 30% or treaty-reduced gross rate. In the case of a Non-U.S. Holder that is a corporation, such U.S. trade or business income may also be subject to the branch profits tax (which is generally imposed on a foreign corporation on the actual or deemed repatriation from the United States of earnings and profits attributable to U.S. trade or business income) at a 30% (or, if applicable, treaty-reduced) rate. To claim the benefit of a tax treaty or to claim exemption from withholding because the income is U.S. trade or business income, the Non-U.S. Holder must provide a properly executed IRS Form W-8BEN or W-8ECI, as applicable, prior to the payment of interest. In addition, a Non-U.S. Holder may under certain circumstances be required to obtain a U.S. taxpayer identification number and make certain certifications to us. Special procedures are provided for payments through qualified intermediaries. A Non-U.S. Holder of a note that is eligible for a reduced rate of U.S. withholding tax pursuant to an income tax treaty may obtain a refund of amounts withheld at a higher rate by filing an appropriate claim for a refund with the IRS.

Dividends

      In general, dividends paid to a Non-U.S. Holder of common stock will be subject to withholding of U.S. federal income tax at a 30% rate unless such rate is reduced by an applicable income tax treaty.

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Dividends that are U.S. trade or business income are generally subject to U.S. federal income tax at regular income tax rates, but are not generally subject to the 30% withholding tax or treaty-reduced rate if the Non-U.S. Holder files the appropriate form with the payor, as discussed above. Any U.S. trade or business income received by a Non-U.S. Holder that is a corporation may also, under certain circumstances, be subject to an additional “branch profits tax” at a 30% rate or such lower rate as may be applicable under an income tax treaty. A Non-U.S. Holder of common stock who wishes to claim the benefit of an applicable treaty rate would be required to satisfy applicable certification and other requirements. A Non-U.S. Holder of common stock that is eligible for a reduced rate of U.S. withholding tax pursuant to an income treaty may obtain a refund of amounts withheld at a higher rate by filing an appropriate claim for a refund with the IRS.

Conversion

      A Non-U.S. Holder generally will not be subject to U.S. federal income tax on the conversion of notes into common stock. However, cash (if any) received in lieu of a fractional share or interest not previously included in income will be subject to U.S. federal income tax if it is U.S. trade or business income. Cash received in lieu of a fractional share may give rise to gain that would be subject to the rules described below for the sale of notes. The conversion price of the note is subject to adjustment under certain circumstances. Any such adjustment could, in certain circumstances, give rise to deemed distributions to Non-U.S. Holders. See “U.S. Holders — Conversion of Notes into Stock,” above. In such case, the deemed distribution would be subject to the rules above regarding withholding of U.S. Federal taxes on dividends in respect of common stock. See, “Dividends,” above.

Sales, Exchange or Redemption of Notes or Common Stock

      Except as described below and subject to the discussion concerning backup withholding, any gain realized by a Non-U.S. Holder on the sale, exchange or redemption of a note or common stock generally will not be subject to U.S. federal income tax, unless (i) such gain is U.S. trade or business income, (ii) subject to certain exceptions, the Non-U.S. Holder is an individual who holds the note or common stock as a capital asset and is present in the United States for 183 days or more in the taxable year of the disposition, (iii) the Non-U.S. Holder is subject to tax pursuant to the provisions of U.S. tax law applicable to certain U.S. expatriates (including certain former citizens or residents of the United States), or (iv) we are a United States real property holding corporation within the meaning of Section 897 of the Code. We do not believe that we are currently a “United States real property holding corporation” within the meaning of Section 897 of the Code, or that we will become one in the future.

Information Reporting and Backup Withholding

      Generally, we must report annually to the IRS and to each Non-U.S. Holder any interest or dividend that is subject to withholding, or that is exempt from U.S. withholding tax pursuant to a tax treaty, or any payments of portfolio interest. Copies of these information returns may also be made available under the provisions of a specific treaty or agreement to the tax authorities of the country in which the Non-U.S. Holder resides. Under certain circumstances, we will have to report to the IRS payments of principal.

      Generally, information reporting and backup withholding of United States federal income tax at a current rate of 30% (which percent will be reduced periodically to 28 percent in 2006) may apply to payments made by us or any agent of ours to Non-U.S. Holders if the payee fails to make the appropriate certification that the holder is a non-U.S. person or if we or our paying agent has actual knowledge that the payee is a United States person.

      The payment of the proceeds from the disposition of the notes or common stock to or through the U.S. office of any broker, U.S. or foreign, will be subject to information reporting and possible backup withholding unless the owner certifies as to its Non-U.S. Holder status under penalty of perjury or otherwise establishes an exemption, provided that the broker does not have actual knowledge that the holder is a U.S. person or that the conditions of any other exemption are not, in fact, satisfied. The

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payment of the proceeds from the disposition of a note or common stock to or through a non-U.S. office of a non-U.S. broker that is not a U.S-related person will generally not be subject to backup withholding. However, if such broker is (i) a U.S. person, (ii) a controlled foreign corporation for United States tax purposes, (iii) a foreign person 50% or more of whose gross income from all sources for certain periods is effectively connected with a United States trade or business or (iv) a foreign partnership, if at any time during its tax year, one or more of its partners are U.S. persons (as defined in U.S. Treasury regulations) who in the aggregate hold more than 50% of the income or capital interest in the partnership or if, at any time during its tax year, such foreign partnership is engaged in a United States trade or business, such payments will be subject to information reporting, but not backup withholding, unless such broker has documentary evidence in its files of the Non-U.S. Holder’s foreign status and certain other conditions are met or holders otherwise establish an exemption. Both backup withholding and information reporting will apply to the proceeds of such dispositions if the broker has actual knowledge that the payee is a U.S. Holder.

      Any amounts withheld under the backup withholding rules from a payment to a Non-U.S. Holder will be allowed as a refund or a credit against such Non-U.S. Holder’s U.S. federal income tax liability, provided that the requisite procedures are followed.

      The preceding discussion of certain United Stales federal income tax consequences is for general information only and is not tax advice. Accordingly, each investor should consult its own tax adviser as to particular tax consequences to it of purchasing, holding and disposing of the notes and the common stock including the applicability and effect of any state, local or foreign tax laws, and of any proposed changes in applicable laws.

LEGAL MATTERS

      The validity of the notes and shares of common stock issuable upon conversion of the notes offered by this prospectus will be passed upon for us by Jeffer, Mangels, Butler & Marmaro LLP, Los Angeles, California.

EXPERTS

      The consolidated financial statements and schedule of Emulex Corporation and subsidiaries as of July 1, 2001 and July 2, 2000, and for each of the years in the three-year period ended July 1, 2001, have been incorporated by reference herein and in the registration statement in reliance upon the report of KPMG LLP, independent auditors, incorporated by reference herein, and upon the authority of said firm as experts in accounting and auditing.

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PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

Item 14.     Other Expenses of Issuance and Distribution.

      The following statement sets forth the estimated amounts of expenses to be borne by us in connection with the offering described in this Registration Statement:

Securities and Exchange Commission Registration Fee	$	31,740
Nasdaq National Market filing fee	$	—
Legal Fees and Expenses	$	25,000
Accounting fees and expenses	$	11,000
Miscellaneous expenses	$	—
Total	$	67,740

Item 15.     Indemnification of Directors and Officers.

      As permitted by Section 145 of the Delaware General Corporation Law (“Section 145”), the Registrant’s Certificate of Incorporation provides that the directors will not be liable to the Registrant or to any Stockholder for monetary damages for breach of fiduciary duty as a director, to the full extent that such limitation or elimination of liability is permitted under Delaware law.

      Also as permitted by Section 145, the Registrant’s Bylaws provide that the Registrant will indemnify its directors and officers to the full extent permitted under Delaware law. Pursuant to the Bylaws and Section 145, the Registrant will indemnify each director and officer against any liability incurred in connection with any action, suit, proceeding or investigation in which he may be involved by reason of serving in such capacity at the request of the Registrant.

      Each director and officer is also entitled to indemnification against costs and expenses (including attorneys’ fees) incurred in defending or investigating any action, suit, proceeding or investigation in which he may be involved by reason of serving in such capacity at the request of the Registrant. The Bylaws and indemnity agreements entered into between the Registrant and each of its directors require the Registrant to advance funds to a director or officer for such costs and expenses (including attorneys’ fees) upon receipt of an undertaking in writing by such director or officer to repay such amounts if it is ultimately determined that he or she is not entitled to be indemnified. Notwithstanding the foregoing, no advance shall be made by the Registrant if a determination is reasonably and promptly made by the Board by a majority vote of a quorum of disinterested directors, or (if such a quorum is not obtainable or, even if obtainable, a quorum of disinterested directors so directs) by independent legal counsel, that based upon the facts known to the Board or counsel at the time such determination is made: (i) the director or officer acted in bad faith or deliberately breached his duty to the Registrant or its stockholders; and (ii) as a result of such actions by the director or officer, it is more likely than not that it will ultimately be determined that such director or officer is not entitled to indemnification.

      The indemnification and advancement of expenses provided by the Bylaws and any indemnity agreements are not exclusive of any other rights to which a director or officer seeking indemnification or advancement of expenses may be entitled under the Bylaws, indemnity agreements, any vote of stockholders or disinterested directors or otherwise. The indemnification and advancement of expenses provided by the Bylaws and the indemnity agreements continue as to a person who has ceased to be a director or officer and inure to the benefit of the heirs, executors and administrators of such a person.

      The Registrant has purchased a directors’ and officers’ liability insurance policy insuring directors and officers of the Registrant against any liability asserted against such person and incurred by such person in any such capacity, whether or not the Registrant would have the power to indemnify such person against such liability under the Bylaws or any indemnity agreement.

II-1

Item 16.     Exhibits.

      The following exhibits are filed as part of this Registration Statement:

Exhibit
Number		Description
	4.1	Certificate of Incorporation (incorporated by reference to Exhibit 3.1 to Registration Statement on Form S-4 (File No. 33-9995) filed November 6, 1986, as amended by post-effective amendment filed on June 15, 1989).
	4.2	Amendment to Certificate of Incorporation (incorporated by reference to Annex B to the Registrant’s Proxy Statement dated January 24, 1994, filed January 24, 1994, for the Special Meeting of Stockholders held on February 24, 1994).
	4.3	Certificate of Amendment of Certificate of Incorporation of the Registrant, effective December 15, 1999 (incorporated by reference to Exhibit 3.3 to the Registrant’s Annual Report on Form 10-K filed September 18, 2000).
	4.4	Amendment to Certificate of Incorporation (incorporated by reference to Appendix A to Exhibit 3.4 to the Registrant’s Quarterly Report on Form 10Q filed on February 14, 2001).
	4.5	By-laws (incorporated by reference to Exhibit 4.2 to Registration Statement on Form S-8 (File No. 33-40959) filed June 3, 1991).
	4.6	Rights Agreement, dated January 19, 1989, as amended (incorporated by reference to Exhibit 4 to the Registrant’s Current Report on Form 8-K filed February 2, 1989).
	4.7	Certificate regarding extension of Final Expiration Date of Rights Agreement, dated January 18, 1999 (incorporated by reference to Exhibit 4.2 of Amendment No. 2 to the Registration Statement on form S-3, filed on May 17, 1999).
	4.8	Form of Note for Registrant’s 1.75% Convertible Subordinated Notes due February 1, 2007.
	4.9	Indenture between the Registrant, as Issuer, and State Street Bank and Trust Company of California, N.A., as Trustee, dated January 29, 2002 related to the Registrant’s 1.75% Convertible Subordinated Notes due February 1, 2007.
	4.10	Registration Rights Agreement between the Registrant and Credit Suisse First Boston Corporation dated January 29, 2002 related to the Registrant’s 1.75% Convertible Subordinated Notes due February 1, 2007.
	5.1	Opinion of Jeffer, Mangels, Butler & Marmaro LLP as to legality of securities being registered.
	10.16	Build to Suit Lease dated April 15, 2002 by and between C. J. Segerstrom & Sons and the Registrant.
	12.1	Statement regarding computation of ratios.
	23.1	Consent of KPMG LLP.
	23.2	Consent of Jeffer, Mangels, Butler & Marmaro LLP (reference is made to Exhibit 5.1).
	24.1	Power of Attorney (contained on page II-2).
	25.1	Statement of Eligibility of Trustee.

Item 17.     Undertakings.

      The undersigned registrant hereby undertakes:

      (1) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement to include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement.

      (2) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

II-2

      (3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering.

      (4) That, for purposes of determining any liability under the Securities Act of 1933, each filing of the registrant’s annual report pursuant to Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934 that is incorporated by reference in the registration statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

      The undersigned registrant hereby undertakes to deliver or cause to be delivered with the prospectus, to each person to whom the prospectus is sent or given, the latest annual report to security holders that is incorporated by reference in the prospectus and furnished pursuant to and meeting the requirements of Rule 14a-3 or Rule 14c-3 under the Securities Exchange Act of 1934; and, where interim financial information required to be presented by Article 3 of Regulation S-X is not set forth in the prospectus, to deliver, or cause to be delivered to each person to whom the prospectus is sent or given, the latest quarterly report that is specifically incorporated by reference in the prospectus to provide such interim financial information.

      Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the provisions described in Item 15 above, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission, such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person in the successful defense of any action, suit or proceeding) is asserted by such officer, director or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question of whether or not such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue.

II-3

SIGNATURES

      Pursuant to the requirements of the Securities Act of 1933, the Registrant certifies that it has reasonable grounds to believe that it meets all the requirements for filing on Form S-3 and has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Costa Mesa, State of California, on the 26th day of April, 2002.

EMULEX CORPORATION

BY:  /s/ PAUL F. FOLINO

PAUL F. FOLINO,

President and Chief Executive Officer

POWER OF ATTORNEY

      KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Paul F. Folino and Robert H. Goon, jointly and severally, his attorneys-in-fact, each with the power of substitution, for him in any and all capacities, to sign any amendments (including post-effective amendments) to this Registration Statement on Form S-3, and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that each of said attorneys-in-fact, or his substitute or substitutes, may do or cause to be done by virtue hereof.

      Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed below by the following persons on behalf of the Registrant in the capacities and on the dates indicated.

Signature	Title	Date
/s/ PAUL F. FOLINO Paul F. Folino	President, Chief Executive Officer and Director (Principal Executive Officer)	April 26, 2002
/s/ FRED B. COX Fred B. Cox	Chairman of the Board and Director	April 26, 2002
/s/ MICHAEL J. ROCKENBACH Michael J. Rockenbach	Chief Financial Officer (Principal Financial Officer and Accounting Officer)	April 26, 2002
/s/ MICHAEL P. DOWNEY Michael P. Downey	Director	April 26, 2002
/s/ BRUCE C. EDWARDS Bruce C. Edwards	Director	April 26, 2002
/s/ ROBERT H. GOON Robert H. Goon	Director	April 26, 2002
/s/ DON M. LYLE Don M. Lyle	Director	April 26, 2002
/s/ CORNELIUS A. FERRIS Cornelius A. Ferris	Director	April 26, 2002

II-4

INDEX TO EXHIBITS

Exhibit
Number		Description
	4.1	Certificate of Incorporation (incorporated by reference to Exhibit 3.1 to Registration Statement on Form S-4 (File No. 33-9995) filed November 6, 1986, as amended by post-effective amendment filed on June 15, 1989).
	4.2	Amendment to Certificate of Incorporation (incorporated by reference to Annex B to the Registrant’s Proxy Statement dated January 24, 1994, filed January 24, 1994, for the Special Meeting of Stockholders held on February 24, 1994).
	4.3	Certificate of Amendment of Certificate of Incorporation of the Registrant, effective December 15, 1999 (incorporated by reference to Exhibit 3.3 to the Registrant’s Annual Report on Form 10-K filed September 18, 2000).
	4.4	Amendment to Certificate of Incorporation (incorporated by reference to Appendix A to Exhibit 3.4 to the Registrant’s Quarterly Report on Form 10Q filed on February 14, 2001).
	4.5	By-laws (incorporated by reference to Exhibit 4.2 to Registration Statement on Form S-8 (File No. 33-40959) filed June 3, 1991).
	4.6	Rights Agreement, dated January 19, 1989, as amended (incorporated by reference to Exhibit 4 to the Registrant’s Current Report on Form 8-K filed February 2, 1989).
	4.7	Certificate regarding extension of Final Expiration Date of Rights Agreement, dated January 18, 1999 (incorporated by reference to Exhibit 4.2 of Amendment No. 2 to the Registration Statement on form S-3, filed on May 17, 1999).
	4.8	Form of Note for Registrant’s 1.75% Convertible Subordinated Notes due February 1, 2007.
	4.9	Indenture between the Registrant, as Issuer, and State Street Bank and Trust Company of California, N.A., as Trustee, dated January 29, 2002 related to the Registrant’s 1.75% Convertible Subordinated Notes due February 1, 2007.
	4.10	Registration Rights Agreement between the Registrant and Credit Suisse First Boston Corporation dated January 29, 2002 related to the Registrant’s 1.75% Convertible Subordinated Notes due February 1, 2007.
	5.1	Opinion of Jeffer, Mangels, Butler & Marmaro LLP as to legality of securities being registered.
	10.16	Build to Suit Lease dated April 15, 2002 by and between C. J. Segerstrom & Sons and the Registrant.
	12.1	Statement regarding computation of ratios.
	23.1	Consent of KPMG LLP.
	23.2	Consent of Jeffer, Mangels, Butler & Marmaro LLP (reference is made to Exhibit 5.1).
	24.1	Power of Attorney (contained on page II-2).
	25.1	Statement of Eligibility of Trustee.

EX-4.8

                                                                     EXHIBIT 4.8


UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF
TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE
NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY (AND ANY PAYMENT HEREON IS MADE
TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY), ANY TRANSFER, PLEDGE OR OTHER
USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL SINCE THE
REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN. THIS SECURITY IS A
GLOBAL SECURITY WITHIN THE MEANING OF THE INDENTURE HEREINAFTER REFERRED TO AND
IS REGISTERED IN THE NAME OF A DEPOSITARY OR A NOMINEE THEREOF. THIS SECURITY IS
EXCHANGEABLE FOR SECURITIES REGISTERED IN THE NAME OF A PERSON OTHER THAN THE
DEPOSITARY OR ITS NOMINEE ONLY IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE
INDENTURE AND, UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR
SECURITIES IN DEFINITIVE FORM, THIS SECURITY MAY NOT BE TRANSFERRED EXCEPT AS A
WHOLE BY THE DEPOSITARY TO A NOMINEE OF THE DEPOSITARY OR BY A NOMINEE OF THE
DEPOSITARY TO THE DEPOSITARY OR ANOTHER NOMINEE OF THE DEPOSITARY OR BY THE
DEPOSITARY OR ANY SUCH NOMINEE TO A SUCCESSOR DEPOSITARY OR A NOMINEE OF SUCH
SUCCESSOR DEPOSITARY.

THIS SECURITY (OR ITS PREDECESSOR) WAS ORIGINALLY ISSUED IN A TRANSACTION EXEMPT
FROM REGISTRATION UNDER THE UNITED STATES SECURITIES ACT OF 1933 (THE
"SECURITIES ACT"), AND THIS SECURITY AND THE SHARES OF COMMON STOCK ISSUABLE
UPON CONVERSION THEREOF MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED IN THE
ABSENCE OF SUCH REGISTRATION OR AN APPLICABLE EXEMPTION THEREFROM. EACH
PURCHASER OF THIS SECURITY IS HEREBY NOTIFIED THAT THE SELLER OF THIS SECURITY
MAY BE RELYING ON THE EXEMPTION FROM THE PROVISIONS OF SECTION 5 OF THE
SECURITIES ACT PROVIDED BY RULE 144A THEREUNDER.

THE HOLDER OF THIS SECURITY AGREES FOR THE BENEFIT OF THE COMPANY THAT (A) THIS
SECURITY AND THE SHARES OF COMMON STOCK ISSUABLE UPON CONVERSION THEREOF MAY BE
OFFERED, RESOLD, PLEDGED OR OTHERWISE TRANSFERRED, ONLY (I) IN THE UNITED STATES
TO A PERSON WHOM THE SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL
BUYER (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) IN A TRANSACTION
MEETING THE REQUIREMENTS OF RULE 144A, (II) OUTSIDE THE UNITED STATES IN AN
OFFSHORE TRANSACTION IN ACCORDANCE WITH RULE 904 UNDER THE SECURITIES ACT, (III)
PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT PROVIDED BY
RULE 144 THEREUNDER (IF AVAILABLE) OR (IV) PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT, IN EACH OF CASES (I) THROUGH (IV) IN
ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED
STATES, AND (B) THE HOLDER WILL, AND



EACH SUBSEQUENT HOLDER IS REQUIRED TO, NOTIFY ANY PURCHASER OF THIS SECURITY
FROM IT OF THE RESALE RESTRICTIONS REFERRED TO IN (A) ABOVE.

THE HOLDER OF THIS SECURITY IS ENTITLED TO THE BENEFITS OF A REGISTRATION RIGHTS
AGREEMENT (AS SUCH TERM IS DEFINED IN THE INDENTURE REFERRED TO ON THE REVERSE
HEREOF) AND, BY ITS ACCEPTANCE HEREOF, AGREES TO BE BOUND BY AND TO COMPLY WITH
THE PROVISIONS OF SUCH REGISTRATION RIGHTS AGREEMENT.



                               EMULEX CORPORATION


CUSIP: 292475AA8                                                             R-1

        1.75% CONVERTIBLE SUBORDINATED NOTES DUE FEBRUARY 1, 2007 Emulex
Corporation, a Delaware corporation (the "Company", which term shall include any
successor corporation under the Indenture referred to on the reverse hereof),
promises to pay to CEDE & CO., or registered assigns, the principal sum of Three
Hundred Forty-Five Million Dollars ($345,000,000.00) on February 1, 2007 or such
greater or lesser amount as is indicated on the Schedule of Exchanges of Notes
on the other side of this Note.

Interest Payment Dates:    February 1 and August 1

Record Dates:              January 15 and July 15


This Note is convertible as specified on the other side of this Note. Additional
provisions of this Note are set forth on the other side of this Note.


                             SIGNATURE PAGE FOLLOWS



IN WITNESS WHEREOF, the Company has caused this instrument to be duly executed.


                                        EMULEX CORPORATION


                                        By: ___________________________________
                                        Name: Paul Folino
                                        Title: Chief Executive Officer

Attest:


________________________________
Name: Michael J. Rockenbach
Title: Chief Financial Officer

Dated:

Trustee's Certificate of Authentication:  This is one of the
Securities referred to in the within-mentioned Indenture.

STATE STREET BANK AND TRUST COMPANY OF
CALIFORNIA, N.A.
as Trustee


________________________________
Authorized Signatory

By:



                               EMULEX CORPORATION
            1.75% CONVERTIBLE SUBORDINATED NOTES DUE FEBRUARY 1, 2007


INTEREST

Emulex Corporation, a Delaware corporation (the "Company", which term shall
include any successor corporation under the Indenture hereinafter referred to),
promises to pay interest on the principal amount of this Note at the rate of
1.75% per annum. The Company shall pay interest semiannually on February 1 and
August 1 of each year, commencing August 1, 2002. Interest on the Notes shall
accrue from the most recent date to which interest has been paid or, if no
interest has been paid, from January 29, 2002; provided, however, that if there
is not an existing default in the payment of interest and if this Note is
authenticated between a record date referred to on the face hereof and the next
succeeding interest payment date, interest shall accrue from such interest
payment date. Interest will be computed on the basis of a 360-day year of twelve
30-day months. Any reference herein to interest accrued or payable as of any
date shall include any Additional Interest accrued or payable on such date as
provided in the Registration Rights Agreement.

METHOD OF PAYMENT

The Company shall pay interest on this Note (except defaulted interest) to the
person who is the Holder of this Note at the close of business on January 15 or
July 15, as the case may be, next preceding the related interest payment date.
The Holder must surrender this Note to a Paying Agent to collect payment of
principal. The Company will pay principal and interest in money of the United
States that at the time of payment is legal tender for payment of public and
private debts. The Company may, however, pay principal and interest in respect
of any Certificated Security by check or wire payable in such money; provided,
however, that a Holder with an aggregate principal amount in excess of
$2,000,000 will be paid by wire transfer in immediately available funds at the
election of such Holder if such Holder has provided wire transfer instructions
to the Company. The Company may mail an interest check to the Holder's
registered address. Notwithstanding the foregoing, so long as this Note is
registered in the name of a Depositary or its nominee, all payments hereon shall
be made by wire transfer of immediately available funds to the account of the
Depositary or its nominee.

PAYING AGENT, REGISTRAR AND CONVERSION AGENT

Initially, State Street Bank and Trust Company of California, N.A. (the
"Trustee", which term shall include any successor trustee under the Indenture
hereinafter referred to) will act as Paying Agent, Registrar and Conversion
Agent. The Company may change any Paying Agent, Registrar or Conversion Agent
without notice to the Holder. The Company or any of its Subsidiaries may,
subject to certain limitations set forth in the Indenture, act as Paying Agent
or Registrar.

INDENTURE, LIMITATIONS

This Note is one of a duly authorized issue of Securities of the Company
designated as its 1.75% Convertible Subordinated Notes Due February 1, 2007 (the
"Notes"), issued under an Indenture



dated as of January 29, 2002 (together with any supplemental indentures thereto,
the "Indenture"), between the Company and the Trustee. The terms of this Note
include those stated in the Indenture and those required by or made part of the
Indenture by reference to the Trust Indenture Act of 1939, as amended, as in
effect on the date of the Indenture. This Note is subject to all such terms, and
the Holder of this Note is referred to the Indenture and said Act for a
statement of them. The Notes are subordinated unsecured obligations of the
Company limited to $345,000,000 aggregate principal amount. The Indenture does
not limit other debt of the Company, secured or unsecured, including Senior
Indebtedness.

OPTIONAL REDEMPTION

The Notes are subject to redemption, at any time on or after February 5, 2005,
as a whole or from time to time in part, at the election of the Company. The
Redemption Prices (expressed as percentages of the principal amount) are as
follows for Notes redeemed during the periods set forth below:



                       PERIOD                                   REDEMPTION PRICE
                       ------                                   ----------------
                                                             
        February 5, 2005 through January 31, 2006 ..........       100.4375%
        February 1, 2006 and thereafter ....................            100%


in each case together with accrued interest up to but not including the
Redemption Date; provided that if the Redemption Date falls after an interest
payment record date and on or before an interest payment date, then the interest
will be payable to the Holders in whose names the Notes are registered at the
close of business on the relevant interest payment record dates.

        No sinking fund is provided for the Notes.

NOTICE OF REDEMPTION

Notice of redemption will be mailed by first-class mail at least 20 days but not
more than 60 days before the Redemption Date to each Holder of Notes to be
redeemed at its registered address. Notes in denominations larger than $1,000
may be redeemed in part, but only in whole multiples of $1,000. On and after the
Redemption Date, subject to the deposit with the Paying Agent of funds
sufficient to pay the Redemption Price plus accrued interest, if any, accrued
to, but excluding, the Redemption Date, interest shall cease to accrue on Notes
or portions of them called for redemption.

PURCHASE OF NOTES AT OPTION OF HOLDER UPON A CHANGE IN CONTROL

At the option of the Holder and subject to the terms and conditions of the
Indenture, the Company shall become obligated to purchase all or any part
specified by the Holder (so long as the principal amount of such part is $1,000
or an integral multiple of $1,000 in excess thereof) of the Notes held by such
Holder on the date that is 30 Business Days after the occurrence of a Change in
Control, at a purchase price equal to 100% of the principal amount thereof
together with accrued interest up to, but excluding, the Change in Control
Purchase Date. The Holder shall have the right to withdraw



any Change in Control Purchase Notice (in whole or in a portion thereof that is
$1,000 or an integral multiple of $1,000 in excess thereof) at any time prior to
the close of business on the Business Day next preceding the Change in Control
Purchase Date by delivering a written notice of withdrawal to the Paying Agent
in accordance with the terms of the Indenture.

CONVERSION

A Holder of a Note may convert the principal amount of such Note (or any portion
thereof equal to $1,000 or any integral multiple of $1,000 in excess thereof)
into shares of Common Stock at any time prior to the close of business on
February 1, 2007; provided, however, that if the Note is called for redemption
or subject to purchase upon a Change in Control, the conversion right will
terminate at the close of business on the Business Day immediately preceding the
Redemption Date or the Change in Control Purchase Date, as the case may be, for
such Note or such earlier date as the Holder presents such Note for redemption
or purchase (unless the Company shall default in making the redemption payment
or Change in Control Purchase Price, as the case may be, when due, in which case
the conversion right shall terminate at the close of business on the date such
default is cured and such Note is redeemed or purchased).

The initial Conversion Price is $53.84 per share, subject to adjustment under
certain circumstances as provided in the Indenture. The number of shares of
Common Stock issuable upon conversion of a Note is determined by dividing the
principal amount of the Note or portion thereof converted by the Conversion
Price in effect on the Conversion Date. No fractional shares will be issued upon
conversion; in lieu thereof, an amount will be paid in cash based upon the
Closing Price (as defined in the Indenture) of the Common Stock on the Trading
Day immediately prior to the Conversion Date.

To convert a Note, a Holder must (a) complete and manually sign the conversion
notice set forth below and deliver such notice to a Conversion Agent, (b)
surrender the Note to a Conversion Agent, (c) furnish appropriate endorsements
and transfer documents if required by a Registrar or a Conversion Agent, and (d)
pay any transfer or similar tax, if required. Notes so surrendered for
conversion (in whole or in part) during the period from the close of business on
any regular record date to the opening of business on the next succeeding
interest payment date (excluding Notes or portions thereof called for redemption
or subject to purchase upon a Change in Control on a Redemption Date or Change
in Control Purchase Date, as the case may be, during the period beginning at the
close of business on a regular record date and ending at the opening of business
on the first Business Day after the next succeeding interest payment date, or if
such interest payment date is not a Business Day, the second such Business Day)
shall also be accompanied by payment in funds acceptable to the Company of an
amount equal to the interest payable on such interest payment date on the
principal amount of such Note then being converted, and such interest shall be
payable to such registered Holder notwithstanding the conversion of such Note,
subject to the provisions of this Indenture relating to the payment of defaulted
interest by the Company. If the Company defaults in the payment of interest
payable on such interest payment date, the Company shall promptly repay such
funds to such Holder. A Holder may convert a portion of a Note equal to $1,000
or any integral multiple thereof.



A Note in respect of which a Holder had delivered a Change in Control Purchase
Notice exercising the option of such Holder to require the Company to purchase
such Note may be converted only if the Change in Control Purchase Notice is
withdrawn in accordance with the terms of the Indenture.

CONVERSION ARRANGEMENT ON CALL FOR REDEMPTION

Any Notes called for redemption, unless surrendered for conversion before the
close of business on the Business Day immediately preceding the Redemption Date,
may be deemed to be purchased from the Holders of such Notes at an amount not
less than the Redemption Price, together with accrued interest, if any, to, but
not including, the Redemption Date, by one or more investment bankers or other
purchasers who may agree with the Company to purchase such Notes from the
Holders, to convert them into Common Stock of the Company and to make payment
for such Notes to the Paying Agent in trust for such Holders.

SUBORDINATION

The indebtedness evidenced by the Notes is, to the extent and in the manner
provided in the Indenture, subordinate and junior in right of payment to the
prior payment in full of all Senior Indebtedness of the Company. Any Holder by
accepting this Note agrees to and shall be bound by such subordination
provisions and authorizes the Trustee to give them effect. In addition to all
other rights of Senior Indebtedness described in the Indenture, the Senior
Indebtedness shall continue to be Senior Indebtedness and entitled to the
benefits of the subordination provisions irrespective of any amendment,
modification or waiver of any terms of any instrument relating to the Senior
Indebtedness or any extension or renewal of the Senior Indebtedness.

DENOMINATIONS, TRANSFER, EXCHANGE

The Notes are in registered form, without coupons, in denominations of $1,000
and integral multiples of $1,000. A Holder may register the transfer of or
exchange Notes in accordance with the Indenture. The Registrar may require a
Holder, among other things, to furnish appropriate endorsements and transfer
documents and to pay any taxes or other governmental charges that may be imposed
in relation thereto by law or permitted by the Indenture.

PERSONS DEEMED OWNERS

The Holder of a Note may be treated as the owner of it for all purposes.

UNCLAIMED MONEY

If money for the payment of principal or interest remains unclaimed for two
years, the Trustee or Paying Agent will pay the money back to the Company at its
written request, subject to applicable unclaimed property law. After that,
Holders entitled to money must look to the Company for payment as general
creditors unless an applicable abandoned property law designates another person.



AMENDMENT, SUPPLEMENT AND WAIVER

Subject to certain exceptions, the Indenture or the Notes may be amended or
supplemented with the consent of the Holders of at least a majority in aggregate
principal amount of the Notes then outstanding, and an existing default or Event
of Default and its consequence or compliance with any provision of the Indenture
or the Notes may be waived in a particular instance with the consent of the
Holders of a majority in aggregate principal amount of the Notes then
outstanding. Without the consent of or notice to any Holder, the Company and the
Trustee may amend or supplement the Indenture or the Notes to, among other
things, cure any ambiguity, defect or inconsistency or make any other change
that does not adversely affect the rights of any Holder.

SUCCESSOR ENTITY

When a successor corporation assumes all the obligations of its predecessor
under the Notes and the Indenture in accordance with the terms and conditions of
the Indenture, the predecessor corporation (except in certain circumstances
specified in the Indenture) be released from those obligations.

DEFAULTS AND REMEDIES

Under the Indenture, an Event of Default includes: (i) default for 30 days in
payment of any interest or Additional Interest on any Notes; (ii) default in
payment of any principal (including, without limitation, any premium, if any) on
the Notes when due; (iii) failure by the Company for 60 days after notice to it
to comply with any of its other agreements contained in the Indenture or the
Notes; (iv) default in the payment of certain indebtedness of the Company or a
Significant Subsidiary and (v) certain events of bankruptcy, insolvency or
reorganization of the Company or any Significant Subsidiary. If an Event of
Default (other than as a result of certain events of bankruptcy, insolvency or
reorganization of the Company) occurs and is continuing, the Trustee or the
Holders of at least 25% in aggregate principal amount of the Notes then
outstanding may declare all unpaid principal to the date of acceleration on the
Notes then outstanding to be due and payable immediately, all as and to the
extent provided in the Indenture. If an Event of Default occurs as a result of
certain events of bankruptcy, insolvency or reorganization of the Company,
unpaid principal of the Notes then outstanding shall become due and payable
immediately without any declaration or other act on the part of the Trustee or
any Holder, all as and to the extent provided in the Indenture. Holders may not
enforce the Indenture or the Notes except as provided in the Indenture. The
Trustee may require indemnity satisfactory to it before it enforces the
Indenture or the Notes. Subject to certain limitations, Holders of a majority in
aggregate principal amount of the Notes then outstanding may direct the Trustee
in its exercise of any trust or power. The Trustee may withhold from Holders
notice of any continuing default (except a default in payment of principal or
interest) if it determines that withholding notice is in their interests. The
Company is required to file periodic reports with the Trustee as to the absence
of default.

TRUSTEE DEALINGS WITH THE COMPANY

State Street Bank and Trust Company of California, N.A., the Trustee under the
Indenture, in its individual or any other capacity, may make loans to, accept
deposits from and perform services for



the Company or an Affiliate of the Company, and may otherwise deal with the
Company or an Affiliate of the Company, as if it were not the Trustee.

NO RECOURSE AGAINST OTHERS

A director, officer, employee or shareholder, as such, of the Company shall not
have any liability for any obligations of the Company under the Notes or the
Indenture nor for any claim based on, in respect of or by reason of such
obligations or their creation. The Holder of this Note by accepting this Note
waives and releases all such liability. The waiver and release are part of the
consideration for the issuance of this Note.

AUTHENTICATION

This Note shall not be valid until the Trustee or an authenticating agent
manually signs the certificate of authentication on the other side of this Note.

ABBREVIATIONS AND DEFINITIONS

Customary abbreviations may be used in the name of the Holder or an assignee,
such as: TEN COM (= tenants in common), TEN ENT (= tenants by the entireties),
JT TEN (= joint tenants with right of survivorship and not as tenants in
common), CUST (= Custodian) and UGMA (= Uniform Gifts to Minors Act).

All terms defined in the Indenture and used in this Note but not specifically
defined herein are defined in the Indenture and are used herein as so defined.

INDENTURE TO CONTROL; GOVERNING LAW

In the case of any conflict between the provisions of this Note and the
Indenture, the provisions of the Indenture shall control. This Note shall be
governed by, and construed in accordance with, the laws of the State of New
York, without regard to principals of conflicts of law. The Company will furnish
to any Holder, upon written request and without charge, a copy of the Indenture.
Requests may be made to: Emulex Corporation, 3535 Harbor Boulevard, Costa Mesa,
California 92626 (714) 662-5600, Attention: Investor Relations.



                                 ASSIGNMENT FORM

To assign this Note, fill in the form below:
I or we assign and transfer this Note to

________________________________________________________________________________
                 (Insert assignee's soc. sec. or tax I.D. no.)

________________________________________________________________________________

________________________________________________________________________________

________________________________________________________________________________

________________________________________________________________________________
             (Print or type assignee's name, address and zip code)

and irrevocably appoint

________________________________________________________________________________

agent to transfer this Note on the books of the Company. The agent may
substitute another to act for him or her.


                                       Your Signature:

Date: ________________________         _________________________________________
                                       (Sign exactly as your name appears on the
                                       other side of this Note)

* Signature guaranteed by:

By: __________________________


*  The signature must be guaranteed by an institution which is a member of one
   of the following recognized signature guaranty programs: (i) the Securities
   Transfer Agent Medallion Program (STAMP); (ii) the New York Stock Exchange
   Medallion Program (MSP); (iii) the Stock Exchange Medallion Program (SEMP);
   or (iv) such other guaranty program acceptable to the Trustee.



                                CONVERSION NOTICE


To convert this Note into Common Stock of the Company, check the box: [ ]
To convert only part of this Note, state the principal amount to be converted
(must be $1,000 or a integral multiple of $1,000): $____________.
If you want the stock certificate made out in another person's name, fill in the
form below:

________________________________________________________________________________
                  (Insert assignee's soc. sec. or tax I.D. no.)

________________________________________________________________________________

________________________________________________________________________________

________________________________________________________________________________

________________________________________________________________________________
              (Print or type assignee's name, address and zip code)


                                       Your Signature:

Date: ________________________         _________________________________________
                                       (Sign exactly as your name appears on the
                                       other side of this Note)

* Signature guaranteed by:

By: __________________________


*  The signature must be guaranteed by an institution which is a member of one
   of the following recognized signature guaranty programs: (i) the Securities
   Transfer Agent Medallion Program (STAMP); (ii) the New York Stock Exchange
   Medallion Program (MSP); (iii) the Stock Exchange Medallion Program (SEMP);
   or (iv) such other guaranty program acceptable to the Trustee.



                           OPTION TO ELECT REPURCHASE
                            UPON A CHANGE OF CONTROL

To:     Emulex Corporation

        The undersigned registered owner of this Security hereby irrevocably
acknowledges receipt of a notice from Emulex Corporation (the "Company") as to
the occurrence of a Change in Control with respect to the Company and requests
and instructs the Company to redeem the entire principal amount of this
Security, or the portion thereof (which is $1,000 or an integral multiple
thereof) below designated, in accordance with the terms of the Indenture
referred to in this Security at the Change in Control Purchase Price, together
with accrued interest to, but excluding, such date, to the registered Holder
hereof.

Dated: ______________                   _______________________________________

                                        _______________________________________
                                        Signature(s)

                                        Signature(s) must be guaranteed by a
                                        qualified guarantor institution with
                                        membership in an approved signature
                                        guarantee program pursuant to Rule
                                        17Ad-15 under the Securities Exchange
                                        Act of 1934.

                                        ________________________________________
                                        Signature Guaranty

Principal amount to be redeemed
(in an integral multiple of
$1,000, if less than all):

- --------------
NOTICE: The signature to the foregoing Election must correspond to the Name as
written upon the face of this Security in every particular, without alteration
or any change whatsoever.



                         SCHEDULE OF EXCHANGES OF NOTES


The following exchanges, redemptions, repurchases or conversions of a part of
this global Note have been made:



      PRINCIPAL AMOUNT
    OF THIS GLOBAL NOTE
       FOLLOWING SUCH            AUTHORIZED                                      AMOUNT OF
       DECREASE DATE            SIGNATORY OF      AMOUNT OF DECREASE IN         INCREASE IN
      OF EXCHANGE (OR            SECURITIES          PRINCIPAL AMOUNT        PRINCIPAL AMOUNT
         INCREASE)               CUSTODIAN         OF THIS GLOBAL NOTE      OF THIS GLOBAL NOTE
    -------------------         ------------      ---------------------     -------------------
                                                                   









            CERTIFICATE TO BE DELIVERED UPON EXCHANGE OR REGISTRATION
                  OF TRANSFER OF TRANSFER RESTRICTED SECURITIES


Re:  1.75% Convertible Subordinated Notes Due February 1, 2007 (the "Notes") of
     Emulex Corporation

This certificate relates to $_______ principal amount of Notes owned in (check
applicable box) [ ] book-entry or [ ] definitive form by ___________________
(the "Transferor").

The Transferor has requested a Registrar or the Trustee to exchange or register
the transfer of such Notes.

In connection with such request and in respect of each such Note, the Transferor
does hereby certify that the Transferor is familiar with transfer restrictions
relating to the Notes as provided in Section 2.12 of the Indenture dated as of
January 29, 2002 between Emulex Corporation and State Street Bank and Trust
Company of California, N.A., as trustee (the "Indenture"), and the transfer of
such Note is being made pursuant to an effective registration statement under
the Securities Act of 1933, as amended (the "Securities Act") (check applicable
box) or the transfer or exchange, as the case may be, of such Note does not
require registration under the Securities Act because (check applicable box):

        [ ]    Such Note is being transferred pursuant to an effective
               registration statement under the Securities Act.

        [ ]    Such Note is being acquired for the Transferor's own account,
               without transfer.

        [ ]    Such Note is being transferred to the Company or a Subsidiary (as
               defined in the Indenture) of the Company.

        [ ]    Such Note is being transferred to a person the Transferor
               reasonably believes is a "qualified institutional buyer" (as
               defined in Rule 144A or any successor provision thereto ("Rule
               144A") under the Securities Act) that is purchasing for its own
               account or for the account of a "qualified institutional buyer",
               in each case to whom notice has been given that the transfer is
               being made in reliance on such Rule 144A, and in each case in
               reliance on Rule 144A.

        [ ]    Such Note is being transferred pursuant to and in compliance with
               an exemption from the registration requirements under the
               Securities Act in accordance with Rule 144 (or any successor
               thereto) ("Rule 144") under the Securities Act.

Such Note is being transferred pursuant to and in compliance with an exemption
from the registration requirements of the Securities Act (other than an
exemption referred to above) and as a result of which such Note will, upon such
transfer, cease to be a "restricted security" within the meaning of Rule 144
under the Securities Act.

The Transferor acknowledges and agrees that, if the transferee will hold any
such Notes in the form of beneficial interests in a global Note which is a
"restricted security" within the meaning of



Rule 144 under the Securities Act, then such transfer can only be made pursuant
to Rule 144A under the Securities Act and such transferee must be a "qualified
institutional buyer" (as defined in Rule 144A).


Date: _______________                   _______________________________________
                                        (Insert Name of Transferor)

EX-4.9

                                                                     Exhibit 4.9

================================================================================





                               EMULEX CORPORATION



            1.75% CONVERTIBLE SUBORDINATED NOTES DUE FEBRUARY 1, 2007



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

                                    INDENTURE
                          DATED AS OF JANUARY 29, 2002

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


             STATE STREET BANK AND TRUST COMPANY OF CALIFORNIA, N.A.
                                   AS TRUSTEE





================================================================================




                             CROSS-REFERENCE TABLE*



TIA                                                                 INDENTURE
SECTION                                                              SECTION
- -------                                                           --------------
                                                               
Section    310(a)(1)............................................  9.10
           (a)(2)...............................................  9.10
           (a)(3)...............................................  N.A.**
           (a)(4)...............................................  N.A.
           (a)(5)...............................................  9.10
           (b)..................................................  9.8; 9.10
           (c)..................................................  N.A.
Section    311(a)...............................................  9.11
           (b)..................................................  9.11
           (c)..................................................  N.A.
Section    312(a)...............................................  2.5
           (b)..................................................  12.3
           (c)..................................................  12.3
Section    313(a)...............................................  9.6
           (b)(1)...............................................  N.A.
           (b)(2)...............................................  9.6
           (c)..................................................  9.6; 12.2
           (d)..................................................  9.6
Section    314(a)...............................................  6.2; 6.4; 12.2
           (b)..................................................  N.A.
           (c)(1)...............................................  12.4(a)
           (c)(2)...............................................  12.4(a)
           (c)(3)...............................................  N.A.
           (d)..................................................  N.A.
           (e)..................................................  12.4(b)
           (f)..................................................  N.A.
Section    315(a)...............................................  9.1(b)
           (b)..................................................  9.5; 12.2
           (c)..................................................  9.1(a)
           (d)..................................................  9.1(c)
           (e)..................................................  8.11
Section    316(a)(last sentence)................................  2.9
           (a)(1)(A)............................................  8.5
           (a)(1)(B)............................................  8.4
           (a)(2)...............................................  N.A.
           (b)..................................................  8.7
           (c)..................................................  12.5
Section    317(a)(1)............................................  8.8
           (a)(2)...............................................  8.9
           (b)..................................................  2.4


- --------------
* This Cross-Reference Table shall not, for any purpose, be deemed a part of
this Indenture.

** N.A. means Not Applicable.



        THIS INDENTURE dated as of January 29, 2002 is between Emulex
Corporation, a corporation duly organized under the laws of the State of
Delaware (the "Company"), and State Street Bank and Trust Company of California,
N.A., a national banking association organized and existing under the laws of
the United States, as Trustee (the "Trustee").

        In consideration of the premises and the purchase of the Securities by
the Holders thereof, both parties agree as follows for the benefit of the other
and for the equal and ratable benefit of the registered Holders of the Company's
1.75% Convertible Subordinated Notes Due February 1, 2007.

                                   ARTICLE 1
                   DEFINITIONS AND INCORPORATION BY REFERENCE

        SECTION 1.1. DEFINITIONS.

        "Additional Interest" has the meaning specified in Section 5 of the
Registration Rights Agreement. All references herein to interest accrued or
payable as of any date shall include any Additional Interest accrued or payable
as of such date as provided in the Registration Rights Agreement.

        "Affiliate" means, with respect to any specified person, any other
person directly or indirectly controlling or controlled by or under direct or
indirect common control with such specified person. For the purposes of this
definition, "control" when used with respect to any person means the power to
direct the management and policies of such person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise;
and the terms "controlling" and "controlled" have meanings correlative to the
foregoing.

        "Agent" means any Registrar, Paying Agent or Conversion Agent.

        "Applicable Procedures" means, with respect to any transfer or exchange
of beneficial ownership interests in a Global Security, the rules and procedures
of the Depositary, in each case to the extent applicable to such transfer or
exchange.

        "Board of Directors" means either the board of directors of the Company
or any committee of the Board of Directors authorized to act for it with respect
to this Indenture.

        "Business Day" means each day that is not a Legal Holiday.

        "Capital Stock" of any Person means any and all shares, interests,
rights to purchase, warrants, options, participations or other equivalents of or
interests in (however designated) equity of such Person, but excluding any debt
securities convertible into such equity.

        "Cash" or "cash" means such coin or currency of the United States as at
any time of payment is legal tender for the payment of public and private debts.

        "Certificated Security" means a Security that is in substantially the
form attached hereto as Exhibit A and that does not include the information or
the schedule called for by footnotes 1, 3 and 4 thereof.


                                       1


        "Common Stock" means the common stock of the Company, $0.01 par value,
as it exists on the date of this Indenture and any shares of any class or
classes of capital stock of the Company resulting from any reclassification or
reclassifications thereof and which have no preference in respect of dividends
or of amounts payable in the event of any voluntary or involuntary liquidation,
dissolution or winding-up of the Company and which are not subject to redemption
by the Company; provided, however, that if at any time there shall be more than
one such resulting class, the shares of each such class then so issuable on
conversion of Securities shall be substantially in the proportion which the
total number of shares of such class resulting from all such reclassifications
bears to the total number of shares of all such classes resulting from all such
reclassifications.

        "Company" means the party named as such in the first paragraph of this
Indenture until a successor replaces it pursuant to the applicable provisions of
this Indenture, and thereafter "Company" shall mean such successor Company.

        "Corporate Trust Office" means the principal office of the Trustee at
which at any particular time its corporate trust business shall be administered
which office at the date of the execution of this Indenture is located at 633
West 5th Street, 12th Floor, Los Angeles, California 90071 Attention: Corporate
Trust Administration (Emulex Corporation - 1.75% Convertible Subordinated Notes
Due February 1, 2007) or at any other time at such other address as the Trustee
may designate from time to time by notice to the Company.

        "Default" or "default" means, when used with respect to the Securities,
any event which is or, after notice or passage of time or both, would be an
Event of Default.

        "Designated Senior Indebtedness" means any particular Senior
Indebtedness of the Company in which the instrument creating or evidencing the
same or the assumption or guarantee thereof (or any related agreements or
documents to which the Company is a party) expressly provides that such Senior
Indebtedness shall be "Designated Senior Indebtedness" for purposes of this
Indenture (provided that such instrument, agreement or other document may place
limitations and conditions on the right of such Senior Indebtedness to exercise
the rights of Designated Senior Indebtedness). If any payment made to any holder
of any Designated Senior Indebtedness or its Representative with respect to such
Designated Senior Indebtedness is rescinded or must otherwise be returned by
such holder or Representative upon the insolvency, bankruptcy or reorganization
of the Company or otherwise, the reinstated Indebtedness of the Company arising
as a result of such rescission or return shall constitute Designated Senior
Indebtedness effective as of the date of such rescission or return.

        "Exchange Act" means the Securities and Exchange Act of 1934, as
amended, and the rules and regulations promulgated thereunder, as in effect from
time to time.

        "Final Maturity Date" means February 1, 2007.

        "GAAP" means generally accepted accounting principles in the United
States of America as in effect as of the date of this Indenture, including those
set forth in (1) the opinions and pronouncements of the Accounting Principles
Board of the American Institute of Certified Public Accountants, (2) the
statements and pronouncements of the Financial Accounting Standards Board, (3)
such other statements by such other entity as approved by a significant segment
of the accounting profession and (4) the rules and regulations of the SEC
governing the inclusion of financial statements (including pro forma financial
statements) in registration statements filed under the Securities Act and
periodic reports required to be filed pursuant to Section 13 of the


                                       2


Exchange Act, including opinions and pronouncements in staff accounting
bulletins and similar written statements from the accounting staff of the SEC.

        "Global Security" means a permanent Global Security that is in
substantially the form attached hereto as Exhibit A and that includes the
information and schedule called for by footnotes 1, 3 and 4 thereof and which is
deposited with the Depositary or its custodian and registered in the name of the
Depositary or its nominee.

        "Holder" or "Securityholder" means the person in whose name a Security
is registered on the Primary Registrar's books.

        "Indebtedness" means, with respect to any Person, without duplication,
(a) all indebtedness, obligations and other liabilities (contingent or
otherwise) of such Person (i) for borrowed money (including obligations of such
Person in respect of overdrafts, foreign exchange contracts, currency exchange
agreements, interest rate protection agreements, and any loans or advances from
banks, whether or not evidenced by notes or similar instruments) or (ii)
evidenced by credit or loan agreements, bonds, debentures, notes or similar
instruments (whether or not the recourse of the lender is to the whole of the
assets of such Person or to only a portion thereof) (other than any accounts
payable or other accrued current liability or obligation incurred in the
ordinary course of business in connection with the obtaining of materials or
services), (b) all reimbursement obligations and other liabilities (contingent
or otherwise) of such Person with respect to letters of credit, bank guarantees
or bankers' acceptances, (c) all obligations and liabilities (contingent or
otherwise) of such Person (i) in respect of leases of such Person required, in
conformity with GAAP, to be accounted for as capitalized lease obligations on
the balance sheet of such Person (as determined by the Company), or (ii) under
any lease or related document (including a purchase agreement, conditional sale
or other title retention agreement) in connection with the lease of real
property or improvement thereon (or any personal property included as part of
any such lease) which provides that such Person is contractually obligated to
purchase or cause a third party to purchase the leased property or pay an agreed
upon residual value of the leased property to the lessor (whether or not such
lease transaction is characterized as an operating lease or a capitalized lease
in accordance with GAAP), (d) all obligations (contingent or otherwise) of such
Person with respect to any interest rate or other swap, cap, floor or collar
agreement, hedge agreement, forward contract, or other similar instrument or
agreement or foreign currency hedge, exchange, purchase or similar instrument or
agreement; (e) all direct or indirect guaranties, agreements to be jointly
liable or similar agreements by such Person in respect of, and obligations or
liabilities of such Person to purchase or otherwise acquire or otherwise assure
a creditor against loss in respect of, indebtedness, obligations or liabilities
of another Person of the kind described in clauses (a) through (d), and (f) any
and all deferrals, renewals, extensions, refinancings and refundings of, or
amendments, modifications or supplements to, any indebtedness, obligation or
liability of the kind described in clauses (a) through (e).

        "Indenture" means this Indenture as amended or supplemented from time to
time pursuant to the terms of this Indenture.

        "Initial Purchaser" means Credit Suisse First Boston Corporation.

        "Officer" means the Chairman or any Co-Chairman of the Board, any Vice
Chairman of the Board, the Chief Executive Officer, the President, any Vice
President, the Chief Financial Officer, the Controller, the Secretary or any
Assistant Controller or Assistant Secretary of the Company.


                                       3


        "Officers' Certificate" means a certificate signed by two Officers;
provided, however, that for purposes of Sections 4.11 and 6.3, "Officers'
Certificate" means a certificate signed by the principal executive officer,
principal financial officer or principal accounting officer of the Company and
by one other Officer.

        "Opinion of Counsel" means a written opinion from legal counsel. The
counsel may be an employee of or counsel to the Company or the Trustee.

        "Person" or "person" means any individual, corporation, partnership,
limited liability company, joint venture, association, joint-stock company,
trust, unincorporated organization, government or any agency or political
subdivision thereof or any other entity.

        "Principal" or "principal" of a debt security, including the Securities,
means the principal of the security plus, when appropriate, the premium, if any,
on the security.

        "Redemption Date" when used with respect to any Security to be redeemed,
means the date fixed for such redemption pursuant to this Indenture.

        "Redemption Price" when used with respect to any Security to be
redeemed, means the price fixed for such redemption pursuant to this Indenture,
as set forth in the form of Security annexed as Exhibit A hereto.

        "Registration Rights Agreement" means the Registration Rights Agreement
dated, as of January 29, 2002, between the Company and the Initial Purchaser.

        "Representative" means the (a) indenture trustee or other trustee, agent
or representative for any Senior Indebtedness or (b) with respect to any Senior
Indebtedness that does not have any such trustee, agent or other representative,
(i) in the case of such Senior Indebtedness issued pursuant to an agreement
providing for voting arrangements as among the holders or owners of such Senior
Indebtedness, any holder or owner of such Senior Indebtedness acting with the
consent of the required persons necessary to bind such holders or owners of such
Senior Indebtedness and (ii) in the case of all other such Senior Indebtedness,
the holder or owner of such Senior Indebtedness.

        "Restricted Global Security" means a Global Security that is a
Restricted Security.

        "Restricted Security" means a Security required to bear the restricted
legend set forth in the form of Security set forth in Exhibit A of this
Indenture.

        "Rule 144" means Rule 144 under the Securities Act or any successor to
such Rule.

        "Rule 144A" means Rule 144A under the Securities Act or any successor to
such Rule.

        "SEC" means the Securities and Exchange Commission.

        "Securities" means the 1.75% Convertible Subordinated Notes Due February
1, 2007 or any of them (each, a "Security"), as amended or supplemented from
time to time, that are issued under this Indenture.

        "Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder, as in effect from time to time.


                                       4


        "Securities Custodian" means the Trustee, as custodian with respect to
the Securities in global form, or any successor thereto.

        "Senior Indebtedness" means the principal of, premium, if any, interest
(including all interest accruing subsequent to the commencement of any
bankruptcy or similar proceeding, whether or not a claim for post-petition
interest is allowed as a claim in any such proceeding) and rent payable on or in
connection with, and all fees, costs, expenses and other amounts accrued or due
on or in connection with, Indebtedness of the Company, whether outstanding on
the date of this Indenture or thereafter created, incurred, assumed, guaranteed
or in effect guaranteed by the Company (including all deferrals, renewals,
extensions or refundings of, or amendments, modifications or supplements to, the
foregoing), unless in the case of any particular Indebtedness the instrument
creating or evidencing the same or the assumption or guarantee thereof expressly
provides that such Indebtedness shall not be senior in right of payment to the
Securities or expressly provides that such Indebtedness is "pari passu" or
"junior" to the Securities. Notwithstanding the foregoing, the term Senior
Indebtedness shall not include (i) any Indebtedness of the Company to any
Subsidiary of the Company (other than Indebtedness of the Company to such
Subsidiary arising by reason of guarantees by the Company of Indebtedness of
such Subsidiary to a Person that is not a Subsidiary of the Company) or (ii) the
Securities. If any payment made to any holder of any Senior Indebtedness or its
Representative with respect to such Senior Indebtedness is rescinded or must
otherwise be returned by such holder or Representative upon the insolvency,
bankruptcy or reorganization of the Company or otherwise, the reinstated
Indebtedness of the Company arising as a result of such rescission or return
shall constitute Senior Indebtedness effective as of the date of such rescission
or return.

        "Significant Subsidiary" means, in respect of any Person, a Subsidiary
of such Person that would constitute a "significant subsidiary" as such term is
defined under Rule 1-02 of Regulation S-X under the Securities Act and the
Exchange Act.

        "Subsidiary" means, in respect of any Person, any corporation,
association, partnership or other business entity of which more than 50% of the
total voting power of shares of Capital Stock or other interests (including
partnership interests) entitled (without regard to the occurrence of any
contingency) to vote in the election of directors, managers, general partners or
trustees thereof is at the time owned or controlled, directly or indirectly, by
(i) such Person; (ii) such Person and one or more Subsidiaries of such Person;
or (iii) one or more Subsidiaries of such Person.

        "TIA" means the Trust Indenture Act of 1939, as amended, and the rules
and regulations thereunder as in effect on the date of this Indenture, except as
provided in Section 11.3, and except to the extent any amendment to the Trust
Indenture Act expressly provides for application of the Trust Indenture Act as
in effect on another date.

        "Trading Day" means, with respect to any security, each Monday, Tuesday,
Wednesday, Thursday and Friday, other than any day on which securities are not
generally traded on the principal exchange or market in which such security is
traded.

        "Trustee" means the party named as such in the first paragraph of this
Indenture until a successor replaces it in accordance with the provisions of
this Indenture, and thereafter means the successor.

        "Trust Officer" means, with respect to the Trustee, any officer assigned
to the Corporate Trust Office, and also, with respect to a particular matter,
any other officer to whom such matter is referred because of such officer's
knowledge of and familiarity with the particular subject.


                                       5


        "Unrestricted Certificated Security" means a Certificated Security that
is not a Restricted Security.

        "Unrestricted Global Security" means a Global Security that is not a
Restricted Security.

        "Vice President" when used with respect to the Company or the Trustee,
means any vice president, whether or not designated by a number or a word or
words added before or after the title "vice president."

        "Voting Stock" of a Person means all classes of Capital Stock or other
interests (including partnership interests) of such Person then outstanding and
normally entitled (without regard to the occurrence of any contingency) to vote
in the election of directors, managers or trustees thereof.

        SECTION 1.2. OTHER DEFINITIONS.



                          TERM                                 DEFINED IN SECTION
                          ----                                 ------------------
                                                            
"Agent Members"..........................................            2.1(b)
"Bankruptcy Law".........................................            8.1
"Change in Control"......................................            3.8(a)
"Change in Control Purchase Date"........................            3.8(a)
"Change in Control Purchase Notice"......................            3.8(c)
"Change in Control Purchase Price".......................            3.8(a)
"Closing Price"..........................................            4.6(d)
"Company Order"..........................................            2.2
"Conversion Agent".......................................            2.3
"Conversion Date"........................................            4.2
"Conversion Price".......................................            4.6
"Current Market Price"...................................            4.6(d)
"Custodian"..............................................            8.1
"DTC"....................................................            2.1
"Depositary".............................................            2.1
"Determination Date".....................................            4.6(c)
"Event of Default".......................................            8.1
"Expiration Date"........................................            4.6(c)
"Expiration Time"........................................            4.6(c)
"Legal Holiday"..........................................           12.7
"Legend" ................................................            2.12
"NNM"....................................................            4.6(d)
"Paying Agent"...........................................            2.3
"Payment Blockage Notice"................................            5.2
"Primary Registrar"......................................            2.3
"Purchase Agreement".....................................            2.1
"Purchased Shares".......................................            4.6(c)
"QIB"....................................................            2.1
"Registrar"..............................................            2.3
"Rights Plan"............................................            4.6(c)
"Triggering Distribution"................................            4.6(c)
"Trigger Event" .........................................            4.6(c)



                                       6




                          TERM                                 DEFINED IN SECTION
                          ----                                 ------------------
                                                            
"Unissued Shares"........................................            3.8(a)


        SECTION 1.3. TRUST INDENTURE ACT PROVISIONS.

        Whenever this Indenture refers to a provision of the TIA, that provision
is incorporated by reference in and made a part of this Indenture. The Indenture
shall also include those provisions of the TIA required to be included herein by
the provisions of the Trust Indenture Reform Act of 1990. The following TIA
terms used in this Indenture have the following meanings:

        "indenture securities" means the Securities;

        "indenture security holder" means a Securityholder;

        "indenture to be qualified" means this Indenture;

        "indenture trustee" or "institutional trustee" means the Trustee; and
"obligor" on the indenture securities means the Company or any other obligor on
the Securities.

        All other terms used in this Indenture that are defined in the TIA,
defined by TIA reference to another statute or defined by any SEC rule and not
otherwise defined herein have the meanings assigned to them therein.

        SECTION 1.4. RULES OF CONSTRUCTION.

        Unless the context otherwise requires:

               (A) a term has the meaning assigned to it;

               (B) an accounting term not otherwise defined has the meaning
assigned to it in accordance with GAAP;

               (C) words in the singular include the plural, and words in the
plural include the singular;

               (D) provisions apply to successive events and transactions;

               (E) the term "merger" includes a statutory share exchange and the
term "merged" has a correlative meaning;

               (F) the masculine gender includes the feminine and the neuter;

               (G) references to agreements and other instruments include
subsequent amendments thereto; and

               (H) "herein," "hereof" and other words of similar import refer to
this Indenture as a whole and not to any particular Article, Section or other
subdivision.


                                       7


                                    ARTICLE 2
                                 THE SECURITIES

        SECTION 2.1. FORM AND DATING.

        The Securities and the Trustee's certificate of authentication shall be
substantially in the respective forms set forth in Exhibit A, which Exhibit is
incorporated in and made part of this Indenture. The Securities may have
notations, legends or endorsements required by law, stock exchange rule or
usage. The Company shall provide any such notations, legends or endorsements to
the Trustee in writing. Each Security shall be dated the date of its
authentication. The Securities are being offered and sold by the Company
pursuant to a Purchase Agreement, dated January 29, 2002 (the "Purchase
Agreement"), between the Company and the Initial Purchaser, in transactions
exempt from, or not subject to, the registration requirements of the Securities
Act.

        (a) Restricted Global Securities. All of the Securities are initially
being offered and sold to qualified institutional buyers as defined in Rule 144A
(collectively, "QIBs" or individually, each a "QIB") in reliance on Rule 144A
under the Securities Act and shall be issued initially in the form of one or
more Restricted Global Securities, which shall be deposited on behalf of the
purchasers of the Securities represented thereby with the Trustee, at its
Corporate Trust Office, as custodian for the depositary, The Depository Trust
Company ("DTC") (such depositary, or any successor thereto, being hereinafter
referred to as the "Depositary"), and registered in the name of its nominee,
Cede & Co., duly executed by the Company and authenticated by the Trustee as
hereinafter provided. The aggregate principal amount of the Restricted Global
Securities may from time to time be increased or decreased by adjustments made
on the records of the Securities Custodian as hereinafter provided, subject in
each case to compliance with the Applicable Procedures.

        (b) Global Securities In General. Each Global Security shall represent
such of the outstanding Securities as shall be specified therein and each shall
provide that it shall represent the aggregate amount of outstanding Securities
from time to time endorsed thereon and that the aggregate amount of outstanding
Securities represented thereby may from time to time be reduced or increased, as
appropriate, to reflect exchanges, redemptions, purchases or conversions of such
Securities. Any adjustment of the aggregate principal amount of a Global
Security to reflect the amount of any increase or decrease in the amount of
outstanding Securities represented thereby shall be made by the Trustee in
accordance with instructions given by the Holder thereof as required by Section
2.12 hereof and shall be made on the records of the Trustee and the Depositary.

        Members of, or participants in, the Depositary ("Agent Members") shall
have no rights under this Indenture with respect to any Global Security held on
their behalf by the Depositary or under the Global Security, and the Depositary
(including, for this purpose, its nominee) may be treated by the Company, the
Trustee and any agent of the Company or the Trustee as the absolute owner and
Holder of such Global Security for all purposes whatsoever. Notwithstanding the
foregoing, nothing herein shall (A) prevent the Company, the Trustee or any
agent of the Company or the Trustee from giving effect to any written
certification, proxy or other authorization furnished by the Depositary or (B)
impair, as between the Depositary and its Agent Members, the operation of
customary practices governing the exercise of the rights of a Holder of any
Security.

        (c) Book Entry Provisions. The Company shall execute and the Trustee
shall, in accordance with this Section 2.1(c), authenticate and deliver
initially one or more Global Securities that (i) shall be registered in


                                       8


the name of the Depositary, (ii) shall be delivered by the Trustee to the
Depositary or pursuant to the Depositary's instructions and (iii) shall bear
legends substantially to the following effect:

"UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY TO EMULEX CORPORATION (THE "COMPANY") OR ITS AGENT FOR
REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS
REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN
AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY (AND ANY PAYMENT
HEREON IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN
AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY), ANY TRANSFER, PLEDGE
OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL SINCE
THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN. TRANSFERS OF
THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS TO NOMINEES OF THE DEPOSITORY
TRUST COMPANY OR TO A SUCCESSOR THEREOF OR SUCH SUCCESSOR'S NOMINEE AND
TRANSFERS OF PORTIONS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS MADE
IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN ARTICLE TWO OF THE INDENTURE
REFERRED TO ON THE REVERSE HEREOF."

        SECTION 2.2. EXECUTION AND AUTHENTICATION.

        An Officer shall sign the Securities for the Company by manual or
facsimile signature attested by the manual or facsimile signature of the
Secretary or an Assistant Secretary of the Company. Typographic and other minor
errors or defects in any such facsimile signature shall not affect the validity
or enforceability of any Security which has been authenticated and delivered by
the Trustee.

        If an Officer whose signature is on a Security no longer holds that
office at the time the Trustee authenticates the Security, the Security shall be
valid nevertheless.

        A Security shall not be valid until an authorized signatory of the
Trustee manually signs the certificate of authentication on the Security. The
signature shall be conclusive evidence that the Security has been authenticated
under this Indenture.

        The Trustee shall authenticate and make available for delivery
Securities for original issue in the aggregate principal amount of up to
$300,000,000 (or up to $345,000,000 if the initial purchasers' option to
purchase additional notes is exercised) upon receipt of a written order or
orders of the Company signed by two Officers of the Company (a "Company Order").
The Company Order shall specify the amount of Securities to be authenticated,
shall provide that all such Securities will be represented by a Restricted
Global Security and the date on which each original issue of Securities is to be
authenticated. The aggregate principal amount of Securities outstanding at any
time may not exceed $300,000,000 (or up to $345,000,000 if the initial
purchasers' option to purchase additional notes is exercised) except as provided
in Section 2.7.

        The Trustee shall act as the initial authenticating agent. Thereafter,
the Trustee may appoint an authenticating agent acceptable to the Company to
authenticate Securities. An authenticating agent may authenticate Securities
whenever the Trustee may do so. Each reference in this Indenture to
authentication by the Trustee includes authentication by such agent. An
authenticating agent shall have the same rights as an Agent to deal with the
Company or an Affiliate of the Company.


                                       9


        The Securities shall be issuable only in registered form without coupons
and only in denominations of $1,000 principal amount and any integral multiple
thereof.

        SECTION 2.3. REGISTRAR, PAYING AGENT AND CONVERSION AGENT.

        The Company shall maintain one or more offices or agencies where
Securities may be presented for registration of transfer or for exchange (each,
a "Registrar"), one or more offices or agencies where Securities may be
presented for payment (each, a "Paying Agent"), one or more offices or agencies
where Securities may be presented for conversion (each, a "Conversion Agent")
and one or more offices or agencies where notices and demands to or upon the
Company in respect of the Securities and this Indenture may be served. The
Company will at all times maintain a Paying Agent, Conversion Agent, Registrar
and an office or agency where notices and demands to or upon the Company in
respect of the Securities and this Indenture may be served in the Borough of
Manhattan, The City of New York. One of the Registrars (the "Primary Registrar")
shall keep a register of the Securities and of their transfer and exchange.

        The Company shall enter into an appropriate agency agreement with any
Agent not a party to this Indenture. The agreement shall implement the
provisions of this Indenture that relate to such Agent. The Company shall notify
the Trustee of the name and address of any Agent not a party to this Indenture.
If the Company fails to maintain a Registrar, Paying Agent, Conversion Agent or
agent for service of notices and demands in any place required by this
Indenture, or fails to give the foregoing notice, the Trustee shall act as such.
The Company or any Affiliate of the Company may act as Paying Agent (except for
the purposes of Section 6.1 and Article 10).

        The Company hereby initially designates the Trustee as Paying Agent,
Registrar, Custodian and Conversion Agent, and each of the Corporate Trust
Office of the Trustee and the office or agency of the Trustee in the Borough of
Manhattan, The City of New York (which shall initially be State Street Bank and
Trust Company, N.A., an Affiliate of the Trustee, as agent of the Trustee
located at 61 Broadway, New York, New York 10006, Attention: Corporate Trust
Administration (Emulex Corporation - 1.75% Convertible Subordinated Notes Due
February 1, 2007), one such office or agency of the Company for each of the
aforesaid purposes.

        SECTION 2.4. PAYING AGENT TO HOLD MONEY IN TRUST.

        Prior to 11:00 a.m., New York City time, on each due date of the
principal of or interest, if any, on any Securities, the Company shall deposit
with a Paying Agent a sum sufficient to pay such principal or interest, if any,
so becoming due. Subject to Section 5.2, a Paying Agent shall hold in trust for
the benefit of Securityholders or the Trustee all money held by the Paying Agent
for the payment of principal of or interest, if any, on the Securities, and
shall notify the Trustee of any default by the Company (or any other obligor on
the Securities) in making any such payment. If the Company or an Affiliate of
the Company acts as Paying Agent, it shall, before 11:00 a.m., New York City
time, on each due date of the principal of or interest on any Securities,
segregate the money and hold it as a separate trust fund. The Company at any
time may require a Paying Agent to pay all money held by it to the Trustee, and
the Trustee may at any time during the continuance of any default, upon written
request to a Paying Agent, require such Paying Agent to pay forthwith to the
Trustee all sums so held in trust by such Paying Agent. Upon doing so, the
Paying Agent (other than the Company) shall have no further liability for the
money.


                                       10


        SECTION 2.5. SECURITYHOLDER LISTS.

        The Trustee shall preserve in as current a form as is reasonably
practicable the most recent list available to it of the names and addresses of
Securityholders. If the Trustee is not the Primary Registrar, the Company shall
furnish to the Trustee on or before each semiannual interest payment date, and
at such other times as the Trustee may request in writing, a list in such form
and as of such date as the Trustee may reasonably require of the names and
addresses of Securityholders.

        SECTION 2.6. TRANSFER AND EXCHANGE.

        (a) Subject to compliance with any applicable additional requirements
contained in Section 2.12, when a Security is presented to a Registrar with a
request to register a transfer thereof or to exchange such Security for an equal
principal amount of Securities of other authorized denominations, the Registrar
shall register the transfer or make the exchange as requested; provided,
however, that every Security presented or surrendered for registration of
transfer or exchange shall be duly endorsed or accompanied by an assignment form
and, if applicable, a transfer certificate each in the form included in Exhibit
A, and in form satisfactory to the Registrar duly executed by the Holder thereof
or its attorney duly authorized in writing. To permit registration of transfers
and exchanges, upon surrender of any Security for registration of transfer or
exchange at an office or agency maintained pursuant to Section 2.3, the Company
shall execute and the Trustee shall authenticate Securities of a like aggregate
principal amount at the Registrar's request. Any exchange or transfer shall be
without charge, except that the Company or the Registrar may require payment of
a sum sufficient to cover any tax or other governmental charge that may be
imposed in relation thereto, and provided, that this sentence shall not apply to
any exchange pursuant to Section 2.10, 2.12(a), 3.6, 3.11, 4.2 (last paragraph)
or 11.5.

        Neither the Company, any Registrar nor the Trustee shall be required to
exchange or register a transfer of (i) any Securities for a period of 15 days
next preceding any mailing of a notice of Securities to be redeemed, (ii) any
Securities or portions thereof selected or called for redemption (except, in the
case of redemption of a Security in part, the portion thereof not to be
redeemed) or (iii) any Securities or portions thereof in respect of which a
Change in Control Purchase Notice has been delivered and not withdrawn by the
Holder thereof (except, in the case of the purchase of a Security in part, the
portion thereof not to be purchased).

        All Securities issued upon any transfer or exchange of Securities shall
be valid obligations of the Company, evidencing the same debt and entitled to
the same benefits under this Indenture, as the Securities surrendered upon such
transfer or exchange.

        (b) Any Registrar appointed pursuant to Section 2.3 hereof shall provide
to the Trustee such information as the Trustee may reasonably require in
connection with the delivery by such Registrar of Securities upon transfer or
exchange of Securities.

        (c) Each Holder of a Security agrees to indemnify the Company and the
Trustee against any liability that may result from the transfer, exchange or
assignment of such Holder's Security in violation of any provision of this
Indenture and/or applicable United States federal or state securities law.

        The Trustee shall have no obligation or duty to monitor, determine or
inquire as to compliance with any restrictions on transfer imposed under this
Indenture or under applicable law with respect to any transfer of any interest
in any Security (including any transfers between or among Agent Members or other
beneficial


                                       11


owners of interests in any Global Security) other than to require delivery of
such certificates and other documentation or evidence as are expressly required
by, and to do so if and when expressly required by the terms of, this Indenture,
and to examine the same to determine substantial compliance as to form with the
express requirements hereof.

        SECTION 2.7. REPLACEMENT SECURITIES.

        If any mutilated Security is surrendered to the Company, a Registrar or
the Trustee, or the Company, a Registrar and the Trustee receive evidence to
their satisfaction of the destruction, loss or theft of any Security, and there
is delivered to the Company, the applicable Registrar and the Trustee such
security or indemnity as will be required by them to save each of them harmless,
then, in the absence of notice to the Company, such Registrar or the Trustee
that such Security has been acquired by a bona fide purchaser, the Company shall
execute, and upon its written request the Trustee shall authenticate and
deliver, in exchange for any such mutilated Security or in lieu of any such
destroyed, lost or stolen Security, a new Security of like tenor and principal
amount, bearing a number not contemporaneously outstanding.

        In case any such mutilated, destroyed, lost or stolen Security has
become or is about to become due and payable, or is about to be redeemed or
purchased by the Company pursuant to Article 3, the Company in its discretion
may, instead of issuing a new Security, pay, redeem or purchase such Security,
as the case may be.

        Upon the issuance of any new Securities under this Section 2.7, the
Company may require the payment of a sum sufficient to cover any tax or other
governmental charge that may be imposed in relation thereto and any other
reasonable expenses (including the reasonable fees and expenses of the Trustee
or the Registrar) in connection therewith.

        Every new Security issued pursuant to this Section 2.7 in lieu of any
mutilated, destroyed, lost or stolen Security shall constitute an original
additional contractual obligation of the Company, whether or not the mutilated,
destroyed, lost or stolen Security shall be at any time enforceable by anyone,
and shall be entitled to all benefits of this Indenture equally and
proportionately with any and all other Securities duly issued hereunder.

        The provisions of this Section 2.7 are (to the extent lawful) exclusive
and shall preclude (to the extent lawful) all other rights and remedies with
respect to the replacement or payment of mutilated, destroyed, lost or stolen
Securities.

        SECTION 2.8. OUTSTANDING SECURITIES.

        Securities outstanding at any time are all Securities authenticated by
the Trustee, except for those canceled by it, those converted pursuant to
Article IV, those delivered to it for cancellation or surrendered for transfer
or exchange and those described in this Section 2.8 as not outstanding.

        If a Security is replaced pursuant to Section 2.7, it ceases to be
outstanding unless the Company receives proof satisfactory to it that the
replaced Security is held by a bona fide purchaser.

        If a Paying Agent (other than the Company or an Affiliate of the
Company) holds on a Redemption Date, a Change in Control Purchase Date or the
Final Maturity Date money sufficient to pay the principal of (including premium,
if any) and accrued interest on Securities (or portions thereof) payable on that
date, then on and after such Redemption Date, Change in Control Purchase Date or
the final Maturity Date, as the case


                                       12


may be, such Securities (or portions thereof, as the case may be) shall cease to
be outstanding and interest on them shall cease to accrue; provided, that if
such Securities are to be redeemed, notice of such redemption has been duly
given pursuant to this Indenture or provision therefore satisfactory to the
Trustee has been made.

        Subject to the restrictions contained in Section 2.9, a Security does
not cease to be outstanding because the Company or an Affiliate of the Company
holds the Security.

        SECTION 2.9. TREASURY SECURITIES.

        In determining whether the Holders of the required principal amount of
Securities have concurred in any notice, direction, waiver or consent,
Securities owned by the Company or any other obligor on the Securities or by any
Affiliate of the Company or of such other obligor shall be disregarded, except
that, for purposes of determining whether the Trustee shall be protected in
relying on any such notice, direction, waiver or consent, only Securities which
a Trust Officer of the Trustee actually knows are so owned shall be so
disregarded. Securities so owned which have been pledged in good faith shall not
be disregarded if the pledgee establishes to the satisfaction of the Trustee the
pledgee's right so to act with respect to the Securities and that the pledgee is
not the Company or any other obligor on the Securities or any Affiliate of the
Company or of such other obligor.

        SECTION 2.10. TEMPORARY SECURITIES.

        Until definitive Securities are ready for delivery, the Company may
prepare and execute, and, upon receipt of a Company Order, the Trustee shall
authenticate and deliver, temporary Securities. Temporary Securities shall be
substantially in the form of definitive Securities but may have variations that
the Company with the consent of the Trustee considers appropriate for temporary
Securities. Without unreasonable delay, the Company shall prepare and the
Trustee shall authenticate and deliver definitive Securities in exchange for
temporary Securities.

        SECTION 2.11. CANCELLATION.

        The Company at any time may deliver Securities to the Trustee for
cancellation. The Registrar, the Paying Agent and the Conversion Agent shall
forward to the Trustee or its agent any Securities surrendered to them for
transfer, exchange, redemption, payment or conversion. The Trustee and no one
else shall cancel, in accordance with its standard procedures, all Securities
surrendered for transfer, exchange, redemption, payment, conversion or
cancellation and shall deliver the canceled Securities to the Company. All
Securities which are redeemed, purchased or otherwise acquired by the Company or
any of its Subsidiaries prior to the Final Maturity Date shall be delivered to
the Trustee for cancellation, and the Company may not hold or resell such
Securities or issue any new Securities to replace any such Securities or any
Securities that any Holder has converted pursuant to Article 4. Without
limitation to the foregoing, any Securities acquired by any investment bankers
or other purchasers pursuant to Section 3.7 shall be surrendered for conversion
and thereafter cancelled, and may not be reoffered, sold or otherwise
transferred.

        SECTION 2.12. LEGEND; ADDITIONAL TRANSFER AND EXCHANGE REQUIREMENTS.

        (a) If Securities are issued upon the transfer, exchange or replacement
of Securities subject to restrictions on transfer and bearing the legends set
forth on the forms of Securities attached hereto as Exhibit A (collectively, the
"Legend"), or if a request is made to remove the Legend on a Security, the


                                       13


Securities so issued shall bear the Legend, or the Legend shall not be removed,
as the case may be, unless there is delivered to the Company and the Registrar
such satisfactory evidence, which shall include an opinion of counsel if
requested by the Company or such Registrar, as may be reasonably required by the
Company and the Registrar, that neither the Legend nor the restrictions on
transfer set forth therein are required to ensure that transfers thereof comply
with the provisions of Rule 144A or Rule 144 under the Securities Act or that
such Securities are not "restricted" within the meaning of Rule 144 under the
Securities Act; provided that no such evidence need be supplied in connection
with the sale of such Security pursuant to a registration statement that is
effective at the time of such sale. Upon (i) provision of such satisfactory
evidence if requested, or (ii) notification by the Company to the Trustee and
Registrar of the sale of such Security pursuant to a registration statement that
is effective at the time of such sale, the Trustee, at the written direction of
the Company, shall authenticate and deliver a Security that does not bear the
Legend. If the Legend is removed from the face of a Security and the Security is
subsequently held by an Affiliate of the Company, the Legend shall be
reinstated.

        (b) A Global Security may not be transferred, in whole or in part, to
any Person other than the Depositary or a nominee or any successor thereof, and
no such transfer to any such other Person may be registered; provided that the
foregoing shall not prohibit any transfer of a Security that is issued in
exchange for a Global Security but is not itself a Global Security. No transfer
of a Security to any Person shall be effective under this Indenture or the
Securities unless and until such Security has been registered in the name of
such Person. Notwithstanding any other provisions of this Indenture or the
Securities, transfers of a Global Security, in whole or in part, shall be made
only in accordance with this Section 2.12.

        (c) Subject to the succeeding paragraph, every Security shall be subject
to the restrictions on transfer provided in the Legend other than a Restricted
Global Security. Whenever any Restricted Security other than a Restricted Global
Security is presented or surrendered for registration of transfer or for
exchange for a Security registered in a name other than that of the Holder, such
Security must be accompanied by a certificate in substantially the form set
forth in Exhibit B, dated the date of such surrender and signed by the Holder of
such Security, as to compliance with such restrictions on transfer. The
Registrar shall not be required to accept for such registration of transfer or
exchange any Security not so accompanied by a properly completed certificate.

        (d) The restrictions imposed by the Legend upon the transferability of
any Security shall cease and terminate when such Security has been sold pursuant
to an effective registration statement under the Securities Act or transferred
in compliance with Rule 144 under the Securities Act (or any successor provision
thereto) or, if earlier, upon the expiration of the holding period applicable to
sales thereof under Rule 144(k) under the Securities Act (or any successor
provision). Any Security as to which such restrictions on transfer shall have
expired in accordance with their terms or shall have terminated may, upon a
surrender of such Security for exchange to the Registrar in accordance with the
provisions of this Section 2.12 (accompanied, in the event that such
restrictions on transfer have terminated by reason of a transfer in compliance
with Rule 144 or any successor provision, by, if requested, an opinion of
counsel reasonably acceptable to the Company, addressed to the Company and in
form acceptable to the Company, to the effect that the transfer of such Security
has been made in compliance with Rule 144 or such successor provision), be
exchanged for a new Security, of like tenor and aggregate principal amount,
which shall not bear the restrictive Legend. The Company shall inform the
Trustee of the effective date of any registration statement registering the
Securities under the Securities Act. The Trustee shall not be liable for any
action taken or omitted to be taken by it in good faith in accordance with the
aforementioned opinion of counsel or registration statement.


                                       14


        (e) As used in the preceding two paragraphs of this Section 2.12, the
term "transfer" encompasses any sale, pledge, transfer, hypothecation or other
disposition of any Security.

        (f) The provisions of clauses (i), (ii), (iii) and (iv) below shall
apply only to Global Securities:

                      (i) Notwithstanding any other provisions of this Indenture
               or the Securities, a Global Security shall not be exchanged in
               whole or in part for a Security registered in the name of any
               Person other than the Depositary or one or more nominees thereof,
               provided that a Global Security may be exchanged for Securities
               registered in the names of any person designated by the
               Depositary in the event that (A) the Depositary has notified the
               Company that it is unwilling or unable to continue as Depositary
               for such Global Security or such Depositary has ceased to be a
               "clearing agency" registered under the Exchange Act, and a
               successor Depositary is not appointed by the Company within 90
               days, (B) the Company has provided the Depositary with written
               notice that it has decided to discontinue use of the system of
               book-entry transfer through the Depositary or any successor
               Depositary or (C) an Event of Default has occurred and is
               continuing with respect to the Securities. Any Global Security
               exchanged pursuant to clauses (A) or (B) above shall be so
               exchanged in whole and not in part, and any Global Security
               exchanged pursuant to clause (C) above may be exchanged in whole
               or from time to time in part as directed by the Depositary. Any
               Security issued in exchange for a Global Security or any portion
               thereof shall be a Global Security; provided that any such
               Security so issued that is registered in the name of a Person
               other than the Depositary or a nominee thereof shall not be a
               Global Security.

                      (ii) Securities issued in exchange for a Global Security
               or any portion thereof shall be issued in definitive, fully
               registered form, without interest coupons, shall have an
               aggregate principal amount equal to that of such Global Security
               or portion thereof to be so exchanged, shall be registered in
               such names and be in such authorized denominations as the
               Depositary shall designate and shall bear the applicable legends
               provided for herein. Any Global Security to be exchanged in whole
               shall be surrendered by the Depositary to the Trustee, as
               Registrar. With regard to any Global Security to be exchanged in
               part, either such Global Security shall be so surrendered for
               exchange or, if the Trustee is acting as custodian for the
               Depositary or its nominee with respect to such Global Security,
               the principal amount thereof shall be reduced, by an amount equal
               to the portion thereof to be so exchanged, by means of an
               appropriate adjustment made on the records of the Trustee. Upon
               any such surrender or adjustment, the Trustee shall authenticate
               and deliver the Security issuable on such exchange to or upon the
               order of the Depositary or an authorized representative thereof.

                      (iii) Subject to the provisions of clause (v) below, the
               registered Holder may grant proxies and otherwise authorize any
               Person, including Agent Members and persons that may hold
               interests through Agent Members, to take any action which a
               Holder is entitled to take under this Indenture or the
               Securities.

                      (iv) In the event of the occurrence of any of the events
               specified in clause (i) above, the Company will promptly make
               available to the Trustee a reasonable supply of Certificated
               Securities in definitive, fully registered form, without interest
               coupons.

                      (v) Neither Agent Members nor any other Persons on whose
               behalf Agent Members may act shall have any rights under this
               Indenture with respect to any Global


                                       15


               Security registered in the name of the Depositary or any nominee
               thereof, or under any such Global Security, and the Depositary or
               such nominee, as the case may be, may be treated by the Company,
               the Trustee and any agent of the Company or the Trustee as the
               absolute owner and holder of such Global Security for all
               purposes whatsoever. Notwithstanding the foregoing, nothing
               herein shall prevent the Company, the Trustee or any agent of the
               Company or the Trustee from giving effect to any written
               certification, proxy or other authorization furnished by the
               Depositary or such nominee, as the case may be, or impair, as
               between the Depositary, its Agent Members and any other person on
               whose behalf an Agent Member may act, the operation of customary
               practices of such Persons governing the exercise of the rights of
               a holder of any Security.

        SECTION 2.13. CUSIP NUMBERS.

        The Company in issuing the Securities may use one or more "CUSIP"
numbers (if then generally in use), and, if so, the Trustee shall use "CUSIP"
numbers in notices of redemption or purchase as a convenience to Holders;
provided that any such notice may state that no representation is made as to the
correctness of such numbers either as printed on the Securities or as contained
in any notice of a redemption or purchase and that reliance may be placed only
on the other identification numbers printed on the Securities, and any such
redemption or purchase shall not be affected by any defect in or omission of
such numbers. The Company will promptly notify the Trustee of any change in the
"CUSIP" numbers.

                                   ARTICLE 3
                            REDEMPTION AND PURCHASES

        SECTION 3.1. RIGHT TO REDEEM; NOTICE TO TRUSTEE.

        The Securities may be redeemed at the election of the Company, as a
whole or from time to time in part, at any time on or after February 5, 2005, at
the Redemption Prices specified in paragraph 5 of the form of Security attached
hereto as Exhibit A, together with accrued interest up to, but not including,
the Redemption Date; provided that if the Redemption Date falls after an
interest payment record date and on or before an interest payment date, then the
interest will be payable to the Holders in whose name the Securities are
registered at the close of business on the interest payment record date.

        If the Company elects to redeem Securities pursuant to this Section 3.1
and paragraph 5 of the Securities, it shall notify the Trustee at least 45 days
prior to the Redemption Date as fixed by the Company (unless a shorter notice
shall be satisfactory to the Trustee) of the Redemption Date and the principal
amount of Securities to be redeemed. If fewer than all of the Securities are to
be redeemed, the record date relating to such redemption shall be selected by
the Company and given to the Trustee, which record date shall not be less than
ten days after the date of notice to the Trustee.

        SECTION 3.2. SELECTION OF SECURITIES TO BE REDEEMED.

        If less than all of the Securities are to be redeemed, unless the
procedures of the Depositary provide otherwise, the Trustee shall, at least 20
days but not more than 60 days prior to the Redemption Date, select the
Securities to be redeemed. The Trustee shall make the selection from the
Securities outstanding and not previously called for redemption, by lot, or in
its discretion, on a pro rata basis. Securities in denominations of $1,000 may
only be redeemed in whole. The Trustee may select for redemption portions (equal
to $1,000 or any integral multiple thereof) of the principal of Securities that
have denominations larger than $1,000.


                                       16


Provisions of this Indenture that apply to Securities called for redemption also
apply to portions of Securities called for redemption.

        If any Security selected for partial redemption is converted in part
before termination of the conversion right with respect to the portion of the
Security so selected, the converted portion of such Security shall be deemed to
be the portion selected for redemption. Securities which have been converted
during a selection of Securities to be redeemed shall be treated by the Trustee
as outstanding for the purpose of such selection.

        SECTION 3.3. NOTICE OF REDEMPTION.

        At least 20 days but not more than 60 days before a Redemption Date, the
Company shall mail or cause to be mailed a notice of redemption to each Holder
of Securities to be redeemed at such Holder's address as it appears on the
Primary Registrar's books.

        The notice shall identify the Securities (including CUSIP numbers) to be
redeemed and shall state:

               (1) the Redemption Date;

               (2) the Redemption Price;

               (3) the then current Conversion Price;

               (4) the name and address of each Paying Agent and Conversion
Agent;

               (5) that Securities called for redemption must be presented and
surrendered to a Paying Agent to collect the Redemption Price;

               (6) that Holders who wish to convert Securities must surrender
such Securities for conversion no later than the close of business on the
Business Day immediately preceding the Redemption Date and must satisfy the
other requirements set forth in paragraph 8 of the Securities;

               (7) that, unless the Company defaults in making the payment of
the Redemption Price, interest on Securities called for redemption shall cease
accruing on and after the Redemption Date and the only remaining right of the
Holder shall be to receive payment of the Redemption Price plus accrued
interest, if any upon presentation and surrender to a Paying Agent of the
Securities; and

               (8) if any Security is being redeemed in part, the portion of the
principal amount of such Security to be redeemed and that, after the Redemption
Date, upon presentation and surrender of such Security, a new Security or
Securities in aggregate principal amount equal to the unredeemed portion thereof
will be issued.

        If any of the Securities to be redeemed is in the form of a Global
Security, then the Company shall modify such notice to the extent necessary to
accord with the procedures of the Depositary applicable to redemptions. At the
Company's written request, which request shall (i) be irrevocable once given and
(ii) set forth all relevant information required by clauses (1) through (8) of
the preceding paragraph, the Trustee shall give the notice of redemption in the
Company's name and at the Company's expense.


                                       17


        SECTION 3.4. EFFECT OF NOTICE OF REDEMPTION.

        Once notice of redemption is mailed, Securities called for redemption
become due and payable on the Redemption Date and at the Redemption Price stated
in the notice, together with accrued interest, if any, except for Securities
that are converted in accordance with the provisions of Article 4. Upon
presentation and surrender to a Paying Agent, Securities called for redemption
shall be paid at the Redemption Price, plus accrued interest up to but not
including the Redemption Date; provided that if the Redemption Date is an
interest payment date, interest will be payable to the Holders in whose names
the Securities are registered on the Redemption Date.

        SECTION 3.5. DEPOSIT OF REDEMPTION PRICE.

        Prior to 11:00 a.m. New York City time, on the Redemption Date, the
Company shall deposit with a Paying Agent (or, if the Company acts as Paying
Agent, shall segregate and hold in trust) an amount of money (in immediately
available funds if deposited on such Redemption Date) sufficient to pay the
Redemption Price of and accrued interest on all Securities to be redeemed on
that date, other than Securities or portions thereof called for redemption on
that date which have been delivered by the Company to the Trustee for
cancellation or have been converted. The Paying Agent shall as promptly as
practicable return to the Company any money not required for that purpose
because of the conversion of Securities pursuant to Article 4 or, if such money
is then held by the Company in trust and is not required for such purpose, it
shall be discharged from the trust.

        SECTION 3.6. SECURITIES REDEEMED IN PART.

        Upon presentation and surrender of a Security that is redeemed in part,
the Company shall execute and the Trustee shall authenticate and deliver to the
Holder a new Security equal in principal amount to the unredeemed portion of the
Security surrendered.

        SECTION 3.7. CONVERSION ARRANGEMENT ON CALL FOR REDEMPTION.

        In connection with any redemption of Securities, the Company may arrange
for the purchase and conversion of any Securities called for redemption by an
agreement with one or more investment bankers or other purchasers to purchase
such Securities by paying to a Paying Agent (other than the Company or any of
its Affiliates) in trust for the Holders, on or before 11:00 a.m. New York City
time on the Redemption Date, an amount that, together with any amounts deposited
with such Paying Agent by the Company for the redemption of such Securities, is
not less than the Redemption Price, together with interest accrued to, but not
including, the Redemption Date, of such Securities. Notwithstanding anything to
the contrary contained in this Article 3, the obligation of the Company to pay
the Redemption Price of such Securities, including all accrued interest, shall
be deemed to be satisfied and discharged to the extent such amount is so paid by
such purchasers; provided, however, that nothing in this Section 3.7 shall
relieve the Company of its obligation to pay the Redemption Price, plus accrued
interest to but excluding the relevant Redemption Date, on Securities called for
redemption. If such an agreement with one or more investment banks or other
purchasers is entered into, any Securities called for redemption and not
surrendered for conversion by the Holders thereof prior to the relevant
Redemption Date may, at the option of the Company upon written notice to the
Trustee, be deemed, to the fullest extent permitted by law, acquired by such
purchasers from such Holders and (notwithstanding anything to the contrary
contained in Article 4) surrendered by such purchasers for conversion, all as of
11:00 a.m. New York City time on the Redemption Date, subject to payment of the
above amount as aforesaid. The Paying Agent shall hold and pay to the Holders
whose Securities are selected


                                       18


for redemption any such amount paid to it for purchase in the same manner as it
would money deposited with it by the Company for the redemption of Securities.
Without the Paying Agent's prior written consent, no arrangement between the
Company and such purchasers for the purchase and conversion of any Securities
shall increase or otherwise affect any of the powers, duties, responsibilities
or obligations of the Paying Agent as set forth in this Indenture, and the
Company agrees to indemnify the Paying Agent from, and hold it harmless against,
any loss, liability or expense arising out of or in connection with any such
arrangement for the purchase and conversion of any Securities between the
Company and such purchasers, including the costs and expenses incurred by the
Paying Agent in the defense of any claim or liability arising out of or in
connection with the exercise or performance of any of its powers, duties,
responsibilities or obligations under this Indenture.

        SECTION 3.8. PURCHASE OF SECURITIES AT OPTION OF THE HOLDER UPON CHANGE
IN CONTROL.

        (a) If at any time that Securities remain outstanding there shall occur
a Change in Control, Securities shall be purchased by the Company at the option
of the Holders, as of the date that is 30 Business Days after the occurrence of
the Change in Control (the "Change in Control Purchase Date") at a purchase
price equal to 100% of the principal amount of the Securities, together with
accrued and unpaid interest to, but excluding, the Change in Control Purchase
Date (the "Change in Control Purchase Price"), subject to satisfaction by or on
behalf of any Holder of the requirements set forth in subsection (c) of this
Section 3.8.

        A "Change in Control" shall be deemed to have occurred if any of the
following occurs after the date hereof:

               (1) any "person" or "group" (as such terms are defined below) is
or becomes the "beneficial owner" (as defined below), directly or indirectly, of
shares of Voting Stock of the Company representing 50% or more of the total
voting power of all outstanding classes of Voting Stock of the Company or has
the power, directly or indirectly, to elect a majority of the members of the
Board of Directors of the Company; or

               (2) the Company consolidates with, or merges with or into,
another Person or the Company sells, assigns, conveys, transfers, leases or
otherwise disposes of all or substantially all of the assets of the Company, or
any Person consolidates with, or merges with or into, the Company, in any such
event other than pursuant to a transaction in which the Persons that
"beneficially owned" (as defined below), directly or indirectly, shares of
Voting Stock of the Company immediately prior to such transaction "beneficially
own" (as defined below), directly or indirectly, shares of Voting Stock of the
Company representing at least a majority of the total voting power of all
outstanding classes of Voting Stock of the surviving or transferee Person; or

               (3) the holders of capital stock of the Company approve any plan
or proposal for the liquidation or dissolution of the Company (whether or not
otherwise in compliance with the terms hereof).

For the purpose of the definition of "Change in Control", (i) "person" and
"group" have the meanings given such terms under Section 13(d) and 14(d) of the
Exchange Act or any successor provision to either of the foregoing, and the term
"group" includes any group acting for the purpose of acquiring, holding or
disposing of securities within the meaning of Rule 13d-5(b)(1) under the
Exchange Act (or any successor provision thereto), (ii) a "beneficial owner"
shall be determined in accordance with Rule 13d-3 under the Exchange Act, as in
effect on the date of this Indenture, except that the number of shares of Voting
Stock of the Company


                                       19


shall be deemed to include, in addition to all outstanding shares of Voting
Stock of the Company and Unissued Shares deemed to be held by the "person" or
"group" (as such terms are defined above) or other Person with respect to which
the Change in Control determination is being made, all Unissued Shares deemed to
be held by all other Persons, and (iii) the terms "beneficially owned" and
"beneficially own" shall have meanings correlative to that of "beneficial
owner". The term "Unissued Shares" means shares of Voting Stock not outstanding
that are subject to options, warrants, rights to purchase or conversion
privileges exercisable within 60 days of the date of determination of a Change
in Control.

        Notwithstanding anything to the contrary set forth in this Section 3.8,
a Change in Control will not be deemed to have occurred if either:

               (1) the Closing Price (determined in accordance with Section
4.6(d) of this Indenture) of the Common Stock for any five Trading Days during
the ten Trading Days immediately preceding the Change in Control is at least
equal to 105% of the Conversion Price in effect on such Trading Day; or

               (2) in the case of a merger or consolidation, all of the
consideration (excluding cash payments for fractional shares and cash payments
pursuant to dissenters' appraisal rights) in the merger or consolidation
constituting the Change in Control consists of common stock traded on a United
States national securities exchange or quoted on the Nasdaq National Market (or
which will be so traded or quoted when issued or exchanged in connection with
such Change in Control) and as a result of such transaction or transactions the
Securities become convertible solely into such common stock.

        (b) Within 10 Business Days after the occurrence of a Change in Control,
the Company shall mail a written notice of the Change in Control to the Trustee
and to each Holder (and to beneficial owners as required by applicable law). The
notice shall include the form of a Change in Control Purchase Notice to be
completed by the Holder and shall state:

               (1) the date of such Change in Control and, briefly, the events
causing such Change in Control;

               (2) the date by which the Change in Control Purchase Notice
pursuant to this Section 3.8 must be given;

               (3) the Change in Control Purchase Date;

               (4) the Change in Control Purchase Price;

               (5) the Holder's right to require the Company to purchase the
Securities;

               (6) briefly, the conversion rights of the Securities;

               (7) the name and address of each Paying Agent and Conversion
Agent;

               (8) the Conversion Price and any adjustments thereto;

               (9) that Securities as to which a Change in Control Purchase
Notice has been given may be converted into Common Stock pursuant to Article 4
of this Indenture only to the extent that the Change in Control Purchase Notice
has been withdrawn in accordance with the terms of this Indenture;


                                       20


               (10) the procedures that the Holder must follow to exercise
rights under this Section 3.8;

               (11) the procedures for withdrawing a Change in Control Purchase
Notice, including a form of notice of withdrawal; and

               (12) that the Holder must satisfy the requirements set forth in
the Securities in order to convert the Securities.

        If any of the Securities is in the form of a Global Security, then the
Company shall modify such notice to the extent necessary to accord with the
procedures of the Depositary applicable to the repurchase of Global Securities.

        (c) A Holder may exercise its rights specified in subsection (a) of this
Section 3.8 upon delivery of a written notice (which shall be in substantially
the form included in Exhibit A hereto and which may be delivered by letter,
overnight courier, hand delivery, facsimile transmission or in any other written
form and, in the case of Global Securities, may be delivered electronically or
by other means in accordance with the Depositary's customary procedures) of the
exercise of such rights (a "Change in Control Purchase Notice") to any Paying
Agent at any time prior to the close of business on the Business Day next
preceding the Change in Control Purchase Date.

        The delivery of such Security to any Paying Agent (together with all
necessary endorsements) at the office of such Paying Agent shall be a condition
to the receipt by the Holder of the Change in Control Purchase Price therefor.

        The Company shall purchase from the Holder thereof, pursuant to this
Section 3.8, a portion of a Security if the principal amount of such portion is
$1,000 or an integral multiple of $1,000. Provisions of the Indenture that apply
to the purchase of all of a Security pursuant to Sections 3.8 through 3.13 also
apply to the purchase of such portion of such Security.

        Notwithstanding anything herein to the contrary, any Holder delivering
to a Paying Agent the Change in Control Purchase Notice contemplated by this
subsection (c) shall have the right to withdraw such Change in Control Purchase
Notice in whole or in a portion thereof that is a principal amount of $1,000 or
in an integral multiple thereof at any time prior to the close of business on
the Business Day next preceding the Change in Control Purchase Date by delivery
of a written notice of withdrawal to the Paying Agent in accordance with Section
3.9.

        A Paying Agent shall promptly notify the Company of the receipt by it of
any Change in Control Purchase Notice or written withdrawal thereof.

        Anything herein to the contrary notwithstanding, in the case of Global
Securities, any Change in Control Purchase Notice may be delivered or withdrawn
and such Securities may be surrendered or delivered for purchase in accordance
with the Applicable Procedures as in effect from time to time.

        SECTION 3.9. EFFECT OF CHANGE IN CONTROL PURCHASE NOTICE.

        Upon receipt by any Paying Agent of the Change in Control Purchase
Notice specified in Section 3.8(c), the Holder of the Security in respect of
which such Change in Control Purchase Notice was given shall (unless such Change
in Control Purchase Notice is withdrawn as specified below) thereafter be
entitled to receive the Change in Control Purchase Price with respect to such
Security. Such Change in Control


                                       21


Purchase Price shall be paid to such Holder promptly following the later of (a)
the Change in Control Purchase Date with respect to such Security (provided the
conditions in Section 3.8(c) have been satisfied) and (b) the time of delivery
of such Security to a Paying Agent by the Holder thereof in the manner required
by Section 3.8(c). Securities in respect of which a Change in Control Purchase
Notice has been given by the Holder thereof may not be converted into shares of
Common Stock pursuant to Article 4 on or after the date of the delivery of such
Change in Control Purchase Notice unless such Change in Control Purchase Notice
has first been validly withdrawn.

        A Change in Control Purchase Notice may be withdrawn by means of a
written notice (which may be delivered by mail, overnight courier, hand
delivery, facsimile transmission or in any other written form and, in the case
of Global Securities, may be delivered electronically or by other means in
accordance with the Depositary's customary procedures) of withdrawal delivered
by the Holder to a Paying Agent at any time prior to the close of business on
the Business Day immediately preceding the Change in Control Purchase Date,
specifying the principal amount of the Security or portion thereof (which must
be a principal amount of $1,000 or an integral multiple of $1,000 in excess
thereof) with respect to which such notice of withdrawal is being submitted.

        SECTION 3.10. DEPOSIT OF CHANGE IN CONTROL PURCHASE PRICE.

        On or before 11:00 a.m. New York City time on the Change in Control
Purchase Date, the Company shall deposit with the Trustee or with a Paying Agent
(other than the Company or an Affiliate of the Company) an amount of money (in
immediately available funds if deposited on such Change in Control Purchase
Date) sufficient to pay the aggregate Change in Control Purchase Price of all
the Securities or portions thereof that are to be purchased as of such Change in
Control Purchase Date. The manner in which the deposit required by this Section
3.10 is made by the Company shall be at the option of the Company, provided that
such deposit shall be made in a manner such that the Trustee or a Paying Agent
shall have immediately available funds on the Change in Control Purchase Date.

        If a Paying Agent holds, in accordance with the terms hereof, money
sufficient to pay the Change in Control Purchase Price of any Security for which
a Change in Control Purchase Notice has been tendered and not withdrawn in
accordance with this Indenture then, on the Change in Control Purchase Date,
such Security will cease to be outstanding and the rights of the Holder in
respect thereof shall terminate (other than the right to receive the Change in
Control Purchase Price as aforesaid). The Company shall publicly announce the
principal amount of Securities purchased as a result of such Change in Control
on or as soon as practicable after the Change in Control Purchase Date.

        SECTION 3.11. SECURITIES PURCHASED IN PART.

        Any Security that is to be purchased only in part shall be surrendered
at the office of a Paying Agent, and promptly after the Change in Control
Purchase Date the Company shall execute and the Trustee shall authenticate and
deliver to the Holder of such Security, without service charge, a new Security
or Securities, of such authorized denomination or denominations as may be
requested by such Holder, in aggregate principal amount equal to, and in
exchange for, the portion of the principal amount of the Security so surrendered
that is not purchased.


                                       22


        SECTION 3.12. COMPLIANCE WITH SECURITIES LAWS UPON PURCHASE OF
SECURITIES.

        In connection with any offer to purchase or purchase of Securities under
Section 3.8, the Company shall (a) comply with Rule 13e-4 and Rule 14e-1 (or any
successor to either such Rule), if applicable, under the Exchange Act, (b) file
the related Schedule TO (or any successor or similar schedule, form or report)
if required under the Exchange Act, and (c) otherwise comply with all federal
and state securities laws in connection with such offer to purchase or purchase
of Securities, all so as to permit the rights of the Holders and obligations of
the Company under Sections 3.8 through 3.11 to be exercised in the time and in
the manner specified therein.

        SECTION 3.13. REPAYMENT TO THE COMPANY.

        To the extent that the aggregate amount of cash deposited by the Company
pursuant to Section 3.10 exceeds the aggregate Change in Control Purchase Price
together with interest, if any, thereon of the Securities or portions thereof
that the Company is obligated to purchase, then promptly after the Change in
Control Purchase Date the Trustee or a Paying Agent, as the case may be, shall
return any such excess cash to the Company.

                                    ARTICLE 4
                                   CONVERSION

        SECTION 4.1. CONVERSION PRIVILEGE.

        Subject to the further provisions of this Article 4 and paragraph 8 of
the Securities, a Holder of a Security may convert the principal amount of such
Security (or any portion thereof equal to $1,000 or any integral multiple of
$1,000 in excess thereof) into Common Stock at any time prior to the close of
business on the Final Maturity Date, at the Conversion Price then in effect;
provided, however, that, if such Security is called for redemption or submitted
or presented for purchase pursuant to Article 3, such conversion right shall
terminate at the close of business on the Business Day immediately preceding the
Redemption Date or Change in Control Purchase Date, as the case may be, for such
Security or such earlier date as the Holder presents such Security for
redemption or for purchase (unless the Company shall default in making the
redemption payment or Change in Control Purchase Price payment when due, in
which case the conversion right shall terminate at the close of business on the
date such default is cured and such Security is redeemed or purchased, as the
case may be). The number of shares of Common Stock issuable upon conversion of a
Security shall be determined by dividing the principal amount of the Security or
portion thereof surrendered for conversion by the Conversion Price in effect on
the Conversion Date. The initial Conversion Price is set forth in paragraph 8 of
the Securities and is subject to adjustment as provided in this Article 4.

        Provisions of this Indenture that apply to conversion of all of a
Security also apply to conversion of a portion of a Security.

        A Security in respect of which a Holder has delivered a Change in
Control Purchase Notice pursuant to Section 3.8(c) exercising the option of such
Holder to require the Company to purchase such Security may be converted only if
such Change in Control Purchase Notice is withdrawn by a written notice of
withdrawal delivered to a Paying Agent prior to the close of business on the
Business Day immediately preceding the Change in Control Purchase Date in
accordance with Section 3.9.


                                       23


        A Holder of Securities is not entitled to any rights of a holder of
Common Stock until such Holder has converted its Securities to Common Stock, and
only to the extent such Securities are deemed to have been converted into Common
Stock pursuant to this Article 4.

        SECTION 4.2. CONVERSION PROCEDURE.

        To convert a Security, a Holder must (a) complete and manually sign the
conversion notice on the back of the Security and deliver such notice to a
Conversion Agent, (b) surrender the Security to a Conversion Agent, (c) furnish
appropriate endorsements and transfer documents if required by a Registrar or a
Conversion Agent, and (d) pay any transfer or similar tax, if required. The date
on which the Holder satisfies all of those requirements is the "Conversion
Date." As soon as practicable after the Conversion Date, the Company shall
deliver to the Holder through a Conversion Agent a certificate for the number of
whole shares of Common Stock issuable upon the conversion and cash in lieu of
any fractional shares pursuant to Section 4.3. Anything herein to the contrary
notwithstanding, in the case of Global Securities, conversion notices may be
delivered and such Securities may be surrendered for conversion in accordance
with the Applicable Procedures as in effect from time to time.

        The person in whose name the Common Stock certificate is registered
shall be deemed to be a stockholder of record on the Conversion Date; provided,
however, that no surrender of a Security on any date when the stock transfer
books of the Company shall be closed shall be effective to constitute the person
or persons entitled to receive the shares of Common Stock upon such conversion
as the record holder or holders of such shares of Common Stock on such date, but
such surrender shall be effective to constitute the person or persons entitled
to receive such shares of Common Stock as the record holder or holders thereof
for all purposes at the close of business on the next succeeding day on which
such stock transfer books are open; provided, further, that such conversion
shall be at the Conversion Price in effect on the Conversion Date as if the
stock transfer books of the Company had not been closed. Upon conversion of a
Security, such person shall no longer be a Holder of such Security. No payment
or adjustment will be made for dividends or distributions on shares of Common
Stock issued upon conversion of a Security.

        Securities so surrendered for conversion (in whole or in part) during
the period from the close of business on any regular record date to the opening
of business on the next succeeding interest payment date (excluding Securities
or portions thereof called for redemption or presented for purchase upon a
Change in Control on a Redemption Date or Change in Control Purchase Date, as
the case may be, during the period beginning at the close of business on a
regular record date and ending at the opening of business on the first Business
Day after the next succeeding interest payment date, or if such interest payment
date is not a Business Day, the second such Business Day) shall also be
accompanied by payment in funds acceptable to the Company of an amount equal to
the interest payable on such interest payment date on the principal amount of
such Security then being converted, and such interest shall be payable to such
registered Holder notwithstanding the conversion of such Security, subject to
the provisions of this Indenture relating to the payment of defaulted interest
by the Company. Except as otherwise provided in this Section 4.2, no payment or
adjustment will be made for accrued interest on a converted Security. If the
Company defaults in the payment of interest payable on such interest payment
date, the Company shall promptly repay such funds to such Holder.

        Nothing in this Section shall affect the right of a Holder in whose name
any Security is registered at the close of business on a record date to receive
the interest payable on such Security on the related interest payment date in
accordance with the terms of this Indenture and the Securities. If a Holder
converts more than


                                       24


one Security at the same time, the number of shares of Common Stock issuable
upon the conversion shall be based on the aggregate principal amount of
Securities converted.

        Upon surrender of a Security that is converted in part, the Company
shall execute, and the Trustee shall authenticate and deliver to the Holder, a
new Security equal in principal amount to the unconverted portion of the
Security surrendered.

SECTION 4.3.   FRACTIONAL SHARES.

        The Company will not issue fractional shares of Common Stock upon
conversion of Securities. In lieu thereof, the Company will pay an amount in
cash for the current market value of the fractional shares. The current market
value of a fractional share shall be determined, (calculated to the nearest
1/1000th of a share) by multiplying the Closing Price (determined as set forth
in Section 4.6(d)) of the Common Stock on the Trading Day immediately prior to
the Conversion Date by such fractional share and rounding the product to the
nearest whole cent.

        SECTION 4.4. TAXES ON CONVERSION.

        If a Holder converts a Security, the Company shall pay any documentary,
stamp or similar issue or transfer tax due on the issue of shares of Common
Stock upon such conversion. However, the Holder shall pay any such tax which is
due because the Holder requests the shares to be issued in a name other than the
Holder's name. The Conversion Agent may refuse to deliver the certificate
representing the Common Stock being issued in a name other than the Holder's
name until the Conversion Agent receives a sum sufficient to pay any tax which
will be due because the shares are to be issued in a name other than the
Holder's name. Nothing herein shall preclude any tax withholding required by law
or regulation.

        SECTION 4.5. COMPANY TO PROVIDE STOCK.

        The Company shall, prior to issuance of any Securities hereunder, and
from time to time as may be necessary, reserve, out of its authorized but
unissued Common Stock, a sufficient number of shares of Common Stock to permit
the conversion of all outstanding Securities into shares of Common Stock.

        All shares of Common Stock delivered upon conversion of the Securities
shall be newly issued shares, shall be duly authorized, validly issued, fully
paid and nonassessable and shall be free from preemptive rights and free of any
lien or adverse claim.

        The Company will endeavor promptly to comply with all federal and state
securities laws regulating the offer and delivery of shares of Common Stock upon
conversion of Securities, if any, and will list or cause to have quoted such
shares of Common Stock on each national securities exchange or on the Nasdaq
National Market or other over-the-counter market or such other market on which
the Common Stock is then listed or quoted; provided, however, that if rules of
such automated quotation system or exchange permit the Company to defer the
listing of such Common Stock until the first conversion of the Notes into Common
Stock in accordance with the provisions of this Indenture, the Company covenants
to list such Common Stock issuable upon conversion of the Notes in accordance
with the requirements of such automated quotation system or exchange at such
time. Any Common Stock issued upon conversion of a Security hereunder which at
the time of conversion was a Restricted Security will also be a Restricted
Security.


                                       25


SECTION 4.6.   ADJUSTMENT OF CONVERSION PRICE.

        The conversion price as stated in paragraph 8 of the Securities (the
"Conversion Price") shall be adjusted from time to time by the Company as
follows:

        (a) In case the Company shall (i) pay a dividend on its Common Stock in
shares of Common Stock, (ii) make a distribution on its Common Stock in shares
of Common Stock, (iii) subdivide its outstanding Common Stock into a greater
number of shares, or (iv) combine its outstanding Common Stock into a smaller
number of shares, the Conversion Price in effect immediately prior thereto shall
be adjusted so that the Holder of any Security thereafter surrendered for
conversion shall be entitled to receive that number of shares of Common Stock
which it would have owned had such Security been converted immediately prior to
the happening of such event. An adjustment made pursuant to this subsection (a)
shall become effective immediately after the record date in the case of a
dividend or distribution and shall become effective immediately after the
effective date in the case of subdivision or combination.

        (b) In case the Company shall issue rights or warrants to all or
substantially all holders of its Common Stock entitling them (for a period
commencing no earlier than the record date described below and expiring not more
than 60 days after such record date) to subscribe for or purchase shares of
Common Stock (or securities convertible into Common Stock) at a price per share
(or having a conversion price per share) less than the Current Market Price per
share of Common Stock (as determined in accordance with subsection (d) of this
Section 4.6) on the record date for the determination of stockholders entitled
to receive such rights or warrants, the Conversion Price in effect immediately
prior thereto shall be adjusted so that the same shall equal the price
determined by multiplying the Conversion Price in effect immediately prior to
such record date by a fraction of which the numerator shall be the number of
shares of Common Stock outstanding on such record date plus the number of shares
which the aggregate offering price of the total number of shares of Common Stock
so offered (or the aggregate conversion price of the convertible securities so
offered, which shall be determined by multiplying the number of shares of Common
Stock issuable upon conversion of such convertible securities by the conversion
price per share of Common Stock pursuant to the terms of such convertible
securities) would purchase at the Current Market Price per share (as defined in
subsection (d) of this Section 4.6) of Common Stock on such record date, and of
which the denominator shall be the number of shares of Common Stock outstanding
on such record date plus the number of additional shares of Common Stock offered
(or into which the convertible securities so offered are convertible). Such
adjustment shall be made successively whenever any such rights or warrants are
issued, and shall become effective immediately after such record date. If at the
end of the period during which such rights or warrants are exercisable not all
rights or warrants shall have been exercised, the adjusted Conversion Price
shall be immediately readjusted to what it would have been based upon the number
of additional shares of Common Stock actually issued (or the number of shares of
Common Stock issuable upon conversion of convertible securities actually
issued).

        (c) In case the Company shall distribute to all or substantially all
holders of its Common Stock any shares of capital stock of the Company (other
than Common Stock), evidences of indebtedness or other non-cash assets
(including securities of any person other than the Company but excluding (1)
dividends or distributions paid exclusively in cash or (2) dividends or
distributions referred to in subsection (a) of this Section 4.6), or shall
distribute to all or substantially all holders of its Common Stock rights or
warrants to subscribe for or purchase any of its securities (excluding those
rights and warrants referred to in subsection (b) of this Section 4.6 and also
excluding the distribution of rights pursuant to a Rights Plan (as defined
below)), then in each such case the Conversion Price shall be adjusted so that
the same shall equal the price determined by multiplying the current Conversion
Price by a fraction of which the numerator shall be the Current Market Price per
share (as defined in subsection (d) of this Section 4.6) of the Common Stock on


                                       26


the record date mentioned below less the fair market value on such record date
(as determined by the Board of Directors, whose determination shall be
conclusive evidence of such fair market value and which shall be evidenced by an
Officers' Certificate delivered to the Trustee) of the portion of the capital
stock, evidences of indebtedness or other non-cash assets so distributed or of
such rights or warrants applicable to one share of Common Stock (determined on
the basis of the number of shares of Common Stock outstanding on the record
date), and of which the denominator shall be the Current Market Price per share
(as defined in subsection (d) of this Section 4.6) of the Common Stock on such
record date. Such adjustment shall be made successively whenever any such
distribution is made and shall become effective immediately after the record
date for the determination of shareholders entitled to receive such
distribution.

        In the event the then fair market value (as so determined) of the
portion of the capital stock, evidences of indebtedness or other non-cash assets
so distributed or of such rights or warrants applicable to one share of Common
Stock is equal to or greater than the Current Market Price per share of the
Common Stock on such record date, in lieu of the foregoing adjustment, adequate
provision shall be made so that each holder of a Security shall have the right
to receive upon conversion the amount of capital stock, evidences of
indebtedness or other non-cash assets so distributed or of such rights or
warrants such holder would have received had such holder converted each Security
on such record date. In the event that such dividend or distribution is not so
paid or made, the Conversion Price shall again be adjusted to be the Conversion
Price which would then be in effect if such dividend or distribution had not
been declared. If the Board of Directors determines the fair market value of any
distribution for purposes of this Section 4.6(c) by reference to the actual or
when issued trading market for any securities, it must in doing so consider the
prices in such market over the same period used in computing the Current Market
Price of the Common Stock.

        With respect to Rights to Purchase Series A Junior Participating
Preferred Stock issued pursuant to the Rights Agreement dated as of January 19,
1989 (as amended) between the Company and Chase Mellon Shareholder Services LLC
(as successor to First Interstate Bank, Ltd.), as Rights Agent (the "Existing
Rights"), and any rights that may be issued or distributed pursuant to any
similar rights plan that the Company implements after the date of this Indenture
(each of the Existing Rights and any rights that may be issued pursuant to any
such similar future rights plan being referred to as, a "Rights Plan"), upon
conversion of the Securities into Common Stock, to the extent that such Rights
Plan is in effect upon such conversion, the holders of Securities will receive,
in addition to the Common Stock, the rights described therein (whether or not
the rights have separated from the Common Stock at the time of conversion),
subject to the limitations set forth in any such Rights Plan. Any distribution
of rights or warrants pursuant to a Rights Plan complying with the requirements
set forth in the immediately preceding sentence of this paragraph shall not
constitute a distribution of rights or warrants pursuant to this Section 4.6(c).

        Rights or warrants (other than rights issued pursuant to a Rights Plan)
distributed by the Company to all holders of Common Stock entitling the holders
thereof to subscribe for or purchase shares of the Company's Capital Stock
(either initially or under certain circumstances), which rights or warrants,
until the occurrence of a specified event or events ("Trigger Event"): (i) are
deemed to be transferred with such shares of Common Stock; (ii) are not
exercisable; and (iii) are also issued in respect of future issuances of Common
Stock, shall be deemed not to have been distributed for purposes of this Section
4.6 (and no adjustment to the Conversion Price under this Section 4.6 will be
required) until the occurrence of the earliest Trigger Event, whereupon such
rights and warrants shall be deemed to have been distributed and an appropriate
adjustment (if any is required) to the Conversion Price shall be made under this
Section 4.6(c). If any such right or warrant, including any such existing rights
or warrants distributed prior to the date of this Indenture, are subject to
events, upon the occurrence of which such rights or warrants become exercisable
to purchase different securities, evidences of indebtedness or other assets,
then the date of the occurrence of any and each


                                       27


such event shall be deemed to be the date of distribution and record date with
respect to new rights or warrants with such rights (and a termination or
expiration of the existing rights or warrants without exercise by any of the
holders thereof). In addition, in the event of any distribution (or deemed
distribution) of rights or warrants, or any Trigger Event or other event (of the
type described in the preceding sentence) with respect thereto that was counted
for purposes of calculating a distribution amount for which an adjustment to the
Conversion Price under this Section 4.6 was made, (1) in the case of any such
rights or warrants which shall all have been redeemed or repurchased without
exercise by any holders thereof, the Conversion Price shall be readjusted upon
such final redemption or repurchase to give effect to such distribution or
Trigger Event, as the case may be, as though it were a cash distribution, equal
to the per share redemption or repurchase price received by a holder or holders
of Common Stock with respect to such rights or warrants (assuming such holder
had retained such rights or warrants), made to all holders of Common Stock as of
the date of such redemption or repurchase, and (2) in the case of such rights or
warrants which shall have expired or been terminated without exercise by any
holders thereof, the Conversion Price shall be readjusted as if such rights and
warrants had not been issued.

               (1) In case the Company shall, by dividend or otherwise, at any
time distribute (a "Triggering Distribution") to all or substantially all
holders of its Common Stock cash in an aggregate amount that, together with the
aggregate amount of (A) any cash and the fair market value (as determined by the
Board of Directors, whose determination shall be conclusive evidence thereof and
which shall be evidenced by an Officers' Certificate delivered to the Trustee)
of any other consideration payable in respect of any tender offer by the Company
or a Subsidiary of the Company for Common Stock consummated within the 12 months
preceding the date of payment of the Triggering Distribution and in respect of
which no Conversion Price adjustment pursuant to this Section 4.6 has been made
and (B) all other cash distributions to all or substantially all holders of its
Common Stock made within the 12 months preceding the date of payment of the
Triggering Distribution and in respect of which no Conversion Price adjustment
pursuant to this Section 4.6 has been made, exceeds an amount equal to 10.0% of
the product of the Current Market Price per share of Common Stock (as determined
in accordance with subsection (d) of this Section 4.6) on the Business Day (the
"Determination Date") immediately preceding the day on which such Triggering
Distribution is declared by the Company multiplied by the number of shares of
Common Stock outstanding on the Determination Date (excluding shares held in the
treasury of the Company), the Conversion Price shall be reduced so that the same
shall equal the price determined by multiplying such Conversion Price in effect
immediately prior to the Determination Date by a fraction of which the numerator
shall be the Current Market Price per share of the Common Stock (as determined
in accordance with subsection (d) of this Section 4.6) on the Determination Date
less the sum of the aggregate amount of cash and the aggregate fair market value
(determined as aforesaid in this Section 4.6(c)(1)) of any such other
consideration so distributed, paid or payable within such 12 months (including,
without limitation, the Triggering Distribution) applicable to one share of
Common Stock (determined on the basis of the number of shares of Common Stock
outstanding on the Determination Date) and the denominator shall be such Current
Market Price per share of the Common Stock (as determined in accordance with
subsection (d) of this Section 4.6) on the Determination Date, such reduction to
become effective immediately prior to the opening of business on the day
following the date on which the Triggering Distribution is paid.

               (2) In case any tender offer made by the Company or any of its
Subsidiaries for Common Stock shall expire and such tender offer (as amended
upon the expiration thereof) shall involve the payment of aggregate
consideration in an amount (determined as the sum of the aggregate amount of
cash consideration and the aggregate fair market value (as determined by the
Board of Directors, whose determination shall be conclusive evidence thereof and
which shall be evidenced by an Officers' Certificate delivered to the Trustee
thereof) of any other consideration) that, together with the aggregate amount of


                                       28


(A) any cash and the fair market value (as determined by the Board of Directors,
whose determination shall be conclusive evidence thereof and which shall be
evidenced by an Officers' Certificate delivered to the Trustee) of any other
consideration payable in respect of any other tender offers by the Company or
any Subsidiary of the Company for Common Stock consummated within the 12 months
preceding the date of the Expiration Date (as defined below) and in respect of
which no Conversion Price adjustment pursuant to this Section 4.6 has been made
and (B) all cash distributions to all or substantially all holders of its Common
Stock made within the 12 months preceding the Expiration Date and in respect of
which no Conversion Price adjustment pursuant to this Section 4.6 has been made,
exceeds an amount equal to 10.0% of the product of the Current Market Price per
share of Common Stock (as determined in accordance with subsection (d) of this
Section 4.6) as of the last date (the "Expiration Date") tenders could have been
made pursuant to such tender offer (as it may be amended) (the last time at
which such tenders could have been made on the Expiration Date is hereinafter
sometimes called the "Expiration Time") multiplied by the number of shares of
Common Stock outstanding (including tendered shares but excluding any shares
held in the treasury of the Company) at the Expiration Time, then, immediately
prior to the opening of business on the day after the Expiration Date, the
Conversion Price shall be reduced so that the same shall equal the price
determined by multiplying the Conversion Price in effect immediately prior to
the close of business on the Expiration Date by a fraction of which the
numerator shall be the product of the number of shares of Common Stock
outstanding (including tendered shares but excluding any shares held in the
treasury of the Company) at the Expiration Time multiplied by the Current Market
Price per share of the Common Stock (as determined in accordance with subsection
(d) of this Section 4.6) on the Trading Day next succeeding the Expiration Date
and the denominator shall be the sum of (x) the aggregate consideration
(determined as aforesaid) payable to stockholders based on the acceptance (up to
any maximum specified in the terms of the tender offer) of all shares validly
tendered and not withdrawn as of the Expiration Time (the shares deemed so
accepted, up to any such maximum, being referred to as the "Purchased Shares")
and (y) the product of the number of shares of Common Stock outstanding (less
any Purchased Shares and excluding any shares held in the treasury of the
Company) at the Expiration Time and the Current Market Price per share of Common
Stock (as determined in accordance with subsection (d) of this Section 4.6) on
the Trading Day next succeeding the Expiration Date, such reduction to become
effective immediately prior to the opening of business on the day following the
Expiration Date. In the event that the Company is obligated to purchase shares
pursuant to any such tender offer, but the Company is permanently prevented by
applicable law from effecting any or all such purchases or any or all such
purchases are rescinded, the Conversion Price shall again be adjusted to be the
Conversion Price which would have been in effect based upon the number of shares
actually purchased. If the application of this Section 4.6(c)(2) to any tender
offer would result in an increase in the Conversion Price, no adjustment shall
be made for such tender offer under this Section 4.6(c)(2).

               (3) For purposes of this Section 4.6(c), the term "tender offer"
shall mean and include both tender offers and exchange offers, all references to
"purchases" of shares in tender offers (and all similar references) shall mean
and include both the purchase of shares in tender offers and the acquisition of
shares pursuant to exchange offers, and all references to "tendered shares" (and
all similar references) shall mean and include shares tendered in both tender
offers and exchange offers.

        (d) For the purpose of any computation under subsections (b) and (c) of
this Section 4.6, the current market price (the "Current Market Price") per
share of Common Stock on any date shall be deemed to be the average of the daily
closing prices for the 30 consecutive Trading Days commencing 45 Trading Days
before (i) the Determination Date or the Expiration Date, as the case may be,
with respect to distributions or tender offers under subsection (c) of this
Section 4.6 or (ii) the record date with respect to distributions, issuances or
other events requiring such computation under subsection (b) or (c) of this
Section 4.6. The closing price (the "Closing Price") for each day shall be the
last reported sales price or, in case no such


                                       29


reported sale takes place on such date, the average of the reported closing bid
and asked prices in either case on the Nasdaq National Market (the "NNM") or, if
the Common Stock is not listed or admitted to trading on the NNM, on the
principal national securities exchange on which the Common Stock is listed or
admitted to trading or, if not listed or admitted to trading on the NNM or any
national securities exchange, the last reported sales price of the Common Stock
as quoted on NASDAQ or, in case no reported sales takes place, the average of
the closing bid and asked prices as quoted on NASDAQ or any comparable system
or, if the Common Stock is not quoted on NASDAQ or any comparable system, the
closing sales price or, in case no reported sale takes place, the average of the
closing bid and asked prices, as furnished by any two members of the National
Association of Securities Dealers, Inc. selected from time to time by the
Company for that purpose. If no such prices are available, the Current Market
Price per share shall be the fair value of a share of Common Stock as determined
by the Board of Directors (which shall be evidenced by an Officers' Certificate
delivered to the Trustee).

        (e) In any case in which this Section 4.6 shall require that an
adjustment be made following a record date or a Determination Date or Expiration
Date, as the case may be, established for purposes of this Section 4.6, the
Company may elect to defer (but only until five Business Days following the
filing by the Company with the Trustee of the certificate described in Section
4.9) issuing to the Holder of any Security converted after such record date or
Determination Date or Expiration Date the shares of Common Stock and other
capital stock of the Company issuable upon such conversion over and above the
shares of Common Stock and other capital stock of the Company issuable upon such
conversion only on the basis of the Conversion Price prior to adjustment; and,
in lieu of the shares the issuance of which is so deferred, the Company shall
issue or cause its transfer agents to issue due bills or other appropriate
evidence prepared by the Company of the right to receive such shares. If any
distribution in respect of which an adjustment to the Conversion Price is
required to be made as of the record date or Determination Date or Expiration
Date therefor is not thereafter made or paid by the Company for any reason, the
Conversion Price shall be readjusted to the Conversion Price which would then be
in effect if such record date had not been fixed or such effective date or
Determination Date or Expiration Date had not occurred.

        SECTION 4.7. NO ADJUSTMENT.

        No adjustment in the Conversion Price shall be required unless the
adjustment would require an increase or decrease of at least 1% in the
Conversion Price as last adjusted; provided, however, that any adjustments which
by reason of this Section 4.7 are not required to be made shall be carried
forward and taken into account in any subsequent adjustment. All calculations
under this Article 4 shall be made to the nearest cent or to the nearest
one-hundredth of a share, as the case may be.

        No adjustment need be made for issuances of Common Stock pursuant to a
Company plan for reinvestment of dividends or interest or for a change in the
par value or a change to no par value of the Common Stock.

        To the extent that the Securities become convertible into the right to
receive cash, no adjustment need be made thereafter as to the cash. Interest
will not accrue on the cash.

        SECTION 4.8. ADJUSTMENT FOR TAX PURPOSES.

        The Company shall be entitled to make such reductions in the Conversion
Price, in addition to those required by Section 4.6, as it in its discretion
shall determine to be advisable in order that any stock dividends, subdivisions
of shares, distributions of rights to purchase stock or securities or
distributions of securities


                                       30

convertible into or exchangeable for stock hereafter made by the Company to its
stockholders shall not be taxable.

        SECTION 4.9. NOTICE OF ADJUSTMENT.

        Whenever the Conversion Price or conversion privilege is adjusted, the
Company shall promptly mail to Securityholders a notice of the adjustment and
file with the Trustee an Officers' Certificate briefly stating the facts
requiring the adjustment and the manner of computing it. Unless and until the
Trustee shall receive an Officers' Certificate setting forth an adjustment of
the Conversion Price, the Trustee may assume without inquiry that the Conversion
Price has not been adjusted and that the last Conversion Price of which it has
knowledge remains in effect.

        SECTION 4.10. NOTICE OF CERTAIN TRANSACTIONS.

        In the event that:

               (1) the Company takes any action which would require an
adjustment in the Conversion Price;

               (2) the Company consolidates or merges with, or transfers all or
substantially all of its property and assets to, another corporation and
shareholders of the Company must approve the transaction; or

               (3) there is a dissolution or liquidation of the Company,

the Company shall mail to Holders and file with the Trustee a notice stating the
proposed record or effective date, as the case may be. The Company shall mail
the notice at least ten days before such date. Failure to mail such notice or
any defect therein shall not affect the validity of any transaction referred to
in clause (1), (2) or (3) of this Section 4.10.

        SECTION 4.11. EFFECT OF RECLASSIFICATION, CONSOLIDATION, MERGER OR SALE
ON CONVERSION PRIVILEGE.

        If any of the following shall occur, namely: (a) any reclassification or
change of shares of Common Stock issuable upon conversion of the Securities
(other than a change in par value, or from par value to no par value, or from no
par value to par value, or as a result of a subdivision or combination, or any
other change for which an adjustment is provided in Section 4.6); (b) any
consolidation or merger or combination to which the Company is a party other
than a merger in which the Company is the continuing corporation and which does
not result in any reclassification of, or change (other than in par value, or
from par value to no par value, or from no par value to par value, or as a
result of a subdivision or combination) in, outstanding shares of Common Stock;
or (c) any sale or conveyance as an entirety or substantially as an entirety of
the property and assets of the Company, directly or indirectly, to any person,
then the Company, or such successor, purchasing or transferee corporation, as
the case may be, shall, as a condition precedent to such reclassification,
change, combination, consolidation, merger, sale or conveyance, execute and
deliver to the Trustee a supplemental indenture providing that the Holder of
each Security then outstanding shall have the right to convert such Security
into the kind and amount of shares of stock and other securities and property
(including cash) receivable upon such reclassification, change, combination,
consolidation, merger, sale or conveyance by a holder of the number of shares of
Common Stock deliverable upon conversion of such Security immediately prior to
such reclassification, change, combination, consolidation, merger, sale or
conveyance. Such supplemental indenture shall provide for adjustments of the
Conversion Price which shall be as nearly


                                       31


equivalent as may be practicable to the adjustments of the Conversion Price
provided for in this Article 4. If, in the case of any such consolidation,
merger, combination, sale or conveyance, the stock or other securities and
property (including cash) receivable thereupon by a holder of Common Stock
include shares of stock or other securities and property of a person other than
the successor, purchasing or transferee corporation, as the case may be, in such
consolidation, merger, combination, sale or conveyance, then such supplemental
indenture shall also be executed by such other person and shall contain such
additional provisions to protect the interests of the Holders of the Securities
as the Board of Directors shall reasonably consider necessary by reason of the
foregoing. The provisions of this Section 4.11 shall similarly apply to
successive reclassifications, changes, combinations, consolidations, mergers,
sales or conveyances.

        In the event the Company shall execute a supplemental indenture pursuant
to this Section 4.11, the Company shall promptly file with the Trustee (x) an
Officers' Certificate briefly stating the reasons therefor, the kind or amount
of shares of stock or other securities or property (including cash) receivable
by Holders of the Securities upon the conversion of their Securities after any
such reclassification, change, combination, consolidation, merger, sale or
conveyance, any adjustment to be made with respect thereto and that all
conditions precedent have been complied with and (y) an Opinion of Counsel that
all conditions precedent have been complied with, and shall promptly mail notice
thereof to all Holders.

        SECTION 4.12. TRUSTEE'S DISCLAIMER.

        The Trustee shall have no duty to determine when an adjustment under
this Article 4 should be made, how it should be made or what such adjustment
should be, but may accept as conclusive evidence of that fact or the correctness
of any such adjustment, and shall be protected in relying upon, an Officers'
Certificate including the Officers' Certificate with respect thereto which the
Company is obligated to file with the Trustee pursuant to Section 4.9. The
Trustee makes no representation as to the validity or value of any securities or
assets issued upon conversion of Securities, and the Trustee shall not be
responsible for the Company's failure to comply with any provisions of this
Article 4.

        The Trustee shall not be under any responsibility to determine the
correctness of any provisions contained in any supplemental indenture executed
pursuant to Section 4.11, but may accept as conclusive evidence of the
correctness thereof, and shall be fully protected in relying upon, the Officers'
Certificate with respect thereto which the Company is obligated to file with the
Trustee pursuant to Section 4.11.

        SECTION 4.13. VOLUNTARY REDUCTION.

        The Company from time to time may reduce the Conversion Price by any
amount for any period of time if the period is at least 20 days and if the
reduction is irrevocable during the period if our Board of Directors determines
that such reduction would be in the best interest of the Company or to avoid or
diminish income tax to holders of shares of our Common Stock in connection with
a dividend or distribution of stock or similar event, and the Company provides
15 days prior notice of any reduction in the Conversion Price; provided,
however, that in no event may the Company reduce the Conversion Price to be less
than the par value of a share of Common Stock.


                                       32


                                    ARTICLE 5
                                  SUBORDINATION

        SECTION 5.1. AGREEMENT OF SUBORDINATION.

        The Company covenants and agrees, and each Holder of Securities issued
hereunder by its acceptance thereof likewise covenants and agrees, that all
Securities shall be issued subject to the provisions of this Article 5; and each
Person holding any Security, whether upon original issue or upon transfer,
assignment or exchange thereof, accepts and agrees to be bound by such
provisions.

        The payment of the principal of, premium, if any, and interest
(including Additional Interest, if any) on all Securities (including, but not
limited to, the Redemption Price with respect to the Securities called for
redemption or the Change in Control Purchase Price with respect to the
Securities subject to purchase in accordance with Article 3 as provided in this
Indenture) issued hereunder shall, to the extent and in the manner hereinafter
set forth, be subordinated and subject in right of payment to the prior payment
in full in cash or payment satisfactory to the holders of Senior Indebtedness of
all Senior Indebtedness, whether outstanding at the date of this Indenture or
thereafter incurred.

        No provision of this Article 5 shall prevent the occurrence of any
default or Event of Default hereunder.

        SECTION 5.2. PAYMENTS TO HOLDERS.

        No payment shall be made with respect to the principal of, or premium,
if any, or interest (including Additional Interest, if any) on the Securities
(including, but not limited to, the Redemption Price with respect to the
Securities to be called for redemption or the Change in Control Purchase Price
with respect to the Securities subject to purchase in accordance with Article 3
as provided in this Indenture), except payments and distributions made by the
Trustee as permitted by the first or second paragraph of Section 5.5, if:

        (i) a default in the payment of principal, premium, interest, rent or
other obligations due on any Designated Senior Indebtedness occurs and is
continuing (or, in the case of Designated Senior Indebtedness for which there is
a period of grace, in the event of such a default that continues beyond the
period of grace, if any, specified in the instrument or lease evidencing such
Designated Senior Indebtedness), unless and until such default shall have been
cured or waived or shall have ceased to exist; or

        (ii) a default, other than a payment default, on a Designated Senior
Indebtedness occurs and is continuing that then permits holders of such
Designated Senior Indebtedness to accelerate its maturity and the Trustee
receives a notice of the default (a "Payment Blockage Notice") from a
Representative or holder of Designated Senior Indebtedness or the Company.

        Subject to the provisions of Section 5.5, if the Trustee receives any
Payment Blockage Notice pursuant to clause (ii) above, no subsequent Payment
Blockage Notice shall be effective for purposes of this Section unless and until
at least 365 days shall have elapsed since the initial effectiveness of the
immediately prior Payment Blockage Notice. No nonpayment default that existed or
was continuing on the date of delivery of any Payment Blockage Notice to the
Trustee (unless such default was waived, cured or otherwise ceased to exist and
thereafter subsequently reoccurred) shall be, or be made, the basis for a
subsequent Payment Blockage Notice.


                                       33


        The Company may and shall resume payments on and distributions in
respect of the Securities upon the earlier of:

        (a) in the case of a default referred to in clause (i) above, the date
upon which the default is cured or waived or ceases to exist, or

        (b) in the case of a default referred to in clause (ii) above, the
earlier of the date on which such default is cured or waived or ceases to exist
or 179 days pass after the date on which the applicable Payment Blockage Notice
is received, if the maturity of such Designated Senior Indebtedness has not been
accelerated, unless this Article 5 otherwise prohibits the payment or
distribution at the time of such payment or distribution.

        Upon any payment by the Company, or distribution of assets of the
Company of any kind or character, whether in cash, property or securities, to
creditors upon any dissolution or winding-up or liquidation or reorganization of
the Company (whether voluntary or involuntary) or in bankruptcy, insolvency,
receivership or similar proceedings, all amounts due or to become due upon all
Senior Indebtedness shall first be paid in full in cash, or other payments
satisfactory to the holders of Senior Indebtedness before any payment is made on
account of the principal of, premium, if any, or interest (including Additional
Interest, if any) on the Securities (except payments made pursuant to Article 10
from monies deposited with the Trustee pursuant thereto prior to commencement of
proceedings for such dissolution, winding-up, liquidation or reorganization);
and upon any such dissolution or winding-up or liquidation or reorganization of
the Company or bankruptcy, insolvency, receivership or other proceeding, any
payment by the Company, or distribution of assets of the Company of any kind or
character, whether in cash, property or securities, to which the Holders of the
Securities or the Trustee would be entitled, except for the provision of this
Article 5, shall (except as aforesaid) be paid by the Company or by any
receiver, trustee in bankruptcy, liquidating trustee, agent or other Person
making such payment or distribution, or by the Holders of the Securities or by
the Trustee under this Indenture if received by them or it, directly to the
holders of Senior Indebtedness (pro rata to such holders on the basis of the
respective amounts of Senior Indebtedness held by such holders, or as otherwise
required by law or a court order) or their representative or representatives, or
to the trustee or trustees under any indenture pursuant to which any instruments
evidencing any Senior Indebtedness may have been issued, as their respective
interests may appear, to the extent necessary to pay all Senior Indebtedness in
full in cash, or other payment satisfactory to the holders of Senior
Indebtedness, after giving effect to any concurrent payment or distribution to
or for the holders of Senior Indebtedness, before any payment or distribution is
made to the Holders of the Securities or to the Trustee.

        For purposes of this Article 5, the words, "cash, property or
securities" shall not be deemed to include shares of stock of the Company as
reorganized or readjusted, or securities of the Company or any other corporation
provided for by a plan of reorganization or readjustment, the payment of which
is subordinated at least to the extent provided in this Article 5 with respect
to the Securities to the payment of all Senior Indebtedness which may at the
time be outstanding; provided that (i) the Senior Indebtedness is assumed by the
new corporation, if any, resulting from any reorganization or readjustment, and
(ii) the rights of the holders of Senior Indebtedness (other than leases which
are not assumed by the Company or the new corporation, as the case may be) are
not, without the consent of such holders, altered by such reorganization or
readjustment. The consolidation of the Company with, or the merger of the
Company into, another corporation or the liquidation or dissolution of the
Company following the conveyance, transfer or lease of its property as an
entirety, or substantially as an entirety, to another corporation upon the terms
and conditions provided for in Article 7 shall not be deemed a dissolution,
winding-up, liquidation or reorganization for the


                                       34


purposes of this Section 5.2 if such other corporation shall, as a part of such
consolidation, merger, conveyance, transfer or lease, comply with the conditions
stated in Article 7.

        In the event of the acceleration of the Securities because of an Event
of Default, no payment or distribution shall be made to the Trustee or any
Holder of Securities in respect of the principal of, premium, if any, or
interest (including Additional Interest, if any) on the Securities by the
Company (including, but not limited to, the Redemption Price with respect to the
Securities called for redemption or the Change in Control Purchase Price with
respect to the Securities subject to purchase in accordance with Article 3 as
provided in this Indenture), except payments and distributions made by the
Trustee as permitted by Section 5.5, until all Senior Indebtedness has been paid
in full in cash or other payment satisfactory to the holders of Senior
Indebtedness or such acceleration is rescinded in accordance with the terms of
this Indenture. If payment of the Securities is accelerated because of an Event
of Default, the Company shall promptly notify holders of Senior Indebtedness of
such acceleration.

        In the event that, notwithstanding the foregoing provisions, any payment
or distribution of assets of the Company of any kind or character, whether in
cash, property or securities (including, without limitation, by way of setoff or
otherwise), prohibited by the foregoing, shall be received by the Trustee or the
Holders of the Securities before all Senior Indebtedness is paid in full, in
cash or other payment satisfactory to the holders of Senior Indebtedness, or
provision is made for such payment thereof in accordance with its terms in cash
or other payment satisfactory to the holders of Senior Indebtedness, such
payment or distribution shall be held in trust for the benefit of and shall be
paid over or delivered to the holders of Senior Indebtedness or their
representative or representatives, or to the trustee or trustees under any
indenture pursuant to which any instruments evidencing any Senior Indebtedness
may have been issued, as their respective interests may appear, as calculated by
the Company, for application to the payment of all Senior Indebtedness remaining
unpaid to the extent necessary to pay all Senior Indebtedness in full, in cash
or other payment satisfactory to the holders of Senior Indebtedness, after
giving effect to any concurrent payment or distribution to or for the holders of
such Senior Indebtedness.

        Nothing in this Section 5.2 shall apply to claims of, or payments to,
the Trustee under or pursuant to Section 9.7. This Section 5.2 shall be subject
to the further provisions of Section 5.5.

        SECTION 5.3. SUBROGATION OF SECURITIES.

        Subject to the payment in full, in cash or other payment satisfactory to
the holders of Senior Indebtedness, of all Senior Indebtedness, the rights of
the Holders of the Securities shall be subrogated to the extent of the payments
or distributions made to the holders of such Senior Indebtedness pursuant to the
provisions of this Article 5 (equally and ratably with the holders of all
indebtedness of the Company which by its express terms is subordinated to other
indebtedness of the Company to substantially the same extent as the Securities
are subordinated and is entitled to like rights of subrogation) to the rights of
the holders of Senior Indebtedness to receive payments or distributions of cash,
property or securities of the Company applicable to the Senior Indebtedness
until the principal, premium, if any, and interest (including Additional
Interest, if any) on the Securities shall be paid in full in cash or other
payment satisfactory to the holders of Senior Indebtedness; and, for the
purposes of such subrogation, no payments or distributions to the holders of the
Senior Indebtedness of any cash, property or securities to which the Holders of
the Securities or the Trustee would be entitled except for the provisions of
this Article 5, and no payment over pursuant to the provisions of this Article
5, to or for the benefit of the holders of Senior Indebtedness by Holders of the
Securities or the Trustee, shall, as between the Company, its creditors other
than holders of Senior Indebtedness, and the Holders of the Securities, be
deemed to be a payment by the Company to or on account of the Senior


                                       35


Indebtedness; and no payments or distributions of cash, property or securities
to or for the benefit of the Holders of the Securities pursuant to the
subrogation provisions of this Article 5, which would otherwise have been paid
to the holders of Senior Indebtedness shall be deemed to be a payment by the
Company to or for the account of the Securities. It is understood that the
provisions of this Article 5 are and are intended solely for the purposes of
defining the relative rights of the Holders of the Securities, on the one hand,
and the holders of the Senior Indebtedness, on the other hand.

        Nothing contained in this Article 5 or elsewhere in this Indenture or in
the Securities is intended to or shall impair, as among the Company, its
creditors other than the holders of Senior Indebtedness, and the Holders of the
Securities, the obligation of the Company, which is absolute and unconditional,
to pay to the Holders of the Securities the principal of (and premium, if any)
and interest on the Securities as and when the same shall become due and payable
in accordance with their terms, or is intended to or shall affect the relative
rights of the Holders of the Securities and creditors of the Company other than
the holders of the Senior Indebtedness, nor shall anything herein or therein
prevent the Trustee or the Holder of any Security from exercising all remedies
otherwise permitted by applicable law upon default under this Indenture, subject
to the rights, if any, under this Article 5 of the holders of Senior
Indebtedness in respect of cash, property or securities of the Company received
upon the exercise of any such remedy.

        Upon any payment or distribution of assets of the Company referred to in
this Article 5, the Trustee, subject to the provisions of Section 9.1, and the
Holders of the Securities shall be entitled to rely upon any order or decree
made by any court of competent jurisdiction in which such bankruptcy,
dissolution, winding-up, liquidation or reorganization proceedings are pending,
or a certificate of the receiver, trustee in bankruptcy, liquidating trustee,
agent or other person making such payment or distribution, delivered to the
Trustee or to the Holders of the Securities, for the purpose of ascertaining the
persons entitled to participate in such distribution, the holders of the Senior
Indebtedness and other indebtedness of the Company, the amount thereof or
payable thereon and all other facts pertinent thereto or to this Article 5.

        SECTION 5.4. AUTHORIZATION TO EFFECT SUBORDINATION.

        Each Holder of a Security by the Holder's acceptance thereof authorizes
and directs the Trustee on the Holder's behalf to take such action as may be
necessary or appropriate to effectuate the subordination as provided in this
Article 5 and appoints the Trustee to act as the Holder's attorney-in-fact for
any and all such purposes. If the Trustee does not file a proper proof of claim
or proof of debt in the form required in any proceeding referred to in Section
5.3 hereof at least 30 days before the expiration of the time to file such
claim, the holders of any Senior Indebtedness or their representatives are
hereby authorized to file an appropriate claim for and on behalf of the Holders
of the Securities.

        SECTION 5.5. NOTICE TO TRUSTEE.

        The Company shall give prompt written notice in the form of an Officers'
Certificate to a Trust Officer of the Trustee and to any Paying Agent of any
fact known to the Company which would prohibit the making of any payment of
monies to or by the Trustee or any Paying Agent in respect of the Securities
pursuant to the provisions of this Article 5. Notwithstanding the provisions of
this Article 5 or any other provision of this Indenture, the Trustee shall not
be charged with knowledge of the existence of any facts which would prohibit the
making of any payment of monies to or by the Trustee in respect of the
Securities pursuant to the provisions of this Article 5, unless and until a
Trust Officer of the Trustee shall have received written notice thereof at the
Corporate Trust Office from the Company (in the form of an Officers'
Certificate) or a Representative or a Holder or Holders of Senior Indebtedness
or from any trustee thereof; and


                                       36


before the receipt of any such written notice, the Trustee, subject to the
provisions of Section 9.1, shall be entitled in all respects to assume that no
such facts exist; provided that if on a date not less than one Business Day
prior to the date upon which by the terms hereof any such monies may become
payable for any purpose (including, without limitation, the payment of the
principal of, or premium, if any, or interest on any Security) the Trustee shall
not have received, with respect to such monies, the notice provided for in this
Section 5.5, then, anything herein contained to the contrary notwithstanding,
the Trustee shall have full power and authority to receive such monies and to
apply the same to the purpose for which they were received, and shall not be
affected by any notice to the contrary which may be received by it on or after
such prior date. Notwithstanding anything in this Article 5 to the contrary,
nothing shall prevent any payment by the Trustee to the Holders of monies
deposited with it pursuant to Article 10, and any such payment shall not be
subject to the provisions of Article 5.

        The Trustee, subject to the provisions of Section 9.1, shall be entitled
to rely on the delivery to it of a written notice by a Representative or a
person representing himself to be a holder of Senior Indebtedness (or a trustee
on behalf of such holder) to establish that such notice has been given by a
Representative or a holder of Senior Indebtedness or a trustee on behalf of any
such holder or holders. In the event that the Trustee determines in good faith
that further evidence is required with respect to the right of any person as a
holder of Senior Indebtedness to participate in any payment or distribution
pursuant to this Article 5, the Trustee may request such Person to furnish
evidence to the reasonable satisfaction of the Trustee as to the amount of
Senior Indebtedness held by such Person, the extent to which such Person is
entitled to participate in such payment or distribution and any other facts
pertinent to the rights of such Person under this Article 5, and if such
evidence is not furnished the Trustee may defer any payment to such Person
pending judicial determination as to the right of such Person to receive such
payment.

        SECTION 5.6. TRUSTEE'S RELATION TO SENIOR INDEBTEDNESS.

        The Trustee in its individual capacity shall be entitled to all the
rights set forth in this Article 5 in respect of any Senior Indebtedness at any
time held by it, to the same extent as any other holder of Senior Indebtedness,
and nothing in Section 9.11 or elsewhere in this Indenture shall deprive the
Trustee of any of its rights as such holder.

        With respect to the holders of Senior Indebtedness, the Trustee
undertakes to perform or to observe only such of its covenants and obligations
as are specifically set forth in this Article 5, and no implied covenants or
obligations with respect to the holders of Senior Indebtedness shall be read
into this Indenture against the Trustee. The Trustee shall not be deemed to owe
any fiduciary duty to the holders of Senior Indebtedness and, subject to the
provisions of Section 9.1, the Trustee shall not be liable to any holder of
Senior Indebtedness if it shall pay over or deliver to Holders of Securities,
the Company or any other person money or assets to which any holder of Senior
Indebtedness shall be entitled by virtue of this Article 5 or otherwise.

        SECTION 5.7. NO IMPAIRMENT OF SUBORDINATION.

        No right of any present or future holder of any Senior Indebtedness to
enforce subordination as herein provided shall at any time in any way be
prejudiced or impaired by any act or failure to act on the part of the Company
or by any act or failure to act, in good faith, by any such holder, or by any
noncompliance by the Company with the terms, provisions and covenants of this
Indenture, regardless of any knowledge thereof which any such holder may have or
otherwise be charged with.


                                       37


        SECTION 5.8. CERTAIN CONVERSIONS DEEMED PAYMENT.

        For the purposes of this Article 5 only, (1) the issuance and delivery
of junior securities upon conversion of Securities in accordance with Article 4
shall not be deemed to constitute a payment or distribution on account of the
principal of (or premium, if any) or interest on Securities or on account of the
purchase or other acquisition of Securities, and (2) the payment, issuance or
delivery of cash (except in satisfaction of fractional shares pursuant to
Section 4.3), property or securities (other than junior securities) upon
conversion of a Security shall be deemed to constitute payment on account of the
principal of such Security. For the purposes of this Section 5.8, the term
"junior securities" means (a) shares of any stock of any class of the Company,
or (b) securities of the Company which are subordinated in right of payment to
all Senior Indebtedness which may be outstanding at the time of issuance or
delivery of such securities to substantially the same extent as, or to a greater
extent than, the Securities are so subordinated as provided in this Article.
Nothing contained in this Article 5 or elsewhere in this Indenture or in the
Securities is intended to or shall impair, as among the Company, its creditors
other than holders of Senior Indebtedness and the Holders, the right, which is
absolute and unconditional, of the Holder of any Security to convert such
Security in accordance with Article 4.

        SECTION 5.9. ARTICLE APPLICABLE TO PAYING AGENTS.

        If at any time any Paying Agent other than the Trustee shall have been
appointed by the Company and be then acting hereunder, the term "Trustee" as
used in this Article shall (unless the context otherwise requires) be construed
as extending to and including such Paying Agent within its meaning as fully for
all intents and purposes as if such Paying Agent were named in this Article in
addition to or in place of the Trustee; provided, however, that the first
paragraph of Section 5.5 shall not apply to the Company or any Affiliate of the
Company if it or such Affiliate acts as Paying Agent.

        SECTION 5.10.  SENIOR INDEBTEDNESS ENTITLED TO RELY.

        The holders of Senior Indebtedness (including, without limitation,
Designated Senior Indebtedness) shall have the right to rely upon this Article
5, and no amendment or modification of the provisions contained herein shall
diminish the rights of such holders unless such holders shall have agreed in
writing thereto.

                                    ARTICLE 6
                                    COVENANTS

        SECTION 6.1. PAYMENT OF SECURITIES.

        The Company shall promptly make all payments in respect of the
Securities on the dates and in the manner provided in the Securities and this
Indenture. An installment of principal or interest or Additional Interest, if
any, shall be considered paid on the date it is due if the Paying Agent (other
than the Company) holds by 11:00 a.m., New York City time, on that date money,
deposited by the Company or an Affiliate thereof, sufficient to pay the
installment. The Company shall, (in immediately available funds) to the fullest
extent permitted by law, pay interest on overdue principal (including premium,
if any) and overdue installments of interest at the rate borne by the Securities
per annum.

        Payment of the principal of (and premium, if any) and any interest on
the Securities shall be made at the office or agency of the Company maintained
for that purpose in the Borough of Manhattan, The City of New York (which shall
initially be State Street Bank and Trust Company, N.A., an Affiliate of the
Trustee, as


                                       38


agent of the Trustee) or at the Corporate Trust Office of the Trustee in such
coin or currency of the United States of America as at the time of payment is
legal tender for payment of public and private debts; provided, however, that at
the option of the Company payment of interest may be made by check mailed to the
address of the Person entitled thereto as such address appears in the Register;
provided further that a Holder with an aggregate principal amount in excess of
$2,000,000 will be paid by wire transfer in immediately available funds at the
election of such Holder if such Holder has provided wire transfer instructions
to the Company at least 10 Business Days prior to the payment date.

        SECTION 6.2. SEC REPORTS.

        The Company shall file all reports and other information and documents
which it is required to file with the SEC pursuant to Section 13 or 15(d) of the
Exchange Act, and within 15 days after it files them with the SEC, the Company
shall file copies of all such reports, information and other documents with the
Trustee.

        Delivery of such reports, information and documents to the Trustee is
for informational purposes only and the Trustee's receipt of such shall not
constitute constructive notice of any information contained therein or
determinable from information contained therein, including the Company's
compliance with any of its covenants hereunder (as to which the Trustee is
entitled to rely exclusively on Officers' Certificates).

        SECTION 6.3. COMPLIANCE CERTIFICATES.

        The Company shall deliver to the Trustee, within 90 days after the end
of each fiscal year of the Company (beginning with the fiscal year ending June
30, 2002), an Officers' Certificate as to the signer's knowledge of the
Company's compliance with all conditions and covenants on its part contained in
this Indenture and stating whether or not the signer knows of any default or
Event of Default. If such signer knows of such a default or Event of Default,
the Officers' Certificate shall describe the default or Event of Default and the
efforts to remedy the same. For the purposes of this Section 6.3, compliance
shall be determined without regard to any grace period or requirement of notice
provided pursuant to the terms of this Indenture.

        SECTION 6.4. FURTHER INSTRUMENTS AND ACTS.

        Upon request of the Trustee, the Company will execute and deliver such
further instruments and do such further acts as may be reasonably necessary or
proper to carry out more effectively the purposes of this Indenture.

        SECTION 6.5. MAINTENANCE OF CORPORATE EXISTENCE.

        Subject to Article 7, the Company will do or cause to be done all things
necessary to preserve and keep in full force and effect its corporate existence.

        SECTION 6.6. RULE 144A INFORMATION REQUIREMENT.

        Within the period prior to the expiration of the holding period
applicable to sales thereof under Rule 144(k) under the Securities Act (or any
successor provision), the Company covenants and agrees that it shall, during any
period in which it is not subject to Section 13 or 15(d) under the Exchange Act,
upon the request of any Holder or beneficial holder of the Securities make
available to such Holder or beneficial holder of Securities or any Common Stock
issued upon conversion thereof which continue to be Restricted Securities in
connection with any sale thereof and any prospective purchaser of Securities or
such Common Stock


                                       39


designated by such Holder or beneficial holder, the information required
pursuant to Rule 144A(d)(4) under the Securities Act or such Common Stock and it
will take such further action as any Holder or beneficial holder of such
Securities or such Common Stock may reasonably request, all to the extent
required from time to time to enable such Holder or beneficial holder to sell
its Securities or Common Stock without registration under the Securities Act
within the limitation of the exemption provided by Rule 144A, as such Rule may
be amended from time to time. Upon the request of any Holder or any beneficial
holder of the Securities or such Common Stock, the Company will deliver to such
Holder a written statement as to whether it has complied with such requirements.

        SECTION 6.7. STAY, EXTENSION AND USURY LAWS.

        The Company covenants (to the extent that it may lawfully do so) that it
shall not at any time insist upon, plead, or in any manner whatsoever claim or
take the benefit or advantage of, any stay, extension or usury law or other law
which would prohibit or forgive the Company from paying all or any portion of
the principal of, premium, if any, or interest (including Additional Interest,
if any) on the Securities as contemplated herein, wherever enacted, now or at
any time hereafter in force, or which may affect the covenants or the
performance of this Indenture, and the Company (to the extent it may lawfully do
so) hereby expressly waives all benefit or advantage of any such law and
covenants that it will not, by resort to any such law, hinder, delay or impede
the execution of any power herein granted to the Trustee, but will suffer and
permit the execution of every such power as though no such law had been enacted.

        SECTION 6.8. PAYMENT OF ADDITIONAL INTEREST.

        If Additional Interest is payable by the Company pursuant to the
Registration Rights Agreement, the Company shall deliver to the Trustee a
certificate to that effect stating (i) the amount of such Additional Interest
that is payable and (ii) the date on which such Additional Interest is payable.
Unless and until a Trust Officer of the Trustee receives such a certificate, the
Trustee may assume without inquiry that no such Additional Interest is payable.
If the Company has paid Additional Interest directly to the Persons entitled to
it, the Company shall deliver to the Trustee a certificate setting forth the
particulars of such payment.

                                    ARTICLE 7
              CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE

        SECTION 7.1. COMPANY MAY CONSOLIDATE, ETC, ONLY ON CERTAIN TERMS.

        The Company shall not consolidate with or merge into any other Person
(in a transaction in which the Company is not the surviving corporation) or
convey, transfer or lease its properties and assets substantially as an entirety
to any Person, unless:

            (1) in case the Company shall consolidate with or merge into another
Person (in a transaction in which the Company is not the surviving corporation)
or convey, transfer or lease its properties and assets substantially as an
entirety to any Person, the Person formed by such consolidation or into which
the Company is merged or the Person which acquires by conveyance or transfer, or
which leases, the properties and assets of the Company substantially as an
entirety shall be a corporation organized and validly existing under the laws of
the United States of America, any State thereof or the District of Columbia and
shall expressly assume, by an indenture supplemental hereto, executed and
delivered to the Trustee, in form satisfactory to the Trustee, the due and
punctual payment of the principal of and any premium and interest on


                                       40


all the Securities and the performance or observance of every covenant of this
Indenture on the part of the Company to be performed or observed and the
conversion rights shall be provided for in accordance with Article 4, by
supplemental indenture satisfactory in form to the Trustee, executed and
delivered to the Trustee, by the Person (if other than the Company) formed by
such consolidation or into which the Company shall have been merged or by the
Person which shall have acquired the Company's assets;

               (2) immediately after giving effect to such transaction, no Event
of Default, and no event which, after notice or lapse of time or both, would
become an Event of Default, shall have happened and be continuing; and

               (3) the Company has delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that such consolidation,
merger, conveyance, transfer or lease and, if a supplemental indenture is
required in connection with such transaction, such supplemental indenture comply
with this Article and that all conditions precedent herein provided for relating
to such transaction have been complied with.

        SECTION 7.2. SUCCESSOR SUBSTITUTED.

        Upon any consolidation of the Company with, or merger of the Company
into, any other Person or any conveyance, transfer or lease of the properties
and assets of the Company substantially as an entirety in accordance with
Section 7.1, the successor Person formed by such consolidation or into which the
Company is merged or to which such conveyance, transfer or lease is made shall
succeed to, and be substituted for, and may exercise every right and power of,
the Company under this Indenture with the same effect as if such successor
Person had been named as the Company herein, and thereafter, except in the case
of a lease, the predecessor Person shall be relieved of all obligations and
covenants under this Indenture and the Securities.

                                    ARTICLE 8
                              DEFAULT AND REMEDIES

        SECTION 8.1. EVENTS OF DEFAULT.

        An "Event of Default" shall occur if:

               (1) the Company defaults in the payment of any interest or
Additional Interest, if any, payable to all holders of Registrable Securities
(as defined in the Registration Rights Agreement) on any Security when the same
becomes due and payable and the default continues for a period of 30 days,
whether or not such payment shall be prohibited by the provisions of Article 5
hereof;

               (2) the Company defaults in the payment of any principal of
(including, without limitation, any premium, if any, on) any Security when the
same becomes due and payable (whether at maturity, upon redemption, on a Change
of Control Purchase Date or otherwise), whether or not such payment shall be
prohibited by the provisions of Article 5 hereof;

               (3) the Company fails to comply with any of its other agreements
contained in the Securities or this Indenture and the default continues for the
period and after the notice specified below;


                                       41


               (4) the Company defaults in the payment of the purchase price of
any Security when the same becomes due and payable, whether or not such payment
shall be prohibited by the provisions of Article 5 hereof; or

               (5) the Company fails to provide a Change in Control Purchase
Notice when required by Section 3.8; or

               (6) any indebtedness under any bond, debenture, note or other
evidence of indebtedness for money borrowed by the Company or any Significant
Subsidiary (all or substantially all of the outstanding voting securities of
which are owned, directly or indirectly, by the Company) or under any mortgage,
indenture or instrument under which there may be issued or by which there may be
secured or evidenced any indebtedness for money borrowed by the Company or any
Significant Subsidiary (all or substantially all of the outstanding voting
securities of which are owned, directly or indirectly, by the Company) (an
"Instrument") with a principal amount then outstanding in excess of U.S.
$35,000,000, whether such indebtedness now exists or shall hereafter be created,
is not paid at final maturity of the Instrument (either at its stated maturity
or upon acceleration thereof), and such indebtedness is not discharged, or such
acceleration is not rescinded or annulled, within a period of 30 days after
there shall have been given, by registered or certified mail, to the Company by
the Trustee or to the Company and the Trustee by the Holders of at least 25% in
aggregate principal amount of the Outstanding Securities a written notice
specifying such default and requiring the Company to cause such indebtedness to
be discharged or cause such default to be cured or waived or such acceleration
to be rescinded or annulled and stating that such notice is a "Notice of
Default" hereunder; or

               (7) the Company or any Significant Subsidiary, pursuant to or
within the meaning of any Bankruptcy Law:

                      (A) commences a voluntary case or proceeding;

                      (B) consents to the entry of an order for relief against
                          it in an involuntary case or proceeding;

                      (C) consents to the appointment of a Custodian of it or
                          for all or substantially all of its property; or

                      (D) makes a general assignment for the benefit of its
                          creditors; or

               (8) a court of competent jurisdiction enters an order or decree
under any Bankruptcy Law that:

                      (A) is for relief against the Company or any Significant
                          Subsidiary in an involuntary case or proceeding;

                      (B) appoints a Custodian of the Company or any Significant
                          Subsidiary or for all or substantially all of the
                          property of the Company or any Significant Subsidiary;
                          or

                      (C) orders the liquidation of the Company or any
                          Significant Subsidiary;

and in each case the order or decree remains unstayed and in effect for 60
consecutive days.


                                       42


        The term "Bankruptcy Law" means Title 11 of the United States Code (or
any successor thereto) or any similar federal or state law for the relief of
debtors. The term "Custodian" means any receiver, trustee, assignee, liquidator,
sequestrator or similar official under any Bankruptcy Law.

        A default under clause (3) above is not an Event of Default until the
Trustee notifies the Company, or the Holders of at least 25% in aggregate
principal amount of the Securities then outstanding notify the Company and the
Trustee, in writing of the default, and the Company does not cure the default
within 60 days after receipt of such notice. The notice given pursuant to this
Section 8.1 must specify the default, demand that it be remedied and state that
the notice is a "Notice of Default." When any default under this Section 8.1 is
cured, it ceases.

        The Trustee shall not be charged with knowledge of any Event of Default
unless written notice thereof shall have been given to a Trust Officer at the
Corporate Trust Office of the Trustee by the Company, a Paying Agent, any Holder
or any agent of any Holder.

        SECTION 8.2. ACCELERATION.

        If an Event of Default (other than an Event of Default specified in
clause (7) or (8) of Section 8.1) occurs and is continuing, the Trustee may, by
notice to the Company, or the Holders of at least 25% in aggregate principal
amount of the Securities then outstanding may, by notice to the Company and the
Trustee, declare all unpaid principal to the date of acceleration on the
Securities then outstanding (if not then due and payable) to be due and payable
upon any such declaration, and the same shall become and be immediately due and
payable. If an Event of Default specified in clause (7) or (8) of Section 8.1
occurs, all unpaid principal of the Securities then outstanding shall ipso facto
become and be immediately due and payable without any declaration or other act
on the part of the Trustee or any Holder. The Holders of a majority in aggregate
principal amount of the Securities then outstanding by notice to the Trustee may
rescind an acceleration and its consequences if (a) all existing Events of
Default, other than the nonpayment of the principal of the Securities which has
become due solely by such declaration of acceleration, have been cured or
waived; (b) to the extent the payment of such interest is lawful, interest
(calculated at the rate per annum borne by the Securities) on overdue
installments of interest and overdue principal, which has become due otherwise
than by such declaration of acceleration, has been paid; (c) the rescission
would not conflict with any judgment or decree of a court of competent
jurisdiction; and (d) all payments due to the Trustee and any predecessor
Trustee under Section 9.7 have been made. No such rescission shall affect any
subsequent default or impair any right consequent thereto.

        SECTION 8.3. OTHER REMEDIES.

        If an Event of Default occurs and is continuing, the Trustee may, but
shall not be obligated to, pursue any available remedy by proceeding at law or
in equity to collect the payment of the principal of or interest on the
Securities or to enforce the performance of any provision of the Securities or
this Indenture.

        The Trustee may maintain a proceeding even if it does not possess any of
the Securities or does not produce any of them in the proceeding. A delay or
omission by the Trustee or any Securityholder in exercising any right or remedy
accruing upon an Event of Default shall not impair the right or remedy or
constitute a waiver of or acquiescence in the Event of Default. No remedy is
exclusive of any other remedy. All available remedies are cumulative to the
extent permitted by law.


                                       43


        SECTION 8.4. WAIVER OF DEFAULTS AND EVENTS OF DEFAULT.

        Subject to Sections 8.7 and 11.2, the Holders of a majority in aggregate
principal amount of the Securities then outstanding by notice to the Trustee may
waive an existing default or Event of Default and its consequence, except a
default or Event of Default in the payment of the principal of, premium, if any,
or interest on any Security, a failure by the Company to convert any Securities
into Common Stock or any default or Event of Default in respect of any provision
of this Indenture or the Securities which, under Section 11.2, cannot be
modified or amended without the consent of the Holder of each Security affected.
When a default or Event of Default is waived, it is cured and ceases.

        SECTION 8.5. CONTROL BY MAJORITY.

        The Holders of a majority in aggregate principal amount of the
Securities then outstanding may direct the time, method and place of conducting
any proceeding for any remedy available to the Trustee or exercising any trust
or power conferred on it. However, the Trustee may refuse to follow any
direction that conflicts with law or this Indenture, that the Trustee determines
may be unduly prejudicial to the rights of another Holder or the Trustee, or
that may involve the Trustee in personal liability unless the Trustee is offered
indemnity satisfactory to it; provided, however, that the Trustee may take any
other action deemed proper by the Trustee which is not inconsistent with such
direction.

        SECTION 8.6. LIMITATIONS ON SUITS.

        A Holder may not pursue any remedy with respect to this Indenture or the
Securities (except actions for payment of overdue principal or interest or for
the conversion of the Securities pursuant to Article 4) unless:

               (1) the Holder gives to the Trustee written notice of a
continuing Event of Default;

               (2) the Holders of at least 25% in aggregate principal amount of
the then outstanding Securities make a written request to the Trustee to pursue
the remedy;

               (3) such Holder or Holders offer to the Trustee reasonable
indemnity to the Trustee against any loss, liability or expense;

               (4) the Trustee does not comply with the request within 60 days
after receipt of the request and the offer of indemnity; and

               (5) no direction inconsistent with such written request has been
given to the Trustee during such 60-day period by the Holders of a majority in
aggregate principal amount of the Securities then outstanding.

        A Securityholder may not use this Indenture to prejudice the rights of
another Securityholder or to obtain a preference or priority over such other
Securityholder.

        SECTION 8.7. RIGHTS OF HOLDERS TO RECEIVE PAYMENT AND TO CONVERT.

        Notwithstanding any other provision of this Indenture, the right of any
Holder of a Security to receive payment of the principal of and interest on the
Security, on or after the respective due dates expressed in the Security and
this Indenture, to convert such Security in accordance with Article 4 and to
bring suit for the


                                       44


enforcement of any such payment on or after such respective dates or the right
to convert, is absolute and unconditional and shall not be impaired or affected
without the consent of the Holder.

        SECTION 8.8. COLLECTION SUIT BY TRUSTEE.

        If an Event of Default in the payment of principal or interest specified
in clause (1) or (2) of Section 8.1 occurs and is continuing, the Trustee may
recover judgment in its own name and as trustee of an express trust against the
Company or another obligor on the Securities for the whole amount of principal
and accrued interest remaining unpaid, together with, to the extent that payment
of such interest is lawful, interest on overdue principal and on overdue
installments of interest, in each case at the rate per annum borne by the
Securities and such further amount as shall be sufficient to cover the costs and
expenses of collection, including the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel.

        SECTION 8.9. TRUSTEE MAY FILE PROOFS OF CLAIM.

        The Trustee may file such proofs of claim and other papers or documents
as may be necessary or advisable in order to have the claims of the Trustee
(including any claim for the reasonable compensation, expenses, disbursements
and advances of the Trustee, its agents and counsel) and the Holders allowed in
any judicial proceedings relative to the Company (or any other obligor on the
Securities), its creditors or its property and shall be entitled and empowered
to collect and receive any money or other property payable or deliverable on any
such claims and to distribute the same, and any Custodian in any such judicial
proceeding is hereby authorized by each Holder to make such payments to the
Trustee and, in the event that the Trustee shall consent to the making of such
payments directly to the Holders, to pay to the Trustee any amount due to it for
the reasonable compensation, expenses, disbursements and advances of the
Trustee, its agents and counsel, and any other amounts due the Trustee under
Section 9.7, and to the extent that such payment of the reasonable compensation,
expenses, disbursements and advances in any such proceedings shall be denied for
any reason, payment of the same shall be secured by a lien on, and shall be paid
out of, any and all distributions, dividends, money, securities and other
property which the Holders may be entitled to receive in such proceedings,
whether in liquidation or under any plan of reorganization or arrangement or
otherwise. Nothing herein contained shall be deemed to authorize the Trustee to
authorize or consent to, or, on behalf of any Holder, to authorize, accept or
adopt any plan of reorganization, arrangement, adjustment or composition
affecting the Securities or the rights of any Holder thereof, or to authorize
the Trustee to vote in respect of the claim of any Holder in any such
proceeding.

        SECTION 8.10. PRIORITIES.

        If the Trustee collects any money pursuant to this Article 8, it shall
pay out the money in the following order:

        First, to the Trustee for amounts due under Section 9.7;

        Second, to the holders of Senior Indebtedness to the extent required by
Article 5;

        Third, to Holders for amounts due and unpaid on the Securities for
principal and interest (including Additional Interest, if any), ratably, without
preference or priority of any kind, according to the amounts due and payable on
the Securities for principal and interest (including Additional Interest, if
any), respectively; and


                                       45


        Fourth, the balance, if any, to the Company.

        The Trustee may fix a record date and payment date for any payment to
Holders pursuant to this Section 8.10.

        SECTION 8.11. UNDERTAKING FOR COSTS.

        In any suit for the enforcement of any right or remedy under this
Indenture or in any suit against the Trustee for any action taken or omitted by
it as Trustee, a court in its discretion may require the filing by any party
litigant in the suit of an undertaking to pay the costs of the suit, and the
court in its discretion may assess reasonable costs, including reasonable
attorneys' fees and expenses, against any party litigant in the suit, having due
regard to the merits and good faith of the claims or defenses made by the party
litigant. This Section 8.11 does not apply to a suit made by the Trustee, a suit
by a Holder pursuant to Section 8.7, or a suit by Holders of more than 10% in
aggregate principal amount of the Securities then outstanding.

                                   ARTICLE 29
                                     TRUSTEE

        SECTION 9.1. DUTIES OF TRUSTEE.

        (a) If an Event of Default has occurred and is continuing, the Trustee
shall exercise such of the rights and powers vested in it by this Indenture and
use the same degree of care and skill in its exercise as a prudent person would
exercise or use under the circumstances in the conduct of his or her own
affairs.

        (b) Except during the continuance of an Event of Default:

               (1) the Trustee need perform only those duties as are
specifically set forth in this Indenture and no others; and

               (2) in the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the correctness of the
opinions expressed therein, upon certificates or opinions furnished to the
Trustee and conforming to the requirements of this Indenture. The Trustee,
however, shall examine any certificates and opinions which by any provision
hereof are specifically required to be delivered to the Trustee to determine
whether or not they conform to the requirements of this Indenture.

        (c) The Trustee may not be relieved from liability for its own negligent
action, its own negligent failure to act, or its own willful misconduct, except
that:

               (1) this paragraph does not limit the effect of subsection (b) of
this Section 9.1;

               (2) the Trustee shall not be liable for any error of judgment
made in good faith by a Trust Officer, unless it is proved that the Trustee was
negligent in ascertaining the pertinent facts; and

               (3) the Trustee shall not be liable with respect to any action it
takes or omits to take in good faith in accordance with a direction received by
it pursuant to Section 8.5.

        (d) No provision of this Indenture shall require the Trustee to expend
or risk its own funds or otherwise incur any financial liability in the
performance of any of its duties hereunder or in the exercise of


                                       46


any of its rights or powers unless the Trustee shall have received adequate
indemnity in its opinion against potential costs and liabilities incurred by it
relating thereto.

        (e) Every provision of this Indenture that in any way relates to the
Trustee is subject to subsections (a), (b), (c) and (d) of this Section 9.1.

        (f) The Trustee shall not be liable for interest on any money received
by it except as the Trustee may agree in writing with the Company. Money held in
trust by the Trustee need not be segregated from other funds except to the
extent required by law.

        SECTION 9.2. RIGHTS OF TRUSTEE.

        Subject to Section 9.1:

        (a) The Trustee may rely conclusively on any document believed by it to
be genuine and to have been signed or presented by the proper person. The
Trustee need not investigate any fact or matter stated in the document.

        (b) Before the Trustee acts or refrains from acting, it may require an
Officers' Certificate or an Opinion of Counsel, which shall conform to Section
12.4(b). The Trustee shall not be liable for any action it takes or omits to
take in good faith in reliance on such Officers' Certificate or Opinion.

        (c) The Trustee may act through its agents and shall not be responsible
for the misconduct or negligence of any agent appointed with due care.

        (d) The Trustee shall not be liable for any action it takes or omits to
take in good faith which it believes to be authorized or within its rights or
powers.

        (e) The Trustee may consult with counsel of its selection, and the
advice or opinion of such counsel as to matters of law shall be full and
complete authorization and protection in respect of any such action taken,
omitted or suffered by it hereunder in good faith and in accordance with the
advice or opinion of such counsel.

        (f) The Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Indenture at the request or direction of
any of the Holders pursuant to this Indenture, unless such Holders shall have
offered to the Trustee security or indemnity satisfactory to the Trustee against
the costs, expenses and liabilities which might be incurred by it in compliance
with such request or direction.

        (g) The Trustee shall not be bound to make any investigation into the
facts or matters stated in any resolution, certificate, statement, instrument,
opinion, report, notice, request, direction, consent, order, bond, debenture,
note, other evidence of indebtedness or other paper or document, but the
Trustee, in its discretion, may make such further inquiry or investigation into
such facts or matters as it may see fit, and, if the Trustee shall determine to
make such further inquiry or investigation, it shall be entitled to examine the
books, records and premises of the Company, personally or by agent or attorney
at the sole cost of the Company and shall incur no liability or additional
liability of any kind by reason of such inquiry or investigation.

        (h) The Trustee shall not be deemed to have notice of any Default or
Event of Default unless a Trust Officer of the Trustee has actual knowledge
thereof or unless written notice of any event which is in fact


                                       47


such a default is received by the Trustee at the Corporate Trust Office, and
such notice references the Securities and this Indenture.

        (i) The rights, privileges, protections, immunities and benefits given
to the Trustee, including, without limitation, its right to be indemnified, are
extended to, and shall be enforceable by, the Trustee in each of its capacities
hereunder, and to each agent, custodian and other Person employed to act
hereunder.

        SECTION 9.3. INDIVIDUAL RIGHTS OF TRUSTEE.

        The Trustee in its individual or any other capacity may become the owner
or pledgee of Securities and may otherwise deal with the Company or an Affiliate
of the Company with the same rights it would have if it were not Trustee. Any
Agent may do the same with like rights. However, the Trustee is subject to
Sections 9.10 and 9.11.

        SECTION 9.4. TRUSTEE'S DISCLAIMER.

        The Trustee makes no representation as to the validity or adequacy of
this Indenture or the Securities, it shall not be accountable for the Company's
use of the proceeds from the Securities, and it shall not be responsible for any
statement in the Securities other than its certificate of authentication.

        SECTION 9.5. NOTICE OF DEFAULT OR EVENTS OF DEFAULT.

        If a default or an Event of Default occurs and is continuing and if it
is known to the Trustee, the Trustee shall mail to each Securityholder notice of
the default or Event of Default within 90 days after it occurs. However, the
Trustee may withhold the notice if and so long as a committee of its Trust
Officers in good faith determines that withholding notice is in the interests of
Securityholders, except in the case of a default or an Event of Default in
payment of the principal of or interest on any Security.

        SECTION 9.6. REPORTS BY TRUSTEE TO HOLDERS.

        If such report is required by TIA Section 313, within 60 days after each
May 15, beginning with the May 15 following the date of this Indenture, the
Trustee shall mail to each Securityholder a brief report dated as of such May 15
that complies with TIA Section 313(a). The Trustee also shall comply with TIA
Section 313(b)(2) and (c).

        A copy of each report at the time of its mailing to Securityholders
shall be mailed to the Company and filed with the SEC and each stock exchange,
if any, on which the Securities are listed. The Company shall notify the Trustee
whenever the Securities become listed on any stock exchange or listed or
admitted to trading on any quotation system and any changes in the stock
exchanges or quotation systems on which the Securities are listed or admitted to
trading and of any delisting thereof.

        SECTION 9.7. COMPENSATION AND INDEMNITY.

        The Company shall pay to the Trustee from time to time such compensation
(as agreed to from time to time by the Company and the Trustee in writing) for
its services (which compensation shall not be limited by any provision of law in
regard to the compensation of a trustee of an express trust). The Company shall
reimburse the Trustee upon request for all reasonable disbursements, expenses
and advances incurred or made by it. Such expenses may include the reasonable
compensation, disbursements and expenses of the Trustee's agents and counsel.


                                       48


        The Company shall indemnify the Trustee or any predecessor Trustee
(which for purposes of this Section 9.7 shall include its officers, directors,
employees and agents) for, and hold it harmless against, any and all loss,
liability or expense including taxes (other than taxes based upon, measured by
or determined by the income of the Trustee), (including reasonable legal fees
and expenses) incurred by it in connection with the acceptance or administration
of its duties under this Indenture or any action or failure to act as authorized
or within the discretion or rights or powers conferred upon the Trustee
hereunder including the reasonable costs and expenses of the Trustee and its
counsel in defending itself against any claim or liability in connection with
the exercise or performance of any of its powers or duties hereunder. The
Trustee shall notify the Company promptly of any claim asserted against the
Trustee for which it may seek indemnity. The Company need not pay for any
settlement without its written consent, which shall not be unreasonably
withheld.

        The Company need not reimburse the Trustee for any expense or indemnify
it against any loss or liability incurred by it resulting from its gross
negligence or bad faith.

        To secure the Company's payment obligations in this Section 9.7, the
Trustee shall have a senior claim to which the Securities are hereby made
subordinate on all money or property held or collected by the Trustee, except
such money or property held in trust to pay the principal of and interest on the
Securities. The obligations of the Company under this Section 9.7 shall survive
the satisfaction and discharge of this Indenture or the resignation or removal
of the Trustee.

        When the Trustee incurs expenses or renders services after an Event of
Default specified in clause (7) or (8) of Section 8.1 occurs, the expenses and
the compensation for the services are intended to constitute expenses of
administration under any Bankruptcy Law. The provisions of this Section shall
survive the termination of this Indenture.

        SECTION 9.8. REPLACEMENT OF TRUSTEE.

        The Trustee may resign by so notifying the Company. The Holders of a
majority in aggregate principal amount of the Securities then outstanding may
remove the Trustee by so notifying the Trustee and may, with the Company's
written consent, appoint a successor Trustee. The Company may remove the Trustee
if:

               (1) the Trustee fails to comply with Section 9.10;

               (2) the Trustee is adjudged a bankrupt or an insolvent;

               (3) a receiver or other public officer takes charge of the
Trustee or its property; or

               (4) the Trustee becomes incapable of acting.

        If the Trustee resigns or is removed or if a vacancy exists in the
office of Trustee for any reason, the Company shall promptly appoint a successor
Trustee. The resignation or removal of a Trustee shall not be effective until a
successor Trustee shall have delivered the written acceptance of its appointment
as described below.

        If a successor Trustee does not take office within 45 days after the
retiring Trustee resigns or is removed, the retiring Trustee, the Company or the
Holders of 10% in principal amount of the Securities then


                                       49


outstanding may petition any court of competent jurisdiction for the appointment
of a successor Trustee at the expense of the Company.

        If the Trustee fails to comply with Section 9.10, any Holder may
petition any court of competent jurisdiction for the removal of the Trustee and
the appointment of a successor Trustee.

        A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Company. Immediately after that,
the retiring Trustee shall transfer all property held by it as Trustee to the
successor Trustee and be released from its obligations (exclusive of any
liabilities that the retiring Trustee may have incurred while acting as Trustee)
hereunder, the resignation or removal of the retiring Trustee shall become
effective, and the successor Trustee shall have all the rights, powers and
duties of the Trustee under this Indenture. A successor Trustee shall mail
notice of its succession to each Holder.

        A retiring Trustee shall not be liable for the acts or omissions of any
successor Trustee after its succession.

        Notwithstanding replacement of the Trustee pursuant to this Section 9.8,
the Company's obligations under Section 9.7 shall continue for the benefit of
the retiring Trustee.

        SECTION 9.9. SUCCESSOR TRUSTEE BY MERGER, ETC.

        If the Trustee consolidates with, merges or converts into, or transfers
all or substantially all of its corporate trust assets (including the
administration of this Indenture) to, another corporation, the resulting,
surviving or transferee corporation, without any further act, shall be the
successor Trustee, provided such transferee corporation shall qualify and be
eligible under Section 9.10. Such successor Trustee shall promptly mail notice
of its succession to the Company and each Holder.

        SECTION 9.10. ELIGIBILITY; DISQUALIFICATION.

        The Trustee shall always satisfy the requirements of paragraphs (1), (2)
and (5) of TIA Section 310(a). The Trustee (or its parent holding company) shall
have a combined capital and surplus of at least $50,000,000. If at any time the
Trustee shall cease to satisfy any such requirements, it shall resign
immediately in the manner and with the effect specified in this Article 9. The
Trustee shall be subject to the provisions of TIA Section 310(b). Nothing herein
shall prevent the Trustee from filing with the SEC the application referred to
in the penultimate paragraph of TIA Section 310(b).

        SECTION 9.11. PREFERENTIAL COLLECTION OF CLAIMS AGAINST COMPANY.

        The Trustee shall comply with TIA Section 311(a), excluding any creditor
relationship listed in TIA Section 311(b). A Trustee who has resigned or been
removed shall be subject to TIA Section 311(a) to the extent indicated therein.


                                       50


                                   ARTICLE 10
                     SATISFACTION AND DISCHARGE OF INDENTURE

        SECTION 10.1. SATISFACTION AND DISCHARGE OF INDENTURE.

        This Indenture shall cease to be of further effect (except as to any
surviving rights of conversion, registration of transfer or exchange of
Securities herein expressly provided for and except as further provided below),
and the Trustee, on demand of and at the expense of the Company, shall execute
proper instruments acknowledging satisfaction and discharge of this Indenture,
when

               (1) either

                      (A) all Securities theretofore authenticated and delivered
(other than (i) Securities which have been destroyed, lost or stolen and which
have been replaced or paid as provided in Section 2.7 and (ii) Securities for
whose payment money has theretofore been deposited in trust and thereafter
repaid to the Company as provided in Section 10.3) have been delivered to the
Trustee for cancellation; or

                      (B) all such Securities not theretofore delivered to the
Trustee for cancellation

                             (i) have become due and payable, or

                             (ii) will become due and payable at the Final
Maturity Date within one year, or

                             (iii) are to be called for redemption within one
year under arrangements satisfactory to the Trustee for the giving of notice of
redemption by the Trustee in the name, and at the expense, of the Company,

and the Company, in the case of clause (i), (ii) or (iii) above, has irrevocably
deposited or caused to be irrevocably deposited with the Trustee or a Paying
Agent (other than the Company or any of its Affiliates) as trust funds in trust
for the purpose cash in an amount sufficient to pay and discharge the entire
indebtedness on such Securities not theretofore delivered to the Trustee for
cancellation, for principal and interest (including Additional Interest, if any)
to the date of such deposit (in the case of Securities which have become due and
payable) or to the Final Maturity Date or Redemption Date, as the case may be;

               (2) the Company has paid or caused to be paid all other sums
payable hereunder by the Company; and

               (3) the Company has delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all conditions
precedent herein provided for relating to the satisfaction and discharge of this
Indenture have been complied with.

        Notwithstanding the satisfaction and discharge of this Indenture, the
obligations of the Company to the Trustee under Section 9.7 shall survive and,
if money shall have been deposited with the Trustee pursuant to subclause (B) of
clause (1) of this Section, the provisions of Sections 2.3, 2.4, 2.5, 2.6, 2.7,
2.12, 3.8, 3.9, 3.10, 3.11, 3.12, 3.13 and 12.5, Article 4, the last paragraph
of Section 6.2 and this Article 10, shall survive until the Securities have been
paid in full.


                                       51


        SECTION 10.2. APPLICATION OF TRUST MONEY.

        Subject to the provisions of Section 10.3, the Trustee or a Paying Agent
shall hold in trust, for the benefit of the Holders, all money deposited with it
pursuant to Section 10.1 and shall apply the deposited money in accordance with
this Indenture and the Securities to the payment of the principal of and
interest on the Securities. Money so held in trust shall not be subject to the
subordination provisions of Article 5.

        SECTION 10.3. REPAYMENT TO COMPANY.

        The Trustee and each Paying Agent shall promptly pay to the Company upon
request any excess money (i) deposited with them pursuant to Section 10.1 and
(ii) held by them at any time.

        The Trustee and each Paying Agent shall pay to the Company upon request
any money held by them for the payment of principal or interest that remains
unclaimed for two years after a right to such money has matured; provided,
however, that the Trustee or such Paying Agent, before being required to make
any such payment, may at the expense of the Company cause to be mailed to each
Holder entitled to such money notice that such money remains unclaimed and that
after a date specified therein, which shall be at least 30 days from the date of
such mailing, any unclaimed balance of such money then remaining will be repaid
to the Company. After payment to the Company, Holders entitled to money must
look to the Company for payment as general creditors unless an applicable
abandoned property law designates another person.

        SECTION 10.4. REINSTATEMENT.

        If the Trustee or any Paying Agent is unable to apply any money in
accordance with Section 10.2 by reason of any legal proceeding or by reason of
any order or judgment of any court or governmental authority enjoining,
restraining or otherwise prohibiting such application, then the Company's
obligations under this Indenture and the Securities shall be revived and
reinstated as though no deposit had occurred pursuant to Section 10.1 until such
time as the Trustee or such Paying Agent is permitted to apply all such money in
accordance with Section 10.2; provided, however, that if the Company has made
any payment of the principal of or interest on any Securities because of the
reinstatement of its obligations, the Company shall be subrogated to the rights
of the Holders of such Securities to receive any such payment from the money
held by the Trustee or such Paying Agent.

                                   ARTICLE 11
                       AMENDMENTS, SUPPLEMENTS AND WAIVERS

        SECTION 11.1. WITHOUT CONSENT OF HOLDERS.

        The Company and the Trustee may amend or supplement this Indenture or
the Securities without notice to or consent of any Securityholder:

               (a) to comply with Sections 4.11 and 7.1;

               (b) to cure any ambiguity, defect or inconsistency;

               (c) to make any other change that does not adversely affect the
rights of any Securityholder;

               (d) to comply with the provisions of the TIA;


                                       52


               (e) to add to the covenants of the Company for the equal and
ratable benefit of the Securityholders or to surrender any right, power or
option conferred upon the Company; or

               (f) to appoint a successor Trustee.

        SECTION 11.2. WITH CONSENT OF HOLDERS.

        The Company and the Trustee may amend or supplement this Indenture or
the Securities with the written consent of the Holders of at least a majority in
aggregate principal amount of the Securities then outstanding. The Holders of at
least a majority in aggregate principal amount of the Securities then
outstanding may waive compliance in a particular instance by the Company with
any provision of this Indenture or the Securities without notice to any
Securityholder. However, notwithstanding the foregoing but subject to Section
11.4, without the written consent of each Securityholder affected, an amendment,
supplement or waiver, including a waiver pursuant to Section 8.4, may not:

               (a) change the stated maturity of the principal of, or interest
on, any Security;

               (b) reduce the principal amount of, or any premium or interest
on, any Security;

               (c) reduce the amount of principal payable upon acceleration of
the maturity of any Security;

               (d) change the place or currency of payment of principal of, or
any premium or interest on, any Security;

               (e) impair the right to institute suit for the enforcement of any
payment on, or with respect to, any Security;

               (f) modify the provisions with respect to the purchase right of
Holders pursuant to Article 3 upon a Change in Control in a manner adverse to
Holders;

               (g) modify the subordination provisions of Article 5 in a manner
materially adverse to the Holders of Securities;

               (h) adversely affect the right of Holders to convert Securities
other than as provided in or under Article 4 of this Indenture;

               (i) reduce the percentage of the aggregate principal amount of
the outstanding Securities whose Holders must consent to a modification or
amendment;

               (j) reduce the percentage of the aggregate principal amount of
the outstanding Securities necessary for the waiver of compliance with certain
provisions of this Indenture or the waiver of certain defaults under this
Indenture; and

               (k) modify any of the provisions of this Section or Section 8.4,
except to increase any such percentage or to provide that certain provisions of
this Indenture cannot be modified or waived without the consent of the Holder of
each outstanding Security affected thereby.


                                       53


        It shall not be necessary for the consent of the Holders under this
Section 11.2 to approve the particular form of any proposed amendment,
supplement or waiver, but it shall be sufficient if such consent approves the
substance thereof.

        After an amendment, supplement or waiver under this Section 11.2 becomes
effective, the Company shall mail to the Holders affected thereby a notice
briefly describing the amendment, supplement or waiver. Any failure of the
Company to mail such notice, or any defect therein, shall not, however, in any
way impair or affect the validity of any such amendment, supplement or waiver.
An amendment or supplement under this Section 11.2 or under Section 11.1 may not
make any change that adversely affects the rights under Article 5 of any holder
of an issue of Senior Indebtedness unless the holders of that issue, pursuant to
its terms, consent to the change.

        SECTION 11.3. COMPLIANCE WITH TRUST INDENTURE ACT.

        Every amendment to or supplement of this Indenture or the Securities
shall comply with the TIA as in effect at the date of such amendment or
supplement.

        SECTION 11.4. REVOCATION AND EFFECT OF CONSENTS.

        Until an amendment, supplement or waiver becomes effective, a consent to
it by a Holder is a continuing consent by the Holder and every subsequent Holder
of a Security or portion of a Security that evidences the same debt as the
consenting Holder's Security, even if notation of the consent is not made on any
Security. However, any such Holder or subsequent Holder may revoke the consent
as to its Security or portion of a Security if the Trustee receives the notice
of revocation before the date the amendment, supplement or waiver becomes
effective.

        After an amendment, supplement or waiver becomes effective, it shall
bind every Securityholder, unless it makes a change described in any of clauses
(a) through (k) of Section 11.2. In that case the amendment, supplement or
waiver shall bind each Holder of a Security who has consented to it and every
subsequent Holder of a Security or portion of a Security that evidences the same
debt as the consenting Holder's Security.

        SECTION 11.5. NOTATION ON OR EXCHANGE OF SECURITIES.

        If an amendment, supplement or waiver changes the terms of a Security,
the Trustee may require the Holder of the Security to deliver it to the Trustee.
The Trustee may place an appropriate notation on the Security about the changed
terms and return it to the Holder. Alternatively, if the Company or the Trustee
so determines, the Company in exchange for the Security shall issue and the
Trustee shall authenticate a new Security that reflects the changed terms.

        SECTION 11.6. TRUSTEE TO SIGN AMENDMENTS, ETC.

        The Trustee shall sign any amendment or supplemental indenture
authorized pursuant to this Article 11 if the amendment or supplemental
indenture does not adversely affect the rights, duties, liabilities or
immunities of the Trustee. If it does, the Trustee may, in its sole discretion,
but need not sign it. In signing or refusing to sign such amendment or
supplemental indenture, the Trustee shall be entitled to receive and, subject to
Section 9.1, shall be fully protected in relying upon, an Opinion of Counsel
stating that such amendment or supplemental indenture is authorized or permitted
by this Indenture. The Company may not sign an amendment or supplement indenture
until the Board of Directors approves it.


                                       54


        SECTION 11.7. EFFECT OF SUPPLEMENTAL INDENTURES.

        Upon the execution of any supplemental indenture under this Article,
this Indenture shall be modified in accordance therewith, and such supplemental
indenture shall form a part of this Indenture for all purposes; and every Holder
of Securities theretofore or thereafter authenticated and delivered hereunder
shall be bound thereby.

                                   ARTICLE 12
                                  MISCELLANEOUS

        SECTION 12.1. TRUST INDENTURE ACT CONTROLS.

        If any provision of this Indenture limits, qualifies or conflicts with
the duties imposed by any of Sections 310 to 317, inclusive, of the TIA through
operation of Section 318(c) thereof, such imposed duties shall control.

        SECTION 12.2. NOTICES.

        Any demand, authorization notice, request, consent or communication
shall be given in writing and delivered in person or mailed by first-class mail,
postage prepaid, addressed as follows or transmitted by facsimile transmission
(confirmed by delivery in person or mail by first-class mail, postage prepaid,
or by guaranteed overnight courier) to the following facsimile numbers:

               If to the Company, to:

               Emulex Corporation
               3535 Harbor Boulevard
               Costa Mesa, California 92626
               Attention: Chief Financial Officer
               Telephone No.: (714) 662-5600
               Facsimile No.: (714) 513-8266

               with a copy to:

               Jeffer, Mangels, Butler & Marmaro LLP
               2121 Avenue of the Stars, 10th Floor
               Los Angeles, California 90067
               Attention: Robert M. Steinberg, Esq.
               Telephone No.: (310) 203-8080
               Facsimile No.: (310) 203-0567


                                       55


               if to the Trustee, to:

               State Street Bank and Trust Company of California, N.A.
               633 West 5th Street, 12th Floor
               Los Angeles, California 90071
               Attn: Corporate Trust Department
                     (Emulex Corporation - 1.75% Convertible
               Subordinated Notes Due February 1, 2007)
               Telephone No.: (213) 362-7345
               Facsimile No.: (213) 362-7357

        Such notices or communications shall be effective when received.

        The Company or the Trustee by notice to the other may designate
additional or different addresses for subsequent notices or communications.

        Any notice or communication mailed to a Securityholder shall be mailed
by first-class mail or delivered by an overnight delivery service to it at its
address shown on the register kept by the Primary Registrar.

        Failure to mail a notice or communication to a Securityholder or any
defect in it shall not affect its sufficiency with respect to other
Securityholders. If a notice or communication to a Securityholder is mailed in
the manner provided above, it is duly given, whether or not the addressee
receives it.

        SECTION 12.3. COMMUNICATIONS BY HOLDERS WITH OTHER HOLDERS.

        Securityholders may communicate pursuant to TIA Section 312(b) with
other Securityholders with respect to their rights under this Indenture or the
Securities. The Company, the Trustee, the Registrar and any other person shall
have the protection of TIA Section 312(c).

        SECTION 12.4. CERTIFICATE AND OPINION AS TO CONDITIONS PRECEDENT.

        (a) Upon any request or application by the Company to the Trustee to
take any action under this Indenture, the Company shall furnish to the Trustee
at the request of the Trustee:

               (1) an Officers' Certificate stating that, in the opinion of the
signers, all conditions precedent (including any covenants, compliance with
which constitutes a condition precedent), if any, provided for in this Indenture
relating to the proposed action have been complied with; and

               (2) an Opinion of Counsel stating that, in the opinion of such
counsel, all such conditions precedent (including any covenants, compliance with
which constitutes a condition precedent) have been complied with.

        (b) Each Officers' Certificate and Opinion of Counsel with respect to
compliance with a condition or covenant provided for in this Indenture shall
include:

               (1) a statement that the person making such certificate or
opinion has read such covenant or condition;


                                       56


               (2) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions contained in
such certificate or opinion are based;

               (3) a statement that, in the opinion of such person, he or she
has made such examination or investigation as is necessary to enable him or her
to express an informed opinion as to whether or not such covenant or condition
has been complied with; and

               (4) a statement as to whether or not, in the opinion of such
person, such condition or covenant has been complied with;

provided however, that with respect to matters of fact an Opinion of Counsel may
rely on an Officers' Certificate or certificates of public officials.

        SECTION 12.5. RECORD DATE FOR VOTE OR CONSENT OF SECURITYHOLDERS.

        The Company (or, in the event deposits have been made pursuant to
Section 10.1, the Trustee) may set a record date for purposes of determining the
identity of Holders entitled to vote or consent to any action by vote or consent
authorized or permitted under this Indenture, which record date shall not be
more than thirty (30) days prior to the date of the commencement of solicitation
of such action. Notwithstanding the provisions of Section 11.4, if a record date
is fixed, those persons who were Holders of Securities at the close of business
on such record date (or their duly designated proxies), and only those persons,
shall be entitled to take such action by vote or consent or to revoke any vote
or consent previously given, whether or not such persons continue to be Holders
after such record date.

        SECTION 12.6. RULES BY TRUSTEE, PAYING AGENT, REGISTRAR AND CONVERSION
AGENT.

        The Trustee may make reasonable rules (not inconsistent with the terms
of this Indenture) for action by or at a meeting of Holders. Any Registrar,
Paying Agent or Conversion Agent may make reasonable rules for its functions.

        SECTION 12.7. LEGAL HOLIDAYS.

        A "Legal Holiday" is a Saturday, Sunday or a day on which state or
federally chartered banking institutions in New York, New York and the state in
which the Corporate Trust Office is located are not required to be open. If a
payment date is a Legal Holiday, payment shall be made on the next succeeding
day that is not a Legal Holiday, and no interest shall accrue for the
intervening period. If a regular record date is a Legal Holiday, the record date
shall not be affected.

        SECTION 12.8. GOVERNING LAW.

        This Indenture and the Securities shall be governed by, and construed in
accordance with, the laws of the State of New York, without regard to principles
of conflicts of laws.

        SECTION 12.9. NO ADVERSE INTERPRETATION OF OTHER AGREEMENTS.

        This Indenture may not be used to interpret another indenture, loan or
debt agreement of the Company or a Subsidiary of the Company. Any such
indenture, loan or debt agreement may not be used to interpret this Indenture.


                                       57


        SECTION 12.10. NO RECOURSE AGAINST OTHERS.

        All liability described in paragraph 18 of the Securities of any
director, officer, employee or shareholder, as such, of the Company is waived
and released.

        SECTION 12.11. SUCCESSORS.

        All agreements of the Company in this Indenture and the Securities shall
bind its successor. All agreements of the Trustee in this Indenture shall bind
its successor.

        SECTION 12.12. MULTIPLE COUNTERPARTS.

        The parties may sign multiple counterparts of this Indenture. Each
signed counterpart shall be deemed an original, but all of them together
represent the same agreement.

        SECTION 12.13. SEPARABILITY.

        In case any provisions in this Indenture or in the Securities shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.

        SECTION 12.14. TABLE OF CONTENTS, HEADINGS, ETC.

        The table of contents, cross-reference sheet and headings of the
Articles and Sections of this Indenture have been inserted for convenience of
reference only, are not to be considered a part hereof, and shall in no way
modify or restrict any of the terms or provisions hereof.


                            [SIGNATURE PAGE FOLLOWS]



                                       58


        IN WITNESS WHEREOF, the parties hereto have hereunto set their hands as
of the date and year first above written.


                                        EMULEX CORPORATION


                                        By: ___________________________________
                                        Name:
                                        Title:


                                        STATE STREET BANK AND TRUST
                                        COMPANY OF CALIFORNIA, N.A.,
                                        AS TRUSTEE


                                        By: ___________________________________
                                        Name:
                                        Title:



                                    EXHIBIT A
                           [FORM OF FACE OF SECURITY]


        [UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF
THE DEPOSITORY TRUST COMPANY TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF
TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE
NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY (AND ANY PAYMENT HEREON IS MADE
TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY), ANY TRANSFER, PLEDGE OR OTHER
USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL SINCE THE
REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN. THIS SECURITY IS A
GLOBAL SECURITY WITHIN THE MEANING OF THE INDENTURE HEREINAFTER REFERRED TO AND
IS REGISTERED IN THE NAME OF A DEPOSITARY OR A NOMINEE THEREOF. THIS SECURITY IS
EXCHANGEABLE FOR SECURITIES REGISTERED IN THE NAME OF A PERSON OTHER THAN THE
DEPOSITARY OR ITS NOMINEE ONLY IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE
INDENTURE AND, UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR
SECURITIES IN DEFINITIVE FORM, THIS SECURITY MAY NOT BE TRANSFERRED EXCEPT AS A
WHOLE BY THE DEPOSITARY TO A NOMINEE OF THE DEPOSITARY OR BY A NOMINEE OF THE
DEPOSITARY TO THE DEPOSITARY OR ANOTHER NOMINEE OF THE DEPOSITARY OR BY THE
DEPOSITARY OR ANY SUCH NOMINEE TO A SUCCESSOR DEPOSITARY OR A NOMINEE OF SUCH
SUCCESSOR DEPOSITARY.](1)

        [THIS SECURITY (OR ITS PREDECESSOR) WAS ORIGINALLY ISSUED IN A
TRANSACTION EXEMPT FROM REGISTRATION UNDER THE UNITED STATES SECURITIES ACT OF
1933 (THE "SECURITIES ACT"), AND THIS SECURITY AND THE SHARES OF COMMON STOCK
ISSUABLE UPON CONVERSION THEREOF MAY NOT BE OFFERED, SOLD OR OTHERWISE
TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN APPLICABLE EXEMPTION
THEREFROM. EACH PURCHASER OF THIS SECURITY IS HEREBY NOTIFIED THAT THE SELLER OF
THIS SECURITY MAY BE RELYING ON THE EXEMPTION FROM THE PROVISIONS OF SECTION 5
OF THE SECURITIES ACT PROVIDED BY RULE 144A THEREUNDER.](2)

        THE HOLDER OF THIS SECURITY AGREES FOR THE BENEFIT OF THE COMPANY THAT
(A) THIS SECURITY AND THE SHARES OF COMMON STOCK ISSUABLE UPON CONVERSION
THEREOF MAY BE OFFERED, RESOLD, PLEDGED OR OTHERWISE TRANSFERRED, ONLY (I) IN
THE UNITED STATES TO A PERSON WHOM THE SELLER REASONABLY BELIEVES IS A QUALIFIED
INSTITUTIONAL BUYER (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) IN A
TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (II) OUTSIDE THE UNITED
STATES IN AN OFFSHORE TRANSACTION IN ACCORDANCE WITH RULE 904 UNDER


- --------

(1) These paragraphs should be included only if the Security is a Global
    Security.

(2) These paragraphs to be included only if the Security is a Restricted
    Security.


                                      A-1


        THE SECURITIES ACT, (III) PURSUANT TO AN EXEMPTION FROM REGISTRATION
UNDER THE SECURITIES ACT PROVIDED BY RULE 144 THEREUNDER (IF AVAILABLE) OR (IV)
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT, IN
EACH OF CASES (I) THROUGH (IV) IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS
OF ANY STATE OF THE UNITED STATES, AND (B) THE HOLDER WILL, AND EACH SUBSEQUENT
HOLDER IS REQUIRED TO, NOTIFY ANY PURCHASER OF THIS SECURITY FROM IT OF THE
RESALE RESTRICTIONS REFERRED TO IN (A) ABOVE.](2)

        [THE HOLDER OF THIS SECURITY IS ENTITLED TO THE BENEFITS OF A
REGISTRATION RIGHTS AGREEMENT (AS SUCH TERM IS DEFINED IN THE INDENTURE REFERRED
TO ON THE REVERSE HEREOF) AND, BY ITS ACCEPTANCE HEREOF, AGREES TO BE BOUND BY
AND TO COMPLY WITH THE PROVISIONS OF SUCH REGISTRATION RIGHTS AGREEMENT.](2)



- --------

(2) These paragraphs to be included only if the Security is a Transfer
    Restricted Security.



                                      A-2


                               EMULEX CORPORATION


CUSIP:  292475AA8                                                       R-______

            1.75% CONVERTIBLE SUBORDINATED NOTES DUE FEBRUARY 1, 2007

        Emulex Corporation, a Delaware corporation (the "Company", which term
shall include any successor corporation under the Indenture referred to on the
reverse hereof), promises to pay to___________ _________________, or registered
assigns, the principal sum of _____________________________ Dollars
($__________) on February 1, 2007 [or such greater or lesser amount as is
indicated on the Schedule of Exchanges of Notes on the other side of this
Note].(3)

Interest Payment Dates: February 1 and August 1

Record Dates: January 15 and July 15

        This Note is convertible as specified on the other side of this Note.
Additional provisions of this Note are set forth on the other side of this Note.


                             SIGNATURE PAGE FOLLOWS





- --------

(3) This phrase should be included only if the Security is a global Security.


                                      A-3


        IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed.


                                        EMULEX CORPORATION


                                        By: ___________________________________
                                        Name:
                                        Title:

Attest:


_____________________________

Name:
Title:

Dated:

Trustee's Certificate of Authentication:
This is one of the Securities referred
to in the within-mentioned Indenture.

STATE STREET BANK AND TRUST COMPANY OF
CALIFORNIA, N.A.
as Trustee


_____________________________
Authorized Signatory

By:



                                      A-4


                       [FORM OF REVERSE SIDE OF SECURITY]

                               EMULEX CORPORATION
            1.75% CONVERTIBLE SUBORDINATED NOTES DUE FEBRUARY 1, 2007

1.      INTEREST

        Emulex Corporation, a Delaware corporation (the "Company", which term
shall include any successor corporation under the Indenture hereinafter referred
to), promises to pay interest on the principal amount of this Note at the rate
of 1.75% per annum. The Company shall pay interest semiannually on February 1
and August 1 of each year, commencing August 1, 2002. Interest on the Notes
shall accrue from the most recent date to which interest has been paid or, if no
interest has been paid, from January 29, 2002; provided, however, that if there
is not an existing default in the payment of interest and if this Note is
authenticated between a record date referred to on the face hereof and the next
succeeding interest payment date, interest shall accrue from such interest
payment date. Interest will be computed on the basis of a 360-day year of twelve
30-day months. Any reference herein to interest accrued or payable as of any
date shall include any Additional Interest accrued or payable on such date as
provided in the Registration Rights Agreement.

2.      METHOD OF PAYMENT

        The Company shall pay interest on this Note (except defaulted interest)
to the person who is the Holder of this Note at the close of business on January
15 or July 15, as the case may be, next preceding the related interest payment
date. The Holder must surrender this Note to a Paying Agent to collect payment
of principal. The Company will pay principal and interest in money of the United
States that at the time of payment is legal tender for payment of public and
private debts. The Company may, however, pay principal and interest in respect
of any Certificated Security by check or wire payable in such money; provided,
however, that a Holder with an aggregate principal amount in excess of
$2,000,000 will be paid by wire transfer in immediately available funds at the
election of such Holder if such Holder has provided wire transfer instructions
to the Company. The Company may mail an interest check to the Holder's
registered address. Notwithstanding the foregoing, so long as this Note is
registered in the name of a Depositary or its nominee, all payments hereon shall
be made by wire transfer of immediately available funds to the account of the
Depositary or its nominee.

3.      PAYING AGENT, REGISTRAR AND CONVERSION AGENT

        Initially, State Street Bank and Trust Company of California, N.A. (the
"Trustee", which term shall include any successor trustee under the Indenture
hereinafter referred to) will act as Paying Agent, Registrar and Conversion
Agent. The Company may change any Paying Agent, Registrar or Conversion Agent
without notice to the Holder. The Company or any of its Subsidiaries may,
subject to certain limitations set forth in the Indenture, act as Paying Agent
or Registrar.

4.      INDENTURE, LIMITATIONS

        This Note is one of a duly authorized issue of Securities of the Company
designated as its 1.75% Convertible Subordinated Notes Due February 1, 2007 (the
"Notes"), issued under an Indenture dated as of January 29, 2002 (together with
any supplemental indentures thereto, the "Indenture"), between the Company and
the Trustee. The terms of this Note include those stated in the Indenture and
those required by or made


                                      A-5


part of the Indenture by reference to the Trust Indenture Act of 1939, as
amended, as in effect on the date of the Indenture. This Note is subject to all
such terms, and the Holder of this Note is referred to the Indenture and said
Act for a statement of them.

        The Notes are subordinated unsecured obligations of the Company limited
to $300,000,000 aggregate principal amount (or up to $345,000,000 if the initial
purchasers' option to purchase additional notes is exercised). The Indenture
does not limit other debt of the Company, secured or unsecured, including Senior
Indebtedness.

5.      OPTIONAL REDEMPTION

        The Notes are subject to redemption, at any time on or after February 5,
2005, as a whole or from time to time in part, at the election of the Company.
The Redemption Prices (expressed as percentages of the principal amount) are as
follows for Notes redeemed during the periods set forth below:



                         PERIOD                               REDEMPTION PRICE
                         ------                               ----------------
                                                           
       February 5, 2005 through January 31, 2006 .........       100.4375%
       February 1, 2006 and thereafter....................            100%


in each case together with accrued interest up to but not including the
Redemption Date; provided that if the Redemption Date falls after an interest
payment record date and on or before an interest payment date, then the interest
will be payable to the Holders in whose names the Notes are registered at the
close of business on the relevant interest payment record dates.

        No sinking fund is provided for the Notes.

6.      NOTICE OF REDEMPTION

        Notice of redemption will be mailed by first-class mail at least 20 days
but not more than 60 days before the Redemption Date to each Holder of Notes to
be redeemed at its registered address. Notes in denominations larger than $1,000
may be redeemed in part, but only in whole multiples of $1,000. On and after the
Redemption Date, subject to the deposit with the Paying Agent of funds
sufficient to pay the Redemption Price plus accrued interest, if any, accrued
to, but excluding, the Redemption Date, interest shall cease to accrue on Notes
or portions of them called for redemption.

7.      PURCHASE OF NOTES AT OPTION OF HOLDER UPON A CHANGE IN CONTROL

        At the option of the Holder and subject to the terms and conditions of
the Indenture, the Company shall become obligated to purchase all or any part
specified by the Holder (so long as the principal amount of such part is $1,000
or an integral multiple of $1,000 in excess thereof) of the Notes held by such
Holder on the date that is 30 Business Days after the occurrence of a Change in
Control, at a purchase price equal to 100% of the principal amount thereof
together with accrued interest up to, but excluding, the Change in Control
Purchase Date. The Holder shall have the right to withdraw any Change in Control
Purchase Notice (in whole or in a portion thereof that is $1,000 or an integral
multiple of $1,000 in excess thereof) at any time prior to the close of business
on the Business Day next preceding the Change in Control Purchase Date by
delivering a written notice of withdrawal to the Paying Agent in accordance with
the terms of the Indenture.


                                      A-6


8.      CONVERSION

        A Holder of a Note may convert the principal amount of such Note (or any
portion thereof equal to $1,000 or any integral multiple of $1,000 in excess
thereof) into shares of Common Stock at any time prior to the close of business
on February 1, 2007; provided, however, that if the Note is called for
redemption or subject to purchase upon a Change in Control, the conversion right
will terminate at the close of business on the Business Day immediately
preceding the Redemption Date or the Change in Control Purchase Date, as the
case may be, for such Note or such earlier date as the Holder presents such Note
for redemption or purchase (unless the Company shall default in making the
redemption payment or Change in Control Purchase Price, as the case may be, when
due, in which case the conversion right shall terminate at the close of business
on the date such default is cured and such Note is redeemed or purchased).

        The initial Conversion Price is $53.84 per share, subject to adjustment
under certain circumstances as provided in the Indenture. The number of shares
of Common Stock issuable upon conversion of a Note is determined by dividing the
principal amount of the Note or portion thereof converted by the Conversion
Price in effect on the Conversion Date. No fractional shares will be issued upon
conversion; in lieu thereof, an amount will be paid in cash based upon the
Closing Price (as defined in the Indenture) of the Common Stock on the Trading
Day immediately prior to the Conversion Date.

        To convert a Note, a Holder must (a) complete and manually sign the
conversion notice set forth below and deliver such notice to a Conversion Agent,
(b) surrender the Note to a Conversion Agent, (c) furnish appropriate
endorsements and transfer documents if required by a Registrar or a Conversion
Agent, and (d) pay any transfer or similar tax, if required. Notes so
surrendered for conversion (in whole or in part) during the period from the
close of business on any regular record date to the opening of business on the
next succeeding interest payment date (excluding Notes or portions thereof
called for redemption or subject to purchase upon a Change in Control on a
Redemption Date or Change in Control Purchase Date, as the case may be, during
the period beginning at the close of business on a regular record date and
ending at the opening of business on the first Business Day after the next
succeeding interest payment date, or if such interest payment date is not a
Business Day, the second such Business Day) shall also be accompanied by payment
in funds acceptable to the Company of an amount equal to the interest payable on
such interest payment date on the principal amount of such Note then being
converted, and such interest shall be payable to such registered Holder
notwithstanding the conversion of such Note, subject to the provisions of this
Indenture relating to the payment of defaulted interest by the Company. If the
Company defaults in the payment of interest payable on such interest payment
date, the Company shall promptly repay such funds to such Holder. A Holder may
convert a portion of a Note equal to $1,000 or any integral multiple thereof.

        A Note in respect of which a Holder had delivered a Change in Control
Purchase Notice exercising the option of such Holder to require the Company to
purchase such Note may be converted only if the Change in Control Purchase
Notice is withdrawn in accordance with the terms of the Indenture.

9.      CONVERSION ARRANGEMENT ON CALL FOR REDEMPTION

        Any Notes called for redemption, unless surrendered for conversion
before the close of business on the Business Day immediately preceding the
Redemption Date, may be deemed to be purchased from the Holders of such Notes at
an amount not less than the Redemption Price, together with accrued interest, if
any, to, but not including, the Redemption Date, by one or more investment
bankers or other purchasers who may agree with the Company to purchase such
Notes from the Holders, to convert them into Common Stock of the Company and to
make payment for such Notes to the Paying Agent in trust for such Holders.


                                      A-7


10.     SUBORDINATION

        The indebtedness evidenced by the Notes is, to the extent and in the
manner provided in the Indenture, subordinate and junior in right of payment to
the prior payment in full of all Senior Indebtedness of the Company. Any Holder
by accepting this Note agrees to and shall be bound by such subordination
provisions and authorizes the Trustee to give them effect. In addition to all
other rights of Senior Indebtedness described in the Indenture, the Senior
Indebtedness shall continue to be Senior Indebtedness and entitled to the
benefits of the subordination provisions irrespective of any amendment,
modification or waiver of any terms of any instrument relating to the Senior
Indebtedness or any extension or renewal of the Senior Indebtedness.

11.     DENOMINATIONS, TRANSFER, EXCHANGE

        The Notes are in registered form, without coupons, in denominations of
$1,000 and integral multiples of $1,000. A Holder may register the transfer of
or exchange Notes in accordance with the Indenture. The Registrar may require a
Holder, among other things, to furnish appropriate endorsements and transfer
documents and to pay any taxes or other governmental charges that may be imposed
in relation thereto by law or permitted by the Indenture.

12.     PERSONS DEEMED OWNERS

        The Holder of a Note may be treated as the owner of it for all purposes.

13.     UNCLAIMED MONEY

        If money for the payment of principal or interest remains unclaimed for
two years, the Trustee or Paying Agent will pay the money back to the Company at
its written request, subject to applicable unclaimed property law. After that,
Holders entitled to money must look to the Company for payment as general
creditors unless an applicable abandoned property law designates another person.

14.     AMENDMENT, SUPPLEMENT AND WAIVER

        Subject to certain exceptions, the Indenture or the Notes may be amended
or supplemented with the consent of the Holders of at least a majority in
aggregate principal amount of the Notes then outstanding, and an existing
default or Event of Default and its consequence or compliance with any provision
of the Indenture or the Notes may be waived in a particular instance with the
consent of the Holders of a majority in aggregate principal amount of the Notes
then outstanding. Without the consent of or notice to any Holder, the Company
and the Trustee may amend or supplement the Indenture or the Notes to, among
other things, cure any ambiguity, defect or inconsistency or make any other
change that does not adversely affect the rights of any Holder.

15.     SUCCESSOR ENTITY

        When a successor corporation assumes all the obligations of its
predecessor under the Notes and the Indenture in accordance with the terms and
conditions of the Indenture, the predecessor corporation (except in certain
circumstances specified in the Indenture) be released from those obligations.


                                      A-8


16.     DEFAULTS AND REMEDIES

        Under the Indenture, an Event of Default includes: (i) default for 30
days in payment of any interest or Additional Interest on any Notes; (ii)
default in payment of any principal (including, without limitation, any premium,
if any) on the Notes when due; (iii) failure by the Company for 60 days after
notice to it to comply with any of its other agreements contained in the
Indenture or the Notes; (iv) default in the payment of certain indebtedness of
the Company or a Significant Subsidiary and (v) certain events of bankruptcy,
insolvency or reorganization of the Company or any Significant Subsidiary. If an
Event of Default (other than as a result of certain events of bankruptcy,
insolvency or reorganization of the Company) occurs and is continuing, the
Trustee or the Holders of at least 25% in aggregate principal amount of the
Notes then outstanding may declare all unpaid principal to the date of
acceleration on the Notes then outstanding to be due and payable immediately,
all as and to the extent provided in the Indenture. If an Event of Default
occurs as a result of certain events of bankruptcy, insolvency or reorganization
of the Company, unpaid principal of the Notes then outstanding shall become due
and payable immediately without any declaration or other act on the part of the
Trustee or any Holder, all as and to the extent provided in the Indenture.
Holders may not enforce the Indenture or the Notes except as provided in the
Indenture. The Trustee may require indemnity satisfactory to it before it
enforces the Indenture or the Notes. Subject to certain limitations, Holders of
a majority in aggregate principal amount of the Notes then outstanding may
direct the Trustee in its exercise of any trust or power. The Trustee may
withhold from Holders notice of any continuing default (except a default in
payment of principal or interest) if it determines that withholding notice is in
their interests. The Company is required to file periodic reports with the
Trustee as to the absence of default.

17.     TRUSTEE DEALINGS WITH THE COMPANY

        State Street Bank and Trust Company of California, N.A., the Trustee
under the Indenture, in its individual or any other capacity, may make loans to,
accept deposits from and perform services for the Company or an Affiliate of the
Company, and may otherwise deal with the Company or an Affiliate of the Company,
as if it were not the Trustee.

18.     NO RECOURSE AGAINST OTHERS

        A director, officer, employee or shareholder, as such, of the Company
shall not have any liability for any obligations of the Company under the Notes
or the Indenture nor for any claim based on, in respect of or by reason of such
obligations or their creation. The Holder of this Note by accepting this Note
waives and releases all such liability. The waiver and release are part of the
consideration for the issuance of this Note.

19.     AUTHENTICATION

        This Note shall not be valid until the Trustee or an authenticating
agent manually signs the certificate of authentication on the other side of this
Note.

20.     ABBREVIATIONS AND DEFINITIONS

        Customary abbreviations may be used in the name of the Holder or an
assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by the
entireties), JT TEN (= joint tenants with right of survivorship and not as
tenants in common), CUST (= Custodian) and UGMA (= Uniform Gifts to Minors Act).


                                      A-9


        All terms defined in the Indenture and used in this Note but not
specifically defined herein are defined in the Indenture and are used herein as
so defined.

21.     INDENTURE TO CONTROL; GOVERNING LAW

        In the case of any conflict between the provisions of this Note and the
Indenture, the provisions of the Indenture shall control. This Note shall be
governed by, and construed in accordance with, the laws of the State of New
York, without regard to principals of conflicts of law.

        The Company will furnish to any Holder, upon written request and without
charge, a copy of the Indenture. Requests may be made to: Emulex Corporation,
3535 Harbor Boulevard, Costa Mesa, California 92626 (714) 662-5600, Attention:
Investor Relations.



                                      A-10


                                 ASSIGNMENT FORM

        To assign this Note, fill in the form below:

        I or we assign and transfer this Note to

________________________________________________________________________________
                  (Insert assignee's soc. sec. or tax I.D. no.)

________________________________________________________________________________

________________________________________________________________________________

________________________________________________________________________________

________________________________________________________________________________
                      (Print or type assignee's name, address and zip code)

and irrevocably appoint

________________________________________________________________________________

agent to transfer this Note on the books of the Company. The agent may
substitute another to act for him or her.


                                        Your Signature:

Date: _______________________           _______________________________________
                                        (Sign exactly as your name appears on
                                        the other side of this Note)

*Signature guaranteed by:

By: _________________________


*  The signature must be guaranteed by an institution which is a member of one
   of the following recognized signature guaranty programs: (i) the Securities
   Transfer Agent Medallion Program (STAMP); (ii) the New York Stock Exchange
   Medallion Program (MSP); (iii) the Stock Exchange Medallion Program (SEMP);
   or (iv) such other guaranty program acceptable to the Trustee.



                                      A-11


                                CONVERSION NOTICE


        To convert this Note into Common Stock of the Company, check the
box: [ ]

        To convert only part of this Note, state the principal amount to be
converted (must be $1,000 or a integral multiple of $1,000): $____________.

        If you want the stock certificate made out in another person's name,
fill in the form below:

________________________________________________________________________________
                  (Insert assignee's soc. sec. or tax I.D. no.)

________________________________________________________________________________

________________________________________________________________________________

________________________________________________________________________________

________________________________________________________________________________
              (Print or type assignee's name, address and zip code)


                                        Your Signature:

Date: _______________________           ________________________________________
                                        (Sign exactly as your name appears on
                                        the other side of this Note)

*Signature guaranteed by:

By: _________________________


*  The signature must be guaranteed by an institution which is a member of one
   of the following recognized signature guaranty programs: (i) the Securities
   Transfer Agent Medallion Program (STAMP); (ii) the New York Stock Exchange
   Medallion Program (MSP); (iii) the Stock Exchange Medallion Program (SEMP);
   or (iv) such other guaranty program acceptable to the Trustee.



                                      A-12



                           OPTION TO ELECT REPURCHASE
                            UPON A CHANGE OF CONTROL

To:     Emulex Corporation

        The undersigned registered owner of this Security hereby irrevocably
acknowledges receipt of a notice from Emulex Corporation (the "Company") as to
the occurrence of a Change in Control with respect to the Company and requests
and instructs the Company to redeem the entire principal amount of this
Security, or the portion thereof (which is $1,000 or an integral multiple
thereof) below designated, in accordance with the terms of the Indenture
referred to in this Security at the Change in Control Purchase Price, together
with accrued interest to, but excluding, such date, to the registered Holder
hereof.

Dated: _______________                  _______________________________________

                                        _______________________________________
                                        Signature(s)

                                        Signature(s) must be guaranteed by a
                                        qualified guarantor institution with
                                        membership in an approved signature
                                        guarantee program pursuant to Rule
                                        17Ad-15 under the Securities Exchange
                                        Act of 1934.

                                        _______________________________________
                                        Signature Guaranty

Principal amount to be redeemed
(in an integral multiple of
$1,000, if less than all):


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

NOTICE: The signature to the foregoing Election must correspond to the Name as
written upon the face of this Security in every particular, without alteration
or any change whatsoever.




                                      A-13


                        SCHEDULE OF EXCHANGES OF NOTES(4)


        The following exchanges, redemptions, repurchases or conversions of a
part of this global Note have been made:



      PRINCIPAL AMOUNT
     OF THIS GLOBAL NOTE           AUTHORIZED                                      AMOUNT OF
       FOLLOWING SUCH             SIGNATORY OF      AMOUNT OF DECREASE IN         INCREASE IN
       DECREASE DATE               SECURITIES          PRINCIPAL AMOUNT        PRINCIPAL AMOUNT
 OF EXCHANGE (OR INCREASE)         CUSTODIAN         OF THIS GLOBAL NOTE      OF THIS GLOBAL NOTE
 -------------------------        ------------      ---------------------     -------------------
                                                                     







- --------

(4) This schedule should be included only if the Security is a global Security.




                                      A-14



            CERTIFICATE TO BE DELIVERED UPON EXCHANGE OR REGISTRATION
                OF TRANSFER OF TRANSFER RESTRICTED SECURITIES(5)


Re:     1.75% Convertible Subordinated Notes Due February 1, 2007 (the "Notes")
        of Emulex Corporation

        This certificate relates to $_______ principal amount of Notes owned in
        (check applicable box)

        [ ] book-entry or [ ] definitive form by ___________ (the "Transferor").

        The Transferor has requested a Registrar or the Trustee to exchange or
register the transfer of such Notes.

        In connection with such request and in respect of each such Note, the
Transferor does hereby certify that the Transferor is familiar with transfer
restrictions relating to the Notes as provided in Section 2.12 of the Indenture
dated as of January 29, 2002 between Emulex Corporation and State Street Bank
and Trust Company of California, N.A., as trustee (the "Indenture"), and the
transfer of such Note is being made pursuant to an effective registration
statement under the Securities Act of 1933, as amended (the "Securities Act")
(check applicable box) or the transfer or exchange, as the case may be, of such
Note does not require registration under the Securities Act because (check
applicable box):

        [ ]   Such Note is being transferred pursuant to an effective
              registration statement under the Securities Act.

        [ ]   Such Note is being acquired for the Transferor's own account,
              without transfer.

        [ ]   Such Note is being transferred to the Company or a Subsidiary (as
              defined in the Indenture) of the Company.

        [ ]   Such Note is being transferred to a person the Transferor
              reasonably believes is a "qualified institutional buyer" (as
              defined in Rule 144A or any successor provision thereto ("Rule
              144A") under the Securities Act) that is purchasing for its own
              account or for the account of a "qualified institutional buyer",
              in each case to whom notice has been given that the transfer is
              being made in reliance on such Rule 144A, and in each case in
              reliance on Rule 144A.

        [ ]   Such Note is being transferred pursuant to and in compliance with
              an exemption from the registration requirements under the
              Securities Act in accordance with Rule 144 (or any successor
              thereto) ("Rule 144") under the Securities Act.

        Such Note is being transferred pursuant to and in compliance with an
exemption from the registration requirements of the Securities Act (other than
an exemption referred to above) and as a result of which such


- --------

(5) This certificate should only be included if this Security is a Transfer
    Restricted Security.


                                      A-15


Note will, upon such transfer, cease to be a "restricted security" within the
meaning of Rule 144 under the Securities Act.

        The Transferor acknowledges and agrees that, if the transferee will hold
any such Notes in the form of beneficial interests in a global Note which is a
"restricted security" within the meaning of Rule 144 under the Securities Act,
then such transfer can only be made pursuant to Rule 144A under the Securities
Act and such transferee must be a "qualified institutional buyer" (as defined in
Rule 144A).


Date: ________________                  _______________________________________
                                        (Insert Name of Transferor)



                                      A-16

EX-4.10

                                                                    Exhibit 4.10


                                  $300,000,000

                               EMULEX CORPORATION

           1.75% CONVERTIBLE SUBORDINATED NOTES DUE FEBRUARY 1, 2007

                          REGISTRATION RIGHTS AGREEMENT


                                                                January 29, 2002

CREDIT SUISSE FIRST BOSTON CORPORATION
THOMAS WEISEL PARTNERS LLC
c/o CREDIT SUISSE FIRST BOSTON CORPORATION
    Eleven Madison Avenue
    New York, New York 10010-3629

Ladies and Gentlemen:

        Emulex Corporation, a Delaware corporation (the "COMPANY"), proposes to
issue and sell to Credit Suisse First Boston Corporation ("CSFBC") and Thomas
Weisel Partners LLC (collectively, the "INITIAL PURCHASERS"), upon the terms set
forth in a purchase agreement of even date herewith (the "PURCHASE AGREEMENT"),
$300,000,000 aggregate principal amount (plus up to an additional $45,000,000
principal amount issuable upon exercise of a 30 day over-allotment option) of
its 1.75% Convertible Subordinated Notes Due February 1, 2007 (the "INITIAL
SECURITIES"). The Initial Securities will be convertible into shares of common
stock, par value $.10 per share, of the Company (the "COMMON STOCK") at the
conversion price set forth in the Confidential Offering Circular dated January
24, 2002. The Initial Securities will be issued pursuant to an Indenture, dated
as of January 29, 2002 (the "INDENTURE"), between the Company and State Street
Bank and Trust Company of California, N.A., as trustee (the "TRUSTEE"). As an
inducement to the Initial Purchasers to enter into the Purchase Agreement, the
Company agrees with the Initial Purchasers as set forth in this Registration
Rights Agreement (the "AGREEMENT"), for the benefit of (i) the Initial
Purchasers and (ii) the holders of the Initial Securities and the Common Stock
issuable upon conversion of the Initial Securities (collectively, the
"SECURITIES") from time to time until such time as such Securities have been
sold pursuant to a Shelf Registration Statement (as defined below) (each of the
forgoing a "HOLDER" and collectively the "HOLDERS"), as follows:

        1. Shelf Registration. (a) The Company shall, at its cost, prepare and,
as promptly as practicable (but in no event more than ninety (90) days after the
first date of


                                       1


original issuance of the Initial Securities (the "ISSUE DATE")) file with the
Securities and Exchange Commission (the "COMMISSION") and thereafter use all
commercially reasonable efforts to cause to be declared effective as soon as
practicable a registration statement on Form S-3 (or other appropriate form)
(the "SHELF REGISTRATION STATEMENT") relating to the offer and sale of the
Transfer Restricted Securities (as defined in Section 5 hereof) by the Holders
thereof from time to time in accordance with the methods of distribution set
forth in the Shelf Registration Statement and Rule 415 under the Securities Act
of 1933, as amended (the "SECURITIES ACT") (hereinafter, the "SHELF
REGISTRATION"); provided, however, that no Holder (other than an Initial
Purchaser) shall be entitled to have the Securities held by it covered by such
Shelf Registration Statement unless such Holder (i) agrees in writing (in a form
reasonably acceptable to the Company) to be bound by all the provisions of this
Agreement applicable to such Holder, and (ii) completes and delivers to the
Company the form of Selling Security Holder Notice and Questionnaire (the
"NOTICE AND QUESTIONNAIRE") attached as Annex A to the final Confidential
Offering Memorandum utilized in connection with the sale of the Initial
Securities.

        (b) The Company shall use all commercially reasonable efforts to keep
the Shelf Registration Statement continuously effective in order to permit the
prospectus included therein (the "PROSPECTUS") to be lawfully delivered by the
Holders of the relevant Securities, for a period of two (2) years (or for such
longer period if extended pursuant to Section 2(h) below) from the date of its
effectiveness or such shorter period that will terminate when (i) all the
Securities covered by the Shelf Registration Statement have been sold pursuant
thereto, or (ii) all the Securities covered by the Shelf Registration Statement
that are held by persons other than affiliates of the Company as defined in the
Securities Act are eligible to be sold to the public pursuant to Rule 144(k)
under the Securities Act, or any successor rule thereof (in any such case, such
period being called the "SHELF REGISTRATION PERIOD"). The Company shall be
deemed not to have used all commercially reasonable efforts to keep the Shelf
Registration Statement effective during the requisite period if it voluntarily
takes any action that would result in Holders of Securities covered thereby not
being able to offer and sell such Securities during that period, unless such
action is (i) required by applicable law or (ii) taken by the Company in good
faith and contemplated by Section 2(b)(v) below, and the Company thereafter
complies with the requirements of Section 2(h).

        (c) Notwithstanding any other provisions of this Agreement to the
contrary, the Company shall cause the Shelf Registration Statement and the
Prospectus and any amendment or supplement thereto, as of the effective date of
the Shelf Registration Statement, amendment or supplement, (i) to comply in all
material respects with the applicable requirements of the Securities Act and the
rules and regulations of the Commission and (ii) not to contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading.


                                       2


        2. Registration Procedures. In connection with the Shelf Registration
contemplated by Section 1 hereof, the following provisions shall apply:

        (a) The Company shall (i) furnish to CSFBC at least three (3) business
days prior to the filing thereof with the Commission, a copy of the Shelf
Registration Statement and each amendment thereof and each supplement, if any,
to the prospectus included therein and, in the event that CSFBC (with respect to
any portion of an unsold allotment from the original offering) is participating
in the Shelf Registration Statement, shall use its reasonable best efforts to
reflect in each such document, when so filed with the Commission, such comments
as CSFBC reasonably may propose; and (ii) include the names of the Holders who
propose to sell Securities pursuant to the Shelf Registration Statement (and who
return the Notice and Questionnaire required by Section 1(a) of this Agreement)
as selling securityholders.

        (b) The Company shall give written notice to the Initial Purchasers and
the Holders of the Securities (which notice pursuant to clauses (ii)-(v) hereof
shall be accompanied by an instruction to suspend the use of the Prospectus
until the requisite changes have been made):

               (i) when the Shelf Registration Statement or any amendment
        thereto has been filed with the Commission and when the Shelf
        Registration Statement or any post-effective amendment thereto has
        become effective;

               (ii) of any request by the Commission for amendments or
        supplements to the Shelf Registration Statement or the prospectus
        included therein or for additional information;

               (iii) of the issuance by the Commission of any stop order
        suspending the effectiveness of the Shelf Registration Statement or the
        initiation of any proceedings for that purpose;

               (iv) of the receipt by the Company or its legal counsel of any
        notification with respect to the suspension of the qualification of the
        Securities for sale in any jurisdiction or the initiation or threatening
        of any proceeding for such purpose; and

               (v) of the happening of any event that requires the Company to
        make changes in the Shelf Registration Statement or the Prospectus in
        order that the Shelf Registration Statement or the Prospectus does not
        contain an untrue statement of a material fact nor omit to state a
        material fact required to be stated therein or necessary to make the
        statements therein (in the case of the Prospectus, in light of the
        circumstances under which they were made) not misleading.


                                       3


        (c) The Company shall make every reasonable effort to obtain the
withdrawal at the earliest possible time, of any order suspending the
effectiveness of the Shelf Registration Statement.

        (d) The Company shall furnish to each Holder of Securities included
within the coverage of the Shelf Registration, without charge, at least one copy
of the Shelf Registration Statement and any post-effective amendment thereto,
including financial statements and schedules, and, if the Holder so requests in
writing, all exhibits thereto (including those, if any, incorporated by
reference).

        (e) The Company shall, during the Shelf Registration Period, deliver to
each Holder of Securities included within the coverage of the Shelf
Registration, without charge, as many copies of the Prospectus (including each
preliminary prospectus) included in the Shelf Registration Statement and any
amendment or supplement thereto as such person may reasonably request. The
Company consents, subject to the provisions of this Agreement, to the use of the
Prospectus or any amendment or supplement thereto by each of the selling Holders
of the Securities in connection with the offering and sale of the Securities
covered by the Prospectus, or any amendment or supplement thereto, included in
the Shelf Registration Statement.

        (f) Prior to any public offering of the Securities pursuant to the Shelf
Registration Statement, the Company shall register or qualify or cooperate with
the Holders of the Securities included therein and their respective counsel in
connection with the registration or qualification of the Securities for offer
and sale under the securities or "blue sky" laws of such states of the United
States as any Holder of the Securities reasonably requests in writing and do any
and all other acts or things necessary or advisable to enable the offer and sale
in such jurisdictions of the Securities covered by such Registration Statement;
provided, however, that the Company shall not be required to (i) qualify
generally to do business in any jurisdiction where it is not then so qualified
or (ii) take any action which would subject it to general service of process or
to taxation in any jurisdiction where it is not then so subject.

        (g) The Company shall cooperate with the Holders of the Securities to
facilitate the timely preparation and delivery of certificates representing the
Securities to be sold pursuant to any Registration Statement free of any
restrictive legends and in such denominations and registered in such names as
the Holders may request a reasonable period of time prior to sales of the
Securities pursuant to the Shelf Registration Statement.

        (h) Upon the occurrence of any event contemplated by paragraphs (ii)
through (v) of Section 2(b) above during the period for which the Company is
required to maintain an effective Shelf Registration Statement, the Company
shall promptly prepare and file a post-effective amendment to the Shelf
Registration Statement or an amendment or supplement to the Prospectus and any
other required document so that, as thereafter delivered to Holders or
purchasers of the Securities, the Prospectus will not contain an


                                       4


untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading. If the Company
notifies the Initial Purchasers and the Holders in accordance with paragraphs
(ii) through (v) of Section 2(b) above to suspend the use of the Prospectus
until the requisite changes to the Prospectus have been made, then the Initial
Purchasers and the Holders shall suspend use of such Prospectus (the period of
such suspension being referred to as a "DEFERRAL PERIOD"), and the period of
effectiveness of the Shelf Registration Statement provided for in Section 1(b)
above shall be extended by the number of days from and including the date of the
giving of such notice to and including the date when the Initial Purchasers and
the Holders shall have received such amended or supplemented prospectus pursuant
to this Section 2(h).

        (i) Not later than the effective date of the Shelf Registration
Statement, the Company will provide CUSIP numbers for the Initial Securities and
the Common Stock registered under the Shelf Registration Statement, and provide
the Trustee with printed certificates for the Initial Securities, in a form
eligible for deposit with The Depository Trust Company.

        (j) The Company will comply with all rules and regulations of the
Commission to the extent and so long as they are applicable to the Shelf
Registration and will make generally available to its security holders (or
otherwise provide in accordance with Section 11(a) of the Securities Act) an
earnings statement satisfying the provisions of Section 11(a) of the Securities
Act, no later than 45 days after the end of a 12-month period (or 90 days, if
such period is a fiscal year) beginning with the first month of the Company's
first fiscal quarter commencing after the effective date of the Shelf
Registration Statement, which statement shall cover such 12-month period.

        (k) The Company shall cause the Indenture to be qualified under the
Trust Indenture Act of 1939, as amended, (the "TRUST INDENTURE ACT") in a timely
manner and containing such changes, if any, as shall be necessary for such
qualification. In the event that such qualification would require the
appointment of a new trustee under the Indenture, the Company shall appoint a
new trustee thereunder pursuant to the applicable provisions of the Indenture.

        (l) In addition to requiring the timely completion and return of the
Notice and Questionnaire contemplated by Section 1(a) of this Agreement, the
Company may require each Holder of Securities to be sold pursuant to the Shelf
Registration Statement to furnish to the Company such information regarding the
Holder and the distribution of the Securities as the Company may from time to
time reasonably require for inclusion in the Shelf Registration Statement, and
the Company may exclude from such registration the Securities of any Holder that
unreasonably fails to furnish such information within a reasonable time after
receiving such request.


                                       5


        (m) The Company shall enter into such customary agreements (including,
if requested and subject to the provisions of Section 7 of this Agreement, an
underwriting agreement in customary form) and take all such other actions, if
any, as any Holder shall reasonably request in order to facilitate the
disposition of the Securities pursuant to the Shelf Registration.

        (n) The Company shall (i) make reasonably available for inspection by
the Holders, any underwriter participating in any disposition pursuant to the
Shelf Registration Statement and any attorney, accountant or other agent
retained by the Holders or any such underwriter, all relevant financial and
other records, pertinent corporate documents and properties of the Company and
(ii) cause the Company's officers, directors, employees, accountants and
auditors to supply all relevant information reasonably requested by the Holders
or any such underwriter, attorney, accountant or agent in connection with the
Shelf Registration Statement, in each case, as shall be reasonably necessary to
enable such persons, to conduct a reasonable investigation within the meaning of
Section 11 of the Securities Act; provided, however, that the foregoing
inspection and information gathering shall be coordinated on behalf of the
Initial Purchasers by you and on behalf of the other parties, by one counsel
designated by and on behalf of such other parties as described in Section 3
hereof; and provided further, that any information that is designated by the
Company, in good faith, as confidential at the time of delivery of such
information shall be kept confidential by the Holders or any such underwriter,
attorney, accountant or agent, unless such disclosure is made in connection with
a court proceeding or required by law, or such information becomes available to
the public generally through a third-party without an accompanying obligation of
confidentiality.

        (o) In connection with any underwritten offering of Transfer Restricted
Securities (as defined in Section 5(f) below) in accordance with Section 7 of
this Agreement, the Company, if reasonably requested by any Holder of Securities
covered by the Shelf Registration Statement, shall cause (i) its counsel to
deliver an opinion and updates thereof relating to the Securities in customary
form addressed to such Holders and the managing underwriters, if any, thereof,
and dated, in the case of the initial opinion, the effective date of such Shelf
Registration Statement (it being agreed that such opinion shall be subject to
customary assumptions and exceptions and that the matters to be covered by such
opinion shall include, without limitation, the due incorporation and good
standing of the Company and its significant subsidiaries; the qualification of
the Company and its significant subsidiaries to transact business as foreign
corporations; the due authorization, execution and delivery of the relevant
agreement of the type referred to in Section 2(m) hereof; the due authorization,
execution, authentication and issuance, and the validity and enforceability, of
the Securities; the absence of material legal or governmental proceedings
involving the Company and its subsidiaries; the absence of governmental
approvals required to be obtained in connection with the Shelf Registration
Statement, the offering and sale of the Securities, or any agreement of the type
referred to in Section 2(m) hereof; the compliance as to form of the Shelf
Registration Statement and any documents incorporated by reference therein and
of the Indenture with the


                                       6


requirements of the Securities Act and the Trust Indenture Act, respectively;
and, as of the date of the opinion and as of the effective date of the Shelf
Registration Statement or most recent post-effective amendment thereto, as the
case may be, the absence from the Shelf Registration Statement and the
prospectus included therein, as then amended or supplemented, and from any
documents incorporated by reference therein of an untrue statement of a material
fact or the omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading (in the case
of any such documents, in the light of the circumstances existing at the time
that such documents were filed with the Commission under the Exchange Act of
1934, as amended (the "EXCHANGE ACT")); (ii) its officers to execute and deliver
all customary documents and certificates and updates thereof requested by any
underwriters of the Securities and (iii) its independent public accountants and
the independent public accountants with respect to any other entity for which
financial information is provided in the Shelf Registration Statement to provide
to the selling Holders of the applicable Securities and any underwriter therefor
a comfort letter in customary form and covering matters of the type customarily
covered in comfort letters in connection with primary underwritten offerings,
subject to receipt of appropriate documentation as contemplated, and only if
permitted, by Statement of Auditing Standards No. 72.

        (p) The Company will use commercially reasonable efforts to (a) if the
Initial Securities have been rated prior to the initial sale of such Initial
Securities, confirm such ratings will apply to the Securities covered by a
Registration Statement, or (b) if the Initial Securities were not previously
rated, cause the Securities covered by a Registration Statement to be rated with
the appropriate rating agencies, if so requested by holders of a majority in
aggregate principal amount of Securities covered by the Shelf Registration
Statement, or by the managing underwriters, if any.

        (q) In the event that any broker-dealer registered under the Exchange
Act shall underwrite any Securities or participate as a member of an
underwriting syndicate or selling group or "assist in the distribution" (within
the meaning of the Conduct Rules (the "RULES") of the National Association of
Securities Dealers, Inc. ("NASD")) thereof, whether as a Holder of such
Securities or as an underwriter, a placement or sales agent or a broker or
dealer in respect thereof, or otherwise, the Company will assist such
broker-dealer in complying with the requirements of such Rules, including,
without limitation, by (i) if such Rules, including Rule 2720, shall so require,
engaging a "qualified independent underwriter" (as defined in Rule 2720) on
commercially reasonable terms but at the expense of the Holders whose Securities
are being sold pursuant to such offering, to participate in the preparation of
the Shelf Registration Statement relating to such Securities, to exercise usual
standards of due diligence in respect thereto and, if any portion of the
offering contemplated by such Registration Statement is an underwritten offering
or is made through a placement or sales agent, to recommend the yield of such
Securities, (ii) indemnifying any such qualified independent underwriter to the
extent of the indemnification of underwriters provided in Section 5


                                       7


hereof and (iii) providing such information to such broker-dealer as may be
required in order for such broker-dealer to comply with the requirements of the
Rules.

        (r) The Company shall cause all Securities covered by the Shelf
Registration Statement to be listed on each securities exchange on which any
Securities are listed.

        (s) The Company shall use its reasonable efforts to take all other steps
necessary to effect the registration of the Securities covered by a Registration
Statement contemplated hereby.

        3. Registration Expenses. (a) All expenses incident to the Company's
performance of and compliance with this Agreement will be borne by the Company,
regardless of whether a Registration Statement is ever filed or becomes
effective, including without limitation;

               (i) all registration and filing fees and expenses (including
        filings made by any Initial Purchasers or Holder with the NASD);

               (ii) all fees and expenses of compliance with federal securities
        and state "blue sky" or securities laws;

               (iii) all expenses of printing (including printing certificates
        for the Securities to be issued and printing of Prospectuses), messenger
        and delivery services and telephone;

               (iv) all fees and disbursements of counsel for the Company;

                (v) all application and filing fees in connection with listing
        the Securities on a national securities exchange or automated quotation
        system pursuant to the requirements hereof; and

               (vi) all fees and disbursements of independent certified public
        accountants of the Company (including the expenses of any special audit
        and comfort letters required by or incident to such performance).

The Company will bear its internal expenses (including, without limitation, all
salaries and expenses of its officers and employees performing legal or
accounting duties), the expenses of any annual audit and the fees and expenses
of any person, including special experts, retained by the Company.

        (b) In connection with the Shelf Registration Statement required by this
Agreement, the Company will reimburse the Initial Purchasers and the Holders of
Securities covered by the Shelf Registration Statement, for the reasonable fees
and disbursements of not more than one counsel, who shall be Morrison & Foerster
LLP or such other counsel as may be designated by the Holders of a majority in
principal amount


                                       8


of the Securities covered by the Shelf Registration Statement (provided that
Holders of Common Stock issued upon the conversion of the Initial Securities
shall be deemed to be Holders of the aggregate principal amount of Initial
Securities from which such Common Stock was converted) to act as counsel for the
Holders in connection therewith.

        4. Indemnification. (a) The Company agrees to indemnify and hold
harmless each Holder and each person, if any, who controls such Holder within
the meaning of the Securities Act or the Exchange Act (each Holder, and such
controlling persons are referred to collectively as the "INDEMNIFIED PARTIES")
from and against any losses, claims, damages or liabilities, joint or several,
or any actions in respect thereof (including, but not limited to, any losses,
claims, damages, liabilities or actions relating to purchases and sales of the
Securities) to which each Indemnified Party may become subject under the
Securities Act, the Exchange Act or otherwise, insofar as such losses, claims,
damages, liabilities or actions arise out of or are based upon any untrue
statement or alleged untrue statement of a material fact contained in the Shelf
Registration Statement or prospectus including any document incorporated by
reference therein, or in any amendment or supplement thereto or in any
preliminary prospectus relating to the Shelf Registration, or arise out of, or
are based upon, the omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements therein
not misleading, and shall reimburse, as incurred, the Indemnified Parties for
any legal or other expenses reasonably incurred by them in connection with
investigating or defending any such loss, claim, damage, liability or action in
respect thereof; provided, however, that (i) the Company shall not be liable in
any such case to the extent that such loss, claim, damage or liability arises
out of or is based upon any untrue statement or alleged untrue statement or
omission or alleged omission made in the Shelf Registration Statement or
prospectus or in any amendment or supplement thereto or in any preliminary
prospectus relating to the Shelf Registration in reliance upon and in conformity
with written information pertaining to such Holder and furnished to the Company
by or on behalf of such Holder specifically for inclusion therein and (ii) with
respect to any untrue statement or omission or alleged untrue statement or
omission made in any preliminary prospectus relating to the Shelf Registration
Statement, the indemnity agreement contained in this subsection (a) shall not
inure to the benefit of any Holder from whom the person asserting any such
losses, claims, damages or liabilities purchased the Securities concerned, to
the extent that a prospectus relating to such Securities was required to be
delivered by such Holder under the Securities Act in connection with such
purchase and any such loss, claim, damage or liability of such Holder results
from the fact that there was not sent or given to such person, at or prior to
the written confirmation of the sale of such Securities to such person, a copy
of the final prospectus if the Company had previously furnished copies thereof
to such Holder; provided further, however, that this indemnity agreement will be
in addition to any liability which the Company may otherwise have to such
Indemnified Party. The Company shall also indemnify underwriters, their officers
and directors and each person who controls such underwriters within the meaning
of the Securities Act or the Exchange Act to the same extent as


                                       9



provided above with respect to the indemnification of the Holders of the
Securities if requested by such Holders.

        (b) Each Holder, severally and not jointly, will indemnify and hold
harmless the Company, its officers and directors and each person, if any, who
controls the Company within the meaning of the Securities Act or the Exchange
Act from and against any losses, claims, damages or liabilities or any actions
in respect thereof, to which the Company or any such controlling person may
become subject under the Securities Act, the Exchange Act or otherwise, insofar
as such losses, claims, damages, liabilities or actions arise out of or are
based upon any untrue statement or alleged untrue statement of a material fact
contained in the Shelf Registration Statement or prospectus or in any amendment
or supplement thereto or in any preliminary prospectus relating to the Shelf
Registration, or arise out of or are based upon the omission or alleged omission
to state therein a material fact necessary to make the statements therein not
misleading, but in each case only to the extent that the untrue statement or
omission or alleged untrue statement or omission was made in reliance upon and
in conformity with written information pertaining to such Holder and furnished
to the Company by or on behalf of such Holder specifically for inclusion
therein; and, subject to the limitation set forth immediately preceding this
clause, shall reimburse, as incurred, the Company for any legal or other
expenses reasonably incurred by the Company or any such controlling person in
connection with investigating or defending any loss, claim, damage, liability or
action in respect thereof. This indemnity agreement will be in addition to any
liability which such Holder may otherwise have to the Company or any of its
controlling persons.

        (c) Promptly after receipt by an indemnified party under this Section 4
of notice of the commencement of any action or proceeding (including a
governmental investigation), such indemnified party will, if a claim in respect
thereof is to be made against the indemnifying party under this Section 4,
notify the indemnifying party of the commencement thereof; but the omission so
to notify the indemnifying party will not, in any event, relieve the
indemnifying party from any obligations to any indemnified party other than the
indemnification obligation provided in paragraph (a) or (b) above. In case any
such action is brought against any indemnified party, and it notifies the
indemnifying party of the commencement thereof, the indemnifying party will be
entitled to participate therein and, to the extent that it may wish, jointly
with any other indemnifying party similarly notified, to assume the defense
thereof, with counsel reasonably satisfactory to such indemnified party (who
shall not, except with the consent of the indemnified party, be counsel to the
indemnifying party), and after notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof the
indemnifying party will not be liable to such indemnified party under this
Section 4 for any legal or other expenses, other than reasonable costs of
investigation, subsequently incurred by such indemnified party in connection
with the defense thereof. No indemnifying party shall, without the prior written
consent of the indemnified party, effect any settlement of any pending or
threatened action in respect of which any indemnified party is or could


                                       10


have been a party and indemnity could have been sought hereunder by such
indemnified party unless such settlement (i) includes an unconditional release
of such indemnified party from all liability on any claims that are the subject
matter of such action, and (ii) does not include a statement as to or an
admission of fault, culpability or a failure to act by or on behalf of any
indemnified party.

        (d) If the indemnification provided for in this Section 4 is unavailable
or insufficient to hold harmless an indemnified party under subsections (a) or
(b) above, then each indemnifying party shall contribute to the amount paid or
payable by such indemnified party as a result of the losses, claims, damages or
liabilities (or actions in respect thereof) referred to in subsection (a) or (b)
above in such proportion as is appropriate to reflect the relative fault of the
indemnifying party or parties on the one hand and the indemnified party on the
other in connection with the statements or omissions that resulted in such
losses, claims, damages or liabilities (or actions in respect thereof) as well
as any other relevant equitable considerations. The relative fault of the
parties shall be determined by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact or the omission or alleged
omission to state a material fact relates to information supplied by the Company
on the one hand or such Holder or such other indemnified party, as the case may
be, on the other, and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
The amount paid by an indemnified party as a result of the losses, claims,
damages or liabilities referred to in the first sentence of this subsection (d)
shall be deemed to include any legal or other expenses reasonably incurred by
such indemnified party in connection with investigating or defending any action
or claim which is the subject of this subsection (d). Notwithstanding any other
provision of this Section 4(d), the Holders shall not be required to contribute
any amount in excess of the amount by which the net proceeds received by such
Holders from the sale of the Securities pursuant to the Shelf Registration
Statement exceeds the amount of damages which such Holders have otherwise been
required to pay by reason of such untrue or alleged untrue statement or omission
or alleged omission. No person guilty of fraudulent misrepresentation (within
the meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. For purposes of this paragraph (d), each person, if any, who
controls such indemnified party within the meaning of the Securities Act or the
Exchange Act shall have the same rights to contribution as such indemnified
party and each person, if any, who controls the Company within the meaning of
the Securities Act or the Exchange Act shall have the same rights to
contribution as the Company.

        (e) The agreements contained in this Section 4 shall survive the sale of
the Securities pursuant to the Shelf Registration Statement and shall remain in
full force and effect, regardless of any termination or cancellation of this
Agreement or any investigation made by or on behalf of any indemnified party.

        5. Additional Interest Under Certain Circumstances. (a) Additional
interest (the "ADDITIONAL INTEREST") with respect to the Initial Securities
shall be assessed as follows if


                                       11


any of the following events occur (each such event in clauses (i) through (iii)
below being herein called a "REGISTRATION DEFAULT"):

               (i) the Shelf Registration Statement has not been filed with the
        Commission by the 90th day after the Issue Date;

               (ii) the Shelf Registration Statement has not been declared
        effective by the Commission by the 180th day after the Issue Date; or

               (iii) the Shelf Registration Statement is declared effective by
        the Commission but (A) the Shelf Registration Statement thereafter
        ceases to be effective or, (B) the Shelf Registration Statement or the
        Prospectus ceases to be useable in connection with resales of Transfer
        Restricted Securities (as defined below) during the periods specified
        herein because (1) any event occurs as a result of which the Prospectus
        forming part of such Shelf Registration Statement would include any
        untrue statement of a material fact or omit to state any material fact
        necessary to make the statements therein in the light of the
        circumstances under which they were made not misleading, or (2) it shall
        be necessary to amend such Shelf Registration Statement or supplement
        the related prospectus, to comply with the Securities Act or the
        Exchange Act or the respective rules thereunder.

Each of the foregoing will constitute a Registration Default whatever the reason
for any such event and whether it is voluntary or involuntary or is beyond the
control of the Company or pursuant to operation of law or as a result of any
action or inaction by the Commission .

        Additional Interest shall accrue on the Initial Securities over and
above the interest set forth in the title of the Initial Securities from and
including the date on which any such Registration Default shall occur to but
excluding the date on which all such Registration Defaults have been cured, at a
rate of 0.50% per annum (the "ADDITIONAL INTEREST RATE").

        (b) A Registration Default referred to in Section 5(a)(iii) hereof shall
be deemed not to have occurred and be continuing in relation to the Shelf
Registration Statement or the related Prospectus if the Company is proceeding
promptly and in good faith to amend or supplement the Shelf Registration
Statement and related prospectus so as to describe such events as required by
paragraph 2(h) hereof or so as to otherwise cure the Registration Default
referred to in Section 5(a)(iii); provided, however, that in any case if such
Registration Default occurs (i) for a period in excess of 45 days in any 90 day
period or (ii) for an aggregate of 90 days in any 12 month period, Additional
Interest shall be payable in accordance with the above paragraph from the day
such Registration Default occurs until such Registration Default is cured.

        (c) In the event, after the effective date of the Shelf Registration
Statement, a Holder notifies the Company that it desires to be included as a
Selling Stockholder in the


                                       12


Shelf Registration Statement pursuant to Section 1(a) hereof, and in the process
of amending or supplementing the Shelf Registration Statement and the related
prospectus to include such Holder as a Selling Stockholder, the Securities and
Exchange Commission (the "SEC") notifies the Company in writing (the "Notice")
that the Company is prohibited from including such Holder as a Selling
Stockholder in the Shelf Registration Statement and that the Company must file a
new registration statement with the SEC and recommence the registration process
(the "New Registration Statement") in order to register such Holder's
Securities, the Company will not be deemed to be in Registration Default
pursuant to Section 5(a)(iii) hereof from the date the Company receives the
Notice until the date the New Registration Statement is declared effective by
the SEC; provided, however, that in the event the Company does receive such
Notice, the Company will proceed promptly and in good faith to cause such New
Registration Statement to be declared effective.

        (d) Any amounts of Additional Interest due pursuant to Section 5(a) will
be payable in cash on the regular interest payment dates with respect to the
Initial Securities (as set forth in the Indenture). The amount of Additional
Interest will be determined by multiplying the applicable Additional Interest
Rate by the principal amount of the Initial Securities, further multiplied by a
fraction, the numerator of which is the number of days such Additional Interest
Rate was applicable during such period (determined on the basis of a 360-day
year comprised of twelve 30-day months), and the denominator of which is 360.

        (e) All obligations of the Company set forth in this Section 5 that are
outstanding with respect to any Transfer Restricted Security at the time such
security ceases to be a Transfer Restricted Security shall survive until such
time as all such obligations with respect to such security shall have been
satisfied in full.

        (f) "TRANSFER RESTRICTED SECURITIES" means each Security until (i) the
date on which such Security has been effectively registered under the Securities
Act and disposed of in accordance with the Shelf Registration Statement or (iv)
the date on which such Security is distributed to the public pursuant to Rule
144 under the Securities Act or is saleable pursuant to Rule 144(k) under the
Securities Act.

        6. Rules 144 and 144A. The Company shall use its best reasonable efforts
to file the reports required to be filed by it under the Securities Act and the
Exchange Act in a timely manner and, if at any time the Company is not required
to file such reports, it will, upon the request of any Holder, make publicly
available other information so long as necessary to permit sales of their
Securities pursuant to Rules 144 and 144A. The Company covenants that it will
take such further action as any Holder may reasonably request, all to the extent
required from time to time to enable such Holder to sell Transfer Restricted
Securities without registration under the Securities Act within the limitation
of the exemptions provided by Rules 144 and 144A (including the requirements of
Rule 144A(d)(4)). The Company will provide a copy of this Agreement to
prospective purchasers of Securities identified to the Company by the Initial
Purchasers upon request.


                                       13


Upon the request of any Holder, the Company shall deliver to such Holder a
written statement as to whether it has complied with such requirements.
Notwithstanding the foregoing, nothing in this Section 6 shall be deemed to
require the Company to register any of its securities pursuant to the Exchange
Act.

        7. Underwritten Registrations. If any of the Transfer Restricted
Securities covered by the Shelf Registration are to be sold in an underwritten
offering, the investment banker or investment bankers and manager or managers
that will administer the offering ("MANAGING UNDERWRITERS") will be selected by
the holders of a majority in aggregate principal amount of such Transfer
Restricted Securities to be included in such offering (provided that holders of
Common Stock issued upon conversion of the Initial Securities shall not be
deemed holders of Common Stock, but shall be deemed to be holders of the
aggregate principal amount of Initial Securities from which such Common Stock
was converted; provided, however, that such Managing Underwriters will be
reasonably acceptable to the Company.

        No person may participate in any underwritten registration hereunder
unless such person (i) agrees to sell such person's Transfer Restricted
Securities on the basis reasonably provided in any underwriting arrangements
approved by the persons entitled hereunder to approve such arrangements and (ii)
completes and executes all questionnaires, powers of attorney, indemnities,
underwriting agreements and other documents reasonably required under the terms
of such underwriting arrangements.

        8. Miscellaneous.

        (a) Remedies. The Company acknowledges and agrees that any failure by
the Company to comply with its obligations under Section 1 hereof may result in
material irreparable injury to the Initial Purchasers or the Holders for which
there is no adequate remedy at law, that it will not be possible to measure
damages for such injuries precisely and that, in the event of any such failure,
the Initial Purchasers or any Holder may obtain such relief as may be required
to specifically enforce the Company's obligations under Sections 1 hereof. The
Company further agrees to waive the defense in any action for specific
performance that a remedy at law would be adequate.

        (b) No Inconsistent Agreements. The Company will not on or after the
date of this Agreement enter into any agreement with respect to its securities
that is inconsistent with the rights granted to the Holders in this Agreement or
otherwise conflicts with the provisions hereof. The rights granted to the
Holders hereunder do not in any way conflict with and are not inconsistent with
the rights granted to the holders of the Company's securities under any
agreement in effect on the date hereof.

        (c) Amendments and Waivers. The provisions of this Agreement may not be
amended, modified or supplemented, and waivers or consents to departures from
the provisions hereof may not be given, except by the Company and the written
consent of the holders of a majority in principal amount of the Transfer
Restricted Securities affected


                                       14


by such amendment, modification, supplement, waiver or consents (provided that
holders of Common Stock issued upon conversion of Initial Securities shall not
be deemed holders of Common Stock, but shall be deemed holders of the aggregate
principal amount of Initial Securities from which such Common Stock was
converted). Without the consent of the Holder of each Initial Security, however,
no modification may change the provisions relating to the payment of Additional
Interest.

        (d) Notices. All notices and other communications provided for or
permitted hereunder shall be made in writing by hand delivery, first-class mail,
facsimile transmission, or air courier which guarantees overnight delivery:

               (1) if to a Holder of the Securities, at the most current address
        given by such Holder to the Company.

               (2) if to the Initial Purchasers;

                      Credit Suisse First Boston Corporation
                      Eleven Madison Avenue
                      New York, NY 10010-3629
                      Fax No.: (212) 325-8278
                      Attention: Transactions Advisory Group

        with a copy to:

                      Morrison & Foerster LLP
                      755 Page Mill Road
                      Palo Alto, California 94304-1018
                      Fax No.: (650) 494-0792
                      Attention: Justin L. Bastian, Esq.

               (3) if to the Company, at its address as follows:

                      Emulex Corporation
                      3535 Harbor Boulevard
                      Costa Mesa, California 92626
                      Fax No.: (714) 641-0172
                      Attention: Chief Financial Officer

        with a copy to:

                      Jeffer, Mangels, Butler & Marmaro LLP
                      2121 Avenue of the Stars,
                      10th Floor Los Angeles, California 90067


                                       15


                      Fax No: (310) 203-0567
                      Attention: Robert M. Steinberg, Esq.

        All such notices and communications shall be deemed to have been duly
given: at the time delivered by hand, if personally delivered; three business
days after being deposited in the mail, postage prepaid, if mailed; when receipt
is acknowledged by recipient's facsimile machine operator, if sent by facsimile
transmission; and on the day delivered, if sent by overnight air courier
guaranteeing next day delivery.

        (e) Third Party Beneficiaries. The Holders shall be third party
beneficiaries to the agreements made hereunder between the Company, on the one
hand, and the Initial Purchasers, on the other hand, and shall have the right to
enforce such agreements directly to the extent they may deem such enforcement
necessary or advisable to protect their rights or the rights of Holders
hereunder.

        (f) Successors and Assigns. This Agreement shall inure to the benefit of
and be binding upon the successors and assigns of each of the parties, including
without limitation and without the need for an express assignment, subsequent
Holders of Transfer Restricted Securities.

        (g) Counterparts. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.

        (h) Headings. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.

        (i) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO PRINCIPLES
OF CONFLICTS OF LAWS.

        By the execution and delivery of this Agreement, the Company submits to
the nonexclusive jurisdiction of any federal or state court in the State of New
York.

        (j) Severability. If any one or more of the provisions contained herein,
or the application thereof in any circumstance, is held invalid, illegal or
unenforceable, the validity, legality and enforceability of any such provision
in every other respect and of the remaining provisions contained herein shall
not be affected or impaired thereby.

        (k) Securities Held by the Company. Whenever the consent or approval of
Holders of a specified percentage of principal amount of Securities is required
hereunder, Securities held by the Company or its affiliates (other than
subsequent Holders of Securities if such subsequent Holders are deemed to be
affiliates solely by reason of their


                                       16


holdings of such Securities) shall not be counted in determining whether such
consent or approval was given by the Holders of such required percentage.










                            [Signature page follows]



                                       17


        If the foregoing is in accordance with your understanding of our
agreement, please sign and return to the Company a counterpart hereof, whereupon
this instrument, along with all counterparts, will become a binding agreement
among the several Initial Purchasers and the Company in accordance with its
terms.

                                        Very truly yours,

                                        EMULEX CORPORATION


                                        By: _________________________________


The foregoing Registration
Rights Agreement is hereby confirmed
and accepted as of the date first
above written.

CREDIT SUISSE FIRST BOSTON CORPORATION
THOMAS WEISEL PARTNERS LLC

By: CREDIT SUISSE FIRST BOSTON CORPORATION


By: ______________________________________
      John Metz, Director




                                       18

EX-5.1

                                                                     Exhibit 5.1
                                 April 26, 2002

Emulex Corporation
3535 Harbor Boulevard
Costa Mesa, California 92626

        Re: Emulex Corporation Registration Statement on Form S-3


Ladies & Gentlemen:

        At your request, we have examined the Registration Statement on Form S-3
(the "Registration Statement") to be filed by you with the Securities and
Exchange Commission (the "Commission") in connection with the registration under
the Securities Act of 1933, as amended (the "Act"). By means of the Registration
Statement, the Company is registering the resale by certain selling
securityholders specified in the Registration Statement and the prospectus
associated therewith, from time to time, of (i) $345,000,000 aggregate principal
amount of the Company's 1.75% Convertible Subordinated Notes due February 1,
2007 (the "Notes"), (ii) an aggregate of 6,408,030 shares of the Company's
common stock, $0.10 par value (the "Stock") issuable upon conversion of the
Notes, and (iii) related preferred stock purchase rights (the "Rights") issuable
pursuant to the Company's stockholder Rights Agreement, dated January 19, 1989,
as amended (the "Rights Agreement"). The Notes were issued pursuant to the
indenture dated as of January 29, 2002 (the "Indenture") between the Company and
State Street Bank and Trust Company of California , N.A.

        We have acted as counsel to the Company in connection with the
preparation and filing of the Registration Statement. For purposes of our
opinion, we have examined and relied upon signed copies of the Registration
Statement filed with the Commission as of the date hereof and such other
documents, records, certificates and other instruments as we have deemed
necessary. We have assumed (i) the genuineness of all signatures on all
documents reviewed by us; (ii) the authenticity of all documents submitted to us
as originals and the conformity to authentic original documents of all documents
submitted to us as certified, conformed or photostatic copies thereof; (iii)
that all signatories on the documents reviewed by us have adequate power and
authority and have taken all necessary actions to execute, deliver and perform
such parties' obligations under such documents and have executed and delivered
such documents; (iv) each person signing a document reviewed by us is a
competent adult person not operating under any legal disability, duress or
having been defrauded in the execution of documents, (v) all documents reviewed
by us (other than the Notes and the Indenture with respect to the Company)
constitute legal, valid and binding obligations of the parties thereto, and (vi)
the parties have received the consideration to be delivered to them pursuant to
the terms of the Notes and Indenture.


        We have assumed that a court of the State of California would apply the
laws of the State of California to the Notes and the Indenture notwithstanding
the stated choice of New York law, or that the laws of the State of New York are
substantially identical to the laws of the State of California with respect to
all matters that are the subject of our opinions.



        In rendering this opinion, we have assumed that there are no
understandings, documents or agreements that would expand or otherwise modify
the obligations of the parties contrary to that expressed in the Notes and the
Indenture.

        As to facts which are relevant to the legal conclusions expressed
herein, we have assumed that the representations and warranties in the Notes and
the Indenture are true and correct in all material respects.

        It is our opinion that:

        1. The Notes have been duly authorized and validly issued and constitute
valid and binding obligations of the Company in accordance with their terms.

        2. The Stock, when issued, sold and delivered upon conversion of the
Notes in accordance with the terms thereof, in the manner and for the
consideration referred to in the Registration Statement, will be validly issued,
fully paid and non-assessable.

        3. Assuming that the Board of Directors of the Company, after fully
informing itself with respect to the Rights Agreement and the Rights and after
giving due consideration to all relevant matters, determined that the execution
and delivery of the Rights Agreement and the issuance of the Rights thereunder
would be in the best interests of the Company and its stockholders, and assuming
further that the Rights Agreement has been duly authorized, executed and
delivered by the Rights Agent, and the provisions of the Rights Agreement have
been complied with in connection with the issuance of the Stock, then (i) the
Rights attributable to the Stock, other than the Option Stock, are legally
issued, and (ii) the Rights attributable to the Option Stock will be legally
issued.

        In connection with the opinion set forth in paragraph 3 above, we note
that the question whether the Board of Directors of the Company might be
required to redeem the Rights at some future time will depend upon the facts and
circumstances existing at that time and, accordingly, is beyond the scope of
such opinion.

        The opinions set forth above are subject to, and limited by, the
following qualifications, exceptions and reservations:

        a. The effect of bankruptcy, insolvency, reorganization and similar laws
or equitable principles relating to or limiting creditors' rights generally and
moratorium laws from time to time in effect.

        b. The limitations imposed by equitable principles of federal law,
California law or the laws of any other state upon the specific enforceability
of any of the remedies, covenants, or other provisions of the Notes and
Indenture and upon the availability of injunctive relief or other equitable
remedies.

        c. The unenforceability under certain circumstances of provisions (i)
expressly or by implication waiving broadly or vaguely stated rights, unknown
future



rights, defenses to obligations or rights created by law, (ii) imposing
penalties or forfeitures, (iii) indemnifying a party against liability for its
own negligent or wrongful acts, (iv) allowing the exercise of summary remedies
without requiring notice or opportunity for hearing or correction, or (v)
providing that rights or remedies are not exclusive, that every right or remedy
is cumulative and may be exercised in addition to or with any other right or
remedy, that election of a particular remedy or remedies does not preclude
recourse to one or more other remedies or that failure to exercise or delay in
exercising rights or remedies will not operate as a waiver of any such right or
remedy.

        d. The rights to indemnity under the Notes and Indenture may be limited
by federal or state securities laws, other applicable laws or the public policy
underlying such laws.

        e. The discretion of any court of competent jurisdiction in awarding
equitable remedies, including without limitation, specific performance or
injunctive relief.

        g. The effect of California or other law providing that, where a
contract permits one party to the contract to recover attorneys' fees, the
prevailing party in any action to enforce any provision of the contract shall be
entitled to recover its reasonable attorneys' fees.

        We are licensed to practice law only in the State of California. The
foregoing opinion applies only with respect to the effect of federal law and the
laws of the State of California and the General Corporation Law of the State of
Delaware on the subject transaction, and we express no opinion with respect to
the laws of any other jurisdiction.

        This opinion is stated as of the date hereof, and we assume no
responsibility to update this opinion of changes which may hereafter be brought
to our attention. We hereby consent to the use of this opinion as an exhibit to
the Registration Statement, and we further consent to the use of our name under
the caption "Legal Matters" in the Registration Statement and in the Prospectus
which is a part thereof.

                      Respectfully submitted,

                      JEFFER, MANGELS, BUTLER & MARMARO LLP

EX-10.16

                                                                   Exhibit 10.16

                               BUILD TO SUIT LEASE

                                 BY AND BETWEEN

            C.J. SEGERSTROM & SONS, A CALIFORNIA GENERAL PARTNERSHIP,

                                   AS LANDLORD

                                       AND

                  EMULEX CORPORATION, A CALIFORNIA CORPORATION,

                                    AS TENANT






                               BUILD TO SUIT LEASE

                                 BY AND BETWEEN

            C.J. SEGERSTROM & SONS, A CALIFORNIA GENERAL PARTNERSHIP,

                                   AS LANDLORD

                                       AND

                  EMULEX CORPORATION, A CALIFORNIA CORPORATION

                                    AS TENANT

                              DATED: APRIL 15, 2002

                                      INDEX



                                                                                            Page
                                                                                            ----
                                                                                      
ARTICLE I. PREMISES..........................................................................1

                  Section 1.1 Premises Defined...............................................1
                  Section 1.2 Easements; Reservation of Oil, Gas, Mineral and Water
                                 Rights......................................................2
                  Section 1.3 Title Matters..................................................2
                  Section 1.4 Tenant's Expansion Option; Expansion Land Use and
                                 Related Covenants...........................................3
                  Section 1.5 Tenant's First Refusal Right to Lease..........................7
                  Section 1.6 Representations and Warranties of the Parties..................9

ARTICLE II. TERM ...........................................................................10

                  Section 2.1 Length of Term................................................10
                  Section 2.2 Lease Commencement Date and Rent Commencement Date............10
                  Section 2.3 Options to Extend Term........................................11

ARTICLE III. RENT ..........................................................................15

                  Section 3.1 Base Rent.....................................................15
                  Section 3.2 Determinations of Base Rent...................................17
                  Section 3.3 Increases in Monthly Base Rent................................19
                  Section 3.4 Expansion Land Rent...........................................20
                  Section 3.5 Rent Defined..................................................21

ARTICLE IV. TAXES ..........................................................................21

                  Section 4.1 Real Property Taxes...........................................21
                  Section 4.2 Definitions...................................................22
                  Section 4.3 Separate Tax Parcel...........................................22
                  Section 4.4 Other Taxes...................................................23
                  Section 4.5 Right to Contest..............................................23

ARTICLE V. CONDUCT OF BUSINESS BY TENANT....................................................24

                  Section 5.1 Use of Premises...............................................24
                  Section 5.2 Restrictions on Use...........................................25
                  Section 5.3 Contest of Requirements.......................................25
                  Section 5.4 Exterior Signs and Sign Monument(s)...........................25
                  Section 5.5 Other Tenant Facilities.......................................26

ARTICLE VI. MAINTENANCE, REPAIRS AND ALTERATIONS............................................27

                  Section 6.1 Landlord's Obligations........................................27
                  Section 6.2 Tenant's Obligations..........................................28


                                       i



                                                                                      
                  Section 6.3 Additions to Premises; Modifications to Obligations of
                                 the Parties................................................29
                  Section 6.4 Alterations and Additions.....................................30
                  Section 6.5 Removal of Tenant's Property..................................32

ARTICLE VII. INSURANCE; INDEMNITY...........................................................32

                  Section 7.1 Liability Insurance...........................................32
                  Section 7.2 Fire and Earthquake Insurance - Fixtures, Equipment and
                                 Tenant Improvements........................................33
                  Section 7.3 Insurance Policies............................................34
                  Section 7.4 Waiver of Subrogation.........................................34
                  Section 7.5 Indemnity.....................................................34
                  Section 7.6 Exemption of Landlord.........................................35
                  Section 7.7 Notices.......................................................35

ARTICLE VIII. DAMAGE OR DESTRUCTION.........................................................35

                  Section 8.1 Damage........................................................35
                  Section 8.2 Termination Rights............................................36
                  Section 8.3 Abatement of Rent.............................................37

ARTICLE IX. ASSIGNMENT AND SUBLETTING.......................................................38

                  Section 9.1 Landlord's Rights.............................................38
                  Section 9.2 No Release of Tenant..........................................42
                  Section 9.3 Hypothecation.................................................42

ARTICLE X. CONDEMNATION.....................................................................45

                  Section 10.1 Condemnation.................................................45

ARTICLE XI. UTILITY SERVICES................................................................47

                  Section 11.1 Utility Charges..............................................47
                  Section 11.2 Interruption of Service......................................47
                  Section 11.3 Other Tenants................................................47
                  Section 11.4 Availability of Utility Services.............................48

ARTICLE XII. DEFAULTS AND REMEDIES..........................................................48

                  Section 12.1 Defaults.....................................................48
                  Section 12.2 Remedies.....................................................49
                  Section 12.3 Determination of Rent........................................49
                  Section 12.4 Default by Landlord..........................................49
                  Section 12.5 Expense of Litigation........................................50
                  Section 12.6 Holding Over.................................................50
                  Section 12.7 Landlord's Rights............................................50
                  Section 12.8 Payments and Notices.........................................51
                  Section 12.9 Third Party Litigation.......................................51
                  Section 12.10 Submission to Arbitration...................................51

ARTICLE XIII. MISCELLANEOUS.................................................................54

                  Section 13.1 Offset Statement.............................................54
                  Section 13.2 Landlord's Right of Access...................................54
                  Section 13.3 Transfer of Landlord's Interest..............................55
                  Section 13.4 Separability.................................................55
                  Section 13.5 Interest on Past Due Obligations.............................55
                  Section 13.6 Time of Essence..............................................56
                  Section 13.7 Hazardous Substances.........................................56
                  Section 13.8 Headings.....................................................58
                  Section 13.9 Incorporation of Prior Agreements; Amendments................59
                  Section 13.10 Notices.....................................................59
                  Section 13.11 Brokers.....................................................60
                  Section 13.12 Waivers.....................................................60
                  Section 13.13 Recording...................................................60



                                       ii



                                                                                      
                  Section 13.14 Liens.......................................................61
                  Section 13.15 Subordination...............................................61
                  Section 13.16 Force Majeure...............................................62
                  Section 13.17 Yield Up Premises; Quitclaim................................63
                  Section 13.18 Authority...................................................63
                  Section 13.19 Survival of Indemnities.....................................63
                  Section 13.20 Surrender or Cancellation...................................63
                  Section 13.21 Non-Disclosure of Lease Terms...............................64
                  Section 13.22 Security Deposit............................................64
                  Section 13.23 Gender; Tenants.............................................64
                  Section 13.24 No Option...................................................64
                  Section 13.25 Landlord Liability..........................................64
                  Section 13.26 Termination.................................................65
                  Section 13.27 Accord and Satisfaction.....................................66
                  Section 13.28 Quiet Possession............................................66
                  Section 13.29 Counterparts................................................66
                  Section 13.30 Parking for Premises........................................66
                  Section 13.31 Building Security...........................................67
                  Section 13.32 Communications Equipment....................................68
                  Section 13.33 Publicity...................................................69

ARTICLE XIV. IMPROVEMENT OF THE PREMISES....................................................69

                  Section 14.1 Landlord's Work..............................................69
                  Section 14.2 Standards for Performance of Landlord's Work.................71
                  Section 14.3 Payment for Landlord's Work..................................75
                  Section 14.4 Time for Completion..........................................80
                  Section 14.5 Warranties and Guaranties....................................81
                  Section 14.6 Tenant's Work................................................81
                  Section 14.7 Coordination, Cooperation and Change Orders..................82
                  Section 14.8 Expansion Building...........................................83
                  Section 14.9 Remediation During Construction..............................83

ARTICLE XV. TENANT'S PURCHASE RIGHTS........................................................84

                  Section 15.1 Tenant's Option to Purchase..................................84
                  Section 15.2 First Offer to Purchase......................................86

ARTICLE XVI. CONDITIONS TO EFFECTIVENESS....................................................87

                  Section 16.1 Conditions to Continued Effectiveness of Lease...............87

ARTICLE XVII. OTHER MATTERS.................................................................89

                  Section 17.1 Subdivision of Land..........................................89
                  Section 17.2 Common Areas.................................................89
                  Section 17.3 Reciprocal Easement Agreement................................90
                  Section 17.4 Relocation Costs.............................................91
                  Section 17.5 Trip Ends....................................................91
                  Section 17.6 Traffic Impact Fees..........................................91



EXHIBIT A - Plot Plan of Land
EXHIBIT B - Legal Description of Land
EXHIBIT C - Form of Short Form Memorandum of Lease
EXHIBIT D - Form of Mutual Cancellation of Lease
EXHIBIT E - Schedule of Landlord Improvements
EXHIBIT F - Form of Purchase and Sale Agreement
EXHIBIT G - Permitted Exceptions
EXHIBIT H - Allocation of Development Agreement Items
EXHIBIT I - Rules and Regulations
EXHIBIT J - Form of Subordination, Non-Disturbance and Attornment Agreement
EXHIBIT K - Form of Tenant's Deed of Trust
EXHIBIT L - Development Budget
EXHIBIT M - Purchase and Sale Agreement Modifications

                                      iii



                               BUILD TO SUIT LEASE

            In consideration of the rents and covenants hereinafter set forth,
C.J. SEGERSTROM & SONS, a California general partnership ("Landlord"), hereby
leases to EMULEX CORPORATION, a California corporation ("Tenant"), and Tenant
hereby rents from Landlord, the following described premises (the "Premises"),
upon the following terms and conditions:

                                   ARTICLE I.
                                    PREMISES

Section 1.1 Premises Defined

            The Premises consist of the following:

            (a) That portion of that certain real property located in the City
of Costa Mesa, State of California, bounded by Sunflower Avenue on the north,
Susan Street on the east and South Coast Drive on the south, consisting of an
area of approximately 14.158 acres, more or less, together with all easements,
rights and other appurtenances thereto (collectively, the "Land") included in
the Initial Premises, as defined in subsection (b) below. The Land is more
particularly depicted on Exhibit "A" attached hereto and is legally described on
Exhibit "B" attached hereto, each of which Exhibits is incorporated herein by
this reference.

            (b) All improvements now or hereafter located in, on and under the
Land constructed by Landlord pursuant to Article XIV (collectively, the
"Landlord Improvements"). The Landlord Improvements shall consist of a
multi-building, two story concrete tilt-up (unless otherwise mutually approved)
campus (collectively, the "Buildings") containing approximately 180,000 square
feet of Floor Area, as defined in Section 3.2 below, together with all
landscaping, lighting, parking, and other improvements constructed by Landlord
pursuant to Article XIV below as a part of the "Initial Premises." As used
herein, the term "Landlord Improvements" shall not include any tenant
improvements constructed by Tenant pursuant to Article XIV, any alterations made
or constructed by Tenant pursuant to Article VI, or any furniture, fixtures,
trade fixtures, equipment and/or miscellaneous personal property of Tenant.

            All references herein to the Premises shall, unless the context
clearly indicates to the contrary, mean and include the Land and the Landlord
Improvements. All references herein to the "Initial Premises" shall mean the
Landlord Improvements initially constructed by Landlord pursuant to Article XIV
prior to the Rent Commencement Date, other than the improvements to the
Expansion Land, as defined in this subsection (b), plus so much of the Land as
is required to:

                (i) Accommodate the initial Buildings with a floor area ratio
("FAR") of approximately 0.40; and

                (ii) Provide surface parking for the initial Buildings with a
parking ratio of four (4) stalls per 1,000 square feet of Floor Area.

Landlord and Tenant contemplate that the portion of the Land so allocated to the
Initial Premises (the "Initial Premises Land") will be approximately 10.33 acres
and the parties shall use their best efforts to configure the Land allocated to
the Initial Premises in order to stay as close to an 0.40 FAR as possible. The
square footage of each of the Initial Premises Land and the Expansion Land, as
defined below, shall be determined as provided in Section 3.2 below. That
portion of the Land other than the Initial Premises Land is herein referred to
as the "Expansion Land." The Expansion Land and the Expansion Building, as
defined in Section 1.4, are herein referred to as the "Expansion Premises."
Subject to the provision of Article XIV, Landlord and Tenant contemplate that
the Initial Premises will be located on the northerly portion of the Land
adjacent to Sunflower Avenue, while the Expansion Land will be the southerly
portion of the Land adjacent to South Coast Drive.

            (c) If Tenant ceases to be the sole tenant of the Initial Premises
and/or is not or ceases to be the sole tenant of the Expansion Premises, as
applicable, then from and after such


                                       1


occurrence all references herein to the Premises shall also mean, unless the
context clearly indicates to the contrary, and include the rights of Tenant and
its employees, invitees, agents and guests to the non-exclusive use of the
public common areas on the Expansion Land and/or the Initial Premises Land, as
applicable, and in any Buildings thereon in which Tenant occupies less than all
of the Floor Area thereof.

Section 1.2 Easements; Reservation of Oil, Gas, Mineral and Water Rights

            Landlord reserves all oil, gas, hydrocarbons, mineral and water
rights in the Premises but without right of entry on the surface or within 200
feet thereof. Provided further, that no such items shall be extracted in such
manner as may cause or contribute to a lessening of the support of the Land and
the Improvements.

Section 1.3 Title Matters

            (a) Tenant's rights under this Lease are subject to the covenants,
conditions, easements, reservations, rights, rights of way and other matters
disclosed on Exhibit "G" attached hereto (the "Permitted Exceptions"). The
Permitted Exceptions also include the reservations in Section 1.2.

            (b) In recognition of Tenant's purchase rights pursuant to Article
XV, except in connection with the Permanent Financing (as defined in Section
3.1) (i.e., issuance and recordation of a deed of trust, assignment of rents and
leases, etc.), in connection with Tenant's financing provided for in Section
14.3 and in connection with the Permitted Development Easements (as defined in
subsection (c) below), Landlord covenants not to cause the creation of any
liens, easements or other encumbrances on or affecting the Initial Premises
Land, other than the Permitted Exceptions (any such unpermitted lien, easement
or other encumbrance, an "Unpermitted Exception" herein), without in each case
the prior written approval of Tenant, which Tenant may withhold or condition in
its reasonable discretion. Without limiting any other remedy of Tenant for
Landlord's breach of the foregoing covenant, the provisions of Section 13.14
shall apply to any Unpermitted Exceptions.

            (c) Landlord and Tenant recognize that, in connection with obtaining
the Home Ranch Master Entitlements (as defined in Section 14.3) and developing
the Initial Premises for Tenant pursuant to Article XIV, Landlord may be
required or may find it reasonably necessary to grant and record customary
public utility, drainage and other developmental easements for the benefit of
the Initial Premises and/or the Expansion Premises for the uses intended by the
parties pursuant to this Lease (the "Intended Use"). Such easements, to the
extent the creation or existence of same are reasonable and customary and do not
adversely affect the development, use or sale of the Initial Premises, the
Expansion Premises or any portion of either, shall be referred to herein as the
"Permitted Development Easements." No such easement shall be a Permitted
Development Easement if it runs under any Building to be constructed on the
Land. In addition, Landlord shall not grant any telecommunication easements,
licenses or other similar rights to install such facilities on the Land.

            (d) Notwithstanding anything to the contrary contained in this
Lease, the continued effectiveness of this Lease shall be subject to issuance by
Chicago Title Company (the "Title Company") of a standard CLTA leasehold and
option title insurance policy or binder in favor of Tenant, insuring Tenant's
interest in this Lease subject only to the Permitted Exceptions with a liability
amount approximating the Project Purchase Price, as defined in Section 15.1, or
such lesser amount as is determined by Tenant (the "Leasehold Policy"). Tenant
shall be solely responsible to obtain and pay for the Leasehold Policy, and the
condition set forth in this subsection (d) shall be deemed satisfied unless,
within five (5) business days after the last execution and delivery of this
Lease and the memorandum of lease provided for in Section 13.13, Tenant notifies
Landlord in writing that Tenant has been unable to obtain the Leasehold Policy.
If Tenant timely notifies Landlord that the condition set forth in this
subsection has not been satisfied, such notice shall constitute a notice of
termination of this Lease. In the event of a termination of this Lease pursuant
to this subsection, the provisions of clauses (i) and (ii) and the last sentence
of clause (iii) of Section 16.1(c) shall apply. If Tenant exercises the Purchase
Option pursuant to Section 15.1, or a right pursuant to Section 15.2, Tenant
shall receive the


                                       2


benefit of any credit or reduction in premium which Landlord receives on the
title policy which Landlord is to provide to Tenant as the result of issuance of
the Leasehold Policy. Such benefit shall be in the form of a credit against the
purchase price otherwise payable by Tenant.

Section 1.4 Tenant's Expansion Option; Expansion Land Use and Related Covenants

            (a) Provided that Tenant is not in Default (as defined in Section
12.1), Tenant shall have the option (the "Expansion Option") to add to the
Premises all Floor Area in an additional Building (the "Expansion Building") to
be constructed by Landlord on the Expansion Land pursuant to the terms of this
Lease. Tenant shall occupy and pay rent on the entire Expansion Building. The
Expansion Option shall be exercised, if at all, by written notice from Tenant to
Landlord given at any time after the Rent Commencement Date of this Lease for
the Initial Premises, as defined in Section 2.2, and prior to the second
anniversary of the Rent Commencement Date as to the Initial Premises (the
"Expansion Option Period"). If Tenant is not entitled to exercise the Expansion
Option, or if Tenant is entitled to exercise the Expansion Option but fails to
timely and properly exercise the Expansion Option, the Expansion Option shall
lapse and thereafter not be exercisable by Tenant and the provisions of
subsection (j) below shall apply. If Tenant is entitled to exercise, and timely
and properly exercises, the Expansion Option, then subsections (b) through (h)
below shall apply.

            Notwithstanding the provisions of the immediately preceding
paragraph, Tenant shall be entitled to exercise the Expansion Option only if, as
of the date of exercise, Tenant's financial condition is such that Landlord can
reasonably obtain construction financing, if applicable, and Permanent Financing
with respect to Landlord's Work with respect to the Expansion Premises in an
amount at least equal to the Development Costs, as defined in Section 14.3, with
respect to the Expansion Premises. In the event of a dispute between Landlord
and Tenant as to whether the condition set forth in the immediately preceding
sentence can be met, such dispute shall be resolved in the manner provided in
Section 12.10.

            (b) The Expansion Building to be constructed on the Expansion land
shall be a two story concrete, tilt-up (unless otherwise mutually approved)
Building with a Floor Area equal to:

                (i) The maximum Floor Area entitlement approved by the City of
Costa Mesa (the "City") for the Land; less

                (ii) The aggregate Floor Area of all Buildings in the Initial
Premises.

In no event shall the Floor Area of the Expansion Building cause the FAR for all
buildings constructed or to be constructed on the Land to exceed 0.40. Based
upon a FAR for the Land of 0.40 and an anticipated aggregate Floor Area of
180,000 square feet for the Buildings in the Initial Premises, the Floor Area of
the Expansion Building will be approximately 66,689 square feet.

            (c) Design and construction of the Expansion Building, including all
parking, lighting, landscaping and related exterior Landlord Improvements on the
Expansion Land, will be the responsibility of Landlord in the manner provided in
Article XIV, and design and construction of all tenant improvements to the
Expansion Building will be the responsibility of Tenant in the manner provided
in Article XIV. For the purposes of the design and construction provided for in
this subsection (c):

                (i) All references in Article XIV to the Initial Premises shall
mean the Expansion Premises together with all exterior Landlord Improvements to
the Expansion Land.

                (ii) All references in Article XIV to Tenant Improvements (as
defined in Section 14.6) shall mean Tenant Improvements to the Expansion
Building.

                (iii) Landlord shall commence construction of the Expansion
Building and related exterior Landlord Improvements promptly following receipt
of the last of (A) all governmental permits required to construct such Expansion
Building and related exterior Landlord Improvements, (B) all Tenant approvals
required with respect to the Expansion


                                       3


Building and related exterior Landlord Improvements and (C) a fully executed new
lease as required pursuant to subsection (g) below. Landlord shall deliver the
Expansion Building to Tenant upon Substantial Completion, as defined in Section
14.4, thereof.

                (iv) Tenant shall construct all Tenant Improvements to the
Expansion Building and shall commence the same promptly following Substantial
Completion of the Core and Shell Work (as defined in Section 14.1) for the
Expansion Building by Landlord.

                (v) The time frame for the construction of Landlord's
Improvements shall be similar to that set forth in the Schedule of Landlord's
Improvements provided for in Section 14.2, but using as a starting point the
exercise by Tenant of the Expansion Option.

            (d) The Commencement Date of the Lease as to the Expansion Premises
shall be the date upon which Landlord delivers to Tenant the Expansion Building
with Landlord's Core and Shell Work Substantially Complete. The Rent
Commencement Date of the Lease as to the Expansion Premises shall be the first
to occur of (i) the date upon which Tenant completes the Tenant Improvements to
the Expansion Building and commences to occupy the same and (ii) the 150th day
after the Commencement Date as to the Expansion Premises. Provided, however,
that the Rent Commencement Date as to the Expansion Premises shall not be deemed
to occur until Landlord substantially completes the Other Work, as defined in
Section 14.1, for the Expansion Land. Upon the Rent Commencement Date of the
Lease as to the Expansion Premises, the term "Premises" shall include the
Initial Premises and the Expansion Premises.

            (e) The term of the Lease as to the Expansion Premises shall be ten
(10) years from the Rent Commencement Date as to the Expansion Premises, subject
to any earlier termination of the Lease pursuant to any provision thereof. In
addition, upon the Rent Commencement Date as to the Expansion Premises, the term
of this Lease as to the Initial Premises shall be extended to be coterminus with
the term of the Lease as to the Expansion Premises. The term of this Lease, as
established and extended pursuant to this subsection, shall be subject to
further extension pursuant to Section 2.3.

            (f) The Base Rent for the Expansion Premises shall be determined in
the manner provided in Section 3.1 and shall be paid at the times and in the
manner provided in Section 3.1. Base Rent shall be subject to adjustment at the
times and in the manner provided in Sections 3.2 and 3.3. For the purposes of
application of this subsection (f):

                (i) All references to Development Costs shall mean the
Development Costs with respect to the Expansion Building and other Landlord
Improvements to the Expansion Land; and

                (ii) The annual debt service used in determining the Base Rent
with respect to the Expansion Premises shall be based upon the financing
obtained by Landlord with respect to the Expansion Premises. In no event shall
Landlord be required to refinance the Initial Premises to include the cost of
the Expansion Building and related Landlord Improvements.

                (iii) All references to the Commencement Date and the Rent
Commencement Date in Sections 3.1, 3.2 and 3.3 shall mean, as to the Initial
Premises, the Commencement Date and Rent Commencement Date with respect thereto,
and as to the Expansion Premises, the Commencement Date and Rent Commencement
Date with respect thereto. In other words, the determinations and adjustments
provided for in such Sections shall be made separately as to the Initial
Premises and the Expansion Premises.

            (g) Promptly following the exercise by Tenant of the Expansion
Option, Landlord shall prepare, and Landlord and Tenant shall execute and
deliver, a document setting forth and memorializing:

                (i) The exercise by Tenant of the Expansion Option;

                (ii) The approximate Floor Area of the Expansion Building and
the area of the Expansion Land;


                                       4


                (iii) A target schedule for design, permitting and construction
of the Expansion Building, the related exterior Landlord Improvements and the
Tenant Improvements to the Expansion Building; and

                (iv) Such other matters as shall be agreed upon by Landlord and
Tenant.

Unless Landlord shall finance the Initial Premises and the Expansion Premises
with a single financing, such document shall be a separate lease covering the
Expansion Premises. Such separate lease (the "Second Lease") shall be upon the
same terms and conditions as this Lease except that the Second Lease shall not
include those provisions which are specifically related to and limited to the
Initial Premises, such as this Section 1.4 and Section 1.3. Concurrently with
the execution of the Second Lease, Landlord and Tenant shall execute and
deliver, an amendment to this Lease eliminating the Expansion Premises from the
scope of this Lease. Landlord and Tenant agree that this Lease and the Second
Lease shall be construed and applied to function together and to give effect to
the provisions of this Lease as they apply to the Expansion Premises.

            Similarly, in the event of a Permitted Sale, as defined in
subsection (i), of only the Initial Premises, the parties shall cooperate to
bifurcate this Lease into two separate leases for, respectively, the Initial
Premises and the Expansion Land, with the intent that Tenant's rights and
obligations shall remain the same but shall run to separate landlords as to the
Initial Premises and the Expansion Land. In such respect, the following
documents shall be executed and delivered:

                    (A) An amendment to this Lease between Tenant and the
purchaser in the Permitted Sale eliminating from this Lease the Expansion Land
and all obligations of the landlord under this Lease with respect to the
Expansion Land and fixing the Trip Ends as to the Initial Premises.

                    (B) A Second Lease with respect to the Expansion Land
between Landlord and Tenant. Such Second Lease shall be upon the same terms and
provisions as this Lease except that:

                        (1) The Second Lease shall not include those provisions
which are specifically related to and limited to the Initial Premises, such as
Sections 1.3 and 15.1.

                        (2) Initially the sole rights of Tenant under the Second
Lease shall be those under this Section 1.4, Section 1.5 and Section 15.2
hereof, and Tenant's sole obligations under the Second Lease shall be those
under Section 3.4. If Tenant fails to exercise the Expansion Option, then
Tenant's sole rights under the Second Lease shall be those set forth under
Sections 1.5 and 15.2.

                        (3) Except for the right to terminate this Lease as to
the Expansion Building for unforeseen hazardous materials on the Expansion Land,
none of the termination rights set forth in Sections 1.3 and 16.1 shall be
included in the Second Lease.

                    (C) An amendment to the REA, if applicable, among Landlord,
Tenant and the purchaser in the Permitted Sale by which such purchaser assumes,
from and after the effective date of the Permitted Sale, those obligations of
Landlord under the REA relating to or resulting from Landlord's ownership of the
Initial Premises.

            (h) In consideration for the grant of the Expansion Option, Tenant
shall pay to Landlord the Expansion Land Rent, as such term is defined in
Section 3.4. below, in accordance with the terms of such Section. In
consideration for Tenant's payment of Expansion Land Rent, and without any
further fee or charge to Tenant other than as provided in this subsection,
Tenant shall have the right, during the period that Tenant pays Expansion Land
Rent, to use the Expansion Land from time to time for company functions (each
such function, herein, a "Permitted Function"). Provided, however, that each
such Permitted Function shall be specifically subject to and conditioned upon
each of the following:


                                       5



                (i) Prior execution and delivery by Tenant and Landlord of a
license agreement or encroachment permit with respect to such Permitted Function
and in commercially reasonable form and substance.

                (ii) Tenant shall erect no permanent structures on the Expansion
Land. Any temporary structures shall be removed promptly upon conclusion of the
Permitted Function.

                (iii) Tenant shall promptly, at Tenant's cost, repair any damage
to the Expansion Land caused by the Permitted Function. This includes filling
all holes, replanting grass as necessary and replacing other vegetation and
improvements which are trampled or damaged.

                (iv) Tenant's insurance pursuant to Sections 7.1 and 7.2 and
Tenant's indemnification pursuant to Section 7.5 shall specifically extend to
each Permitted Function, all injuries, damage or death occurring thereat and all
property placed by Tenant (or by others with the permission of Tenant) on the
Expansion Land in connection with a Permitted Function. Landlord shall have no
responsibility for and no liability in connection with any Permitted Function.

                (v) Tenant shall be solely responsible to obtain (and to furnish
to Landlord copies of) any liquor license and any other governmental permit or
license required in connection with a Permitted Function. Tenant's
indemnification pursuant to Section 7.5 shall specifically extend to any claims
arising out of Tenant's failure to obtain and/or maintain any required permit or
license with respect to a Permitted Function.

                (vi) Tenant shall conduct each Permitted Function in a manner
which minimizes damage to the Expansion Land, any improvements thereto and
vegetation thereon and which does not unreasonably bother the occupants of
adjacent lands.

                (vii) Tenant shall, during each Permitted Function, provide
appropriate receptacles for trash and refuse, shall promptly remove such
receptacles following each Permitted Function and shall pick up and dispose of
any garbage, litter or refuse resulting from each Permitted Function.

                (viii) During the period that Tenant pays Expansion Land Rent
with respect to the Expansion Land, Landlord shall not use the Expansion Land
for any purpose. In other words, the sole uses of the Expansion Land during such
period shall be (A) for a Green Area as provided in Section 14.1 and (B) for
Permitted Functions as provided for in this subsection (h).

            (i) As further consideration for Tenant's payment of the Expansion
Land Rent, Landlord covenants that:

                    (A) Pending development of the Expansion Land by Landlord,
Landlord shall not improve the Expansion Land other than as provided in Section
14.1(c).

                    (B) Any hypothecation of the Expansion Land or any interest
therein shall be subject to the rights of Tenant pursuant to this Section and
Sections 1.5, 15.1 and 15.2.

                    (C) Landlord shall maintain liability insurance with respect
to the Expansion Land comparable to that maintained by Tenant pursuant to
Section 7.1 with respect to the acts or omissions of Landlord and its agents,
employees and contractors.

                    (D) Landlord's indemnification pursuant to Section 7.5 shall
extend to acts or omissions of Landlord and its agents, employees and
contractors in or on the Expansion Land.

                    (E) To and until the earlier of exercise by Tenant of the
Expansion Option (and until the Rent Commencement Date as to the Expansion
Premises if Tenant exercises the Expansion Option) or expiration of the
Expansion Option without exercise


                                       6



by Tenant, Landlord shall not sell, transfer or encumber the Expansion Land. The
foregoing shall not, however, preclude transfer of the Expansion Land to a
parent, subsidiary or affiliate of Landlord which takes title to the Expansion
Land subject to all of the provisions of this Lease or encumbrance of the
Expansion Land with the Permanent Financing for the Initial Premises. Landlord
may, however, at any time after expiration of the Purchase Option Period, as
defined in Section 15.1, and subject to Section 15.2, sell the Initial Premises
to a Buyer which assumes in writing the obligations of Landlord as to the
Initial Premises accruing subsequent to the close of such sale (a "Permitted
Sale"). Upon a Permitted Sale, Landlord, Tenant and the purchaser shall execute
and deliver the documents provided for in subsection (g) above.

                    (F) From and after the last of (1) Tenant ceases to pay
Expansion Land Rent (or the cost reimbursement provided for in Section 14.1(c))
and (2) expiration of the Expansion Option without exercise by Tenant, Tenant
shall have no further rights to use the Expansion Land pursuant to subsection
(h) and Landlord may use the Expansion Land for any purpose not inconsistent
with Tenant's use of the Initial Premises.

Nothing contained in clauses (C) or (D) shall be deemed or construed to defeat
or lessen Tenant's obligations with respect to Permitted Functions or to render
Landlord responsible for any acts or omissions of Tenant, its agents, employees,
contractors or invitees on the Expansion Land.

            (j) The lapse of the Expansion Option pursuant to subsection (a)
above shall not affect Tenant's rights pursuant to Sections 1.5 and 15.2. To the
extent applicable, Section 6.3 hereof shall also apply with respect to the lapse
of the Expansion Option.

Section 1.5 Tenant's First Refusal Right to Lease

            (a) Provided that (i) Tenant is not in Default pursuant to this
Lease beyond any applicable grace period and (ii) Landlord or a parent,
subsidiary or affiliate (as the terms parent, subsidiary and affiliate are
defined in Section 9.1(j)) of Landlord is then the owner of the Expansion Land,
Tenant shall have a right of first refusal (the "First Lease Right") to lease
any space constructed by Landlord on the Expansion Land which is or becomes
available for lease during the term of this Lease, including any extension
thereof pursuant to Section 2.3 (each, an "Available Space"). For the purposes
of this Section 1.5, Tenant may assign the First Lease Right to an assignee of
Tenant's interest in this Lease or to a subtenant which holds and occupies at
least one (1) full Building. Similarly, in connection with a subletting by
Tenant, Tenant may retain the First Lease Right so long as Tenant continues to
hold and occupy at least one (1) full Building. At all times, there shall be
only one (1) person or entity holding the First Lease Right and such First Lease
Right must be held by a person or entity which holds and occupies at least one
(1) full Building. Such First Lease Right shall be subject to and in accordance
with the terms and provisions of this Section 1.5.

            (b) In the event that an Available Space becomes available, Landlord
shall be free to market the Available Space upon such terms as Landlord
determines. Upon receipt by Landlord of a written offer to lease the Available
Space which Landlord determines is acceptable to Landlord, Landlord shall
promptly deliver to Tenant a written notice (the "Lease Notice") providing, in
substance;

                (i) A description (size, location, configuration, etc) of such
Available Space and that such Available Space is available for lease or the date
upon which such Available Space will become available for lease; and

                (ii) The Base Rent, term and other terms upon which Landlord is
prepared to lease the Available space.

            (c) Within ten (10) business days after receipt of a Lease Notice,
Tenant may exercise the First Lease Right as to the Available Space described in
such Lease Notice. Such First Lease Right shall be exercised, if at all, by
written notice to Landlord agreeing to lease the Available Space upon the terms
set forth in the Lease Notice and given within such ten (10) business day
period. In the event that Tenant fails to exercise the First Lease Right with
respect to an Available Space in the manner and within the time period specified
in this subsection (c),


                                       7


the First Lease Right for such Available Space shall lapse and shall not
thereafter be exercisable with respect to such Available Space except as set
forth in subsections (e) and (h) below.

            (d) If Tenant fails to properly and timely exercise the First Lease
Right as to an Available Space, Landlord shall be free to offer such Available
Space to third parties upon substantially the same terms as set forth in the
Lease Notice as to such Available Space and to enter into a lease of such
Available Space with a third party. Provided, however, that Landlord shall not
enter into a lease of such Available Space upon total economic terms, as defined
in subsection (f) below, which are more than five percent (5%) less favorable to
Landlord than those set out in the Lease Notice given to Tenant as to such
Available Space without first providing to Tenant a second notice (the "Second
Lease Notice") providing, in substance, the information required by subsection
(b) above. Such Second Lease Notice shall be accompanied by an amendment to this
Lease adding such Available Space to the Premises upon the terms and conditions
set forth in the Second Lease Notice and otherwise upon those terms and
conditions of this Lease which are applicable to the Available Space.

            (e) Within five (5) business days after receipt of a Second Lease
Notice, Tenant may exercise the First Lease Right, if at all, by execution and
delivery to Landlord of the lease amendment enclosed with the Second Lease
Notice without change and within such five (5) business day period. Except as
provided in subsection (d) above, if Tenant fails to exercise the First Lease
Right in the manner and within the time period specified in this subsection, the
First Lease Right shall lapse and shall thereafter not be exercisable as to such
Available Space.

            (f) As used in this Section 1.5, the phrase "total economic terms"
shall mean the total net economic consideration to Landlord with respect to a
proposed lease of an Available Space (i) taking into account all amounts payable
to Landlord pursuant to the proposed lease, such as Base Rent, additional rent,
"key money" and expenses payable directly by the proposed tenant (such as
utilities, property taxes and insurance) and (ii) giving effect to all costs
incurred or to be incurred by Landlord to enter into and perform pursuant to
such proposed lease, including but not limited to any brokerage fee or
commission, any "free rent," any tenant allowance, any moving allowance,
assumption of any prior lease obligation and any remodeling, renovation or other
capital expenditure by Landlord for the benefit of the tenant.

            (g) Upon any timely exercise by Tenant of a First Lease Right as to
an Available Space, Landlord shall prepare and Landlord and Tenant shall
promptly execute and deliver an amendment to this Lease adding such Available
Space to the Premises. Any such amendment shall contain the economic and other
terms and conditions set forth in the relevant Lease Notice or Second Lease
Notice, as applicable, and shall otherwise be upon such of the terms and
conditions of this Lease as are applicable to such Available Space. Without
limiting the generality of the foregoing, Landlord and Tenant acknowledge and
agree that (i) there will or may be differences in general terms and conditions
(such as liability for taxes, maintenance, repairs, insurance requirements,
etc., but not Section 7.5, Articles IX and XII and the standards set forth in
Section 13.30(b)) due to the differences between a ground lease (i.e., the
Initial Premises) and a space lease (i.e., the Available Space), (ii) certain
provisions of this Lease are particular to the Initial Premises (such as Article
XIV) and will not apply to an Available Space and (iii) the term of this Lease
as to the Available Space shall be as set forth in the Lease Notice or Second
Lease Notice, as applicable, without regard to Section 2.3 hereof.

            (h) The First Lease Right provided for in this Section 1.5 shall be
a separate right as to each Available Space becoming available during the Lease
term, including any extension thereof pursuant to Section 2.3, and shall apply
to an Available Space each time that such Available Space becomes available for
lease during the Lease Term. Failure of Tenant to exercise the First Lease Right
as to an Available Space shall not affect the ability of Tenant to exercise the
First Lease Right as to any other Available Space or as to the Available Space
as to which Tenant failed to exercise the First Lease Space if such Available
Space thereafter again becomes available.

            (i) Notwithstanding anything to the contrary in this Section, the
First Lease Right shall be subordinate and inferior to any expansion or
extension options held by any tenant of space on the Expansion Land as to any
space becoming an Available Space. In other words,


                                       8



Landlord shall not be obligated to offer such Available Space to Tenant, and
Tenant shall not be entitled to exercise the First Lease Right with respect to
such Available Space, to and until the holder of such option shall have elected
not to exercise such option or the time for exercise of such option shall have
expired without exercise of such option, as applicable. The First Lease Right
shall be superior to any right of first offer or right of first refusal granted
by Landlord to any tenant of space on the Expansion Land. In other words,
Landlord shall not be entitled to offer such Available Space to such other
tenant until Landlord shall first have offered such Available Space to Tenant
and Tenant shall have declined to exercise the First Lease Right or the time for
exercise thereof shall have expired without exercise of the First Lease Right,
as applicable.

Section 1.6 Representations and Warranties of the Parties

            (a) Landlord hereby makes the following representations, warranties
and covenants, as of the date of execution of this Lease by Landlord:

                (i) Landlord and each partner of Landlord which is not a natural
person have been duly organized and are validly existing under the laws of the
State of California. Landlord has the full right, power and authority to execute
and deliver this Lease and to perform the obligations of Landlord hereunder. The
persons executing this Lease on behalf of Landlord are authorized to do so and
to bind Landlord to the obligations of Landlord hereunder.

                (ii) Landlord is the fee owner of the Land and no person or
entity has any present or future right (whether or not contingent) to occupy,
use or acquire any interest in the Land, or any portion thereof, except as
listed on Exhibit "G."

                (iii) There is no action, suit, arbitration, unsatisfied order
or judgment, governmental investigation or proceeding pending, or to Landlord's
knowledge, threatened against Landlord which, if determined adversely to
Landlord, could individually or in the aggregate materially interfere with the
rights of Tenant hereunder. There is no litigation which has been filed against
Landlord that arises out of the ownership of the Land and which, if determined
adversely to Landlord, would materially adversely affect the Land, the Intended
Use or Landlord's ability to perform hereunder.

                (iv) To Landlord's knowledge, there are no agreements concerning
the operation and maintenance of the Land entered into by Landlord except as
identified on Exhibit "G."

                (v) Landlord has not received any notice of any condemnation
proceeding related to the Land.

                (vi) The Land is currently in the Planned Development Industrial
zoning classification of the City.

                (vii) Landlord has not received any written notice from any
governmental entity or agency alleging that the Land violates any provision of
any federal or state statute or any ordinance of the City.

                (viii) Main water, sewer, gas, electrical and telephone lines
are available in the streets adjacent to the Land for connections from such main
lines to the improvements to be constructed on the Land.

                (ix) That certain Development Agreement dated December 3, 2001
between the City of Costa Mesa, on the one hand, and Landlord and others, on the
other hand, (the "Development Agreement") has not been terminated, cancelled,
modified or amended and there are no proceedings pending or threatened to
cancel, terminate, modify or amend the Development Agreement.

                (x) The Floor Area entitlement of the Land is O.4FAR (the
"Entitlement"). The trip budget for the Land is 376 trips (AM) and 362 (PM) (the
"Trip Budget"). To and until the expiration of the Purchase Option without
exercise by Tenant,


                                       9


Landlord shall not decrease either the Entitlement or the Trip Budget for the
Land. If Tenant timely exercises, the Purchase Option, the foregoing covenant
shall continue in effect until the first to occur of (A) the close of a purchase
of the Land by Tenant and (B) failure of the sale escrow to close due to a
termination by or the default of Tenant.

                (xi) If either (A) Tenant fails to exercise the Purchase Option
or (B) clause (x)(B) applies, from and after the expiration of the covenants in
clause (x) to and until expiration of the Expansion Option without exercise by
Tenant, Landlord shall not decrease the Entitlement applicable to the Expansion
Land (i.e., the Entitlement applicable to the Land less the actual Floor Area of
the Initial Premises) and shall maintain a Trip Budget for the Expansion Land
equal to that required for office usage. If Tenant timely exercises, the
Expansion Option, Landlord shall not reduce the Entitlement of the Expansion
Land below that necessary to construct the Expansion Premises and shall not
reduce the Trip Budget for the Land below that necessary for Tenant's actual use
of the Initial Premises and Expansion Premises.

            As used in this subsection, "knowledge" of Landlord shall mean to
the knowledge of Seller's agents, Jeffrey M. Reese and J. Barney Page, and shall
not impose or imply any duty of diligent inquiry.

            (b) Tenant hereby makes the following representations and warranties
as of the date of execution of this Lease by Tenant:

                (i) Tenant is a corporation duly organized and validly existing
under the laws of the State of California. Tenant has the full right, power and
authority to execute and deliver this Lease and to perform the obligations of
Tenant hereunder. The persons executing this Lease on behalf of Tenant are
authorized to do so and to bind Tenant to the obligations of Tenant hereunder.

                (ii) There is no action, suit, arbitration, unsatisfied order or
judgment, governmental investigation or proceeding pending, or to Tenant's
knowledge, threatened against Tenant which, if determined adversely to Tenant,
could materially interfere with the rights of Landlord hereunder. There is no
litigation which has been filed against Tenant which, if determined adversely to
Tenant, would materially adversely affect Tenant's ability to perform hereunder.

                                   ARTICLE II.
                                      TERM

Section 2.1 Length of Term

            The term (the "term") of this Lease shall be from the date of the
last execution and delivery of this Lease by Landlord and Tenant, and shall
continue for a period of one hundred twenty (120) months following the Rent
Commencement Date for the Initial Premises, as defined in Section 2.2(b),
subject to any extension of the term pursuant to Section 1.4(e) and Section 2.3
and to any early termination of this Lease pursuant to any provision hereof.

Section 2.2 Lease Commencement Date and Rent Commencement Date

            (a) The "Lease Commencement Date" as to the Initial Premises shall
be the date upon which Landlord delivers to Tenant possession of all Buildings
which form a part of the Initial Premises with Landlord's Core and Shell Work
Substantially Complete. Delivery of possession shall be accomplished by written
notice to Tenant setting forth the date upon which Landlord's Core and Shell
Work in such Buildings will be substantially complete and given not less than
three (3) days prior to the date of such proposed delivery of possession. Upon
Substantial Completion and delivery of possession of the Initial Premises to
Tenant, Tenant shall take possession of the Initial Premises and commence the
Tenant Improvements and installation of Tenant's furniture, furnishings and
equipment in the Buildings. From and after the Lease Commencement Date, Tenant
shall observe or perform all obligations of the tenant pursuant to this Lease
with respect to the Initial Premises, other than those requiring the payment of
Base Rent, Expansion Land Rent and additional rent. Pending the occurrence of
the Lease Commencement Date as to the Initial Premises, each party shall observe
or perform all



                                       10


obligations of such party pursuant to this Lease not dependant upon the
occurrence of the Lease Commencement Date.

            (b) The "Rent Commencement Date" as to the Initial Premises shall be
the first to occur of (i) completion by Tenant of the Tenant Improvements to the
Buildings in the Initial Premises and commencement of occupancy of such
Buildings by Tenant and (ii) the 150th day after the Lease Commencement Date as
to the Initial Premises. For purposes of this subsection, the term "occupancy"
shall mean occupancy of any portion of any Building for the purpose of
conducting Tenant's business but shall not include possession for the purposes
of storage of construction materials and furniture, construction of Tenant
Improvements or installation of furniture, furnishings and equipment.
Notwithstanding the foregoing, the Rent Commencement Date as to the Initial
Premises shall not be deemed to occur until Substantial Completion by Landlord
of the Other Work with respect to the Initial Premises. For the purposes of this
subsection (b) and subsection (a) above, Substantial Completion shall be
separately determined with respect to the Core and Shall Work, the Other Work
and the Tenant Improvements. Landlord and Tenant contemplate that the Rent
Commencement Date shall be approximately May 12, 2003. From and after the Rent
Commencement Date, Tenant shall observe or perform all obligations of the tenant
pursuant to this Lease, including but not limited to the payment of Base Rent
and all additional rent with respect to the Initial Premises.

            (c) Within thirty (30) days following the Rent Commencement Date,
Landlord and Tenant shall execute and acknowledge a supplemental agreement
setting forth the Lease Commencement Date and Rent Commencement Date of this
Lease. Notwithstanding the foregoing, failure of Tenant to execute such
supplemental agreement shall not affect the Lease Commencement Date or the Rent
Commencement Date in accordance with the provisions of this Lease. In the event
of a dispute between Landlord and Tenant as to the date of the Lease
Commencement Date and/or the Rent Commencement Date, such dispute shall be
resolved in the manner provided in Section 12.10. The provisions of this Section
shall be separately applied with respect to the Initial Premises and the
Expansion Premises.

Section 2.3 Options to Extend Term

            Provided that (1) Tenant is not in Default either on the date of
exercise or on the date when an Additional Term, as defined below, would
otherwise commence and (2) Tenant remains the tenant pursuant to this Lease with
respect to one or more Buildings, Tenant shall have the options to extend the
term of this Lease for two (2) additional terms of five (5) years each (each, an
"Additional Term"). As to each such option (each, an "Extension Option"), Tenant
may extend the term of this Lease as to any or all of the Buildings then
occupied by Tenant, and each Extension Option shall be exercised only as to all
space then held by Tenant in a Building. Each such Extension Option shall be
exercised, if at all, by written notice from Tenant to Landlord given not more
than fifteen (15) months and not less than nine (9) months prior to the
expiration of the initial term or the then Additional Term. Each such notice of
exercise shall also designate all Buildings as to which such Extension Option is
exercised, if less than all Buildings then leased by Tenant. Any such notice
which does not designate the Buildings as to which such Extension Option is
exercised shall be deemed to extend to all Buildings then leased by Tenant. If
Tenant is not entitled to exercise an Extension Option pursuant to this Section
2.3, or is entitled to exercise such Extension Option but fails to do so in the
manner and within the time specified in this Section 2.3, such Extension Option
shall lapse and thereafter not be exercisable. If the first Extension Option
lapses, then the second Extension Option shall lapse as well.

            If Tenant is entitled to exercise and timely and properly exercises
an Extension Option pursuant to this Section 2.3, then the Additional Term
resulting from such exercise shall be upon all of the terms and conditions of
this Lease, except that:

            (a) Each Additional Term shall commence immediately upon the
expiration of the initial term or the prior Additional Term, as applicable.

            (b) There shall be no further options to extend the term of this
Lease other than the two (2) Extension Options expressly provided for in this
Section 2.3.


                                       11



            (c) Sections 2.1 and 2.2, Article XIV, Sections 15.1 and 15.2 and
Section 16.1 shall have no application to either Additional Term.

            (d) Initial monthly Base Rent for each Additional Term shall be an
amount equal to the then prevailing fair market rental for similar properties in
the general market area in which the Premises are located. For the purposes of
determining monthly Base Rent with respect to an Additional Term, the following
shall pertain:

                (i) The "general market area" shall mean the Costa Mesa-Newport
Beach-Irvine area, shall not include Newport Center but shall also include (A)
South Coast Metro (i.e., the area bounded by the 55 Freeway on the East,
MacArthur Boulevard on the North, the Santa Ana River on the West and the 405
Freeway on the South) and (B) Pacific Center (i.e., the commercial center in
Santa Ana bounded by Edinger to the North, Lyon Street to the East, Grand Avenue
to the West and St. Gertrude Place to the South).

                (ii) The term "similar properties" shall mean low rise
office/corporate headquarters properties of similar age and quality and with
similar parking, access and other amenities as described in clause (iii) below.

                (iii) The term "fair market rental" shall mean the effective
amount per month that a willing tenant comparable to Tenant would pay and a
willing landlord comparable to Landlord would accept in an arm's-length leasing
transaction, for a term comparable in length to the applicable Additional Term
and commencing on or about the commencement date of the applicable Additional
Term, for similar properties which are non-sublease, non-encumbered and
non-expansion space. The determination of fair market rental shall not include
any value to Landlord for the Tenant Improvements and any other improvements to
the Premises installed by Tenant at its cost. In determining fair market rental,
appropriate consideration shall be given to annual rental rates per square foot
of Floor Area, the type of escalation clauses (including, without limitation,
operating costs or base year and CPI, as defined in Section 3.3, rental
adjustments), the length of the term, the size and location of the similar
properties, the date as to which such fair market rental is to be determined
(i.e., the commencement date of the applicable Additional Term) and other
generally applicable terms and conditions of tenancy for comparably sized space.
In addition, fair market rental for similar properties shall be determined as if
such similar properties were delivered in a "shell condition" (i.e., with a
level of improvements equal to the Core and Shell Work pursuant to Article XIV).
Fair market rental shall be determined as a rate per month per square foot of
Floor Area of the Buildings included in the Premises for the relevant Additional
Term, and the initial monthly Minimum Rent for each Additional Term shall be
determined by multiplying such rate by the Floor Area of the Buildings included
in the Premises for the relevant Additional Term. The fair market rental shall
specifically take into account all parking and other amenities in or on the
Premises (including its conversion to or existence as a "campus" of office
buildings), the size of the Land within the Premises in relation to the Floor
Area of the Landlord Improvements thereon and the Base Rent increases pursuant
to Section 3.3.

                (iv) Promptly following the exercise of an Extension Option by
Tenant pursuant to this Section 2.3, Landlord and Tenant shall attempt to agree
upon the initial fair market rental for the relevant Additional Term, taking
into account the matters set forth above in this subsection (d). If Landlord and
Tenant agree upon such fair market rental value, initial monthly Base Rent for
the relevant Additional Term shall be the fair market rental value so
determined. In addition, during each Additional Term Tenant shall pay all
additional rent provided for in this Lease. Upon reaching agreement pursuant to
this clause (iv), Landlord shall prepare and Landlord and Tenant shall promptly
execute an amendment to this Lease setting forth the relevant Additional Term
and the agreed initial Base Rent with respect thereto.

                (v) If Landlord and Tenant are not able to reach agreement as to
the fair market rental as to an Additional Term within thirty (30) days after
Tenant's exercise of an Extension Option pursuant to this Section, then fair
market rental shall be determined by appraisal. In connection with any such
appraisal, the following shall pertain:



                                       12


                    (A) The appraisals shall be conducted in Orange County,
California in accordance with the provisions of this clause (v).

                    (B) Within fifteen (15) days after the expiration of the
foregoing thirty (30) day period, each party shall, by written notice to the
other, select an appraiser with the qualifications set forth below. If either
party shall fail to select an appraiser in the manner and within the time
specified in this clause (B), and such failure continues for five (5) days after
receipt of notice of such failure from the other party, then the appraiser
timely and properly selected by the other party shall be the sole appraiser. If
neither party shall timely and properly select an appraiser pursuant to this
clause (B), then a single appraiser shall be selected by the Presiding Judge of
the Orange County Superior Court or his or her designee upon application of
either party.

                    (C) If a single appraiser is selected or appointed pursuant
to clause (B), such sole appraiser shall, within fifteen (15) days after his or
her appointment, schedule a meeting with the parties at which such appraiser
shall receive such oral or written evidence as he or she determines. The
appraiser need not follow the rules of evidence and may set such time limits as
he or she deems appropriate. Within thirty (30) days after being appointed, the
appraiser shall in writing notify the parties of his or her determination as to
fair market rental, determined in accordance with this clause (v). The
determination of such single appraiser shall be conclusive upon the parties.

                    (D) If two (2) appraisers are selected pursuant to clause
(B), the same procedure set forth in (C) above shall be used, except that each
appraiser shall in writing notify the parties and the other appraiser of his or
her determination as to fair market rental, determined in accordance with this
clause (v). The notices provided for in clause (C) and this clause (D) may be in
letter form, but shall be accompanied by an appraisal or report of valuation
meeting MAI standards, containing information as to the similar properties
utilized by the appraiser and setting forth the basis of such appraiser's
determination as to fair market rental.

                    (E) If two (2) appraisers are used, and if the fair market
rentals as determined by them are not the same but the larger fair market rental
so determined does not exceed one hundred ten percent (110%) of the lesser fair
market rental so determined, then fair market rental shall be the average of the
fair market rentals determined by the two (2) appraisers.

                    (F) If two (2) appraisers are used, and if the two (2)
appraisers determine different fair market rentals and if fair market rental is
not determined pursuant to clause (E), then within fifteen (15) days after the
last determination of the two (2) appraisers (i.e., the last notice to the
parties), the two (2) appraisers shall select a third appraiser. If the two (2)
appraisers are unable to select a third appraiser within such fifteen (15) day
period, the third appraiser shall be appointed in the manner provided in the
last sentence of clause (B).

                    (G) Any third appraiser selected pursuant to clause (F)
shall, within fifteen (15) days after his or her selection, notify the parties
and the other appraisers in writing of his or her determination of fair market
rental, determined in accordance with this clause (v) but with no additional
required meetings of the types described in clauses (C) and D) above. Such
determination and notice shall be in accordance with the last sentence of clause
(D), and in no event shall such determination be greater than the higher of the
fair market rentals determined by the original two (2) appraisers or lesser than
the lower of the fair market rentals determined by the original two (2)
appraisers. In other words, such determination may equal the low appraisal, may
equal the high appraisal or may be anywhere between the first two appraisals,
but may not be lower than the lower of the first two appraisals or higher than
the higher of the first two appraisals. The fair market rental determined by the
third appraiser shall be conclusive upon the parties.

                    (H) Each appraiser selected or appointed pursuant to the
foregoing clauses shall be a licensed MAI appraiser with not less than five (5)
years of appraisal work with respect to buildings similar to the Buildings in
the general market area who is independent of each party. For this purpose,
independent shall mean that such person is not


                                       13


employed by a party and has not been an employee of a party for two (2) years
prior to his or her selection or appointment.

                    (I) Each party shall bear the costs and fees of each
appraiser selected by it and one-half (1/2) of the costs and fees of any third
or sole appraiser. Each party shall also bear all costs and fees of any attorney
or other professional employed or retained by such party in connection with such
appraisal process.

                    (J) All determinations as to fair market rental shall be
expressed as a rate per square foot of Floor Area per year.

            (e) If the new initial Base Rent for an Additional Term shall not
have been determined as of the commencement date of such Additional Term, Tenant
shall pay Base Rent for the entire then Premises at the rate(s) in effect at the
expiration of the initial Lease term or first Additional Term, as applicable,
until such determination is made. If the new Base Rent is greater than the Base
Rent(s) in effect at the expiration of the initial Lease term or first
Additional Term, as applicable, within twenty (20) days after the determination
of the new Base Rent Tenant shall pay to Landlord an amount equal to the new
monthly Base Rent times the number of months from the commencement of the
relevant Additional Term through the month in which such determination is made
less the aggregate payments on account of monthly Base Rent for such period
previously made by Tenant. If the new monthly Base Rent is less than the rate(s)
in effect at the expiration of the initial Lease term or first Additional Term,
as applicable, Landlord shall credit against the next monthly installments of
Base Rent coming due hereunder an amount equal to the aggregate monthly payments
on account of Base Rent by Tenant for the period from the commencement date of
the relevant Additional Term through the month in which the Base Rent is
determined less the actual aggregate Base Rent due for such period. Thereafter,
Tenant shall pay monthly Base Rent at the rate determined pursuant to subsection
(d).

            (f) Upon determination of Base Rent pursuant to subsection (d)
above, Landlord shall prepare and Landlord and Tenant shall promptly execute and
deliver an amendment to this Lease setting forth:

                (i) The commencement and expiration dates of the relevant
Additional Term;

                (ii) The Buildings included in the Premises for such Additional
Term; and

                (iii) The initial Base Rent for the relevant Additional Term.

In addition, if the Premises for an additional Term consists of less than the
entire Initial Premises, or if the Premises includes an Available Space which is
less than all space located on the Expansion Land, Landlord shall include in
such amendment such additional provisions, as shall not have been included in
the amendment(s) executed pursuant to Section 1.4 and as shall be necessary to
convert this Lease, in whole or in part, from a ground lease of an entire
"campus" to a space lease encompassing a portion of the space on the Land. Such
provisions shall be as described in Section 1.5(g).

            (g) The Extension Options shall remain available after any extension
of the Lease term pursuant to Section 1.4(e), and shall extend to the entire
Premises then leased by Tenant, including the Expansion Building, if applicable,
pursuant to the second lease provided for in Section 1.4(g). As provided in
Section 3.3, the initial Base Rent for each Additional Term shall be increased
on the thirty-first (31st) month of such Additional Term.

            (h) As used in this Lease, the terms "term" and "term of this Lease"
shall include each Additional Term resulting from the exercise of an Extension
Option pursuant to this Section.


                                       14


                                  ARTICLE III.
                                      RENT

Section 3.1 Base Rent

            (a) Initial Premises. With respect to the Initial Premises, Tenant
shall pay to Landlord in advance, without deduction or offset, for each month
following the Rent Commencement Date, as monthly Base Rent, an amount equal to
one-twelfth (1/12th) of the sum of:

                (i) Eleven and one-half percent (11 1/2%) of the product of the
square footage of the Land included in the Initial Premises and twenty dollars
($20.00) per square foot; plus

                (ii) Eleven and one-half percent (11 1/2%) on all cash equity,
if any, provided by Landlord for design and construction of the Initial Premises
and not included in Tenant's Loan pursuant to Section 14.3(b).

Base Rent shall continue at such rate until the first to occur of (A) the
Permanent Financing Date, as defined in subsection (c) below, with respect to
the Initial Premises and (B) close of a purchase of the entire Land and all
Improvements thereon by Tenant pursuant to Section 15.1.

            (b) Expansion Premises. If (i) Tenant exercises the Expansion Option
pursuant to Section 1.4 and (ii) Tenant elects to make a Tenant's Loan as to the
Development Costs for the Expansion Premises, then the initial monthly Base Rent
for the Expansion Premises shall be determined in the manner provided in
subsection (a), substituting the Expansion Premises for the Initial Premises. If
(A) Tenant exercises the Expansion Option but (B) Tenant does not elect to make
a Tenant's Loan as to the Development Costs for the Expansion Premises, then the
initial monthly Base Rent for the Expansion Premises shall be an amount equal to
one-twelfth (1/12th) of the sum of:

            (1) Eleven and one-half percent (11 1/2%) of the product of the
square footage of the Land included in the Expansion Premises and twenty dollars
($20.00); plus

            (2) The annual debt service payable by Landlord on all Development
Costs with respect to the Expansion Premises, using the financing rate obtained
by Landlord on the construction financing obtained by Landlord with respect to
the Expansion Premises; plus

            (3) Eleven and one-half percent (11 1/2%) on all cash equity, if
any, provided by Landlord for design and construction of the Expansion Premises.

            Base Rent as determined pursuant to this subsection shall be in
effect from the Rent Commencement Date with respect to the Expansion Premises
until the Permanent Financing Date with respect to the Expansion Premises.

            (c) Financing Adjustments. The initial Base Rent amounts determined
pursuant to subsections (a) and (b) shall be subject to the following financing
adjustments:

                (i) If Tenant elects not to make a Tenant's Loan with respect to
the Development Costs for the Expansion Premises and if the construction
financing obtained by Landlord for the Expansion Premises is variable rate
financing, then upon each change in the interest rate on such financing, the
monthly Base Rate determined pursuant to subsection (b) shall be redetermined
using such new interest rate. Such new monthly Base Rent shall be effective from
and after the effective date of the change in the interest rate.

                (ii) If Tenant does not exercise its option pursuant to Section
15.1 (i.e., to purchase the entire Land and all Landlord Improvements thereon),
Landlord shall use commercially reasonable, good faith efforts to obtain
permanent financing ("Permanent Financing") secured by the Initial Premises and
this Lease at the most favorable market rate available from qualified
institutional lenders. For this purpose, Landlord shall, in good faith, consider
any lender proposals obtained by Tenant for Permanent Financing with respect to
the


                                       15


Initial Premises. Landlord shall use reasonable, good faith efforts to cause
such Permanent Financing to fund as promptly as possible following the accrual
of Landlord's obligation to seek such Permanent Financing. Such Permanent
Financing shall:

                    (A) Be at the most favorable market rate available from a
qualified institutional lender;

                    (B) Be non-recourse (except for standard carve-outs such as
waste, misappropriation and hazardous materials) as to Landlord and its
partners;

                    (C) Be in an amount sufficient to retire in full Tenant's
Loan (i.e., Landlord shall not be required to invest equity to retire Tenant's
Loan); and

                    (D) Have an assumed principal amortization schedule for the
Development Costs of twenty-five (25) years and a term of ten (10) years.

Effective upon the date on which the Permanent Financing is funded (the
"Permanent Financing Date"), (1) Tenant's Loan shall be paid in full and (2)
monthly Base Rent for the Initial Premises shall be redetermined using the two
(2) factors described in subsection (a) plus the actual principal and interest
payments on the Permanent Financing obtained by Landlord with respect to the
Initial Premises and an assumed principal amortization schedule of twenty-five
(25) years (collectively, the "Permanent Financing Factor"). The revised monthly
Base Rent for the Initial Premises resulting from the adjustment provided for in
this clause (ii) shall be effective upon the Permanent Financing Date, prorated
on the basis of a thirty (30) day month. For the purposes of this clause (ii),
Landlord shall not be required to seek Permanent Financing with respect to the
Initial Premises until the first to occur of (aa) expiration of the Purchase
Option Period, as defined in Section 15.1, without exercise of the Purchase
Option, as defined in Section 15.1, by Tenant and (bb) receipt by Landlord of a
written notice from Tenant irrevocably and unequivocally waiving the Purchase
Option. In addition, if Tenant exercises the Purchase Option and thereafter
fails to close the purchase, Landlord shall promptly thereafter seek to obtain
Permanent Financing pursuant to this clause (ii). Notwithstanding anything to
the contrary contained in this clause (ii), if Landlord is unable to locate
Permanent Financing for the Initial Premises, or is unable to locate Permanent
Financing in an amount sufficient to retire Tenant's Loan in full, then, in
either such event, the portion of Tenant's Loan not repaid by Landlord from
Permanent Financing shall not be retired but shall instead become a capital
investment by Tenant in the Initial Premises. Such investment shall not bear
interest or any other return thereon and shall not be taken into account for any
purpose in the determination of Base Rent for the Initial Premises. Moreover,
upon any termination of this Lease pursuant to Section 8.2 or Article X, the
then unamortized portion of such capital investment shall be returned to Tenant
from the insurance proceeds or condemnation award in connection with such
termination. For this purpose, amortization shall be on a straight line basis
from date of expenditure through the initial scheduled expiration date of this
Lease.

                (iii) If Tenant exercises the Expansion Option and elects not to
make a Tenant's Loan with respect to the Development Costs for the Expansion
Premises, Landlord shall use commercially reasonable good faith efforts to
obtain construction financing with respect to the Expansion Premises at the most
favorable market rate available from qualified institutional lenders, and shall,
in good faith, consider any lender proposals obtained by Tenant for the
Expansion Premises. Moreover, in order to minimize financing costs with respect
to the Expansion Premises, Tenant shall have the right, at Tenant's option, to
provide a Tenant's Loan to Landlord. Any such Tenant's Loan provided by Tenant
shall be at an interest rate, if any, and upon such other terms and conditions
as are mutually agreed upon by Landlord and Tenant.

                (iv) Whether or not Tenant elects to provide a Tenant's Loan
with respect to the Expansion Premises, Landlord shall use commercially
reasonable, good faith efforts to obtain Permanent Financing secured by the
Expansion Premises to fund as promptly as possible following the completion of
the Tenant Improvements and the Landlord Improvements with respect to the
Expansion Premises and at the most favorable market rate available from
qualified institutional lenders. The date of such funding shall be the Permanent
Financing Date with respect to the Expansion Premises. Such Expansion Premises
Permanent Financing shall be


                                       16


subject to clauses (A), (B) and (D) of clause (ii) above and, if applicable,
clause (C) of clause (ii) above. Upon the Permanent Financing Date as to the
Expansion Premises, (A) Tenant's Loan or Landlord's construction financing, as
applicable, as to the Development Costs of the Expansion Premises shall be paid
in full and (B) monthly Base Rent for the Expansion Premises shall be
redetermined either to (1) add the Permanent Financing payments as a third
factor in determining monthly Base Rent or (2) substitute the Permanent
Financing payments for factor (2) in subsection (b) above, as applicable.
Notwithstanding anything to the contrary contained in this clause (iv), if
Tenant makes a Tenant's Loan as to the Expansion Premises and Landlord is unable
to locate Permanent Financing for the Expansion Premises, or is unable to locate
Permanent Financing in an amount sufficient to retire such Tenant's Loan in
full, then, in either such event, the portion of such Tenant's Loan not repaid
by Landlord from Permanent Financing with respect to the Expansion Premises
shall not be retired but shall instead become a capital investment by Tenant in
the Expansion Premises. Such investment shall not bear interest or any other
return thereon and shall not be taken into account for any purpose in the
determination of Base Rent for the Expansion Premises. Moreover, upon any
termination of this Lease pursuant to Section 8.2 or Article X, the then
unamortized portion of such capital investment shall be returned to Tenant from
the insurance proceeds or condemnation award in connection with such
termination. For this purpose, amortization shall be on a straight line basis
from date of expenditure through the revised scheduled expiration date of this
Lease.

                (v) In connection with Landlord's construction financing, if
applicable, with respect to the Expansion Premises or Landlord's Permanent
Financing with respect to the Initial Premises or the Expansion Premises,
Landlord may elect to borrow more than the aggregate Development Costs thereof
(i.e., to finance, in part, on the basis of the value of the Land). In any such
event, the first proceeds of any such financing must be used to retire any
Tenant's Loan in full. In connection with any such borrowing (i.e., borrowing
more than the Development Costs), (1) Landlord may effect such borrowing only if
such borrowing is commercially feasible and does not increase the rate of
interest on the Development Costs and (2) if Landlord elects to use such excess
financing, incremental debt service and costs attributable to the portion of the
financing in excess of the Development Costs shall not be included in the Base
Rent determinations pursuant to subsection (b) or this subsection (c).

                (vi) As to each Permanent Financing effected by Landlord
pursuant to this subsection (c), the lender shall be obligated, upon the close
of a purchase by Tenant pursuant to Section 15.2 hereof, to release its lien as
to the Project or Sale Portion, each as defined in Section 15.2. Such release
shall be subject only to (A) prior subdivision by Landlord of the Sale Portion
as a separate legal parcel pursuant to Section 17.1, if the sale is of a Sale
Portion, and (B) retirement from the proceeds of such sale of the loan or
portion thereof applicable to the Sale Portion. In addition, if the proceeds of
the sale are less than the then balance of the loan (or portion thereof) to be
retired and any prepayment fees, costs and other amounts due the lender,
Landlord shall cover any shortfall with Landlord's own funds.

            (d) Base Rent shall be payable in equal monthly installments on or
before the first day of each calendar month or partial calendar month following
the Rent Commencement Date. Base Rent for any fractional part of a calendar
month at the beginning or end of the term of this Lease shall be a proportionate
part of the Base Rent for a full calendar month. Such proration and all other
prorations pursuant to this Lease shall be made on the basis of actual days
(whether remaining or elapsed) in the relevant month or year.

Section 3.2 Determinations of Base Rent

            (a) The actual areas of the Initial Premises and the Expansion
Premises shall be determined by RBF Associates, unless the parties otherwise
agree in writing to use another licensed civil engineering firm.

            Landlord shall retain such engineering firm to determine (i) the
square footage of the Land included in the Initial Premises and (ii) the square
footage of the Expansion Land. For the purposes of the foregoing determinations,
the Initial Premises shall include so much of the Land as necessary to (A)
achieve an 0.40 FAR and (B) include sufficient parking to provide four (4)
spaces per 1,000 square feet of Floor Area of the Buildings included in the
Initial Premises.


                                       17


Such engineering firm shall furnish copies of such determinations, in reasonable
detail, to Landlord and Tenant, and, absent a disagreement pursuant to the next
sentence, such determinations shall be final and conclusive for purposes of
Sections 1.4 and 3.1. If either party disagrees with such determinations, such
party shall notify the other party and RBF in writing within thirty (30) days
after such party's receipt of such determinations. Such notice shall specify in
reasonable detail the basis for such disagreement. If a notice(s) of
disagreement is timely given, RBF, Landlord and Tenant shall, for ten (10)
business days after such notice(s) attempt to resolve the disagreement. If the
parties are unable to resolve the disagreement within such ten (10) business day
period, the Project Architect shall select a second licensed civil engineering
firm (the "Second Engineer"). The Second Engineer shall review the
determinations by RBF and the notice(s) of disagreement and shall promptly
furnish to RBF and the parties in writing its own determinations of the areas of
the Initial Premises and the Expansion Land. Such determinations shall be final
and conclusive for purposes of Sections 1.4 and 3.1.

            The costs and fees of each engineering firm shall be split equally
by Landlord and Tenant, and such determinations shall be made and delivered to
Landlord and Tenant prior to the Rent Commencement Date with respect to the
Initial Premises.

            In making the determinations required pursuant to this subsection
(a), each engineering firm shall deduct from the gross acreage of the Land all
road and highway easements and dedications of record as of the date of this
Lease, but shall not deduct any easements or other dedications which are
required in connection with the Home Ranch Master Entitlements.

            (b) As used in this Lease, the term "Floor Area" means the aggregate
rentable area of a Building or Buildings determined in accordance with the
standards set forth in ANSI Z65.1 1980, as promulgated by the Building Owners
and Managers Association (the "Standard") pursuant to this subsection. Landlord
shall, promptly upon completion of the Core and Shell Work, cause the Floor Area
of the Buildings included in the Initial Premises to be determined by Hok
Architects, unless another space planner is agreed upon in writing by Landlord
and Tenant.

            The space planner shall determine the Floor Area of the Buildings in
the Initial Premises in accordance with the Standard. Such space planner shall
furnish copies of such determinations, in reasonable detail, to Landlord and
Tenant, and such determinations shall, absent a disagreement pursuant to the
next sentence, be final and conclusive for all purposes of this Lease, including
Section 2.3. If either party disagrees with such determinations, such party
shall notify the other party and Hok Architects in writing within thirty (30)
days after such party's receipt of such determinations. Such notice shall
specify in reasonable detail the basis for such disagreement. If a notice(s) of
disagreement is timely given, the disagreement shall be resolved in the manner
provided in subsection (a), except that any appointment by the Project Architect
shall be of a second space planner. The determination of Floor Area resulting
from such process shall be final and conclusive for all purposes under this
Lease.

            The costs and fees of each space planner shall be split equally by
Landlord and Tenant, and such determinations shall be made and delivered to
Landlord and Tenant prior to the Rent Commencement Date as to the Initial
Premises.

            Similarly, if it shall become necessary to determine the Floor Area
of an Expansion Building or an Available Space (i.e., due to exercise by Tenant
of an option or right pursuant to this Lease), the space planner selected
pursuant to this subsection shall be promptly retained by Landlord and shall
determine the relevant Floor Area in the manner provided in this subsection (b)
and shall notify both parties of such determination in the manner provided in
this subsection (b). Payment of such space planner shall be as provided in this
subsection, and any such determination shall be made prior to the date when such
Floor Area determination is required pursuant to this Lease (i.e., for the
determination of Base Rent payable hereunder). Each determination by such space
planner pursuant to this paragraph shall be final and conclusive upon Landlord
and Tenant unless either party disagrees with such determination in the manner
and within the time specified in the next sentence. If either party disagrees
with such determination, such party shall notify the other party and the space
planner in writing within thirty (30) days after such party's receipt of such
determination, specifying in reasonable detail the basis for such disagreement.
Any such disagreement shall be resolved using the same


                                       18


process for resolving a disagreement as to the Floor Area of the Initial
Premises. The determination of Floor Area resulting from such process shall be
final and conclusive for all purposes under this Lease. The costs and fees of
any space planner(s) who determines the Floor Area of an Available Space shall
be borne equally by Landlord and Tenant.

            (c) Landlord shall make each determination of monthly Base Rent
required pursuant to Sections 3.1(a), 3.1(b) and 3.1(c), including any
determination required pursuant to Section 1.4. Each such determination shall be
made, in the case of the initial determination of Base Rent, at least thirty
(30) days prior to the relevant Rent Commencement Date, and a copy of such
determination, in reasonable detail, shall be furnished to Tenant. Each such
determination shall utilize the relevant determination of the civil engineering
firm pursuant to subsection (a) above. Each such determination shall also be
accompanied by reasonable documentary evidence as to the debt service and equity
amounts described in Sections 3.1(a), 3.1(b) and 3.1(c). Each such determination
shall be final unless Tenant disagrees with such determination by written notice
to Landlord given within thirty (30) days after receipt of such determination
specifying in reasonable detail the basis of such disagreement. Any timely
disagreement shall be resolved in the manner provided in Section 12.10. Pending
resolution of such disagreement, Tenant shall pay monthly Base Rent in the
amounts determined by Landlord. Upon resolution of such disagreement, the
parties shall make the adjustment provided for in the next succeeding paragraph.

            Landlord shall also make all redeterminations of monthly Base Rent
required by Sections 3.1 (a), 3.1(b) and 3.1(c) as promptly as practicable after
the occurrence of the event (i.e., interest rate change or close of Permanent
Financing) requiring such redetermination. Promptly following such
redetermination, Landlord shall furnish a copy thereof, in reasonable detail, to
Tenant. Each such redetermination shall, absent a notice of disagreement by
Tenant within thirty (30) days after receipt of such redetermination, be binding
and conclusive upon Landlord and Tenant. In the event of a timely notice of
disagreement by Tenant, such disagreement shall be resolved in the manner
provided in the first paragraph of this subsection (c), and pending the
resolution of such disagreement, Tenant shall pay monthly Minimum Rent in the
amount redetermined by Landlord. In the event that any such final
redetermination results in an increase in the monthly Base Rent, Tenant shall,
within twenty (20) days after receipt of such redetermination, pay to Landlord
an amount equal to the aggregate Base Rent (as so redetermined) payable from the
effective date of such redetermined Base Rent through the month in which Tenant
receives such redetermination less the aggregate amount paid by Tenant on
account of Base Rent for the same period. In the event that any such
redetermination results in a decrease in the monthly Base Rent, Tenant shall
receive a credit in an amount equal to the difference between the aggregate Base
Rent paid by Tenant from the effective date of such redetermined Base Rent
through the month in which Tenant receives such redetermination less the
redetermined Base Rent for the same period, plus interest on such overage from
dates of payment to date(s) of credit at the then Bank of America (Los Angeles)
prime or reference rate plus two percent (2%). Such credit shall be applied
against the next payments of Base Rent coming due under this Lease until
complete exhaustion of such credit. In either event, from and after each
redetermination of Base Rent pursuant to this subsection, Tenant shall pay
monthly Base Rent in the amount so redetermined to and until the next
redetermination of Base Rent pursuant to this subsection.

Section 3.3 Increases in Monthly Base Rent

            The initial monthly Base Rent for the Initial Term and each
Additional Term determined pursuant to Sections 2.3 and 3.1, after giving effect
to all financing adjustments, shall be increased on each Adjustment Date, as
defined below, to reflect any change in the cost of living. Each adjustment
shall be calculated upon the basis of the United States Department of Labor,
Bureau of Labor Statistics Consumer Price Index of Urban Wage Earners and
Clerical Workers (Revised Series), Subgroup "all items," entitled "Consumer
Price Index of Urban Wage Earners and Clerical Workers (Revised Series), Los
Angeles-Anaheim-Riverside Average, (1982-1984 = 100)" (the "CPI"). The index for
said subgroup published for the month prior to the Rent Commencement Date of the
Initial Term shall initially be the "base" for the first adjustment. Thereafter,
the comparison index used pursuant to the penultimate sentence of this paragraph
shall become the "base" for the next succeeding adjustment. Finally, the index


                                       19


published for the month prior to the commencement date of each Additional Term
shall be the "base" for the purposes of the adjustment to be made during such
Additional Term. The initial monthly Base Rent for the Initial Term and each
Additional Term shall be adjusted as of each Adjustment Date by the percentage
increase, if any, in the Index published for the month immediately prior to the
relevant Adjustment Date over the relevant "base." When the new monthly Base
Rent for any period is determined, Landlord shall give Tenant written notice to
that effect indicating how the new monthly Base Rent figure was computed.

            For the purposes of this Section 3.3, the adjustment dates (each an
"Adjustment Date") shall be the first day of each of:

                (i) The thirty-first (31st), sixty-first (61st), ninety-first
(91st) and one hundred twenty-first (121st) (if applicable) months following the
Rent Commencement Date for the Initial Premises, as to the Initial Premises;

                (ii) The thirty-first (31st), sixty-first (61st) and
ninety-first (91st) months following the Rent Commencement Date for the
Expansion Premises, as to the Expansion Premises; and

                (iii) The thirty-first (31st ) month of each Additional Term.

            In no event shall the increase in Base Rent pursuant to this Section
3.3 be less than three percent (3%) per twelve (12) month period, calculated on
a cumulative and compounded basis, from the Rent Commencement Date (as to the
relevant Premises). By way of example of the foregoing, if the CPI increase as
of the first Adjustment Date for the Initial Premises is less than seven and
sixty-eight one hundredths percent (7.68%), the adjustment shall be an increase
of seven and sixty-eight one hundredths percent (7.68%). By way of further
example, if the cumulative adjustment as of the first Adjustment Date for the
Initial Premises is ten percent (10%) and the CPI increase as of the second
Adjustment Date for the Initial Premises is three percent (3%), the adjustment
as of the second Adjustment Date shall be an increase of five and ninety-two one
hundredths percent (5.92%) of the Base Rent as increased at the first Adjustment
Date. By way of final example, if the two (2) immediately preceding sentences
apply and the CPI decreases as of the third Adjustment Date, the adjustment as
of the third Adjustment Date shall be seven and sixty-eight one hundredths
percent (7.68%) of the Base Rent as increased at the second Adjustment Date.

            If at any Adjustment Date there shall not exist the Consumer Price
Index of Urban Wage Earners and Clerical Workers (Revised Series) in the same
format as recited in this Section, Landlord shall substitute any official index
published by the Bureau of Labor Statistics, or successor or similar
governmental agency, as may then be in existence and shall be most nearly
equivalent thereto.

            If any adjustment provided for herein has not been made by the
relevant Adjustment Date, Tenant shall continue to pay monthly Base Rent at the
last rate applicable until Tenant receives Landlord's written notice as to such
adjustment. Within ten (10) days after Tenant's receipt of Landlord's notice,
Tenant shall pay to Landlord an amount equal to the new monthly Base Rent times
the number of months from the relevant Adjustment Date to the date of receipt of
Landlord's notice, less the aggregate amount paid by Tenant on account of
monthly Base Rent for the same period. Thereafter, Tenant shall pay monthly Base
Rent at the new rate set forth in Landlord's notice.

Section 3.4 Expansion Land Rent

            From and after the Rent Commencement Date as to the Initial
Premises, to and until the first to occur of (a) expiration of the Expansion
Option without exercise thereof by Tenant, (b) written notice by Tenant to
Landlord irrevocably and unequivocally surrendering the Expansion Option, or (c)
exercise by Tenant of the Expansion Option, Tenant shall pay to Landlord an
"Expansion Land Rent." Such Expansion Land Rent shall be payable quarterly on
the first day of such calendar quarter, and each such quarterly payment shall be
in an amount equal to three percent (3%) of the value of the Expansion Land,
determined using a Land value of $20.00 per square foot of the Expansion Land
and the square footage of the Expansion Land


                                       20



determined pursuant to Section 3.2(a). Expansion Land Rent for any partial
calendar quarter shall be pro rated in the manner provided in Section 3.1(d).
The Expansion Land Rent shall be paid without offset or deduction of any kind.
Except as provided in Section 1.4(h) and Section 14.1(c), prior to the Rent
Commencement Date for the Expansion Premises, Tenant shall not be required to
pay any other rent, property taxes, costs, or expenses for or have any other
obligations with respect to the Expansion Land other than the Expansion Land
Rent. Tenant's rights to use the Expansion Land provided in Section 1.4(h) shall
cease when Tenant's obligation to pay Expansion Land Rent ceases, unless Tenant
agrees to pay the costs of maintaining the same pursuant to Section 14.1(c).
Notwithstanding the immediately preceding sentence, if Tenant's obligation to
pay Expansion Land Rent ceases pursuant to clause (a) hereof, and whether or not
Tenant agrees to pay the costs of maintaining the Expansion Land pursuant to
Section 14.1(c), Landlord may at any time for any reason terminate Tenant's
rights to use the Expansion Land upon not less than thirty (30) days written
notice to Tenant.

Section 3.5 Rent Defined

            As used in this Lease, the term "rent" shall mean monthly Base Rent
and additional rent, and the term "additional rent" shall mean all amounts
payable by Tenant pursuant to this Lease other than Base Rent, including,
without limitation, Expansion Land Rent payable pursuant to Section 3.4 and the
real property taxes payable by Tenant pursuant to Article IV below, and the
insurance reimbursement required pursuant to Article VII. All Base Rent and
additional rent shall be paid without deduction or offset in lawful money of the
United States of America which shall be legal tender at the time of payment.
When no other time is stated herein for payment, payment of any amount due from
Tenant to Landlord hereunder shall be made within ten (10) business days after
Tenant's receipt of Landlord's invoice or statement therefor.

                                   ARTICLE IV.
                                      TAXES

Section 4.1 Real Property Taxes

            Tenant shall pay, as additional rent, all "real property taxes," as
defined in Section 4.2, levied or assessed by, or becoming payable to any
governmental authority having jurisdiction, for or in respect of the Initial
Premises or the Expansion Premises, as applicable, for each tax period wholly
included in the period between the Rent Commencement Date for the Initial
Premises or the Expansion Premises, as applicable, and the expiration or earlier
termination of the term. All such payments shall be made directly to the
authority charged with the collection thereof not less than ten (10) days prior
to the last date on which the same may be paid without interest or penalty and,
as provided in Section 4.3, Landlord and Tenant shall use commercially
reasonable efforts to cause each of the Initial Premises and the Expansion
Premises to be separately assessed with the bills for real property taxes to be
delivered directly to Tenant. In the event that such bills are delivered to
Landlord, Landlord shall promptly deliver copies thereof to Tenant. Tenant shall
provide to Landlord on or before the delinquency date for payment of such taxes,
a copy of a receipted tax bill or other documentary evidence reasonably
satisfactory to Landlord, showing the amount of the taxes due and the payment of
same prior to the delinquency date. For any fraction of a tax period included in
the period between the applicable Rent Commencement Date and the expiration or
earlier termination of the term, Tenant shall pay to Landlord, within thirty
(30) days after receipt of Landlord's invoice therefor, that portion of the
total taxes levied or assessed or becoming payable which is allocable to such
included period, determined by multiplying the total taxes by a fraction whose
denominator is the number of days in the tax period and whose numerator is the
number of days in the period between the Rent Commencement Date and the
expiration or earlier termination of the Lease term. Subject to Section 4.5
below, in the event Tenant fails to pay any real property tax bill before the
delinquency date thereof, Landlord may, but need not, pay the same on behalf of
Tenant and such amount thereafter shall become due and payable as additional
rent by Tenant to Landlord within ten (10) business days after Tenant's receipt
of Landlord's written demand therefor. The obligation of Tenant pursuant to this
Section 4.1 shall extend to any increase in real property taxes resulting from a
sale, transfer or other transaction with respect to the Premises which causes a
reassessment resulting in an increase in real property taxes.


                                       21


Section 4.2 Definitions

            (a) The term "real property taxes" shall include (i) all taxes,
assessments and governmental charges and surcharges, (including, without
limitation, assessments for public improvements or benefits whether or not
commenced or completed during the term, water, sewer, storm drains and other
rents, rates and charges, excises, levies, license fees, use fees, permit fees
and other authorization fees) and all other charges (in each case whether
general or special, ordinary or extraordinary, foreseen or unforeseen) of every
kind and character (including all penalties and interest thereon), levied upon
or with respect to the Premises, during the term, (ii) any tax or excise on or
measured by rents, and (iii) any other tax, however described, levied against
Landlord on account of the rent reserved hereunder or on the business of renting
the Premises. Without limiting the generality of the foregoing, real property
taxes shall include any assessment by any governmental authority pursuant to any
enabling statute (such as, for example an "SB 55 Assessment") or payment to
retire bonds or other indebtedness created by a special assessment district, an
improvement district or other governmental authority (such as, for example, 1911
Act and 1915 Act Bonds). Provided, however, that the term "real property taxes"
shall not include any franchise, estate, inheritance, succession, capital levy,
net income or excess profits taxes imposed upon Landlord except that in the
event that real property taxes are withdrawn in whole or in part or any
substitute tax is made therefor or for any increase therein, such tax shall in
any event for the purpose of this Lease be considered a real property tax
regardless of how denominated or the source from which it is collected.

            (b) For the purposes of this Section, real property taxes which are
levied on a fiscal year basis shall be deemed to apply one-twelfth (1/12) to
each calendar month in such fiscal year.

            (c) To the extent that the same may be permitted by law, Tenant
shall have the right, at Tenant's cost, to apply for the conversion of any
assessment for local improvements assessed during the term, in order to cause
the same to be payable in annual installments, and upon any such conversion
Tenant shall pay and discharge punctually all installments (including all
interest thereon) which become due and payable during the term, and that portion
of any installment for any tax year partially included at the beginning or the
end of the term determined pursuant to Section 4.1. Landlord agrees to permit
the application for the foregoing conversion to be filed in Landlord's name, if
necessary, and shall execute any and all documents reasonably requested by
Tenant to accomplish the foregoing result, all without cost to Landlord.

Section 4.3 Separate Tax Parcel

            (a) In the event that the Initial Premises or the Expansion Premises
are not levied and assessed as separate tax parcels, Landlord shall use its
commercially reasonable efforts to cause each such area to be assessed and taxed
as a separate tax parcel as soon as practicable.

            (b) If the Initial Premises and/or the Expansion Premises, if
applicable, are not assessed and taxed as separate tax parcels, then
notwithstanding anything to the contrary set forth in this Article IV, "real
property taxes for or in respect of the Premises" shall mean, as to the Initial
Premises and/or the Expansion Premises, as applicable:

                (i) That portion of the real property taxes assessed against the
land underlying the tax parcel which the square footage of the Initial Premises
or the Expansion Premises, as applicable, bears to the aggregate square footage
of all land within the applicable tax parcel; plus

                (ii) That portion of the real property taxes assessed against
the Improvements included within the tax parcel which the valuation assigned by
the taxing authorities to the Improvements included within the Initial Premises
or Expansion Premises, as applicable, bears to the valuation so assigned to all
of the Improvements included within such tax parcel. If such separate valuations
are available from the county tax assessor, then such separate valuations shall
be conclusive. If such separate valuations are not reasonably available to
Landlord, then Landlord shall determine, reasonably and in good faith, from the
best information reasonably available to it, the proportion of the real property
taxes assessed against the


                                       22



Improvements included within such tax parcel which is attributable to the
Improvements included within the Initial Premises or Expansion Premises, as
applicable. In the event of a dispute as to the correctness of such
determination by Landlord, such dispute shall be resolved in the manner provided
in Section 12.10; plus

                (iii) With respect to other types of taxes, a proportion thereof
based upon the assessment methodology used by the assessor, or if such
methodology cannot be used to determine Tenant's portion, then a reasonable
proportion as determined by Landlord. In the event of a dispute as to whether
any determination by Landlord pursuant to this clause (iii) is reasonable, such
dispute shall be resolved in the manner provided in Section 12.10.

            In the event that the Initial Premises or Expansion Premises, as
applicable, are not assessed and taxed as a separate tax parcel, then real
property taxes for or in respect of the Premises or such portion thereof shall
be paid by Tenant to Landlord not later than the later of (A) ten (10) days
after Tenant's receipt of Landlord's written notice of the amount thereof and
(B) the delinquency date therefor. There shall be no administrative or overhead
fee payable to Landlord with respect to real property taxes payable by Tenant.
Landlord and Tenant acknowledge and agree that it is their intent that real
property taxes be billed to and paid directly by Tenant. Accordingly, Landlord
and Tenant agree that:

                    (A) Each shall take all steps reasonably necessary to cause
the real property tax bills with respect to the Initial Premises and the
Expansion Premises, if applicable, to be mailed directly to Tenant; and

                    (B) Neither party shall take any action to cause the Initial
Premises and/or the Expansion Premises, if applicable, to be taxed other than as
a separate tax parcel.

Section 4.4 Other Taxes

            Tenant shall be responsible for and shall pay or cause to be paid
not later than ten (10) days prior to delinquency all municipal, county and
state taxes, levies and fees of every kind and nature, including but not limited
to general or special assessments assessed during the term against any leasehold
interest, leasehold improvements or personal property of any kind, owned by or
placed in, upon or about the Premises by Tenant or its sublessees,
concessionaires, franchisees or licensees, if any. Tenant shall cause all taxes
imposed upon any personal property situated in or on the Premises to be levied
or assessed separately from the Premises and not as a lien thereon. Upon request
of Landlord, Tenant shall, not later than the delinquency date for any such tax,
furnish to Landlord documentary proof of payment of said tax.

Section 4.5 Right to Contest

            Provided that the Premises are separately assessed and taxed, Tenant
shall have the right, at Tenant's sole risk and cost, to contest the amount
and/or validity of the applicable real property taxes by appropriate legal
proceedings; provided, however, that said right shall be availed of by Tenant
only upon the condition that Tenant shall indemnify, defend and hold Landlord
and the Premises harmless from any loss, cost or expense, including, but not
limited to, Landlord's reasonable attorneys' fees, court costs and expenses of
litigation, which in any manner arise from or with respect to such contest and
upon the further condition that Tenant shall take any and all actions,
including, but not limited to, the payment of any judgment or bonding
requirement, so as to prevent the loss or forfeiture of the Premises or any part
thereof or of any other property of Landlord. The foregoing shall not, however,
be deemed or construed to relieve, modify, or extend Tenant's covenant to pay
any such real property taxes at the time and in the manner provided in this
Article IV, unless such proceedings shall operate to prevent the sale of the
Premises or any part thereof or any other property of Landlord or the placing of
any lien thereon or on any other property of Landlord to satisfy such taxes
prior to the final determination of such proceedings. Upon the termination of
such proceedings, Tenant shall promptly pay all real property taxes, if any,
then payable as the result of such proceedings and the interest and penalties in
connection therewith, and the charges accruing in such proceedings. To the
extent Landlord receives any refund for any real property taxes paid by Tenant
hereunder, Landlord shall promptly pay and deliver such refund to Tenant.


                                       23



                                   ARTICLE V.
                          CONDUCT OF BUSINESS BY TENANT

Section 5.1 Use of Premises

            (a) Tenant shall use the Premises only for high quality general
office purposes, engineering and light assembly functions consistent with
Tenant's current business operations at Harbor Gateway Business Center (the
"Center"). Tenant may also use the Premises for uses which are (i) consistent,
as to quality, with the uses described in the immediately preceding sentence and
(ii) permitted under the general plan and zoning classifications applicable to
the Land as of the Rent Commencement Date with respect to the Initial Premises.

            As used herein, "high quality general office purposes" shall mean
uses of a quality and character consistent with those in the Center and with
Tenant's historical usage at the Center. The term "high quality general office
purposes" shall not include (and Landlord shall not approve) any use of the
Premises incompatible with uses generally located on properties adjacent to the
Premises (i.e., those in the immediate vicinity of the Premises) due to the
appearance created by such use, the nature of the clients visiting such use,
excessive parking requirements, excessive demand on the physical facilities or
any disreputable image in the minds of the public generally with respect to such
use. Without limiting the generality of the foregoing, the following are
examples of office and other uses which are not high quality general office
purposes and/or are inconsistent therewith:

        government social services office

        government or charity operated psychiatric office or clinic (private
        practitioner acceptable)

        government or charity operated medical or dental office or clinic
        (private practitioner acceptable)

        substance abuse counseling or clinic abortion counseling or clinic

        bail bondsman

        on-site manufacturing facility

        gun shop

        pawn shop

        fast-food restaurant

        health club or youth club (provided that fitness facilities for Tenant's
        employees are permitted)

        tavern, dance club or night club

        arcades, casinos, off-track wagering facilities

        gasoline service station or vehicle repair shop

        escort services

        thrift shops and second-hand stores

        soup kitchens

        half-way house or homeless shelter

        training center for mentally or physically handicapped

        hiring hall for day laborers

        equipment or vehicle storage or rental facility (excluding Tenant's vans
        and all items specifically permitted pursuant to this Lease)

        jail or other detention facility

The foregoing are merely examples of the types of uses which are inconsistent
with high quality general office uses, and are not intended to limit the right
of Landlord to disapprove other proposed uses of the Premises which are
inconsistent with high quality general office uses.

            (b) Tenant shall not use the Premises in violation of any applicable
law, ordinance or governmental regulation or of the certificate of occupancy
issued for the Premises. Subject to the provisions of Section 6.1 below, Tenant
shall promptly comply with Applicable Laws, as defined below, together with all
protective covenants and architectural standards, if any, applicable to the
Premises as of the date of this Lease and shall, upon five (5) days written
notice from Landlord, discontinue any use of the Premises which is a violation
thereof. For the


                                       24


purposes of this Lease, the term "Applicable Laws" shall mean all present and
future laws, ordinances, orders, rules, regulations and requirements of all
governmental authorities having jurisdiction over the Premises, Landlord or
Tenant and the requirements of any applicable insurance underwriters, all of the
foregoing applicable to the ownership, development, use, occupancy and
maintenance of the Premises and any certificates of occupancy issued for the
Premises.

            (c) Tenant shall not do or permit anything to be done in or about
the Premises which will interfere with the rights of other occupants of the
Land, or allow the Premises to be used for any improper, immoral, unlawful or
objectionable purpose, nor shall Tenant cause, maintain or permit any nuisance
or commit any waste in, on or about the Premises. Tenant shall not (i) place a
load upon any floor of the Premises which exceeds the floor load per square foot
which such floor was designed to carry, (ii) attach or hang any object or item
from the roof of the Premises or any structural component of the Premises
without Landlord's prior written consent thereto, or (iii) violate any mandatory
restrictions generally imposed by any governmental authority with respect to
conservation of energy, water, gas or electricity or reduction of automobile or
other emissions. Tenant shall not do or permit to be done anything which will
injure the Premises or invalidate any insurance policy(ies) covering the
Premises or property located therein. Tenant shall maintain no outside storage
which is not appropriately screened from the view of the public. Tenant shall
promptly upon demand reimburse Landlord for any additional premium charged for
any such policy maintained by Landlord by reason of Tenant's failure to comply
with the provisions of this Article.

            (d) Tenant shall not conduct, nor permit to be conducted, either
voluntarily or involuntarily, any auction upon the Premises without first having
obtained Landlord's prior written consent.

Section 5.2 Restrictions on Use

            Tenant shall, at Tenant's expense, procure any and all governmental
licenses and permits required for Tenant's permitted use of the Premises and
shall at all times comply with all requirements of such licenses or permits.
Tenant shall not use or permit the use of the Premises in any manner that will
damage or deface the Premises. Tenant shall not do, or suffer to be done, or
keep or suffer to be kept, anything on the Premises or on any property therein
which will prevent the obtaining of any insurance on the Premises or on any
property therein, including, but without limiting the generality of the
foregoing, fire, all risk coverage, and public liability insurance, or which may
make void any such insurance.

Section 5.3 Contest of Requirements

            Notwithstanding the foregoing, Tenant may contest any Applicable Law
or alleged violation thereof, so long as Landlord's interest in the Premises and
the Land are not thereby materially and adversely affected, and Landlord shall,
at Tenant's request, join in such contest if its participation is necessary, but
at no expense to Landlord. If any security must be posted, or any order must be
obtained to forestall compliance with such requirement pending the determination
of such contest, Tenant shall post such security or shall obtain such order
prior to commencing such contest and such action shall be a condition to
Tenant's right to contest. If such contest is finally determined adversely to
Tenant, Tenant shall promptly comply with the requirement(s) determined to be
applicable to the Premises and shall indemnify and hold Landlord harmless from
all liabilities, damages, costs (including costs and attorneys' fees incurred or
awarded in such contest) and expenses occasioned by any non-compliance by Tenant
and any delay in effecting compliance, including any delay occasioned by a
contest determined adversely to Tenant.

Section 5.4 Exterior Signs and Sign Monument(s)

            (a) For so long as Tenant is the sole tenant of the Initial
Premises, Tenant shall have the exclusive sign rights for the Initial Premises,
including both exterior signage on the Buildings and any monument signage placed
upon any sign monument(s) constructed by Tenant. All such signage ("Tenant's
Signage") shall be subject to the following:


                                       25



                (i) All Tenant's Signage shall be the sole responsibility of
Tenant, as to fabrication, construction and erection thereof and payment of the
costs thereof.

                (ii) All Tenant's Signage shall be subject to the prior written
approval of Landlord based upon drawings and specifications therefor prepared by
Tenant and reasonably approved by Landlord, and all Tenant's Signage shall
conform to the drawings and specifications therefor approved by Landlord.

                (iii) All Tenant's Signage shall comply with all Applicable Laws
and shall be professionally done, neat and attractive and of a quality
consistent with the quality of the Buildings.

                (iv) All Tenant's Signage shall be attached or affixed to the
Buildings and/or sign monument(s) in a manner reasonably approved in advance in
writing by Landlord.

                (v) Tenant shall maintain, repair, remove and replace Tenant's
Signage as a part of Tenant's obligations pursuant to Section 6.2 so that
Tenant's Signage is at all times maintained in a neat, clean, good condition.

                (vi) Within ten (10) days after the expiration or any earlier
termination of the Lease term, Tenant shall, at Tenant's sole cost, remove all
Tenant's Signage and repair all damage to the Buildings and/or the sign
monument(s) caused by such removal.

                (vii) Without limiting the generality of the foregoing,
Landlord's reasonable approval rights with respect to Tenant's Signage shall
extend to the location of Tenant's Signage on the Buildings and on any sign
monument(s).

            (b) As a part of Landlord's Work pursuant to Article XIV, Landlord
shall construct one or more sign monuments with respect to the Initial Premises
(i) as permitted by the City and (ii) as reasonably mutually approved by
Landlord and Tenant. The cost of such monument(s) shall be included in
Landlord's Core and Shell Work pursuant to Article XIV. As described in
subsection (a), Tenant may, at Tenant's cost, place Tenant's signage on such
monument(s).

            (c) If Tenant exercises the Expansion Option, the provisions of
subsections (a) and (b) above shall apply with respect to the Expansion
Building.

            (d) If Tenant elects to add one or more Available Spaces to the
Premises, or if Tenant ceases to be the sole tenant of the Initial Premises
(i.e., pursuant to Section 2.3), Tenant shall continue to have signage rights
pursuant to subsections (a) and (b) above. However, in such event, Tenant's
signage shall not be exclusive as to the Expansion Land or the Initial Premises,
as applicable, but shall be in common with other tenants to whom Landlord grants
signage rights. In such event, Tenant's Signage rights shall be proportionate to
the portions of the Buildings leased by Tenant in, respectively, the Initial
Premises and the Expansion Land and, if Tenant is the largest Tenant of the
Initial Premises and/or the Expansion Premises, Tenant shall have the most
prominent locations on such signs.

Section 5.5 Other Tenant Facilities

            (a) Notwithstanding anything to the contrary contained in this
Lease, Tenant shall also have the right to install and maintain on the Initial
Premises:

                (i) A free-standing trailer/room of approximately 350 square
feet in the parking area of the Initial Premises to provide a properly insulated
area for various electromagnetic testing procedures as required by the Federal
Communications Commission (the "FCC Testing Trailer").

                (ii) A large above-ground liquid nitrogen gas tank adjacent to
one of the Buildings, including any special power requirements and screening
(the "Tank").


                                       26


                (iii) One or more generators and related switches, tanks and
facilities adjacent to one of the Buildings, including screening (the
"Generators").

The FCC Testing Trailer, the Tank and the Generators are herein referred to as
"Tenant's Special Facilities."

            (b) Tenant's Special Facilities shall comply with all of the
following:

                (i) All Tenant's Special Facilities shall be installed or
constructed by Tenant at Tenant's sole cost.

                (ii) All Tenant's Special Facilities must comply with all
Applicable Laws, and Tenant shall be solely responsible to obtain all
governmental licenses and permits required to install, maintain and operate
Tenant's Special Facilities.

                (iii) Tenant shall provide the specifications for all Tenant's
Special Facilities, and all such specifications, including power sources and
screening, are subject to the prior reasonable written approval of Landlord and
all governmental authorities with jurisdiction.

                (iv) The locations of all Tenant's Special Facilities shall be
subject to the prior reasonable written approval of Landlord, in its reasonable
discretion. Without limiting the generality of the foregoing, the Generators
(and any tanks serving the same) shall be located above-ground unless otherwise
approved by Landlord in its reasonable discretion.

                (v) Tenant shall be solely responsible, at Tenant's sole cost,
to maintain, repair, replace and operate all Tenant's Special Facilities in good
condition consistent with the quality of the Buildings and in compliance with
all Applicable Laws.

                (vi) Tenant shall pay all charges for all utilities used by
Tenant in or at Tenant's Special Facilities, directly to the purveyors thereof.

                (vii) Any changes in the locations of Tenant's Special
Facilities, Tenant's usage thereof and/or any chain link fencing or screening
erected by Tenant with respect to such Facilities shall be subject to the prior
written consent of Landlord, not to be unreasonably withheld, delayed or
conditioned.

                (viii) Within ten (10) days after the expiration or any earlier
termination of this Lease, Tenant shall, at Tenant's cost, remove Tenant's
Special Facilities, any chain-link fencing erected by Tenant with respect
thereto and all other personal property and improvements placed or erected by
Tenant in the area occupied thereby. Tenant shall concurrently repair all damage
caused by such Facilities, such fencing and such other improvements (such as
post holes, broken pavement and dead grass) and restore the area to its
condition prior to placement of such Facilities by Tenant. The provisions of
this clause (viii) shall also apply to require a relocation by Tenant of any
Special Facility from an area no longer leased by Tenant to an area then leased
by Tenant, but only to the extent that such relocation is reasonably required
and it is commercially practicable to effect such relocation.

                                   ARTICLE VI.
                      MAINTENANCE, REPAIRS AND ALTERATIONS

Section 6.1 Landlord's Obligations

            (a) Except as provided in subsection (b) below and in Section 6.3,
Landlord shall not be obligated or required at any time to maintain or repair
the Buildings, the other Landlord Improvements or the Tenant Improvements
constituting the Initial Premises or the Expansion Premises, if applicable, or
any part of either or to make or bear any part of the expense of any
improvement, alteration or change of any nature in or about the Premises or any
part thereof.

            (b) Notwithstanding the provisions of subsection (a) above or
anything else to the contrary contained in this Lease, for a period of one (1)
year after Substantial Completion of



                                       27


Landlord's Work, Landlord shall, at Landlord's sole cost and expense, promptly
repair or replace, or cause to be repaired or replaced, any portion of
Landlord's Work which shall be materially defective or shall fail to comply with
the Approved Working Drawings therefor. Such repair or replacement shall be
commenced as soon as reasonably possible after Landlord's receipt of written
notice from Tenant of the need for such work, but only if such notice is given
within such one (1) year period, and shall be diligently pursued to completion.
For the purposes of this subsection:

                (i) This Section shall be applied separately to the Initial
Premises and, if applicable, the Expansion Premises.

                (ii) Landlord may satisfy its obligation pursuant to this
subsection by causing Landlord's general contractor or any subcontractor who has
provided a warranty or guaranty to perform such repair or replacement.

                (iii) The provisions of this subsection shall not apply to any
damage to Landlord's Work caused by Tenant, any employee, agent or contractor of
Tenant, any business visitor or guest of Tenant, any vandal or any casualty
(fire, wind, rain, lightning, etc.). Landlord's obligations hereunder shall be
limited to defects in the original construction of and failures of Landlord's
Work to comply with the Approved Working Drawings therefor.

                (iv) During any period of repair or replacement by Landlord
pursuant to this subsection, Base Rent shall be abated to the extent, if at all,
that Tenant's operations in the Premises are interfered with, including totally
if applicable. Subject to the next sentence, such abatement shall be Tenant's
sole remedy in the event of a repair or replacement by Landlord pursuant to this
subsection. Notwithstanding the provisions of the immediately preceding
sentence, to the extent that Landlord is able to recover the same from any
contractor, insurer or other warranting party, Tenant shall be entitled to any
damages incurred by Tenant during any such period of repair or replacement.

Upon the expiration of the one (1) year period specified in this subsection,
Landlord shall, upon request of Tenant, assign to Tenant all warranties and
guaranties received by Landlord with respect to Landlord's Work. Such assignment
shall be on a form prepared by Tenant and reasonably approved by Landlord.

Section 6.2 Tenant's Obligations

            (a) Subject to the provisions of Section 6.1, Articles VIII and X
and Section 13.7, Tenant shall (i) during the term of this Lease keep in good
order, condition and repair all of the Initial Premises (and the Expansion
Premises, if applicable) and all Improvements thereon and every part thereof,
including the Buildings, furnishings and other personal property of Tenant, and
all landscaped and parking areas (which shall be kept free of weeds and debris).
Tenant shall promptly at Tenant's own cost and expense make all necessary
repairs and replacements, interior and exterior, structural and nonstructural,
ordinary and extraordinary, foreseen and unforeseen, as necessary to maintain
the Initial Premises (and the Expansion Premises, if applicable) and all
Improvements thereon and every part thereof, in good condition. Tenant shall
provide whatever treatment may be necessary, as often as may be required, to
keep the Premises and all Improvements thereon and every part thereof neat and
attractive. Tenant's maintenance and repair obligations pursuant to this
subsection shall specifically include the roof membranes of the Buildings.

            (b) Without limiting the generality of subsection (a), Tenant shall,
at all times during the term of this Lease, maintain in effect an inspection and
maintenance contract covering the heating, ventilating and air conditioning
equipment serving the Buildings with a maintenance firm reasonably approved by
Landlord. Such contract shall provide for inspection and maintenance of such
equipment (including replacement of components as required) not less frequently
than quarterly. Such contract, and any replacement therefor, shall be subject to
the reasonable approval of Landlord. Such inspection and maintenance shall
include replacement of parts as necessary to keep the system in good working
order. At the expiration of the Lease term, such equipment shall be in good
working condition. Good working condition shall take into account the age of the
system as of the expiration of the Lease term. Tenant shall not,


                                       28


however, be required to make additions to the HVAC system to extend the useful
life of the HVAC system beyond the term of this Lease.

            (c) For the purposes of this Section 6.2:

                (i) Tenant's obligations hereunder shall extend to furnishing
and restocking all expendables in the Buildings (soap, towels, etc.).

                (ii) Tenant shall also be responsible to insure that all truck
loading areas and loading doors which constitute a part of the Premises, if any,
are not unreasonably damaged and do not accumulate litter or debris as a result
of deliveries to and pickups from Tenant.

                (iii) As to all Building roofs, parking lots and landscaped
areas, Tenant shall provide a schedule of maintenance to be performed by Tenant
and the intervals therefor. Such schedule shall be subject to the prior
reasonable written approval of Landlord and shall not be subject to change
without the prior reasonable written approval of Landlord, which shall not be
unreasonably withheld if consistent with industry standards.

                (iv) All repairs and maintenance by Tenant shall be made only by
a licensed, bondable contractor. Landlord may impose reasonable restrictions and
requirements with respect to such repairs, and the provisions of 6.4 shall apply
to all such repairs. Tenant shall indemnify, defend and hold Landlord harmless
from and against all actions, claims, and damages by reason of Tenant's failure
to comply with the foregoing provisions.

            (d) If Tenant fails to perform its obligations under this Section
6.2, Landlord may at its option, after thirty (30) days written notice to Tenant
and failure of Tenant to perform such obligations within such thirty (30) day
period, enter upon the Premises and put the same in good order, condition and
repair and the cost thereof shall become due and payable as additional rent by
Tenant to Landlord upon demand. Notwithstanding the foregoing, Landlord shall
not be entitled to undertake any work for the account of Tenant which reasonably
requires more than thirty (30) days to complete if Tenant commences such work
within such thirty (30) day period and diligently pursues the same to
completion. Landlord need not, however, wait for the expiration of such thirty
(30) day period to remedy any condition which poses a danger to persons or
property or which will or may result in the imposition of a fine or penalty upon
Landlord if not cured prior to the expiration of such period.

            (e) Subject to Sections 6.4 and 6.5, within ten (10) days after the
expiration of the term hereof, or within ten (10) days after any earlier
termination hereof, Tenant shall surrender the Premises and all Improvements
thereon to Landlord in good condition, reasonable wear and tear excepted.

Section 6.3 Additions to Premises; Modifications to Obligations of the Parties

            (a) In the event that Tenant exercises the Expansion Option, from
and after the Rent Commencement Date as to the Expansion Premises, maintenance
and repair as to the Expansion Building and other Improvements to the Expansion
Land shall be pursuant to Sections 6.1 and 6.2. If Tenant adds one or more
Available Spaces to the Premises, or ceases to be the sole tenant of the Initial
Premises, then, in either such case, Landlord shall maintain and repair the
Initial Premises or the Expansion Land and Tenant shall pay, as additional rent,
Tenant's proportionate cost of such maintenance and repair. Such proportionate
share shall be that proportion of the total costs of such maintenance and
repair, including a fifteen percent (15%) overhead allowance to Landlord,
derived by dividing the total Floor Area occupied by Tenant in the Initial
Premises or on the Expansion Land, as applicable, by the total Floor Area in the
Initial Premises or on the Expansion Land, as applicable. The amendment to this
Lease adding such Available Space or providing for Tenant to cease to be the
sole tenant of the Initial Premises shall, among other things, (i) allocate the
maintenance and repair obligations of Landlord and Tenant, (ii) establish
Tenant's proportionate share of the costs of maintenance and repair provided by
Landlord and (iii) set forth the manner and timing of payment by Tenant of such
additional rent.


                                       29


            (b) In connection with Landlord's construction of Landlord's
Improvements to the Initial Premises, Landlord may construct one or more
facilities (such as an entry drive, a driveway or a common utility line) which
serves both the Initial Premises and the Expansion Land (each such facility, a
"Common Facility" herein). Any such Common Facility may be located on either the
Initial Premises Land or the Expansion Land. Initially, from and after the Rent
Commencement Date as to the Initial Premises, Tenant shall operate, maintain,
repair and replace the Common Facility pursuant to Section 6.2. The costs of
such operation, maintenance, repair and replacement shall be split between
Landlord and Tenant based upon the respective aggregate Floor Areas on the
Initial Premises and the Expansion Land. Landlord shall reimburse Tenant for
Landlord's share of such costs within ten (10) days after Landlord's receipt of
Tenant's invoices therefor accompanied by reasonable documentary evidence of the
amounts paid by Tenant and the nature of such payments, which invoices shall be
not more frequently than monthly. Tenant recognizes that initially Tenant will
bear one hundred percent of the cost of such repairs and maintenance.

                As provided in Section 17.3, upon the occurrence of a Trigger
Event, as defined in such Section 17.3, Landlord shall prepare, and Landlord and
Tenant shall execute, acknowledge and record, an REA, as defined in such Section
17.3, providing for, among other things, the allocation of responsibility for
operation, maintenance, repair and replacement of each Common Facility and
allocation of the costs thereof. From and after recordation of the REA, the REA
shall replace this subsection (b).

            (c) From and after Landlord develops the Expansion Land (other than
pursuant to Section 1.4):

                (i) Landlord shall maintain the Expansion Land and all
Improvements thereon to the same standards required by Section 6.2.

                (ii) Tenant shall, except to the extent that Tenant occupies an
Available Space(s), use reasonable efforts to prevent its employees and invitees
from parking on the Expansion Land. Similarly, Landlord shall use reasonable
efforts to prevent the tenants of the Expansion Land, and their employees and
invitees, from parking on the Initial Premises (except to the extent that such
tenants also occupy Floor Area on the Initial Premises).

                (iii) Landlord shall use or permit the use of the Improvements
on the Expansion Land only for the purposes permitted by Section 5.1.

Section 6.4 Alterations and Additions

            (a) Tenant shall not, without the prior written consent of Landlord,
which consent shall not unreasonably be withheld, make any alterations,
improvements, remodeling or additions to the Premises which are structural,
which materially affect the exterior appearance of any Building, which are
outside of the Buildings, which adversely affect the function or maintenance of
the utility systems of any Building or which equal or exceed $1.00 per square
foot of Floor Area of any Building per twelve (12) month period in total cost
for any alteration, improvement or addition (or series of related alterations,
improvements or additions), excluding interior painting, carpeting and other
floor covering costs (any such alterations, improvements, remodeling or
additions requiring Landlord's approval are herein the "Alterations Requiring
Consent"). The foregoing square foot limitation shall be applied separately as
to each Building leased by Tenant. Construction, alterations, improvements,
remodeling and additions made by Tenant during the term hereof shall be done
with reasonable diligence in a good and workmanlike manner, consistent with the
construction quality of Landlord's Work and in compliance with all Applicable
Laws. As to Alterations Requiring Consent, Landlord shall have the same rights
with respect to the nature and quality of the improvements and construction, the
approval of Tenant's plans, the obtaining of permits and licenses, payment and
liens as are granted Landlord by Section 5.4 with respect to Tenant's Signage.
The cost of any construction, alteration, improvement, remodeling or addition
shall be paid or discharged by Tenant so that the Premises and all Improvements
thereon shall at all times be free of liens resulting therefrom, subject to the
provisions of Section 13.14. Whether or not any alteration, improvement or
addition is an Alteration Requiring Consent, Tenant shall supply to Landlord,
promptly upon


                                       30


completion thereof, a set of as-built drawings therefor on mylar if and to the
extent such drawings are required by Applicable Laws or are in fact prepared by
Tenant.

            (b) Subject to the provisions of Section 6.5, the Buildings, and all
alterations, improvements, remodeling, additions or fixtures which may be made
or installed in the Premises or any improvements thereon and which are attached
to the floor, walls or ceiling of any improvements on the Premises and cannot be
removed without material damage to the Buildings, and any floor covering which
is cemented or otherwise affixed to the floor of any improvements on the
Premises and cannot be removed without material damage to the Buildings, are
collectively called "leasehold improvements." All installations by Tenant other
than leasehold improvements and all personal property of Tenant placed in or on
the Premises are herein referred to as "Tenant's Property." Except as expressly
provided to the contrary in this Article VI, all leasehold improvements shall be
the property of Landlord. Such leasehold improvements shall remain upon and be
surrendered with the Premises at the termination of this Lease, unless Landlord
shall have notified Tenant to remove such leasehold improvements (other than the
Buildings themselves), or some of them, by written notice given to Tenant, in
the case of Landlord's Improvements, on or prior to the relevant Lease
Commencement Date, and in the case of any other leasehold improvements, upon
approval thereof if Landlord's approval is requested and such leasehold
improvements are Alterations Requiring Consent. If such leasehold improvements
are not Alterations Requiring Consent, Landlord may give Tenant notice to remove
the same at any time prior to the expiration or termination of this Lease or
within ten (10) days after any early termination of this Lease. Tenant shall
remove any leasehold improvements or other property which Tenant is permitted or
required to remove, pursuant to Section 6.5 below or this subsection, at
Tenant's sole cost, within ten (10) days after the expiration of this Lease, or
in the event of an early termination, within ten (10) days after Landlord's
notice. In the event Landlord directs Tenant to remove any leasehold
improvements constructed by Tenant on the Premises as aforesaid, Tenant shall
complete such removal within the time limits specified herein and restore the
Premises to substantially the same condition as the Premises existed at the time
Landlord tendered delivery of possession thereof to Tenant, less reasonable wear
and tear.

            (c) Tenant shall promptly in writing notify Landlord of the filing
of any mechanics' lien against the Premises arising out of work performed by or
for Tenant.

            (d) To the fullest extent permitted by law, Landlord waives any
claim it may now or hereafter have, whether at common or statutory law or in
equity, to or against any of Tenant's Property, and acknowledges that Tenant may
from time to time install personal property or fixtures constituting Tenant's
Property in or on the Premises and that, with respect thereto, Tenant may choose
or be required to obtain and file a written confirmatory waiver by Landlord of
claims to such personal property. Landlord agrees not to unreasonably withhold
or delay approval of any waiver requested by Tenant and presented by Tenant to
Landlord for execution, provided that any such waiver requires, in substance,
that (i) any removal of Tenant's Property be effected within ten (10) days after
the expiration or earlier termination of this Lease, (ii) any person removing
any of Tenant's Property from the Premises repair any damage to the Premises
caused by such removal and (iii) Landlord has no obligation thereunder to assist
any person in the removal of any of Tenant's property from the Premises.
Landlord shall promptly execute and deliver to Tenant any such waiver approved
by Landlord. If Landlord shall neither execute a waiver presented by Tenant nor
in a writing to Tenant disapprove such waiver for bona fide reasons stated
therein within twenty (20) days after Tenant's delivery of such waiver to
Landlord for approval and execution, Tenant may, after the expiration of such
20-day period, execute and file such waiver as attorney-in-fact for Landlord.
Landlord hereby appoints Tenant as its attorney-in-fact for this purpose. A
desire by Landlord to avoid the filing of Landlord's waivers shall not be a
valid reason for disapproval of a landlord's waiver requested by Tenant.

            (e) The approval by Landlord of any specifications, working drawings
or other plans for alterations to be made by Tenant of or to the Premises,
whether upon commencement of possession by Tenant of the Premises or at any
other time during the term of this Lease, shall not be deemed to be a
representation or warranty by Landlord as to the adequacy or sufficiency of such
specifications, working drawings or other plans or of the improvements or
construction contemplated thereby for any use or purpose. By its approval
thereof, Landlord


                                       31


assumes no liability or responsibility therefor, or for any defect in any
improvements or construction made pursuant thereto.

            (f) Before commencement of any work of improvement in the Premises,
Tenant shall give Landlord fifteen (15) days written notice thereof, specifying
precisely the expected date of commencement. For the period from ten (10) days
prior to commencement of such work and during the performance thereof, Landlord
may maintain in the Premises such notices of non-responsibility or other notices
as may be necessary to protect Landlord against liability for liens and claims.

Section 6.5 Removal of Tenant's Property

            Notwithstanding anything to the contrary in this Article VI or
elsewhere in this Lease, Tenant may remove, at any time or times during the term
of this Lease (a) any and all interior and exterior signs, (b) the Security
System (as defined in Section 13.31) and any other security systems, devices or
containers, (c) the Communications System (as defined in Section 13.32) and any
other telecommunications or data conveyance fiber, wiring, cabling and
equipment, (d) supplemental HVAC, (e) portable generators, (f) raised floors,
(g) modular wall panel systems, (h) uninterruptible power systems and (i) any
other fixtures or personal property installed or placed in or on the Premises
(including Tenant's Special Facilities) during the term of this Lease, in any
and all cases, by or on behalf of Tenant and not constituting leasehold
improvements; provided, however, that Tenant shall not remove any components of
Landlord's Work or any linoleum or other floor covering cemented or otherwise
affixed to the floor of any Building. Tenant shall promptly repair any damage to
the Premises or any Improvements thereon resulting from the installation or
removal of any of Tenant's Property.

                                  ARTICLE VII.
                              INSURANCE; INDEMNITY

Section 7.1 Liability Insurance

            Tenant shall at all times from and after the Lease Commencement Date
with respect to the Initial Premises, and at its cost and expense, for the
protection of Tenant and Landlord, as their interests may appear, maintain in
full force and effect a policy or policies of insurance which afford the
following coverages:

            (a) Worker's Compensation in the statutorily required amount,
including employer's liability with a liability limit of not less than
$1,000,000 per occurrence.

            (b) Comprehensive General Liability Insurance or Commercial
Liability Insurance with an aggregate liability amount not less than $3,000,000
combined single limit for both bodily injury and property damage, including
blanket contractual liability (including Tenant's indemnification obligation
under Section 7.5), broad form property damage, personal injury, completed
operations, products liability, host liquor liability (or liquor liability, if
applicable) and owned and non-owned automobile coverage and acts or omissions of
any security guards hired by Tenant. Provided, however, coverage for acts or
omissions of security guards may be provided by the contractor providing such
guards so long as such insurance has a minimum liability limit equal to or
greater than that required by this clause (b) and the additional insured
requirements of the next succeeding paragraph are met. At least $1,000,000 of
such coverage shall be provided by a primary liability policy, and any balance
may be provided by a so-called umbrella policy. The liability insurance policy
required to be maintained by Tenant pursuant to this subsection shall be on an
occurrence (as opposed to claims made) basis. Further, if such policy is an
aggregate liability limit policy, not less than $3,000,000 of such limit per
annum shall be available for claims originating at the Premises.

            Landlord, and any other persons designated by Landlord and having an
insurable interest in the Premises, shall be added as additional insureds
pursuant to the policies required by clause (b) (although they shall not have
any obligations of "named" insureds therein). The insurance required by this
Section shall be the primary insurance as respects Landlord (and any other
additional insureds designated by Landlord) and not contributory with any other
available insurance. The policy or policies providing the coverage required by
subsection (b) above shall


                                       32


contain an endorsement providing, in substance, that "such insurance as is
afforded hereby for the benefit of [Landlord and any additional insureds
designated by Landlord] shall be primary and any insurance carried by [Landlord
and any additional insureds designated by Landlord] shall not be contributory."
In no event shall the limits of any coverage maintained by Tenant pursuant to
this Section be considered as limiting the liability of Tenant pursuant to this
Lease.

Section 7.2 Fire and Earthquake Insurance - Fixtures, Equipment and Tenant
Improvements

            (a) Tenant shall at all times from and after the Lease Commencement
Date with respect to the Initial Premises, and at Tenant's cost and expense,
maintain in effect policies of insurance covering all Tenant's Property located
in or on the Premises, including but not limited to fixtures, furnishings,
equipment, furniture, inventory and stock in trade, in an amount not less than
their full replacement value, providing protection against any peril included
within the classification "All Risk," including but not limited to insurance
against fire, sprinkler leakage, vandalism and malicious mischief, but not
including earthquake and flood coverage. The insurance required by this
subsection shall be the primary insurance with respect to the property covered
thereby.

            (b) Landlord shall at all times during the term maintain in effect
policies of insurance (i) covering all Improvements, including without
limitation, the Buildings and all leasehold improvements (including tenant
improvements other than Tenant Property), providing protection against any risk
included within the classification "All Risk," including all coverages listed in
subsection (a), such insurance to be in an amount no less than the full
replacement value of such improvements, which shall be determined at the time
the policy is initially obtained, and not less frequently than at each third
anniversary of the Lease Commencement Date as to the Initial Premises and (ii)
rental interruption insurance covering the payment of Base Rent and additional
rent for a period of at least twelve (12) months following the occurrence of a
covered casualty. The deductible or self-insurance reserve for the insurance
pursuant to clause (i) shall not exceed $25,000 per occurrence. The insurance
required by this subjection shall be the primary insurance with respect to the
property covered thereby.

            To and until the Rent Commencement Date, the coverage by Landlord
pursuant to this subsection will be builder's risk insurance, maintained by
Landlord or Landlord's Contractor (as defined in Section 14.2), with the cost
thereof to be included in Development Costs. Thereafter, such insurance shall be
standard casualty insurance. The insurance required by this subsection shall, if
possible, be pursuant to a blanket policy maintained by Landlord (and any
affiliates) to take advantage of any lower portfolio rate. Notwithstanding
anything to the contrary contained in this subsection, Landlord shall maintain
earthquake and flood coverage only during such period(s) when it is commercially
reasonable to do so taking into account premium rates, deductibles and/or
self-insurance reserve requirements and maximum coverage limits available.

            (c) The cost of the insurance maintained pursuant to subsection (b),
any deductible or self-insurance reserve payouts and an overhead allowance to
Landlord of five percent (5%), shall be additional rent payable by Tenant to
Landlord. Such additional rent shall be paid within ten (10) days after Tenant's
receipt of Landlord's invoices therefor, which invoices shall be not more
frequent than monthly.

            (d) The proceeds of the insurance maintained pursuant to subsections
(a) and (b) shall be payable as provided in Article VIII and, so long as this
Lease remains in effect, shall be used to repair or replace the Premises, any
improvements thereto and personal property so insured. Upon any termination of
this Lease pursuant to Section 8.2(c), the proceeds of the insurance required
pursuant to subsection (b) shall be applied first, to retire Tenant's Loan, if
applicable, second, to the then unamortized (using the amortization method in
Section 3.1(c)) cost of Tenant's investment in Landlord's Work, if any, third,
on a pro rata basis to Tenant and Landlord based upon the respective costs of
Tenant's Work and Landlord's Work (until all such costs are fully recovered) and
fourth any remainder to Landlord. The proceeds of all rental interruption
insurance shall be solely the property of Landlord and not subject to the
foregoing allocation. Tenant shall keep the proceeds of the insurance required
pursuant to subsection (a) above.


                                       33


Section 7.3 Insurance Policies

            All insurance required to be carried by Tenant or Landlord shall be
with companies rated A:VIII, or better, in the then most recent version of
Best's Key Rating Guide. Each party shall deliver to the other at least ten (10)
days prior to the time such insurance is first required to be carried, and
thereafter at least ten (10) days prior to the expiration or renewal date of any
policy so maintained, copies of the policies or certificates evidencing such
insurance. All policies and certificates delivered pursuant to this Section
shall contain liability limits not less than those set forth in Sections 7.1 and
7.2, shall list the additional insureds and shall specify all endorsements and
special coverages required by Sections 7.1 and 7.2. Each such policy shall
contain a provision (by endorsement or otherwise) requiring not less than ten
(10) days written notice to each party prior to any cancellation, non-renewal or
material amendment thereof. Any insurance required to be maintained by a party
hereunder may be provided by such party by means of a so-called "blanket"
policy, so long as the Premises is specifically covered therein (by rider,
endorsement or otherwise) and the policy otherwise complies with the provisions
of this Lease, without reduction or diminution due to use of such blanket
policy. If, on account of the failure of a party to comply with any provision of
this Article VII, the other party or any additional insured is adjudged a
co-insurer by its insurance carrier, then any loss or damage the other party or
such additional insured shall sustain by reason thereof shall be borne by the
insuring party and shall be paid by the insuring party upon receipt of a bill
therefor and evidence of such loss.

Section 7.4 Waiver of Subrogation

            Landlord and Tenant each hereby waives any and all rights of
recovery against the other and against any other occupant of the Land, and
against the partners, officers, employees, agents, representatives, customers
and business visitors of such other party and of such other occupant, for loss
of or damage to such waiving party or its property or the property of others
under its control, arising from any cause insured against under any policy of
insurance required to be carried by such waiving party pursuant to the
provisions of this Lease (or any other policy of insurance carried by such
waiving party in lieu thereof) at the time of such loss or damage. The foregoing
waiver shall be effective whether or not a waiving party shall actually obtain
and maintain the insurance which such waiving party is required to obtain and
maintain pursuant to this Lease (or any substitute therefor). Each party shall,
upon obtaining the policies of insurance which it is required to maintain
hereunder, give notice to its insurance carrier or carriers that the foregoing
mutual waiver of subrogation is contained in this Lease.

Section 7.5 Indemnity

            (a) To the fullest extent permitted by law, and subject to the last
sentence of this subsection, Tenant shall indemnify, defend and hold Landlord,
its agents, employees and partners harmless from and against any liability or
expense (including but not limited to loss of life and reasonable attorneys'
fees and costs of defense) for any damage or injury to persons or property in or
about the Premises or any Improvements thereon which may result from the use or
occupation of the Premises or any Improvements thereon by Tenant, its employees,
agents, invitees and contractors or the breach of the provisions of this Lease
by Tenant, its agents, employees, contractors, or other persons claiming under
Tenant. Such indemnification shall extend to liabilities arising from any
activity, work, or thing done, permitted or suffered by Tenant or any such
person in or about the Premises and shall further extend to any liabilities
arising from any default in the performance of any obligation on Tenant's part
hereunder. "Liabilities" shall include all suits, actions, claims and demands
and all expenses (including attorneys' fees and costs of defense) incurred in or
about any such liability and any action or proceeding brought thereon. It is
understood and agreed that payment shall not be a condition precedent to
enforcement of the foregoing indemnification obligations. Tenant's defense
obligations hereunder shall include the obligation, upon demand, to defend
Landlord against any claim or action of the types herein specified by legal
counsel reasonably satisfactory to Landlord. Notwithstanding anything to the
contrary in this Lease, this subsection shall not apply to any damage or injury
which Tenant establishes in a court of competent jurisdiction was caused by the
negligence or willful misconduct of Landlord, its agents, employees or
contractors.


                                       34


            (b) To the fullest extent permitted by law, and subject to Section
7.4 and the last sentence of this subsection, Landlord shall indemnify, defend
and hold Tenant, its agents, employees, officers and partners, harmless from and
against any liability or expense (including but not limited to reasonable
attorneys' fees and costs of defense) for any damage or injury to persons or
property in or about the Premises or any Improvements thereon which may result
from the actions of Landlord, its agents, employees or contractors, or from the
breach of the provisions of this Lease by Landlord, its agents, employees or
contractors. It is understood and agreed that payment shall not be a condition
precedent to enforcement of the foregoing indemnification obligations.
Landlord's defense obligations hereunder shall include the obligation, upon
demand, to defend Tenant against any claim or action of the types herein
specified by legal counsel reasonably satisfactory to Tenant. Notwithstanding
anything to the contrary contained in this Lease, this paragraph shall not apply
to any damage or injury which Landlord establishes in a court of competent
jurisdiction was caused by the negligence or willful misconduct of Tenant, its
agents, employees or contractors.

Section 7.6 Exemption of Landlord

            Neither Landlord nor its agents or employees shall be liable for any
damage to property entrusted to Landlord's employees or agents at the Premises,
nor for any loss of any property by theft. Landlord and its partners and their
respective partners, officers, agents and employees shall not be liable for
injury or damage which may be sustained by the person, goods, wares, or property
of Tenant, its employees, invitees or customers or any other person in or about
the Premises, or for loss or interruption of business, caused by or resulting
from any peril which may affect the Premises, including, but not limited to
fire, steam, electricity, gas, water or rain, which may leak or flow from or
into any part of the Premises, or from the breakage, leakage, obstruction or
other defects of the pipes, sprinklers, wires, appliances, plumbing, air
conditioning or lighting fixtures of the same, whether such damage or injury
results from conditions arising upon the Premises, or from other sources.
Landlord shall not be liable for any damages arising from any act or neglect of
any occupant of any property adjacent to the Premises, or any of their officers,
employees, agents, representatives, customers, business visitors or invitees.
Tenant, as a material consideration to Landlord, assumes all risk of damages to
property and injury to or death of persons in or about the Premises from any
cause. Notwithstanding anything to the contrary herein, this Section shall not
apply to the extent of any damage or injury which Tenant establishes in a court
of competent jurisdiction was proximately caused by the breach of this Lease,
negligence or willful misconduct of Landlord, its employees or agents.

Section 7.7 Notices

            Tenant shall give prompt notice to Landlord in case of fire or
material casualties in or to the Premises and of material defects therein.

                                  ARTICLE VIII.
                              DAMAGE OR DESTRUCTION

Section 8.1 Damage

            (a) Subject to the provisions of this Article, in the event the
Premises or the leasehold improvements thereon shall, during the term, be
damaged or destroyed in whole or in part by any cause whatsoever, and whether or
not such cause shall be covered by any insurance maintained by Tenant, Tenant
shall give Landlord prompt written notice thereof if Landlord or its agents are
not already aware thereof, and Landlord, without cost to Tenant, shall repair,
replace and rebuild the same, at least to the extent of the quality and value of
the Premises and such leasehold improvements immediately prior to such
occurrence. Landlord shall have no responsibility to repair or replace Tenant's
Property, or any of it.

            (b) Such repair, replacement or rebuilding shall be commenced within
a reasonable time after the occurrence of the event causing such damage or
destruction and the adjustment of insurance claims, if applicable, and shall
thereafter be diligently prosecuted to completion.


                                       35


            (c) All insurance monies recovered on account of damage or
destruction, less the cost, if any, of such recovery, shall be paid to the
insuring party and shall be applied to the payment of the cost of repairing,
replacing and rebuilding, and shall be paid out from time to time as such work
progresses. If the insurance monies shall be insufficient to pay the entire cost
of such work, the party obligated to perform such work shall pay the deficiency.
Upon the completion of the work and payment in full therefor, any insurance
monies then remaining shall be applied or allocated as provided in the last two
sentences of Section 7.2(d).

            (d) Except as otherwise expressly provided in this Article VIII,
this Lease shall not terminate or be affected in any way, and neither party
shall, except to the extent provided in Sections 8.2 and 8.3, be released from
any of its liabilities or obligations hereunder by reason of damage to or
destruction of the Premises, any leasehold improvements thereon or Tenant's
Property. Tenant shall have no claim against Landlord for any damage suffered by
Tenant by reason of any such damage, destruction, repair or restoration. Tenant
hereby waives the provisions of California Civil Code Sections 1932(2) and
1933(4) and of any other statute, law or judicial decision now or hereafter in
effect contrary to the obligations of Tenant under this Article VIII or which
relieve Tenant therefrom.

Section 8.2 Termination Rights

            (a) Notwithstanding the provisions of Section 8.1, Landlord shall
have the option to terminate this Lease and not repair, restore or rebuild in
the event that a casualty results in:

                (i) Major Destruction, as defined in subsection (b), during the
last twelve (12) months of the term of this Lease;

                (ii) Total Destruction, as defined in subsection (b); or

                (iii) Uninsured Damage, as defined in subsection (b), with a
cost to repair, restore or rebuild in excess of the Upset Amount, as defined in
subsection (b).

Tenant shall also have the option to terminate this Lease in the event of an
occurrence described in clauses (i) and (ii) of this subsection.

            (b) As used in this Section 8.2:

                (i) "Major Destruction" shall mean damage to or destruction of
Landlord's Improvements in any Building leased by Tenant, the estimated cost of
repair, restoration or rebuilding of which exceeds thirty-three and one-third
percent (33 1/3%) of the then replacement cost of the Building damaged or
destroyed.

                (ii) "Total Destruction" shall mean damage to or destruction of
Landlord's Improvements in any Building leased by Tenant, the estimated time for
completion of repair, restoration or rebuilding of which exceeds one year from
the date of the damage or destruction.

                (iii) "Uninsured Damage" shall mean damage to or destruction of
Landlord's Improvements from any cause which (A) is not covered by the insurance
maintained by Landlord pursuant to Section 7.2(b) and (B) would not have been
covered if Landlord maintained all coverages required by Section 7.2(b). The
provisions of this clause (iii) and clause (iii) of Section 8.2(a) above are
subject to the provisions of subsection (c) below.

                (iv) The "Upset Amount" shall mean $500,000 per Building as of
February 1, 2002, adjusted by any changes in the CPI published for each
succeeding February from the CPI published for February 2002. If the CPI is not
published as of any February, a replacement index shall be selected as provided
in Section 3.3.

                All cost and time determinations and estimates required by the
provisions of this subsection shall be made by a licensed architect or general
contractor selected and


                                       36


retained by Landlord and approved in advance in writing by Tenant, which such
approval shall not be unreasonably withheld, delayed or conditioned.

            (c) In the event that a casualty has any of the results described in
subsection (a), Landlord shall have the option to terminate this Lease by
written notice to Tenant given within thirty (30) days after the date of such
damage or destruction. In the event that a casualty has either of the results
described in clauses (i) or (ii) of subsection (a), Tenant shall have the option
to terminate this Lease by written notice to Landlord given within thirty (30)
days after the date of such damage or destruction. Any notice of termination
given by either Landlord or Tenant pursuant to this subsection (c) shall pertain
only to the Building or Buildings as to which a casualty causes the applicable
result pursuant to subsection (a), and this Lease shall remain in effect as to
any Building not suffering such result. Provided, however, that if Landlord
elects to terminate this Lease as to a Building or Buildings as the result of
Uninsured Damage with a cost to repair, restore or rebuild in excess of the
Upset Amount, Tenant may, by written notice to Landlord given within twenty (20)
days after receipt of Landlord's notice of termination, elect to provide funds
equal to that portion of the cost of repair, restoration or rebuilding in excess
of the Upset Amount. In such event, this Lease shall not terminate as to the
affected Building(s) and Landlord shall repair, restore or rebuild pursuant to
Section 8.1. In addition, if neither party is entitled to or either party is
entitled to but does not elect to terminate pursuant to this Section, Landlord
shall repair, restore or rebuild pursuant to Section 8.1. If Tenant elects to
provide funds in excess of the Upset Amount, Tenant shall, within ten (10) days
after receipt by Tenant of a written estimate from landlord of the total cost of
Landlord's work of repair or restoration, deposit such funds with Landlord.
Similarly, if such estimate thereafter increases, Tenant shall within ten (10)
days after receipt of an increased written estimate make such additional deposit
as shall be required. Upon completion of Landlord's work, Landlord shall provide
to Tenant an accounting of the total cost of Landlord's work, the Upset Amount
and all amounts previously deposited by Tenant, and the parties shall promptly
make any adjustments required to give effect to the financial obligations of the
parties pursuant to this subsection. Failure of Tenant to timely make any
deposit required hereunder shall be treated as a failure to pay additional rent
pursuant to this Lease.

            (d) If either party is entitled to terminate and timely elects to
terminate this Lease pursuant to this Section, then:

                (i) This Lease shall terminate as to the affected Building(s)
only upon receipt of notice of termination from the terminating party, unless
Tenant has the option to and elects to furnish funds pursuant to subsection (c).

                (ii) The proceeds recovered pursuant to the policies maintained
by Landlord and Tenant pursuant to Section 7.2 shall be allocated and paid as
follows:

                    (A) Tenant shall receive the proceeds of the policies
maintained by Tenant.

                    (B) The proceeds of the policies maintained by Landlord
pursuant to Section 7.2(b) shall be applied or allocated as provided in the
penultimate sentence of Section 7.2(d).

                (iii) Sections 5.5, 6.4(b), 6.5 and 13.27 of this Lease shall
apply with respect to such termination.

                (iv) Rent shall cease to accrue as of the date of termination of
this Lease.

Section 8.3 Abatement of Rent

            If at any time during the term hereof all or any part of the
Premises or any improvements thereon are destroyed or damaged by any casualty
and this Lease is not terminated pursuant to Section 8.2, Tenant shall have no
claim against Landlord for any damage suffered by Tenant by reason of any such
damage, destruction, repair or restoration, unless and only to the extent that
Tenant establishes in a court of competent jurisdiction that such damage was
solely


                                       37


and proximately caused by the negligence of Landlord, its employees or agents
and Section 7.4 does not apply thereto. For the period from the date of such
casualty until completion of repairs or restoration pursuant to Section 8.1,
Base Rent shall be abated in proportion to the degree of interference with
Tenant's use of the Premises occasioned by such damage or destruction, including
totally if applicable. Provided, however, that in no event shall such period of
abatement extend beyond the first to occur of (a) the 150th day following
substantial completion by Landlord of its work of repair or restoration and (b)
the expiration of such reasonable period of time in which Tenant could have
completed its work of repair, restoration or rebuilding had Tenant diligently
prosecuted such work to completion.

                                   ARTICLE IX.
                            ASSIGNMENT AND SUBLETTING

Section 9.1 Landlord's Rights

            (a) Except as provided in this Article, Tenant shall not, either
voluntarily or by operation of law, assign, sell, encumber, pledge or otherwise
transfer all or any part of Tenant's leasehold estate hereunder, or permit the
Premises to be used or occupied by anyone other than Tenant or Tenant's
employees, affiliates or contractors or sublet the Premises or any portion
thereof, without Landlord's prior written consent in each instance, which
consent shall not be unreasonably withheld. Consent by Landlord to one or more
assignments of this Lease or to one or more sublettings of the Premises shall
not operate to exhaust Landlord's rights under this Section. The voluntary or
other surrender of this Lease by Tenant or a mutual cancellation hereof shall
not work a merger, and shall, at the option of Landlord, terminate all or any
existing subleases or subtenancies or shall operate as an assignment to Landlord
of such subleases or subtenancies. If Tenant is a corporation which is not
required to file periodic reports under Sections 12 or 15 of the Securities
Exchange Act of 1934, or is an unincorporated association or partnership, the
transfer, assignment or hypothecation of any stock or interest in Tenant in the
aggregate in excess of fifty percent (50%) shall be deemed an assignment within
the meaning and provisions of this Article, but the transfer, assignment or
hypothecation of less than fifty percent (50%) of the stock or interest in
Tenant shall not be deemed an assignment. In connection with any request for
Landlord's consent required under this Article, Tenant shall reimburse to
Landlord all reasonable attorneys' fees and other out-of-pocket costs incurred
by Landlord in responding to such request. Attorneys' fees and costs shall be
charged at the same rate such attorneys' charge Landlord for other similar work.
The reimbursement due under this subsection shall be paid, as additional rent
under this Lease, within twenty (20) days after Tenant's receipt of Landlord's
invoice therefor. Any such reimbursement may be recovered in any unlawful
detainer or other action instituted by Landlord upon any default by Tenant as
rent, whether or not included in any notice given to Tenant by Landlord prior to
or as a condition to the institution of such action.

            (b) If Tenant desires at any time to assign this Lease or to sublet
the Premises or any portion thereof, other than as permitted in subsection (i),
it shall first in writing notify Landlord of its desire to do so and shall
submit in writing to Landlord (i) the name of the proposed subtenant or
assignee; (ii) the nature of the proposed subtenant's or assignee's business to
be carried on in the Premises; (iii) the terms and provisions of the proposed
sublease or assignment; and (iv) such reasonable financial information as
Landlord may request concerning the proposed subtenant or assignee, including
but not limited to a balance sheet of the proposed subtenant or assignee as of a
date within ninety (90) days prior to the request for Landlord's consent,
statements of income or profit and loss of the proposed subtenant or assignee
for the two year period preceding the request for Landlord's consent and a
written statement in reasonable detail as to the business experience of the
proposed subtenant or assignee during the three (3) years preceding the request
for Landlord's consent, if available.

            (c) At any time within fifteen (15) business days after Landlord's
receipt of the information specified in subsection (b) above, Landlord may by
written notice to Tenant elect to (i) consent to the subletting or assignment
upon the terms and to the subtenant or assignee proposed or (ii) refuse to give
its consent, specifying in reasonable detail the reason(s) therefor.


                                       38



            (d) Except as provided in subsection (i), Landlord shall have the
right to reasonably approve or disapprove any proposed assignee or sublessee. In
exercising such right of approval or disapproval, Landlord shall be entitled to
take into account any fact or factor which Landlord reasonably deems relevant to
such decision, including but not necessarily limited to the following, all of
which are agreed to be appropriate factors for Landlord's consideration:

                (i) The financial strength of any proposed assignee or
subtenant, including the adequacy of its working capital to pay all expenses
anticipated in connection with any remodeling of the Premises.

                (ii) The experience of the proposed assignee or subtenant with
respect to businesses of the type and size which such assignee or subtenant
proposes to conduct in the Premises.

                (iii) The quality and nature of the use which such proposed
assignee or subtenant proposes for the Premises, and the consistency or lack
thereof with the quality of the Premises. For this purpose, the standards set
forth in Section 5.1 shall apply.

                (iv) The quality of the Premises' appearance resulting from any
remodeling or renovation to be conducted by the proposed assignee or subtenant.

                (v) Whether there then exists any Default by Tenant pursuant to
this Lease or any non-payment or non-performance by Tenant under this Lease
which, with the passage of time and/or the giving of notice, would constitute a
Default under this Lease.

In no event shall the Premises be used except as expressly approved in writing
by Landlord in advance or as permitted by Section 5.1. Landlord and Tenant
acknowledge that the express standards and provisions set forth in this Lease
dealing with assignment and subletting, including those set forth in subsections
(d), (e), (g) and (h), have been freely negotiated and are reasonable at the
date hereof. Landlord would not offer similar terms to smaller tenants. Approval
of any assignment of Tenant's interest shall, whether or not expressly so
stated, be conditioned upon such assignee assuming in writing all obligations of
the tenant hereunder accruing subsequent to the effective date of the assignment
by means of a written assumption in form and substance reasonably satisfactory
to Landlord.

            (e) In connection with any assignment, subletting or other transfer
other than a subletting or assignment permitted without the consent of Landlord
pursuant to subsection (i), Landlord shall be entitled to receive, in the case
of a subletting or transfer other than an assignment, one-half ( 1/2) of all net
rent (however denominated and paid) payable by the subtenant or transferee to
Tenant in excess of that payable by Tenant to Landlord pursuant to the other
provisions of this Lease and, in the case of an assignment, one-half ( 1/2) of
all net consideration given, directly or indirectly, by the assignee to Tenant
in connection with such assignment and allocable to Tenant's leasehold estate.
For the purposes of this subsection, the term "rent" shall mean all
consideration paid or given, directly or indirectly, for the use of the Premises
or any portion thereof. The term "consideration" shall mean and include money,
services, property and any other thing of value such as payment of costs,
cancellation of indebtedness, discounts, rebates and the like. "Sublet" and
"sublease" shall include a sublease as to which Tenant is sublessor and any
sub-sublease or other sub-subtenancy, irrespective of the number of tenancies
and tenancy levels between the ultimate occupant and Landlord, and as to which
Tenant receives any consideration, as defined in this subsection. Any net rent
or other net consideration which is to be passed through to Landlord by Tenant
pursuant to this subsection shall be paid to Landlord promptly upon receipt by
Tenant and shall be paid in cash, irrespective of the form in which received by
Tenant. In the event that any net rent or other net consideration received by
Tenant is in a form other than cash, Tenant shall pay to Landlord in cash
one-half ( 1/2) of the fair market value of such consideration. Landlord and
Tenant agree that the payment required by this subsection represents payment for
Landlord's property rights in and to the leasehold estate hereby created.

            The information to be supplied to Landlord under subsection 9.1(b)
shall include an itemized statement of all rent and consideration (whether for
the use of the Premises, the


                                       39

leasehold estate, leasehold improvements, furniture, fixtures and equipment,
inventory, franchises, licenses or otherwise) to be paid to Tenant in connection
with the assignment, subletting or other transfer. Such statement shall allocate
the total to be paid to Tenant among all such items as reasonably agreed by
Tenant and Tenant's assignee, subtenant or transferee, and such allocations
shall be subject to the review and approval of Landlord. If Tenant and Landlord
cannot agree as to the amount to be allocated for the use of the Premises or the
leasehold estate, one-half (1/2) of which amount shall belong to Landlord in
accordance with the provisions of this subsection, then such amount shall be
determined as follows: The amount to be allocated to each of leasehold
improvements, furniture, fixtures and equipment, franchises, licenses and other
hard assets shall be the then reasonable market value of each such item as
determined by a certified public accountant selected by Landlord, and such
determination shall be binding upon the parties. The total of all such book
value amounts shall be deducted from the total of all rent and consideration to
be paid to Tenant in connection with such assignment, subletting or other
transfer, and one-half (1/2) of the remainder, after deducting from the
remainder transaction expenses, as defined below, shall belong to Landlord as
the amount due hereunder for the use of the Premises or the leasehold estate.

            As used herein, the terms "net rent" and "net consideration" shall
mean the gross rent payable and actually paid by a subtenant in excess of that
payable by Tenant hereunder or the gross consideration actually received by
Tenant for its leasehold estate, as the case may be, less Tenant's transaction
expenses in connection with the subletting or assignment giving rise to such
excess rent or consideration. The term "transaction expenses" shall mean the
aggregate out-of-pocket costs incurred or to be incurred by Tenant in connection
with a subletting or an assignment, including all fees and costs of attorneys,
accountants, architects, designers and other professionals retained by Tenant in
connection with such transaction, any brokerage or finder's fees or commissions
paid by Tenant in connection with such transaction, any advertising costs
incurred by Tenant in connection with such transaction, any escrow fees and
costs paid in connection with such transaction and any costs and fees paid by
Tenant to renovate or remodel the Premises or any portion thereof for the use of
such assignee or subtenant, whether paid directly by Tenant, or in the form of
an allowance to a proposed subtenant or assignee. Transaction expenses shall
also include any payment made to or for the benefit of an assignee or subtenant,
such as a moving allowance or a decorating allowance, shall include any rent
abatement afforded to a subtenant by Tenant and any lease takeover costs
incurred by Tenant in connection with such transaction. Transaction expenses
shall also include the amount of any Base Rent paid by Tenant to Landlord with
respect to the Premises, or any portion thereof, for any period during which
Tenant cannot occupy the same due to renovation of the same for an assignee or
subtenant, and for any period after Tenant vacates the Premises and lists the
same for assignment or sublease to the date an assignee or subtenant commences
the payment of rent hereunder or under such sublease. Tenant's transaction
expenses shall be set forth in reasonable detail on a written statement provided
by Tenant pursuant to this subsection and shall be recovered by Tenant from the
first excess rent or consideration received by Tenant prior to any split with
Landlord pursuant to this subsection. Upon request by Landlord, Tenant shall
supply to Landlord reasonable documentary evidence as to the actual transaction
expenses paid or incurred by Tenant in connection with an assignment or
subletting of the Premises or a portion thereof.

            (f) If Landlord consents to such assignment or subletting or does
not exercise one of its other options within the fifteen (15) business day
period specified in subsection (c) above, Tenant may thereafter within one
hundred twenty (120) days after the expiration of said fifteen (15) business day
period enter into a valid assignment or sublease of the Premises or portion
thereof, upon the terms and conditions described in the information required to
be furnished by Tenant to Landlord pursuant to subsection 9.1(b), or upon other
terms not less favorable to Tenant; provided, however, that any material change
in such terms shall be subject to Landlord's consent as provided in this
Section; and, provided further, that any amounts to be paid to Landlord by
Tenant in connection therewith pursuant to subsection (e) shall be paid to
Landlord upon the later of consummation of such transaction or receipt by Tenant
of such consideration.

            (g) All options to extend, expand, renew or purchase, if any,
including the Extension Options with respect to the Additional Terms, contained
in this Lease are personal to


                                       40



Tenant. Consent by Landlord to any assignment or subletting shall not include
consent to the assignment or transfer of any such rights with respect to the
Premises. All such options shall terminate upon such assignment or subletting
unless Landlord specifically grants in writing such options to such assignee or
subtenant. The provision of this subsection shall not apply to sublettings or an
assignment permitted without the consent of Landlord pursuant to subsection (i).

            (h) In the event that this Lease is assigned to any person or entity
pursuant to the provisions of the United States Bankruptcy Code (11 U.S.C., Sec.
101 et seq.) (the "Code"), all consideration payable or otherwise to be
delivered in connection with such assignment shall be paid or delivered to
Landlord, shall be and remain the exclusive property of Landlord and shall not
constitute property of Tenant or of the estate of Tenant within the meaning of
the Code. Any consideration constituting Landlord's property pursuant to the
immediately preceding sentence not paid or delivered to Landlord shall be held
in trust for the benefit of Landlord and shall be promptly paid or delivered to
Landlord. For the purposes of this Section, the term "consideration" shall have
the meaning given to such term in subsection (e). In addition, subsection (g)
shall apply with respect to such assignment.

            (i) Notwithstanding anything to the contrary contained in this
Section 9.1, Landlord's consent shall not be required and subsection 9(c) shall
not apply in connection with an assignment of Tenant's interest in this Lease or
a subletting of all or a portion of the Premises:

                (i) To any parent, subsidiary or affiliate of Tenant;

                (ii) In connection with a reorganization, merger or
consolidation to which Tenant is a party;

                (iii) To any person or entity which acquires all or
substantially all of the capital stock or assets of Tenant;

                (iv) To a joint venture or partnership of which Tenant or a
parent, subsidiary or affiliate of Tenant is a joint venturer or partner;

                (v) To any person or entity which acquires a substantial portion
of the assets or business of Tenant (such as an entire division or comparable
business unit); and

                (vi) To an entity which performs a function or group of
functions previously performed by Tenant or a division or department of
arrangement between Tenant and such entity (a so-called out-sourcing).

Provided, however, that in connection with any such transaction ( a "Permitted
Transaction"), Tenant shall comply with all of the following as are applicable:

                    (A) The use of the Premises shall be a use permitted by
Section 5.1.

                    (B) Any such sublease shall be subject to the terms and
provisions of this Lease. Without limiting the generality of the foregoing, any
such sublease shall be terminable by Landlord upon the expiration or any earlier
termination of this Lease, including a termination by mutual agreement of
Landlord and Tenant.

                    (C) The assignee shall assume the obligations of the tenant
hereunder accruing subsequent to the effective date of the assignment by means
of a written assumption in form and substance reasonably satisfactory to
Landlord.

                    (D) Tenant shall not be released from any of the obligations
of the tenant hereunder, whether accruing prior to or subsequent to the
effective date of such transfer.

                    (E) There shall be no Default by Tenant with respect to its
obligations hereunder beyond any applicable notice and cure period.


                                       41


                    (F) Within ten (10) days after the effective date of the
transaction, Tenant shall notify Landlord in writing of the effective date of
the transaction, the name of the other party thereto, the facts which bring such
transaction within the scope of this subsection and any change in the address
for notices to tenant pursuant to this Lease. Such notice shall be accompanied
by any executed assumption required pursuant to clause (C) above.

                    (G) In the event of any change in the trade name of the
tenant hereunder, all changes to Tenant's Signage shall be subject to the
provisions of Section 5.4.

            For the purposes of this subsection, a parent of Tenant shall be any
person or entity which owns, directly or indirectly, more than 50% of the voting
capital stock or profit and loss interests in Tenant; a subsidiary of Tenant
shall be an entity as to which Tenant owns, directly or indirectly, more than
50% of the voting capital stock or profit and loss interests in such entity; and
an affiliate of Tenant shall be a subsidiary of any parent of Tenant.
Subsections (a), (b), (c), (d), (e) and (f) shall not apply in connection with a
Permitted Transaction.

Section 9.2 No Release of Tenant

            No sublease, assignment or transfer, even with the consent of
Landlord, shall relieve Tenant of its obligation to pay the rent and to perform
all of the other obligations to be performed by Tenant hereunder. The acceptance
of rent by Landlord from any other person shall not be deemed to be a waiver by
Landlord of any provision of this Lease or to be a consent to any assignment,
sublease or transfer. The foregoing restrictions shall be binding upon any
assignee or subtenant to which Landlord has consented. Any sale, assignment,
mortgage, transfer of this Lease or subletting which does not comply with the
provisions of this Article shall be void. If any assignee defaults in any
performance due hereunder, Landlord may proceed directly against Tenant without
exhausting its remedies against such assignee.

Section 9.3 Hypothecation

            Notwithstanding anything which is or appears to be to the contrary
in this Lease, Tenant shall not encumber the leasehold estate created by this
Lease, except as expressly provided in this Section 9.3.

            (a) As used herein, the following terms shall have the following
meanings:

                (i) The term "Mortgage" shall mean a mortgage, deed of trust,
assignment or other instrument hypothecating the Leasehold Estate pursuant to
this Lease.

                (ii) The term "Mortgagee" shall mean the beneficiary under any
deed of trust, any mortgagee under any mortgage, the assignee under any
assignment or any lender occupying a similar position under any other instrument
hypothecating the leasehold interest pursuant to this Lease.

                (iii) The term "Leasehold Estate" shall mean Tenant's estate
created pursuant to this Lease.

            (b) Any Mortgage shall be a lien only upon the Leasehold Estate and
shall not be a lien upon Landlord's fee interest in the Premises. So long as a
Mortgage shall remain unsatisfied of record and until written notice of
satisfaction is given by the Mortgagee to Landlord, the following provisions
shall apply to such Mortgage.

            (c) Landlord shall serve a copy of any notice, as defined below,
including a notice of default, required to be served on Tenant under this Lease
upon such Mortgagee, and no notice by Landlord to Tenant hereunder shall be
deemed to have been duly given unless and until a copy thereof has been served
on the Mortgagee. As used herein, the term "notice" shall mean any notice of
default, any notice of arbitration, and any notice pertaining to any option held
by Tenant hereunder.

            (d) In the event of a default by Tenant hereunder, any Mortgagee
shall, within the period allowed Tenant to cure such default and otherwise as
herein provided, have the right


                                       42



to cure such default, or cause the same to be cured, and Landlord shall accept
such performance by or on behalf of such Mortgagee as if the same had been made
by Tenant.

            (e) For the purposes of this Section, no event of default shall be
deemed to exist if (i) in the case of a monetary default, the same shall be
cured within the time permitted therefor and (ii) in the case of a non-monetary
default, steps shall in good faith have been commenced by the Mortgagee within
the time permitted therefor to cure the same and shall be prosecuted to
completion with diligence and continuity.

            (f) Notwithstanding the provisions of subsection (e), upon the
occurrence of an event of default, other than an event of default due to a
default in the payment of money or other default which may be cured without
taking possession of the Premises, Landlord shall take no action to terminate
this Lease without first giving to the Mortgagee written notice of Landlord's
intention to terminate this Lease (which may be a copy of a notice to pay or
quit or a notice to perform or quit given to Tenant) and thirty (30) days
thereafter within which either (i) to obtain possession of the Premises
(including possession by a receiver) or (ii) to institute, prosecute and
thereafter diligently complete foreclosure proceedings or otherwise acquire
Tenant's interest under this Lease. Such Mortgagee, upon obtaining possession or
acquiring Tenant's interest under this Lease, shall be required, within thirty
(30) days after obtaining such possession or interest, to cure all defaults
reasonably susceptible of being cured by such Mortgagee. Provided, however,
that: (x) such Mortgagee shall not be obligated to continue such possession or
to continue such foreclosure proceedings after such default shall have been
cured; (y) nothing herein contained shall preclude Landlord, subject to the
provisions of this Section, from exercising any rights or remedies under this
Lease with respect to any other default by Tenant; and (z) such Mortgagee shall
agree with Landlord in writing to comply during the period of such forbearance
with such of the terms, conditions and covenants of this Lease as are reasonably
susceptible of being complied with by such Mortgagee, including those requiring
the payment of money. Any default by Tenant not reasonably susceptible of being
cured by such Mortgagee shall be deemed to have been waived by Landlord upon
completion of such foreclosure proceedings or upon such acquisition of Tenant's
interest under this Lease, except that any such events of default which are
reasonably susceptible of being cured after such completion and acquisition
shall then be cured by Mortgagee within the time specified in this Section. Such
Mortgagee or other purchaser in foreclosure proceedings may become the legal
owner and holder of Tenant's interest under this Lease by foreclosure or
assignment in lieu of foreclosure.

            (g) In the event of termination of this Lease prior to the
expiration of the term, except by reason of condemnation or casualty as provided
herein or a mutual termination with the consent of Mortgagee, Landlord shall
serve upon the Mortgagee written notice that this Lease has been terminated
together with a statement of any and all sums which would at that time be due
under this Lease but for such termination, and of all other defaults, if any,
under this Lease then known to Landlord. Such Mortgagee shall thereupon have the
option to obtain a new lease in accordance with and upon the following terms and
conditions: upon the written request of the Mortgagee within thirty (30) days
after service of such notice that this Lease has been terminated, Landlord shall
enter into a new lease of the Premises with such Mortgagee, or its nominee. Such
new lease shall be effective on the date of termination of this Lease and shall
be for the remainder of the term, at the rent and upon all the agreements,
terms, covenants and conditions hereof, including any applicable rights of
renewal. As a condition to such new lease, the Mortgagee shall perform all
unfulfilled obligations of Tenant under this Lease which are reasonably
susceptible of being performed by the Mortgagee. Upon the execution of such new
lease, the tenant named therein shall pay all sums which would at the time of
the execution thereof be due under this Lease but for such termination and shall
pay the reasonable expenses (including attorneys' fees and costs) incurred by
Landlord in connection with such defaults and termination, the recovery of
possession of the Premises and the preparation, execution and delivery of such
new lease, less the net income (after payment of any operating expenses), if
any, derived by Landlord from the Premises during the period from the date of
termination of this Lease to the date of execution of the new lease.


                                       43


            (h) Effective upon the commencement of the term of any new lease
executed pursuant to subsection (g), all subleases, if any, shall be assigned
and transferred without recourse by Landlord to the tenant under such new lease.

            (i) This Lease may not be modified, cancelled or surrendered by
agreement of the parties without the express written consent of the Mortgagee.
For the purposes of this subsection (i):

                (i) The prohibition against modifications shall not extend to
immaterial modifications of this Lease (i.e., modifications which do not
materially increase the obligations or materially decrease the rights of
Tenant).

                (ii) No Mortgagee shall unreasonably withhold or delay its
consent to a proposed modification of this Lease, and such consent shall be
deemed given if a Mortgagee shall fail to disapprove a proposed amendment to
this Lease by written notice to Landlord and Tenant given within thirty (30)
days after receipt of the proposed amendment.

                (iii) The provisions of this subsection shall not apply to any
termination of this Lease due to a default by Tenant, a casualty, a condemnation
or in a proceeding under the federal Bankruptcy Code.

            (j) There shall be no merger of this Lease, or of the Leasehold
Estate, with the fee estate in and to the Premises by reason of the fact that
this Lease, or the Leasehold Estate, or any interest in either thereof, may be
held directly or indirectly by or for the account of any person who shall own
the fee estate in and to the Premises, or any portion thereof, and no such
merger shall occur unless and until all persons at the time having any interest
in this Lease or the Leasehold Estate, including Mortgagee, shall join in a
written instrument effecting such merger.

            (k) No Mortgagee shall become personally liable under this Lease
unless and until the Mortgagee shall acquire title to Tenant's interest under
this Lease by foreclosure, assignment in lieu of foreclosure or otherwise, or
under a new lease pursuant to subsection (g). In such event the Mortgagee may
assign such interest under this Lease or in such new lease, but only in
accordance with this Article IX, and shall thereupon be released from all
liability for the performance or observance of the covenants, and conditions in
this Lease or in such new lease contained on Tenant's or the tenant's part to be
performed and observed from and after the date of such assignment. Provided,
however, that the assignee from such Mortgagee shall have expressly assumed in
writing this Lease or such new lease on an assignment form reasonably
satisfactory to Landlord and an executed copy of such assumption shall have been
submitted to Landlord and such assignment shall expressly be made subject to the
provisions of this Lease. No such assignment shall modify or limit any right or
power of Landlord hereunder.

            (l) All notices by Landlord to such Mortgagee pursuant to this
Section shall be in writing and sent by United States registered or certified
mail, postage prepaid, return receipt requested, addressed to such Mortgagee at
the address last specified to Landlord by Tenant or such Mortgagee, and any such
notice shall be deemed to have been served as of the date of receipt or refusal
indicated on the return receipt.

            (m) Notwithstanding anything to the contrary contained in this
Section:

                (i) The loan secured by any Mortgage (a "Loan") must be with an
institutional or equivalent lender (e.g., bank, savings and loan association,
insurance company, pension fund, investment banker or other entity engaged in
the making of loans secured by interests in real property).

                (ii) The term of any Loan, including any permitted extensions or
renewals thereof, shall not extend past the expiration date of this Lease
(including the additional terms pursuant to Section 2.3).

                (iii) Such Loan shall constitute permanent financing with
respect to the Premises.


                                       44



                (iv) The Mortgage shall contain provisions requiring that copies
of all notices of default thereunder must be sent to Landlord.

                (v) The Mortgage shall not permit or authorize, or be construed
to permit or authorize, any Lender to devote the Premises to any uses other than
those uses authorized by Section 5.01 or to construct any Improvements thereon
other than the specific Improvements provided for in this Lease.

                (vi) Promptly following the closing of the Loan, Landlord shall
be furnished with two complete executed sets of the documents executed in
connection with the Loan, delivery of which may be conditioned upon delivery of
a reasonably satisfactory confidentiality agreement by Landlord. Such sets may
be photocopies rather than originals, but shall bear the filing or recording
stamps of all government officers with which filed or recorded.

                (vii) Landlord shall execute and deliver, and Tenant shall
record concurrently with the Mortgage, a request for special notice to Landlord
under Civil Code Section 2924b.

                (viii) Unless the Mortgage is secured by all or substantially
all of the assets of the Tenant, the Mortgage shall specifically provide that:
(1) in the event of a default by Tenant thereunder, Landlord shall have the
right at its option (but shall not be required) to cure such default; and (2) no
action shall be taken by the Lender to foreclose upon any such mortgage or deed
of trust until at least thirty (30) days after such Lender shall have notified
Landlord in writing of any default by Tenant.

                (ix) The rights of any Mortgagee shall be subject to all of the
terms and provisions of this Lease (as the same may from time to time be amended
with the consent of the Mortgagee). Any purchaser of the Leasehold Estate upon
foreclosure or under power of sale shall, except as set forth below, succeed to
the rights of Tenant hereunder, including possession of the Premises, and shall
be liable for the performance of the terms and provisions hereof to be performed
by the tenant from and after such purchaser acquires the Leasehold Estate.
Provided, however, that a Mortgagee which acquires the Leasehold Estate shall be
liable only for obligations accruing during the period that it holds the
Leasehold Estate. Moreover, the rights granted to Tenant pursuant to Sections
1.4, 1.5, 15.1 and 15.2 shall not survive the judicial foreclosure, sale under
power of sale or transfer of Tenant's interest hereunder pursuant to or with
respect to any Mortgage executed by Tenant pursuant to this Section.

                (x) To the extent that any Mortgagee declines or refuses to
comply with any condition contained in this Section to forbearance by Landlord
in exercising its right to terminate this Lease for a default by Tenant,
Landlord shall be relieved of such forbearance obligation.

                (xi) Landlord shall have no obligation to deliver possession of
the Premises or any portion thereof to any Mortgagee, to any person or entity
succeeding to the rights of Tenant hereunder by foreclosure, sale under power of
sale or deed in lieu of foreclosure or to the lessee under any new lease
executed pursuant to the terms of this Section unless Landlord shall previously
have obtained possession of the Premises or such portion thereof.

                (xii) There shall be no more than one (1) Mortgage with respect
to the Leasehold Estate at any time.

                                   ARTICLE X.
                                  CONDEMNATION

Section 10.1 Condemnation

            (a) In the event of a taking of or damage to all or any part of the
Premises by reason of any exercise of the power of eminent domain, whether by
condemnation proceedings or otherwise, or any transfer of all or any part of the
Premises made in avoidance of an exercise of the power of eminent domain (all of
the foregoing being hereinafter referred to as an "appropriation") during the
term of this Lease, the rights and obligations of Landlord and Tenant


                                       45


with regard to such appropriation, including rights to the award therefrom and
including compensation, severance or other damage, and interest shall be as
provided in this Article X.

            (b) If by reason of any such appropriation, economic operation of
the Premises is materially and adversely affected (an appropriation of
twenty-five percent (25%) or more of the Floor Area of the Premises shall be
deemed to have such effect) this Lease shall, at the option of either party, be
cancelled and terminated and the rents and other charges payable by Tenant
hereunder shall be apportioned to the termination date.

            Such option to terminate the Lease shall be exercised at any time
subsequent to delivery of written notice of such appropriation to Tenant. The
termination date of this Lease if this Lease is terminated by either party
pursuant to this Section shall be the date upon which the condemning authority
shall require possession of the Premises or the portion thereof so appropriated.

            In the event, however, that the condemning agency shall abandon such
eminent domain proceeding after such notice of exercise of option to terminate
this Lease has become effective under the provisions hereof, then either
Landlord or Tenant may, at its option, revoke and cancel its notice of exercise
of option to terminate this Lease by notifying the other in writing, not more
than thirty (30) days after written notice of such abandonment shall have been
served on Tenant and filed in court.

            (c) If only a portion of the Premises shall be so taken and if this
Lease shall not be terminated pursuant to the provisions of subsection (b),
Landlord shall promptly restore, repair or reconstruct any Landlord Improvements
on the Premises only a portion of which were so taken so that when so restored,
repaired or reconstructed such Landlord Improvements shall be of substantially
the same quality and character as existed immediately prior to such taking, and
the rental payable by Tenant hereunder shall be reduced, effective as of the
taking of possession by the condemning authority, in proportion to the reduction
in the fair market rental value of the Premises by reason of such taking. Such
repair, restoration or reconstruction shall be the sole responsibility of
Landlord, both as to performance and payment of the costs thereof, shall be
designed by an architect selected and retained by Landlord, shall be performed
by a general contractor selected and retained by Landlord, shall comply with
Applicable Laws, shall be commenced as promptly as practicable after the taking
and shall be diligently pursued to completion. Article XIV shall not apply to
such Landlord, repair, restoration or renovation, and Landlord shall be entitled
to utilize so much of the award for such taking (including amounts otherwise
allocated to Tenant pursuant to subsection (d)), up to the full amount of the
award, as necessary to effect such repair, restoration or reconstruction. In no
event shall Landlord be required to spend on such repair, restoration and
reconstruction any amount in excess of the award for such taking. Promptly upon
completion of Landlord's work, Tenant shall, at Tenant's sole cost and expense,
repair, restore or reconstruct any Tenant Improvements and Tenant Property taken
or damaged. Any such work by Tenant shall be subject to the provisions of
Sections 5.4, 5.5, 6.2 and 6.4.

            (d) Any award for any taking of all or any part of the Premises
under the power of eminent domain shall be the property of Landlord, whether
such award shall be made as compensation for diminution in value of the
leasehold or for taking of the fee. Except as provided in subsection (c),
nothing contained herein shall be deemed to preclude Tenant from obtaining, or
to give Landlord any interest in, any award to Tenant for (i) loss of or damage
to Tenant's Property, (ii) damages for cessation or interruption of Tenant's
business or for the cost of relocation or (iii) Tenant Improvements, alterations
and Tenant's Signage paid for by Tenant, provided that such damages are set
forth in a separate award to Tenant or are separately broken out in a single
award. The parties acknowledge Landlord's right to apply the entire award as
provided in subsection (c).

            (e) If less than a fee title to all or any portion of the Premises
shall be taken by any competent authority for temporary use or occupancy, rental
payable hereunder shall be abated in accordance with subsection (c) above and
any award made in connection with such temporary taking shall be allocated and
paid in accordance with subsection (d) above. This



                                       46


Lease shall, subject to the foregoing and notwithstanding such temporary taking,
remain in full force and effect.

            (f) A sale by Landlord to any authority having the power of eminent
domain, either under threat of condemnation or while condemnation proceedings
are pending, shall be deemed a taking by eminent domain for all purposes under
this Article.

                                   ARTICLE XI.
                                UTILITY SERVICES

Section 11.1 Utility Charges

            (a) Tenant shall contract for and pay, directly to the purveyors of
such services, all charges, surcharges, taxes and other fees for gas, water,
sanitary and storm sewer, electricity, telephone and other utility services
furnished to the Premises subsequent to the Lease Commencement Date and all fees
for installation of any facilities to supply such services or for connection by
Tenant to any facilities of the purveyors of such services. The immediately
preceding sentence shall be applied separately to the Initial Premises and
Expansion Premises. Notwithstanding the foregoing, it is understood and agreed
that installation and connection fees may be paid by Landlord as a part of
Development Costs. Moreover, billing for utility services to the Premises shall
initially be to Landlord (with the service bills included in Development Costs)
and Tenant shall be required to change such billings to Tenant. Tenant shall
attempt to effect such change on the Lease Commencement Date or as soon
thereafter as possible. Pending such changeover, service billings shall remain
in Development Costs; upon effecting such changeover, Tenant shall pay such
service billings directly to the service purveyors. If any such charges are not
paid when due Landlord may, but shall not be obligated to, pay the same, and any
amount so paid by Landlord shall become due to Landlord from Tenant as
additional rent upon presentation by Landlord of an invoice therefor.

            (b) All such utilities shall, to the extent feasible, initially be
separately metered and billed directly to Tenant. For this purpose, each
Building shall be separately metered for electrical, gas and water and sewer
service. Tenant shall indemnify Landlord, the Initial Premises and the Expansion
Premises from and against any such charges and liens arising therefrom.

Section 11.2 Interruption of Service

            (a) Landlord shall not be liable for damages or otherwise for any
failure or interruption of any utility service being furnished to the Premises
and no such failure or interruption shall entitle Tenant to terminate this Lease
or an abatement of rent hereunder.

            (b) Notwithstanding subsection (a) above, in the event of any
interruption to any utility service to the Premises which is caused by the
negligence or intentional action of Landlord or any agent, employee or
contractor of Landlord, Base Rent shall be abated for the period of the
interruption in proportion to the degree of interference with Tenant's
operations in the Premises, including totally if applicable. Degree of
interference shall be determined by reference to the portion of the Premises
(including all, if applicable) which is rendered unusable by Tenant as the
result of such interruption. The remedy set forth in this subsection shall be
Tenant's sole remedy in the event of such interruption. In addition, Landlord
shall use commercially reasonable efforts to cause the restoration of the
service so interrupted as promptly as practicable.

Section 11.3 Other Tenants

            In the event that (a) Tenant adds one or more Available Spaces to
the Premises and/or (b) Tenant ceases to be the sole Tenant with respect to the
entire Initial Premises, Section 11.1 may not apply as to any Building in which
Tenant does not lease all Floor Area and/or the portions of the Initial Premises
or Expansion Premises, as applicable, exterior to the Buildings. In lieu of
direct utility expense billing to and payment by Tenant, the costs of utilities
furnished to multi-tenant Buildings and/or such exterior areas may be billed to
Landlord and rebilled by Landlord to Tenant and other tenants on the basis of
their proportionate shares or


                                       47


actual usage based upon submetering installed by Landlord. Tenant's share of the
costs of such common utilities costs, plus an administrative charge not to
exceed fifteen percent (15%), shall be additional rent hereunder payable within
ten (10) days after Tenant's receipt of Landlord's invoices therefor not more
frequently than once per calendar month. Tenant's Special Facilities shall at
all times, however, be separately metered (which may be by inclusion on a
separate meter for an adjacent Building) and the costs of the utilities used by
such Special Facilities shall be either billed directly to Tenant or allocated
to Tenant as provided in this Section. Whether the utilities services are
directly metered to Tenant or are on a common meter with usage costs allocated
to Tenant and others, Tenant shall comply with all rules and regulations which
Landlord may reasonably establish for the proper functioning and protection of
the air conditioning, electrical, heating and plumbing systems. Tenant shall not
overload any of the mechanical, electrical, plumbing, sewer or other utility
equipment.

Section 11.4 Availability of Utility Services

            Whether utilities services are directly metered to Tenant or are on
a common meter with usage costs allocated to Tenant and others, heating,
ventilating and air conditioning and all other Building utility systems
(electric, water and sewer) shall be available to Tenant seven (7) days per
week, twenty-four (24) hours per day. With respect to any Building as to which
Tenant leases less than all of the Floor Area, Landlord may reasonably adjust
the cost allocations between Tenant and other tenants of such Building to take
account of disproportionate usage of services, due to different hours of use or
otherwise.

                                  ARTICLE XII.
                              DEFAULTS AND REMEDIES

Section 12.1 Defaults

            The occurrence of any one or more of the following events shall
constitute a "Default" by Tenant:

            (a) The failure by Tenant to make any payment of Base Rent,
additional rent, or other payment required to be made by Tenant hereunder, as
and when due, where such failure shall continue for a period of five (5)
business days after written notice thereof from Landlord to Tenant; provided,
however, that any such notice shall be in lieu of, and not in addition to, any
notice required under California Code of Civil Procedure Sec. 1161, et seq., as
amended.

            (b) The failure by Tenant to observe or perform any of the express
covenants or provisions of this Lease to be observed or performed by Tenant,
other than as specified in (a) above, where such failure shall continue for a
period of thirty (30) days after written notice thereof from Landlord to Tenant;
provided, however, that any such notice shall be in lieu of, and not in addition
to, any notice required under California Code of Civil Procedure Section 1161,
et seq., as amended; and provided further, that if the nature of Tenant's
default is such that more than thirty (30) days are reasonably required for its
cure, then Tenant shall not be deemed to be in default if Tenant shall commence
such cure within said thirty (30) day period and thereafter diligently prosecute
such cure to completion.

            (c) (i) The making by Tenant of any general assignment for the
benefit of creditors; (ii) the filing by or against Tenant of a petition to have
Tenant adjudged a "Debtor" or a petition for reorganization or arrangement under
any law relating to bankruptcy (unless, in the case of a petition filed against
Tenant, the same is dismissed within sixty (60) days); (iii) the appointment of
a trustee or receiver to take possession of substantially all of Tenant's assets
located at the Premises or of Tenant's interest in this Lease, where possession
is not restored to Tenant within sixty (60) days; (iv) the attachment, execution
or other judicial seizure of substantially all of Tenant's assets located at the
Premises or of Tenant's interest in this Lease, where such seizure is not
discharged within sixty (60) days; or (v) Tenant's convening of a meeting of
substantially all of its creditors for the purpose of effecting a moratorium
upon or composition of its debts.


                                       48


Section 12.2 Remedies

            (a) In the event of any Default by Tenant, in addition to any other
remedies available to Landlord, including that provided in California Civil Code
Section 1951.4, Landlord may terminate Tenant's right to possession of the
Premises by any lawful means, in which case this Lease shall terminate and
Tenant shall immediately surrender possession of the Premises to Landlord. In
such event Landlord shall be entitled to recover from Tenant all amounts which
Landlord is entitled to recover pursuant to Section 1951.2 of the California
Civil Code (or any successor thereto), including, but not limited to:

                (i) The worth at the time of award of the amount by which the
unpaid rent and additional rent for the balance of the term after the time of
award exceeds the amount of such loss that Tenant proves could be reasonably
avoided; and

                (ii) Any other amount reasonably necessary to compensate
Landlord for all the detriment proximately caused by Tenant's failure to perform
its obligations under this Lease or which in the ordinary course of things would
be likely to result therefrom, specifically including, but not limited to, the
cost of recovering possession of the Premises, expenses of reletting, including
reasonable brokerage commissions and any necessary repair, renovation and
alteration of the Premises, reasonable attorneys' fees, and any other reasonable
costs.

            The "worth at the time of award" of all rent other than that
referred to in clause (i) above shall be computed by allowing interest at the
rate per annum determined pursuant to Section 13.5 from the date such amounts
accrue to Landlord. The worth at the time of award of the amount referred to in
clause (i) above shall be computed by discounting such amount at one (1)
percentage point above the discount rate of the Federal Reserve Bank of San
Francisco at the time of award.

            (b) In any action for unlawful detainer commenced by Landlord
against Tenant by reason of any default hereunder, the reasonable rental value
of the Premises for the period of the unlawful detainer shall be deemed to be
the amount of rent and additional rent reserved in this Lease for such period,
unless Landlord or Tenant shall prove to the contrary by competent evidence.

            (c) The rights and remedies reserved to Landlord herein, including
those not specifically described, shall be cumulative, and except as provided by
California statutory law in effect at the time, Landlord may pursue any or all
of such rights and remedies, at the same time or otherwise.

            (d) No delay or omission of Landlord to exercise any right or remedy
shall be construed as a waiver of any such right or remedy or of any Default by
Tenant hereunder. The acceptance by Landlord of any rent hereunder shall not be
a waiver of any preceding breach or Default by Tenant of any provision hereof,
other than the failure of Tenant to pay the particular rent accepted, regardless
of Landlord's knowledge of such preceding breach or Default at the time of
acceptance of such rent, or a waiver of Landlord's right to exercise any remedy
available to Landlord by virtue of such breach or Default. The acceptance of any
payment from a debtor in possession, a trustee, a receiver or any other person
acting on behalf of Tenant or Tenant's estate shall not waive or cure a Default
under Section 12.1(c). The term "rent" as used in Sections 12.1 and 12.2 shall
include the Base Rent and all other sums required to be paid by Tenant pursuant
to this Lease.

Section 12.3 Determination of Rent

            For the purposes of this Article XII, the rent due for any calendar
month after re-entry by Landlord shall be determined in the manner provided in
Section 12.2(b).

Section 12.4 Default by Landlord

            Landlord shall not be deemed to be in default in the performance of
any obligation required to be performed by it hereunder unless and until it has
failed to perform such obligation within thirty (30) days after written notice
by Tenant to Landlord specifying wherein


                                       49


Landlord has failed to perform such obligation. Provided, however, that if the
nature of Landlord's obligation is such that more than thirty (30) days are
required for its performance then Landlord shall not be deemed to be in default
if it shall commence such performance within such thirty (30) day period and
thereafter diligently prosecute the same to completion. Tenant's remedies for
Landlord's default shall be limited to suit or action and shall not extend to
withholding or offsetting rent.

Section 12.5 Expense of Litigation

            If either party incurs any expense, including reasonable attorneys'
fees, in connection with any action or proceeding instituted by either party by
reason of any default or alleged default of the other party hereunder or for a
declaration of the rights and obligations of the parties hereunder, the party
prevailing in such action or proceeding shall be entitled to recover its said
reasonable expenses from the other party. For the purposes of determining what
expenses and fees are reasonable, the court or arbitrator shall look to the
nature of the proceeding and the issues and scope of the proceeding, and shall
not be bound by any court schedule or guideline which purports to establish the
amount of expenses or fees to be awarded based upon the nature of the
proceeding, the size of the award or similar standards.

Section 12.6 Holding Over

            This Lease shall terminate without further notice upon expiration of
the term. If Tenant or anyone claiming under Tenant shall remain in possession
of the Premises or any part thereof after expiration of the term hereof or
earlier termination hereof without an agreement in writing between Landlord and
Tenant with respect thereto, Tenant shall (a) occupy upon all of the terms and
conditions of this Lease except that the monthly Base Rent due from Tenant for
the first ninety (90) days of such holdover shall be equal to the monthly Base
Rent in effect at the end of the term of this Lease, for the next ninety (90)
days shall be equal to one hundred fifty percent (150%) of the monthly Base Rent
in effect at the end of the term of this Lease and thereafter shall be equal to
two hundred percent (200%) of the monthly Base Rent in effect at the end of the
term of this Lease, (b) pay all damages sustained by Landlord by reason of such
retention and (c) indemnify, defend, and hold Landlord harmless from and against
any loss or liability resulting from holding over for more than thirty (30) days
after the expiration or earlier termination of this Lease. Landlord's acceptance
of rent shall create only a month-to-month tenancy, upon the terms set forth in
this Section. Any such month-to-month tenancy shall be terminable at the end of
any calendar month by either party by written notice to the other party given
not less than ten (10) days prior to the end of such month. Nothing contained in
this Section shall be deemed or construed to waive Landlord's right of re-entry
or any other right of Landlord hereunder or at law. All additional rent provided
for herein shall also be payable with respect to the period of such
month-to-month tenancy.

Section 12.7 Landlord's Rights

            All covenants and agreements to be performed by Tenant under this
Lease shall be performed by Tenant at Tenant's sole cost and expense and without
any abatement of rent. If Tenant fails to pay any sum of money, other than rent,
required to be paid by it or fails to perform any other act on its part to be
performed, and such failure continues beyond any applicable grace period set
forth in the Article providing for such obligation (or if no grace period is set
forth in such Article, then the applicable grace period pursuant to this
Article), then in addition to any other remedies provided herein Landlord may,
but shall not be obligated so to do, without waiving or releasing Tenant from
any obligations of Tenant, make any such payment or perform any such other act
on Tenant's part. Landlord's election to make any such payment or perform any
such act on Tenant's part shall not give rise to any responsibility of Landlord
to continue making the same or similar payments or performing the same or
similar acts. Tenant shall, within ten (10) days after written demand therefor
by Landlord, reimburse Landlord for all sums so paid by Landlord and all
necessary incidental costs, together with interest thereon at the rate
determined under Section 13.5, accruing from the date of such payment by
Landlord and the late performance charge provided therein; and Landlord shall
have the same rights and remedies in the event of failure by Tenant to pay such
amounts as Landlord would have in the event of a default by Tenant in payment of
rent.


                                       50


Section 12.8 Payments and Notices

            If at any time a dispute shall arise as to any amount or sum of
money to be paid by one party to the other under the provisions of this Lease,
the party against whom the obligation to pay the money is asserted shall have
the right to make payment "under protest" and such payment shall not be regarded
as a voluntary payment, and there shall survive the right on the part of such
paying party to institute suit for recovery of such sum. If it shall be
adjudicated that there was no legal obligation on the part of the paying party
to pay such sum or any part thereof, such party shall be entitled to recover
such sum or so much thereof as it was not legally required to pay under the
provisions of this Lease plus interest from the date of payment under protest to
date of repayment at the rate determined pursuant to Section 13.5.

Section 12.9 Third Party Litigation

            Should either party ("First Party") without fault on the part of
First Party, be made a party to any litigation instituted by the other party
("Second Party") or by any third party against Second party or by or against any
person holding under or using the Premises under license from Second Party, or
for the foreclosure of any lien for labor or material furnished to or for Second
Party or any such other person or arising out of any act or transaction of
Second Party or of any such other person, Second Party shall save and hold First
Party harmless from any judgment rendered against First Party or the Premises,
and all costs and expenses, including reasonable attorney's fees, incurred by
First Party in or in connection with such litigation.

Section 12.10 Submission to Arbitration

            (a) Any controversy, dispute or claim principally and primarily
concerning any subject matter set forth in subsection (c) below shall be
determined by final and binding arbitration without appeal or review, pursuant
to the laws of the State of California including the limitations period
applicable, before a single arbitrator (the "Arbitrator") at a location
determined by the Arbitrator in Orange County, California and administered by
Judicial Arbitration & Mediation Services, Inc. ("JAMS"). If JAMS shall not then
exist, or refuses to accept submission of such dispute, such arbitration shall
be conducted before such other organization as to which the parties to the
dispute may agree. If the parties to the dispute are unable to so agree within
fifteen (15) days after the dispute arises, the organization shall be selected
by the presiding judge of the Orange County Superior Court or his or her
designee upon application by any party to the dispute. Judgment upon any award
rendered by the Arbitrator may be entered by any state or federal court having
jurisdiction thereof. Any Arbitrator appointed or selected pursuant to this
Section shall be a retired judge of the Superior Court or Court of Appeal of the
State of California or a retired Federal District Court judge. The parties
hereby waive any and all rights contrary to the provisions of this Section, as
to the matters described in subsection (c), and shall at all times conduct
themselves in strict, full, complete and timely accord with the terms of this
Section. All attempts to circumvent such terms shall be null and void.

            (b) Without limiting the provisions of subsection (c) below, the
provisions of this Section shall not apply to:

                (i) Any unlawful detainer action instituted by Landlord as the
result of a default or alleged default by Tenant pursuant to this Lease.

                (ii) Any specific controversy, dispute, question or issue as to
which this Lease specifically provides another method of determining such
controversy, dispute, question or issue and provides that a determination
pursuant to such method is final and binding, unless both Landlord and Tenant
agree in writing to waive such procedure and proceed instead pursuant to this
Section.

                (iii) Any request or application for an order or decree granting
any provisional or ancillary remedy (such as a temporary restraining order or
injunction) with respect to any right or obligation of either party to this
Lease, and any preliminary determination of the underlying controversy, dispute,
question or issue as is required to determine whether or not to grant the relief
requested or applied for. A final and binding determination of such underlying
controversy, dispute, question or issue, to the extent described in subsection
(c), shall be made by


                                       51


an arbitration conducted pursuant to this Section after an appropriate transfer
or reference to JAMS upon motion or application of either party hereto. Any
ancillary or provisional relief which is granted pursuant to this clause (iii)
shall continue in effect pending an arbitration determination and entry of
judgment thereon pursuant to this Section.

                (iv) Exercise of any remedies to enforce any judgment entered
based upon a determination made by arbitration pursuant to this Section.

            (c) The provisions of this Section shall apply only to the
determination of the following issues:

                (i) Whether Tenant has timely and properly exercised the
Expansion Option under Section 1.4;

                (ii) Whether Tenant is entitled to exercise and has timely
exercised a first Lease Right under Section 1.5, including a First Lease Right
following a Second Lease Notice;

                (iii) The Lease Commencement Date and/or Rent Commencement Date
for the Initial Premises and/or the Expansion Premises pursuant to Sections 1.4
and 2.2;

                (iv) Whether Tenant has timely and properly exercised an
Extension Option pursuant to Section 2.3;

                (v) The determination of Base Rent for the Initial Premises
and/or the Expansion Premises pursuant to Sections 3.1 and 3.2;

                (vi) Any increase in Base Rent for the Initial Premises and/or
the Expansion Premises pursuant to Section 3.3;

                (vii) The determination of Expansion Land Rent pursuant to
Section 3.4;

                (viii) Any determination by Landlord pursuant to Section 4.3;

                (ix) Any determination of the Upset Amount pursuant to Section
8.2;

                (x) Whether Landlord has timely and properly exercised an option
to terminate pursuant to Section 8.2;

                (xi) The Development Costs for the Initial Premises and/or
Expansion Premises pursuant to Section 1.4 and Article XIV;

                (xii) The Project Purchase Price pursuant to Section 15.1;

                (xiii) Whether Tenant has timely and properly exercised any
right to purchase the Project or Sale Portion pursuant to Section 15.2;

                (xiv) The amount of any credit to which Tenant is entitled
pursuant to Section 1.3(d);

                (xv) Any dispute pursuant to the second paragraph of Section
1.4(a).

            (d) Any arbitration pursuant to this Section shall be initiated by
the parties, or either of them, within ten (10) days after either party sends
written notice (the "Arbitration Notice") of a demand to arbitrate to the other
party and to JAMS. The Arbitration Notice shall contain a description of the
subject matter of the arbitration, the dispute with respect thereto, the amount
involved, if any, and the remedy or determination sought. Any arbitration
pursuant to this Section shall be conducted in accordance with the Comprehensive
Arbitration Rules and Procedures of JAMS copyright 1995 Version 1.1 currently in
effect (the "Rules"), regardless of the amount in dispute, except that, whether
or not such Rules so provide:


                                       52


                (i) The Arbitrator shall schedule a pre-hearing conference to
resolve procedural matters, arrange for the exchange of information, obtain
stipulations and attempt to narrow the issues to be arbitrated. The arbitrator
shall have the discretion to order a pre-hearing exchange of information by the
parties, including, without limitation, production of requested documents,
exchanges of summaries of testimony of proposed witnesses and examination by
deposition of parties and third-party witnesses.

                (ii) There shall be no mediation or settlement conferences
unless all parties agree thereto in writing.

                (iii) Discovery shall be limited to that permitted by the Rules,
and the Arbitrator shall have discretion to determine the scope thereof.

                (iv) All motions shall be in letter form and hearings thereon
shall be by conference telephone calls unless the Arbitrator orders otherwise.

                (v) Hearings of motions shall require only twenty (20) days
prior written notice.

                (vi) All notices in connection with any arbitration may be
served in any manner permitted by Section 13.10 of this Lease.

                (vii) Fees and costs paid or payable to JAMS shall be included
in "reasonable expenses" for purposes of Section 12.5. The arbitrator shall
specifically have the power to award to the "prevailing party" such party's
reasonable expenses incurred in such proceeding, except as otherwise provided in
subsection (e) below. Reasonable expenses shall include any reasonable
attorneys' fees. The prevailing party shall be the party whose proposal for the
resolution of the dispute is the closer to that adopted by the Arbitrator.

                (viii) The selection of the Arbitrator (who must be a retired
judge) shall be in accordance with the then existing Rules. In the event that
the parties are unable to agree upon an arbitrator within the period of time
allowed for them to select an arbitrator, JAMS will provide a list of three
available retired judges and each party may strike one. The remaining judge (or
if there are two, the one selected by the administrator of the Orange County
office of JAMS) will serve as the arbitrator.

                (ix) In rendering a decision, the Arbitrator shall determine the
rights and obligations of the parties according to the terms of this Lease and
the substantive and procedural laws of the State of California. The Arbitrator's
decision shall be based on the evidence introduced at the hearing, including any
logical and reasonable inferences therefrom. The decision must be based upon,
and accompanied by, a written statement of decision explaining the factual and
legal basis for the decision as to each of the principal controverted issues.

                (x) The Arbitrator may make any determination, and/or grant any
relief that is just and equitable, other than an award of exemplary or punitive
damages. The Arbitrator's decision shall be conclusive and binding, and it may
thereafter be confirmed as a judgment by the Superior Court of the State of
California, subject only to challenge on the grounds set forth in California
Code of Civil Procedure Section 1286.2, subsections (a), (b), (c), (e) and (f).
The validity and enforceability of the Arbitrator's decision is to be determined
exclusively by the Courts of the State of California pursuant to the provisions
of this Lease.

            (e) As soon as practicable after selection of the Arbitrator, JAMS,
working with the Arbitrator, shall determine a reasonable estimate of
anticipated fees and costs of the arbitration and shall deliver a statement to
each party setting forth that party's pro rata share of such fees and costs.
Each party shall deposit its pro rata share of such fees and costs with JAMS
within ten (10) days after receipt of such statement. If any party fails to make
a required deposit hereunder, the other party may make such deposit on behalf of
the defaulting party and the amount of such deposit, plus interest thereon at
the rate determined pursuant to Section 13.5 from date of deposit to date of
repayment, shall be awarded against the defaulting party by the


                                       53


Arbitrator in making any final arbitration award without regard to whether the
defaulting party is the prevailing party in the arbitration pursuant to this
Section.

                                  ARTICLE XIII.
                                  MISCELLANEOUS

Section 13.1 Offset Statement

            (a) Within twenty (20) days following a request in writing by either
party (the "requesting party"), but no more frequently than twice in any twelve
(12) month period, the other party shall execute 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 monthly Base Rent and other charges are paid in advance,
if any, (ii) acknowledging that there are not, to such party's knowledge, any
uncured Defaults on the part of the requesting party hereunder, or specifying
such Defaults if any are claimed and (iii) acknowledging (if true) the accuracy
of such other facts as are reasonably included in such statement and relate to
this Lease. Any such statement may be relied upon by any prospective purchaser,
transferee or encumbrancer of the Premises, this Lease or an interest herein.

            (b) Failure of a party to deliver such statement within such time
shall be conclusive upon such party (i) that this Lease is in full force and
effect, without modification, except as may be represented by the requesting
party, (ii) that there are no uncured Defaults in the requesting party's
performance, (iii) that no more than one month's Base Rent has been paid in
advance and (iv) that any other statements of fact included by the requesting
party in the statement and relating to this Lease are correct.

            (c) Notwithstanding anything to the contrary in Article XII, any
failure of a party to execute and deliver an estoppel certificate within the
time period herein specified shall be a Default hereunder if not cured within
ten (10) days after the requesting party's written notice to the other party
thereof.

Section 13.2 Landlord's Right of Access

            (a) Landlord and its agents shall have free access to the Premises
and all Improvements thereon (other than Tenant's vaults, safes and other
special or high security or hygiene areas) during all reasonable business hours,
and at any time during an emergency, for the purpose of examining the same to
ascertain if they are in good repair, making reasonable repairs or installations
which Landlord may be required or permitted to make hereunder, posting notices
which Landlord may deem necessary for its protection and exhibiting the same to
prospective purchasers or tenants (during the last nine (9) months of the term);
provided, Landlord's access shall not, under the circumstances, unreasonably
interfere with Tenant's use and enjoyment of the Premises. Any entry by Landlord
pursuant to this Section shall be without rebate of rent to Tenant.

            (b) Nothing contained herein shall constitute an actual or
constructive eviction or relieve Tenant of any obligation with respect to making
any repair, replacement or improvement or complying with any law, order or
requirement of any government or other authority. Nothing contained herein shall
impose upon Landlord any obligation to Tenant except as specifically provided in
this Lease.

            (c) Except in an emergency, any entry by Landlord shall be upon 24
hours prior oral or written notice to Tenant. In an emergency, Landlord shall be
required to give only such notice, if any, as shall be reasonable under the
circumstances. For this purpose, an emergency shall be a condition or set of
facts posing imminent danger of harm to persons or property.

            (d) Without limiting the restrictions set forth in subsection (a)
above, if and to the extent that Landlord or its representatives, agents or
employees obtain any information which is, or reasonably appears to be,
confidential or proprietary to Tenant as a result of any entry into any
Building, such information shall not be copied, transferred or otherwise
disclosed or


                                       54


communicated to any other party (other than Tenant, as provided below)unless
pursuant to court order. If Landlord acquires any such information or becomes
aware that any of its representatives, employees or agents have obtained such
information, Landlord shall promptly notify Tenant thereof and reasonably
describe the circumstances of such discovery and the nature of the information
discovered.

Section 13.3 Transfer of Landlord's Interest

            In the event of any transfer or transfers of Landlord's interest in
the Premises other than a transfer for security purposes only, the transferor
shall be automatically relieved of any and all obligations and liabilities on
the part of Landlord accruing from and after the date of such transfer, provided
the transferee in writing agrees to assume such obligations accruing from and
after the effective date of the transfer. No holder of a mortgage or deed of
trust to which this Lease is or may be subordinate, and no landlord under a
so-called sale leaseback, shall be responsible in connection with any security
deposited, or in connection with any other funds paid by Tenant hereunder,
unless such mortgagee, holder of a deed of trust or landlord shall actually
receive such funds. The covenants contained in this Lease on the part of
Landlord shall, subject to the foregoing, be binding on Landlord, its successors
and assigns, only in respect of their respective periods of ownership of the
landlord's interest in this Lease.

Section 13.4 Separability

            Any provision of this Lease which shall prove to be invalid, void or
illegal shall in no way affect, impair or invalidate any other provision hereof,
and such remaining provisions shall remain in full force and effect.

Section 13.5 Interest on Past Due Obligations

            (a) Any amount due from either party to the other hereunder which is
not paid within ten (10) days after the date due shall bear interest at the
maximum rate of interest then permitted to be charged pursuant to the applicable
usury law, accruing from the date due until the same is fully paid, but not to
exceed ten percent (10%) per annum simple interest (the "Default Rate"). Payment
of such interest shall not excuse or cure any default by a party pursuant to
this Lease. Such rate shall remain in effect after the occurrence of any breach
or default hereunder by a party to and until payment of the entire amount due.

            (b) TENANT ACKNOWLEDGES THAT THE LATE PAYMENT BY TENANT TO LANDLORD
OF RENT AND OTHER SUMS DUE HEREUNDER AND THE FAILURE TO DELIVER CERTAIN ITEMS
REQUIRED TO BE DELIVERED HEREUNDER WILL CAUSE LANDLORD TO INCUR COSTS NOT
CONTEMPLATED BY THIS LEASE, THE EXACT AMOUNT OF WHICH WILL BE EXTREMELY
DIFFICULT TO ASCERTAIN. SUCH COSTS MAY INCLUDE, BUT ARE NOT LIMITED TO,
ADMINISTRATIVE, PROCESSING AND ACCOUNTING CHARGES, AND LATE CHARGES WHICH MAY BE
IMPOSED ON LANDLORD BY THE TERMS OF ANY ENCUMBRANCE COVERING THE PREMISES.
ACCORDINGLY, IF, ON MORE THAN TWO OCCASIONS IN ANY CALENDAR YEAR, ANY SUM DUE
FROM TENANT OR ANY ITEM DUE FROM TENANT HEREUNDER SHALL NOT BE RECEIVED BY
LANDLORD OR LANDLORD'S DESIGNEE WITHIN TEN (10) DAYS AFTER THE DATE DUE, TENANT
SHALL PAY TO LANDLORD, IN ADDITION TO ANY INTEREST ON DELINQUENT AMOUNTS
PROVIDED ABOVE, A LATE CHARGE EQUAL TO THE GREATER OF TWO PERCENT (2%) OF THE
DELINQUENT AMOUNT (IF APPLICABLE) OR $100.00, AS LIQUIDATED DAMAGES PER
OCCURRENCE. THE PARTIES AGREE THAT SUCH LATE CHARGE REPRESENTS A FAIR AND
REASONABLE ESTIMATE OF THE COST LANDLORD WILL INCUR BY REASON OF LATE PAYMENT OR
LATE DELIVERY BY TENANT. ACCEPTANCE OF SUCH LATE CHARGE SHALL NOT CONSTITUTE A
WAIVER OF TENANT'S DEFAULT WITH RESPECT TO SUCH OVERDUE AMOUNT OR OTHER ITEM,
NOR PREVENT LANDLORD FROM EXERCISING ANY OTHER RIGHTS AND REMEDIES GRANTED
HEREUNDER OR BY LAW TO LANDLORD.

               ---------------------------         --------------------------
               Landlord's Initials                 Tenant's Initials


                                       55




Section 13.6 Time of Essence

            Time is of the essence with respect to the performance of every
provision of this Lease in which time of performance is a factor.

Section 13.7 Hazardous Substances

            (a) Without limiting the generality of Sections 5.1 and 5.2 of this
Lease, Tenant covenants and agrees that Tenant, its employees, agents,
contractors and other third parties entering upon the Premises at the request or
invitation of Tenant shall not bring into, maintain upon, generate, use, store,
dispose of or release or discharge in or about the Premises any hazardous or
toxic substances or hazardous waste (collectively, "hazardous materials"). The
foregoing covenant shall not extend to substances typically found or used in
general office and administrative applications so long as (i) such substances
and any equipment which generates such substances are maintained only in such
quantities as are reasonably necessary for Tenant's operations in the Premises,
(ii) such substances are used and stored strictly in accordance with the
manufacturers' instructions therefor and the highest standards prevailing in the
industry for such substances, (iii) such substances are not disposed of in or
about the Premises in a manner which would constitute a release or discharge
thereof and (iv) all such substances and any equipment which generates such
substances are removed from the Premises by Tenant upon the expiration or
earlier termination of this Lease. Any use, storage, generation, disposal,
release or discharge by Tenant of hazardous materials in or about the Premises
as is permitted pursuant to this paragraph shall be carried out in compliance
with all Applicable Laws. Tenant shall, annually within thirty (30) days after
Tenant's receipt of Landlord's written request therefor, provide to Landlord a
written list identifying any hazardous materials then maintained by Tenant in
the Premises, the use of each such hazardous material and the approximate
quantity of each such hazardous material so maintained by Tenant, together with
written certification by Tenant stating, in substance, that neither Tenant nor
any person for whom Tenant is responsible has released or discharged any
hazardous materials in or about the Premises.

            In the event that Tenant proposes to conduct any use or to operate
any equipment which will or may utilize or generate a hazardous material other
than as specified in the first paragraph of this subsection, Tenant shall first
in writing submit such use or equipment to Landlord for approval. No approval by
Landlord shall relieve Tenant of any obligation of Tenant pursuant to this
subsection, including the removal, clean-up and indemnification obligations
imposed upon Tenant by this subsection. Tenant shall, within fifteen (15)
business days after receipt thereof, furnish to Landlord copies of all notices
or other communications received by Tenant with respect to any actual or alleged
release or discharge of any hazardous material in or about the Premises and
shall, whether or not Tenant receives any such notice or communication, notify
Landlord in writing of any discharge or release of hazardous material by Tenant
or anyone for whom Tenant is responsible in or about the Premises. In the event
that Tenant is required to maintain any hazardous materials license or permit in
connection with any use conducted by Tenant or any equipment operated by Tenant
in the Premises, copies of each such license or permit, each renewal or
revocation thereof and any communication relating to suspension, renewal or
revocation thereof, shall be furnished to Landlord within fifteen (15) business
days after receipt thereof by Tenant. Compliance by Tenant with the two
immediately preceding sentences shall not relieve Tenant of any other obligation
of Tenant pursuant to this subsection.

            Upon any violation of the foregoing covenants, Tenant shall be
obligated, at Tenant's sole cost, to clean-up and remove from the Premises all
hazardous materials introduced into the Premises by Tenant or any third party
for whom Tenant is responsible. Such clean-up and removal shall include all
testing and investigation required by any governmental authorities having
jurisdiction and preparation and implementation of any remedial action plan
required by any governmental authorities having jurisdiction. All such clean-up
and removal activities of Tenant shall, in each instance, be conducted to the
reasonable satisfaction of Landlord and to the satisfaction of all governmental
authorities having jurisdiction. Landlord's right of entry pursuant to Section
13.2 shall include the right to enter, inspect and test the Premises for
violations of Tenant's covenants in this subsection, provided that such right is
reasonably exercised and the exercise of such right does not unreasonably
interfere with Tenant's use and


                                       56


occupancy of the Premises. If any governmental authority or lender to Landlord
shall require testing for hazardous materials in the Premises, and it is
determined as the result of such testing that Tenant has disposed of, released
or discharged any hazardous materials in or about the Premises, then Tenant
shall reimburse Landlord for all reasonable costs of such testing as additional
rent hereunder in addition to Tenant's remediation obligations hereunder.

            Tenant shall indemnify, defend and hold harmless Landlord, its
partners, officers, employees, agents and lenders from and against any and all
claims, liabilities, losses, actions, costs and expenses (including reasonable
attorneys' fees and costs of defense) incurred by such indemnified persons, or
any of them, as the result of (A) the introduction into or about the Premises by
Tenant, its employees, subtenants, licensees, contractors, agents or invitees
(each, a "Tenant Party" and, collectively, the "Tenant Parties") of any
hazardous materials, (B) the usage, storage, maintenance, generation, production
or disposal by Tenant or any Tenant Party of hazardous materials in or about the
Premises, (C) the discharge or release in or about the Premises by Tenant or any
Tenant Party of any hazardous materials, (D) any injury to or death of persons
or damage to or destruction of property resulting from the use, introduction,
maintenance, storage, generation, disposal, disposition, release or discharge by
Tenant or any Tenant Party of hazardous materials in or about the Premises, and
(E) any failure of Tenant or any Tenant Party to observe the foregoing covenants
of this subsection. Payment shall not be a condition precedent to enforcement of
the foregoing indemnification provision.

            Within 180 days prior to the expiration of this Lease (or within
thirty (30) days after any earlier termination), Landlord may at its election
retain a hazardous materials consultant (to be reasonably approved by Tenant) to
conduct a survey or audit of the Premises to determine whether or not hazardous
materials introduced by Tenant or any Tenant Party are present in or about the
Premises. Tenant shall cooperate fully with Landlord and such consultant in the
conduct of any such survey or audit. If such survey or audit reveals the
presence of hazardous materials brought into or upon the Premises by Tenant in
violation of the provisions of this subsection, Tenant shall pay for the cost of
such audit. Such payment shall be made by Tenant to Landlord, as additional
rent, within twenty (20) days after Tenant's receipt of Landlord's invoice
therefor. Otherwise, the cost of such survey or audit shall be borne by
Landlord. If the audit or survey discloses the presence of hazardous materials
introduced by Tenant or any Tenant Party, the third, fourth and sixth paragraphs
of this subsection shall apply to such hazardous materials and Tenant's
obligations with respect thereto.

            Upon any violation of the foregoing covenants, Landlord shall be
entitled to exercise all remedies available to a landlord against a defaulting
tenant, including but not limited to these set forth in Article XII. Without
limiting the generality of the foregoing, Tenant expressly agrees that upon any
such violation Landlord may, at its option, (A) after notice and failure to cure
pursuant to Section 12.1, terminate this Lease or (B) continue this Lease in
effect until compliance by Tenant with its clean-up and removal covenant
notwithstanding any earlier expiration date of the term of this Lease. No action
by Landlord hereunder shall impair the obligations of Tenant pursuant to this
subsection.

            As used in this Section, "hazardous materials" shall mean asbestos,
all petroleum substances, and all hazardous materials, hazardous wastes and
hazardous or toxic substances as defined in the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended (42 U.S.C., Sec.
9601 et seq.) ("CERCLA"), the Resource Conservation and Recovery Act, as amended
(42 U.S.C., Sec. 6901 et seq.), the Toxic Substances Control Act, as amended (15
U.S.C. Sec. 2601 et seq.) and California Health and Safety Code Section 25316,
including such hazardous or toxic substances or wastes as are identified,
defined or listed elsewhere where such identifications, definitions or lists are
incorporated into such acts or section by reference, as well as all products
containing such hazardous substances. In addition, "hazardous materials" shall
include any substance designated pursuant to the Clean Water Act (33 U.S.C.
Sections 1321 et seq.), any hazardous waste having the characteristics
identified under or listed pursuant to the Solid Waste Disposal Act (42 U.S.C.
Sections 1317(a), et seq.), any hazardous air pollutant listed under Section 112
of the Clean Air Act (42 U.S.C. Sections 7412, et seq.) and any imminently
hazardous chemical substance or mixture with respect to which the Administrator
of the Environmental Protection Agency has taken action pursuant to Section 7 of
the Toxic


                                       57


Substances Control Act (15 U.S.C. Sections 2606, et seq.). The term also
includes, but is not limited to, polychlorinated biphenyls, urea formaldehyde
and related substances.

            Tenant acknowledges that incorporation of any material containing
asbestos in any Building is absolutely prohibited. Tenant agrees that it shall
not knowingly incorporate or permit or suffer to be incorporated any material
containing asbestos into any Building. Tenant shall not be in breach of the
foregoing covenant by virtue of any asbestos placed or caused to be placed in
any Building by Landlord, whether pursuant to the performance of Landlord's
obligations hereunder or otherwise. The covenants contained in this subsection
shall survive the expiration or any earlier termination of this Lease.

            (b) Landlord is aware of, and has advised Tenant that, the property
located to the west of the Land (the "Western Parcel") and owned by the Los
Angeles Times (the "Times") has underground hazardous materials contamination
believed to result from leakage from an underground fuel tank maintained by the
Times. To Landlord's knowledge, such hazardous materials have not migrated from
the Western Parcel onto or under the Land. Landlord has also disclosed to Tenant
the facts that (1) the Land was used in the farming operations of Landlord and
(2) in connection with such farming operations, chemical pesticides and weed
control agents may have been applied, which applications may have resulted in
residual levels of such chemicals in the soil on the Land.

            Except as described in the immediately preceding paragraph, to the
best of Landlord's actual knowledge, but with no duty to investigate, there are
no hazardous materials located in, on or under the Land or located near the Land
which could migrate onto the Land. For the purposes of this paragraph,
"Landlord's actual knowledge" shall mean to the knowledge of Landlord's agents,
Jeffrey M. Reese, J. Barney Page and Theodore W. Segerstrom. Without limiting
any other provision of this Lease or any obligation of Landlord hereunder,
Landlord shall indemnify, defend and hold harmless Tenant, its officers,
directors, employees, agents, lenders and attorneys from and against any and all
claims, liabilities, losses, actions, costs and expenses (including reasonable
attorneys' fees and costs of defense) incurred by such indemnified parties, or
any of them, as the result of (i) the introduction into or about the Premises by
Landlord, its employees, agents or contractors (each, a "Landlord Party" and,
collectively, the "Landlord Parties") of any hazardous materials, (ii) the
usage, storage, maintenance, generation, production or disposal by a Landlord
Party of hazardous materials in or about the Premises, (iii) the discharge or
release in or about the Premises of any hazardous materials introduced into or
about the Premises by a Landlord Party, (iv) any injury to or death of persons
or damage to or destruction of property resulting from the use, introduction,
maintenance, storage, generation, disposal, disposition, release or discharge of
hazardous materials introduced into or about the Premises by a Landlord Party
and (v) any breach of Landlord's representations, warranties or covenants
contained in this subsection (b). Payment shall not be a condition precedent to
enforcement of the foregoing indemnification provision.

            (c) Except as set forth in subsections (a) and (b) above and Section
14.9 below and except with respect to Landlord's Work and Tenant's Work, neither
party shall have any indemnification obligation to the other with respect to
claims resulting from the presence of hazardous materials in, on or under the
Land where the cause of the presence of such hazardous materials is the action
or omission of any third person or entity. Provided, however, that nothing in
this subsection (c) is or shall be deemed to constitute (i) an assumption be
either party of any risks or liabilities for which the other party is
responsible or (ii) a waiver by either party of such party's right of
contribution under CERCLA or any other analogous federal or state law.

            (d) The covenants contained in this Section shall survive the
expiration or any earlier termination of this Lease.

Section 13.8 Headings

            The Article and Section captions contained in this Lease are for
convenience only and shall not be considered in the construction and
interpretation of any provision hereof.


                                       58


Section 13.9 Incorporation of Prior Agreements; Amendments

            This Lease and the exhibits hereto contain all of the agreements of
the parties hereto with respect to any matter covered or mentioned in this
Lease, and all preliminary negotiations, agreements or understandings pertaining
to any such matter, except those contained herein, shall not be effective for
any purpose. Tenant acknowledges that Landlord has made no representations,
promises or guarantees, either by verbal statement or by its conduct, upon which
Tenant has relied except for those that are expressly contained in this Lease or
in any exhibit attached hereto. No person, firm or corporation has at any time
had any authority from Landlord to make any representations on behalf of
Landlord and Tenant waives any right to rely upon any such representations. No
verbal agreement or implied covenant shall be held to vary the provisions
hereof, any statute, law or custom to the contrary notwithstanding. No provision
of this Lease may be amended or added to except by an agreement in writing
signed by the parties hereto or their respective successors in interest. No
employee or agent of Landlord shall have authority, by letter, memorandum or
other written communication, to amend, vary or delete any provision of this
Lease.

Section 13.10 Notices

            Any notice, consent or approval ("Notice") required or permitted to
be given hereunder shall be in writing and may be served personally or by mail;
if served by mail it shall be addressed to Landlord or Tenant, as the case may
be, at the address of such party shown below:

            To Landlord:      C.J. Segerstrom & Sons
                              3315 Fairview Road
                              Costa Mesa, California 92626
                              Attn:  Chief Financial Officer
                              FAX No.: (714) 546-9835

            With a copy to:   Latham & Watkins
                              650 Town Center Drive, Suite 2000
                              Costa Mesa, California 92626
                              Attn:  James W. Daniels, Esq.
                              FAX No.: (714) 755-8290

            To Tenant:        Emulex Corporation
                              3535 Harbor Boulevard
                              Costa Mesa, California 92626
                              Attn:  Ms. Sadie Herrera, EVP HR and Facilities
                              FAX No.: (714) 556-0252

            With a copy to:   Paul, Hastings, Janofsky & Walker LLP
                              695 Town Center Drive, 17th Floor
                              Costa Mesa, California 92626
                              Attn:  John F. Simonis, Esq.
                              FAX No.: (714) 979-1921

Any Notice which is personally served shall be effective upon service; any
Notice given by mail shall be deemed effectively given, if deposited in the
United States mail in the State of California, registered or certified with
return receipt requested, postage prepaid and addressed as specified above, on
the date of receipt, refusal or non-delivery (in the case of change of address
without notice thereof) indicated on the return receipt. In addition, either
party may send Notices by facsimile transmission ("FAX") or by any reputable
courier service which provides written proof of delivery. Any Notice sent by FAX
shall be effective upon confirmation of receipt in legible form (provided a hard
copy of such Notice is also sent by another means permitted by this Section),
and any Notice sent by courier shall be effective upon the date of delivery as
set forth in the courier's delivery receipt. Either party may, by Notice to the
other from time to time, specify a different address for Notice purposes.


                                       59



Section 13.11 Brokers

            Tenant has been represented in connection with the transactions
provided for in this Lease by Julien J. Studley, Inc. ("Broker"). Landlord shall
be solely responsible for the commission due Broker in connection with the
transactions provided for in this Lease. Such commission shall be in the amount
of $835,920 (the "Leasing Commission"), shall be payable solely at the time(s)
and in the manner set forth in that certain written commission agreement dated
July 20, 2001 between Landlord and Broker, as amended by a certain letter
agreement dated March 19, 2002 (collectively, the "Commission Agreement"). The
Leasing Commission shall be included in Development Costs with respect to the
Initial Premises. The Commission Agreement also provides for Landlord to pay to
Broker a commission with respect to the sale of the Expansion Option in the
event that Tenant exercises the Purchase Option (the "Sale Commission"). The
Sale Commission shall not be included in Development Costs.

            Except for the Broker, Tenant and Landlord each represent and
warrant to the other that they have had no dealings with any real estate brokers
or agents in connection with the negotiation of this Lease and that no broker or
agent retained by them is entitled to a fee or commission in connection with the
execution of this Lease. Each party hereby expressly agrees and covenants to
defend, indemnify and hold the other harmless from and against any and all
claims, threatened or asserted, by any broker, finder or agent claiming under or
through such indemnifying party in connection with the negotiation and execution
of this Lease. Such defense, indemnification and hold harmless obligation shall
extend to but not be limited to any and all claims by any broker or leasing
agent employed or retained by an indemnifying party in connection with leasing
matters generally. Failure of either party to fulfill its defense and
indemnification obligation under this Section shall be deemed a breach of this
Lease entitling the other to exercise all remedies available to a landlord
against a defaulting tenant or to a tenant against a defaulting landlord, as the
case may be, including, but not limited to the remedies provided in Article XII.
Landlord and Tenant acknowledge that payment shall not be a condition precedent
to recovery upon the foregoing indemnification provision.

Section 13.12 Waivers

            No waiver of any provision hereof shall be deemed a waiver of any
subsequent breach of the same provision or of any other provision hereof.
Consent to or approval of any act by one of the parties hereto shall not be
deemed to render unnecessary the obtaining of such party's consent to or
approval of any subsequent act. Failure of Landlord to take any action or send
any notice to Tenant shall not be deemed a waiver by Landlord of any failure by
Tenant to timely and properly exercise any option granted to Tenant pursuant to
this Lease or any amendment hereto. Any such option which is not exercised
within the time and in the manner specified for exercise shall automatically
lapse without requirement of any action by Landlord. No act or thing done by
Landlord or Landlord's agents during the term of this Lease shall be deemed an
acceptance of a surrender of the Premises, unless done in a writing signed by
Landlord. Tenant's delivery of keys to any employee or agent of Landlord shall
not operate as a termination of this Lease or a surrender of the Premises unless
done pursuant to a written agreement to such effect executed by Landlord.

Section 13.13 Recording

            Concurrently with their execution of this Lease, Landlord and Tenant
shall each execute and acknowledge a short form memorandum of lease (including
Tenant's extension and purchase options and rights of first offer to lease and
purchase) in the form attached hereto as Exhibit "C." Landlord shall promptly
record such short form memorandum and, upon recordation, shall furnish to Tenant
a fully executed counterpart thereof bearing the stamp of the Orange County
Recorder. Landlord and Tenant shall execute, acknowledge and deliver a mutual
cancellation of lease in the form attached hereto as Exhibit "D" upon the first
to occur of:

            (a) The expiration of the term of this Lease.

            (b) Execution by Landlord and Tenant of an agreement in writing
terminating this Lease.


                                       60



            (c) Entry of an order or judgment by a court of competent
jurisdiction to the effect that the Lease is or has been terminated.

            (d) Termination of this Lease by either party pursuant to Section
1.3 or Article XVI.

            (e) Termination of this Lease pursuant to Article VIII, Article X,
Article XII or any other provision of this Lease, including a purchase of the
Land and all Improvements thereon pursuant to Sections 15.1 or 15.2.

Upon execution, acknowledgment and delivery of such mutual cancellation,
Landlord may immediately cause the same to be recorded in the office of the
Orange County Recorder.

Section 13.14 Liens

            Each party, to the extent it is responsible, shall do all things
reasonably necessary to prevent the filing of any mechanics' or other liens
against the Premises or any part thereof by reason of work, labor, services or
materials supplied or claimed to have been supplied to such party, or anyone
holding the Premises, or any part thereof, through or under such party. If any
such lien or any Unpermitted Exception shall at any time be filed against the
Premises, the responsible party shall either cause the same to be discharged of
record within twenty (20) days after the date of filing of the same or, if such
party determines in good faith that such lien should be contested, shall furnish
such security as may be necessary or required to (a) prevent any foreclosure
proceedings against the Premises or any portion thereof or interest therein
during the pendency of such contest, and (b) cause Chicago Title Company or
other mutually satisfactory title insurance company to remove such lien as a
matter affecting title to the Premises on a preliminary title report or title
policy with respect to the Premises. If the responsible party shall fail to
discharge such lien within such period and fail to furnish such security within
such period, then, in addition to any other right or remedy of the other party
resulting from the default of the responsible party, such other party may, but
shall not be obligated to, discharge the same either by paying the amount
claimed to be due or by procuring the discharge of such lien by giving security
or in such other manner as is, or may be, prescribed by law. The responsible
party shall repay to the other party, on demand, all sums disbursed or deposited
by the other party pursuant to the foregoing provisions of this Section 13.14,
including the other party's costs, expenses and reasonable attorneys' fees
incurred in connection therewith, with interest thereon from the date of such
disbursement or deposit to the date of repayment at the Default Rate. Nothing
contained herein shall imply any consent or agreement on the part of Landlord to
subject Landlord's estate to liability under any mechanics' or other lien law.
Tenant shall give Landlord adequate opportunity and Landlord shall have the
right to post such notices of non-responsibility as are provided for in the
mechanics' lien laws of California.

Section 13.15 Subordination

            This Lease shall, at Landlord's option, be subordinate to any
mortgage or deed of trust that may exist or hereafter be placed upon the
Premises or any part thereof and to any and all advances to be made thereunder
and to the interest thereon and to all renewals, replacements and extensions
thereof and to any ground lease hereafter executed with respect to the Premises.
If, however, a prospective lender or ground lessor requires that this Lease be
subordinated to any such ground lease or encumbrance, this Lease shall be
subordinate to such encumbrance only if Landlord first obtains from such
prospective ground lessor or lender and delivers to Tenant a commercially
reasonable non-disturbance agreement in favor of Tenant, and such delivery shall
be in consideration of and a condition to Tenant's obligation to subordinate
this Lease to such encumbrance or ground lease. Any such agreement shall be in
recordable form and shall be in form and substance reasonably satisfactory to
Landlord, Tenant and such lender or ground lessor. Tenant and Landlord
acknowledge that the form of Subordination, Nondisturbance and Attornment
Agreement attached hereto as Exhibit "J" (the "SNDA") is a commercially
reasonable subordination, nondisturbance and attornment agreement. Such
commercially reasonable nondisturbance agreement(s), except as set forth in the
SNDA to the contrary, shall include the obligation of any successor ground
lessor, mortgage holder or lien holder to recognize Tenant's rights specifically
set forth in this Lease to offset certain amounts against rent


                                       61


due hereunder and Landlord's obligations to comply with the terms of this Lease,
or to otherwise receive certain credits against rent as set forth herein.
Subject to Tenant's receipt of the nondisturbance and other agreements described
above and in the SNDA, Tenant shall upon written demand by Landlord (a) execute
such instruments as may be required at any time and from time to time to
subordinate the rights and interest of Tenant under this Lease to the lien of
any such ground lease, mortgage or deed of trust, or if requested by Landlord,
to subordinate any such ground lease, mortgage or deed of trust to this Lease
and (b) supply such financial information concerning Tenant as may be reasonably
requested by any ground lessor or lender. For the purposes of the foregoing
clause (b), if Tenant's securities are publicly traded and Tenant files
financial information under the Securities Exchange Act of 1934, Tenant will
have no delivery requirement pursuant to clause (b). If the immediately
preceding sentence does not apply, Tenant's delivery requirement shall be
subject to Tenant's receipt of a confidentiality agreement reasonably
satisfactory to Tenant. Subject to Tenant's receipt of the agreements described
above, Tenant covenants and agrees that, in the event any proceedings are
brought for the foreclosure of any such mortgage or deed of trust, upon a deed
in lieu thereof or if any ground lease is terminated, to attorn, without any
deductions or setoffs whatsoever, to the purchaser, lienholder, ground lessor or
any successors thereto upon any such foreclosure sale, deed in lieu thereof or
ground lease termination, if requested to do so by such purchaser, lienholder or
ground lessor, and to recognize such purchaser, lienholder or ground lessor as
the landlord under this lease, provided such lienholder, purchaser or ground
lessor shall agree to accept this Lease and not disturb Tenant's tenancy so long
as Tenant timely pays the rent and observes and performs the terms, covenants
and conditions of this Lease to be observed or performed by Tenant. Landlord's
interest herein may be assigned at any time as security to any lienholder.
Subject to Tenant's receipt of the agreement(s) described in this Section,
Tenant waives the provisions of any current or future statute, rule or law which
may give or purport to give Tenant any right or election to terminate or
otherwise adversely affect this Lease and the obligations of the Tenant
hereunder in the event of any foreclosure sale, foreclosure proceeding, deed in
lieu or ground lease termination. Tenant shall, within fifteen (15) business
days after request by Landlord from time to time (i) execute, acknowledge and
deliver the SNDA in favor of any ground lessor or mortgagee of the Premises or
any portion thereof or interest therein and (ii) execute, acknowledge and
deliver any commercially reasonable other form of nondisturbance and attornment
agreement (or subordination, nondisturbance and attornment agreement, or
subordination of the applicable mortgagee's lien or ground lessor's ground
lease) reasonably required by any mortgagee or ground lessor of the Premises
which provides substantially comparable protection to Tenant in the event of a
foreclosure, deed in lieu or ground lease termination.

Section 13.16 Force Majeure

            In the event that either Landlord or Tenant is delayed in performing
any obligation of Landlord or Tenant pursuant to this Lease by any cause beyond
the reasonable control of the party required to perform such obligation, the
time period for performing such obligation shall be extended by a period of time
equal to the period of the delay. For the purpose of this Section:

            (a) A cause shall be beyond the reasonable control of a party to
this Lease when such cause would affect any person similarly situated (such as a
power outage, labor strike or truckers' strike) but shall not be beyond the
reasonable control of such party when peculiar to such party (such as financial
inability or failure to order long lead time materials sufficiently in advance).

            (b) This Section shall not apply to any obligation to pay money or
delay the Rent Commencement Date.

            (c) In the event of any occurrence which a party believes
constitutes a cause beyond the reasonable control of such party and which will
delay any performance by such party hereunder, such party shall promptly in
writing notify the other party of the occurrence and nature of such cause, the
anticipated period of delay and the steps being taken by such party to mitigate
the effects of such delay.


                                       62



Section 13.17 Yield Up Premises; Quitclaim

            (a) At the expiration or earlier termination of this Lease, Tenant
shall peaceably yield up the Premises and all Improvements thereto to Landlord
(subject to Sections 5.4, 5.5, 6.4 and 6.5 above), broom clean and in good
condition, reasonable wear and tear excepted. Without limiting the generality of
the foregoing, upon delivery of the Premises to Landlord, the roofs of the
Buildings shall be watertight, all mechanical, electrical, plumbing and
irrigation systems on the Premises shall be in good operating condition, all
landscaping shall be in good condition and the parking lots shall be striped,
free of potholes and with good surface conditions.

            (b) At the expiration or earlier termination of this Lease, Tenant
shall execute, acknowledge and deliver to Landlord, within fifteen (15) days
after written demand from Landlord to Tenant, any quitclaim deed or other
document, which in addition to the mutual cancellation of lease described in
Section 13.13 above, may be reasonably requested by any reputable title company
to remove this Lease as a matter affecting title to the Premises.

            (c) Whenever Landlord shall re-enter the Premises as provided in
Article XII, or as otherwise provided in this Lease, any property of Tenant not
removed by Tenant upon the expiration of the term (or within fifteen (15) days
after a termination by reason of Tenant's Default) shall be considered abandoned
and Landlord may remove any or all of such items and dispose of the same as
provided in California Civil Code Sec. 1980 et seq. or as otherwise provided by
law. Tenant waives all claims for damages caused by Landlord's re-entering and
taking possession of the Premises or removing and storing the property of Tenant
as provided herein, and no such entry shall be considered a forcible entry.

Section 13.18 Authority

            Each individual executing this Lease on behalf of Landlord and
Tenant represents and warrants that the execution and delivery of this Lease on
behalf of the party for whom such person is executing is duly authorized and
that this Lease is binding upon such party in accordance with its terms. Tenant
shall, within ten (10) days after Tenant's execution and delivery of this Lease,
deliver to Landlord a certified copy of a resolution of the Board of Directors
of Tenant or any Executive Committee thereof authorizing or ratifying the
execution of this Lease. Failure of Tenant to provide such resolution shall not,
however, relieve Tenant of its obligations pursuant to this Lease.

Section 13.19 Survival of Indemnities

            The obligations of the indemnifying party under each and every
indemnification and hold harmless provision contained in this Lease shall
survive the expiration or earlier termination of this Lease to and until the
last to occur of (a) the last date permitted by law for the bringing of any
claim or action with respect to which indemnification may be claimed by the
indemnified party against the indemnifying party under such provision or (b) the
date on which any claim or action for which indemnification may be claimed under
such provision is fully and finally resolved and, if applicable, any compromise
thereof or judgment or award thereon is paid in full by the indemnifying party
and the indemnified party is reimbursed by the indemnifying party for any
amounts paid by the indemnified party in compromise thereof or upon a judgment
or award thereon and in defense of such action or claim, including reasonable
attorneys' fees incurred. Payment shall not be a condition precedent to recovery
upon any indemnification provision contained herein.

Section 13.20 Surrender or Cancellation

            The voluntary or other surrender of this Lease by Tenant, or a
mutual cancellation thereof, shall not work a merger, and shall terminate all or
any existing subleases, unless Landlord elects to treat such surrender or
cancellation as an assignment to Landlord of any or all of such subleases.


                                       63


Section 13.21 Non-Disclosure of Lease Terms

            Landlord and Tenant each acknowledge and agree that the terms of
this Lease are confidential and constitute proprietary information of Landlord
and Tenant. Disclosure of the terms hereof could adversely affect the ability of
Landlord to negotiate other leases. Each of Landlord and Tenant agree that they,
and their respective partners, officers, directors, employees and attorneys
shall not disclose the terms and conditions of this Lease to any other person
without the prior written consent of the other party except pursuant to an order
of a court of competent jurisdiction or if required or reasonably necessary
under applicable federal and state securities laws. Provided, however, that the
foregoing shall not extend to disclosure by Landlord of the terms of this Lease
to the holder of any mortgage(s) or deed(s) of trust encumbering the Premises,
or any portion thereof, or any replacement of any existing mortgage or deed of
trust or any prospective lender to Landlord and, provided further, that any
party hereto may disclose the terms hereof to its respective attorneys, to its
respective accountants who audit its respective financial statements or prepare
its respective tax returns, to any prospective transferee of all or any portion
of their respective interests hereunder (including a prospective sublessee of
Tenant) to any governmental agency or authority to whom disclosure is required
pursuant to applicable laws, regulations or ordinances and in connection with
any litigation instituted by any party hereto against another party hereto
arising out of this Lease. It is understood and agreed that damages would be an
inadequate remedy for the breach of this provision by any party hereto, and each
of the parties hereto shall have the right to specific performance of this
provision and to injunctive relief to prevent its breach or continued breach. If
Tenant purchases the Premises pursuant to Sections 15.1 or 15.2 of this Lease,
the confidentiality obligations of the parties pursuant to this Section shall
terminate upon the close of such sale, except that, for a period of one (1) year
following the close of such sale Tenant shall continue to maintain the
confidentiality of (a) the economic terms of this Lease and (b) the purchase
price paid by Tenant for the Premises or portion thereof purchased by Tenant.
Notwithstanding the foregoing, Landlord and Tenant acknowledge and agree that
Tenant may or will be required to disclose the terms hereof and/or to file this
Lease in or with Tenant's public filings pursuant to the Securities Act of 1933,
the Securities Exchange Act of 1934 or the rules and regulations under such
acts.


         -----------------------------            ---------------------------
         Landlord's Initials                      Tenant's Initials

Section 13.22 Security Deposit

            There shall be no security deposit pursuant to this Lease.

Section 13.23 Gender; Tenants

            The use of the masculine pronoun includes the feminine and neuter
genders; the use of the singular form of a pronoun includes the plural and
vice-versa. If there be more than one person or entity indicated as Tenant
herein, each person or entity subscribing as a Tenant shall be jointly and
severally liable for all obligations of Tenant hereunder. Subject to the
provisions of Article IX, the terms, conditions and covenants contained herein
shall be binding upon and inure to the benefit of the heirs, successors,
executors, administrators, marital communities, if any, and assigns of the
parties hereto.

Section 13.24 No Option

            Submission of this Lease to Tenant shall not be deemed to be an
offer or option for Tenant to lease the Premises or a reservation of the
Premises. Landlord shall not be bound hereby until Landlord's delivery to Tenant
of an executed copy hereof signed by Landlord, already having been signed by
Tenant, and until such delivery Landlord reserves the right to exhibit and lease
the Premises to other prospective tenants.

Section 13.25 Landlord Liability

            The obligations of Landlord herein are intended to be binding only
on the property of the entity acting as Landlord and shall not be personally
binding, nor shall any resort


                                       64


be had to the private properties of, the general partners thereof or any
employees or agents of Landlord.

Section 13.26 Termination

            If this Lease is terminated by either party under any provision
hereof, and upon the expiration of the term of this Lease (collectively, the
"termination date"), the following shall pertain:

            (a) Tenant shall, within fifteen (15) days after the termination
date, remove from the Premises all furniture, furnishings, equipment, other
personal property, Tenant's Signage and movable trade fixtures and any other
items which Tenant is permitted or required to remove, and shall surrender the
Premises to Landlord in the condition required by Sections 6.2, 6.4 and 6.5.
Tenant shall, at Tenant's cost, repair any damage to the Premises caused by such
removal. Any items which Tenant is permitted to remove but fails to remove prior
to the surrender of the Premises to Landlord shall be deemed abandoned by
Tenant, and Landlord may retain or dispose of the same as Landlord sees fit
without claim by Tenant thereto or to any proceeds thereof. If Landlord elects
to remove and dispose of any such items abandoned by Tenant, the cost of such
removal and disposal shall be additional rent payable by Tenant to Landlord upon
demand. Tenant shall pay all rent and other amounts payable by it through the
termination date and any costs charged pursuant to the immediately preceding
sentence, each of the parties shall bear their own costs and fees incurred
(including all costs incurred in performing their respective obligations
hereunder) through the termination date and from and after the termination date
neither party shall have any further obligations to the other, except for those
obligations set forth in this subsection, in Sections 13.14 and 13.19 and in
subsection (b) below.

            (b) Notwithstanding the provisions of subsection (a), upon any such
termination or expiration, the following shall pertain:

                (i) Landlord agrees to defend, indemnify and hold harmless
Tenant from and against any and all claims, costs, expenses, losses, damages,
actions and causes of action for which Landlord is responsible under this Lease
and which accrue on or before the termination date.

                (ii) Tenant agrees to defend, indemnify and hold harmless
Landlord from and against any and all claims, costs, losses, expenses, damages,
actions and causes of action for which Tenant is responsible under this Lease
and which accrue on or before the termination date.

                (iii) Tenant shall remain liable for the cost of all utilities
used in or at the Premises through the termination date accrued and unpaid and
billed directly to Tenant, whether or not then billed, as of the termination
date until full payment thereof by Tenant. Tenant shall obtain directly from the
companies providing such services closing statements for all services rendered
through the termination date and shall promptly pay the same. If any utility
statement with respect to the Premises includes charges for a period partially
prior to and partially subsequent to the termination date, such charges shall be
prorated as between Landlord and Tenant, with Tenant responsible for the portion
thereof (based upon a fraction the numerator of which is the number of days of
service on such statement through the termination date and the denominator of
which is the total number of days of service on such statement) through the
termination date and Landlord shall be responsible for the balance. The party
receiving any such statement which requires proration hereunder shall promptly
pay such statement and the other party shall, within ten (10) days after receipt
of a copy of such statement, remit to the party paying the statement any amount
for which such other party is responsible hereunder.

                (iv) Tenant shall remain responsible for any taxes of the type
described in Section 4.4 and assessed against the Premises and the personal
property located therein or thereon with a lien date prior to the termination
date, irrespective of the date of the billing therefor, and shall indemnify and
hold Landlord harmless with respect to any claims for such taxes or resulting
from non-payment thereof.


                                       65



Section 13.27 Accord and Satisfaction

            (a) The receipt, retention, cashing, depositing or endorsement by
Landlord of any check, draft or other instrument of payment delivered by Tenant
or any proposed assignee of or successor to Tenant shall not be deemed to be an
acceptance by Landlord of any attempted alteration, assignment or notation
written on said instrument by the maker thereof.

            (b) No payment by Tenant or receipt by Landlord of a lesser amount
than the rent herein stipulated shall be deemed to be other than on account of
the earliest accruing rent, nor shall any endorsement or statement on any check
or any letter accompanying any such check or payment be deemed an accord and
satisfaction. Landlord may accept such check or payment without prejudice to
Landlord's right to recover the balance of such rent or pursue any other remedy
provided for in this Lease or available at law or in equity.

            (c) All amounts payable by either party hereunder to the other shall
be paid in lawful money of the United States to the party entitled to receive
the same at its address set forth in Section 13.10 or at such other address as a
party may designate by notice to the other pursuant to this Article. All amounts
to be paid by Tenant shall be paid without deduction or offset.

Section 13.28 Quiet Possession

            Upon Tenant paying the rent for the Premises and observing and
performing all of the covenants, conditions and provisions on Tenant's part to
be observed or performed hereunder, Tenant shall have quiet possession of the
Premises for the entire term hereof. Landlord shall defend such possession
against the claims of all persons lawfully claiming through or under Landlord.

Section 13.29 Counterparts

            This Lease may be executed in two (2) or more counterparts, each of
which shall be deemed to constitute an original but all of which together shall
constitute one and the same instrument. It shall not be necessary for Landlord
and Tenant to execute the same counterpart(s) of this Lease for this Lease to
become effective.

Section 13.30 Parking for Premises

            (a) In connection with the Initial Premises, in connection with the
Expansion Building, if applicable, and in connection with each Available Space,
if any, added to the Premises pursuant to this Lease, Landlord shall provide
parking at a ratio of four (4) parking spaces per 1,000 square feet of Floor
Area of the Initial Premises and the Expansion Premises and a pro rata share of
the available parking as to any Available Space. For so long as Tenant leases
the entire Initial Premises, all parking spaces thereon shall be for the
exclusive use of Tenant and its employees and business visitors, without charge
by Landlord other than the rent payable by Tenant hereunder. Similarly, if
Tenant exercises the Expansion Option and for so long as Tenant leases the
entire Expansion Premises, all parking spaces thereon shall be for the exclusive
use of Tenant and its employees and business visitors, without charge other than
as set forth in the immediately preceding sentence.

            (b) In the event that Tenant ceases to lease all Floor Area on the
Initial Premises and/or leases one or more Available Spaces on the Expansion
Land, then:

                (i) Except as provided in clause (iii) below, Tenant shall be
entitled, without additional charge, to vehicular and pedestrian ingress and
egress over the Land, and to the use of four (4) parking spaces per 1,000 square
feet of Floor Area on the Initial Premises (if leased entirely by Tenant) and
Expansion Premises (if leased entirely by Tenant) and a pro rata share of the
available parking as to any Available Space or the Initial Premises (if not
entirely leased by Tenant);

                (ii) At Tenant's election, up to twenty-five percent (25%) of
Tenant's parking entitlement shall be reserved parking spaces located reasonably
adjacent to the Building(s) in which Tenant occupies space. If Tenant elects
such reserved parking, reserved


                                       66


spaces shall be established for Tenant and other tenants on a basis such that
Tenant has equal priority with other tenants of, as applicable, the Initial
Premises and the Expansion Land as to reserved spaces. In other words, if Tenant
elects twenty-five percent (25%) reserved spaces, then all tenants on such
parcel will have twenty-five (25%) reserved spaces. Reservation shall be through
marking or signage as reasonably determined by Landlord. All other spaces which
Tenant and other tenants are entitled to use on a portion of the Land as to
which Tenant does not lease all Floor Area shall be used by Tenant (and its
employees and business visitors) and such other tenants on a non-exclusive
basis; and

                (iii) To the extent that Landlord operates, maintains and
repairs the parking areas on any portion of the Land as to which Tenant does not
lease all Floor Area, Tenant shall pay its proportionate share (based on Floor
Area) of the cost of such operation, maintenance and repair in accordance with
Article VI and the Reciprocal Easement Agreement, as defined in Section 17.3.
Tenant shall also reimburse Landlord for all costs of designating Tenant's
reserved spaces as reserved for Tenant.

            (c) Whether Tenant is entitled to exclusive parking rights pursuant
to subsections (a) or (b) or non-exclusive parking rights pursuant to subsection
(b), Tenant and its employees and business visitors shall be entitled to access
to the Initial Premises and, to the extent Tenant leases the same or Floor Area
thereon, the Expansion Premises, on a seven day per week, 24 hour per day basis.
The parking rights of Tenant pursuant to this Section shall extend throughout
the initial Lease term and each Additional Term as to which Tenant exercises an
Extension Option pursuant to this Lease.

Section 13.31 Building Security

            (a) Tenant acknowledges that the rental payable by Tenant hereunder
does not include the cost of guard service or other security measures, and that
Landlord shall have no obligation whatsoever to provide the same. Tenant assumes
all responsibility for the protection of Tenant, its employees, agents and
invitees from acts of third parties.

            (b) Tenant shall be entitled, at Tenant's sole cost and expense, to
install, maintain, replace and use Tenant's own proprietary security system for
all Buildings in the Initial Premises. Similarly, if Tenant leases the Expansion
Building and/or adds one or more Available Spaces to the Premises, Tenant may,
at Tenant's sole cost and expense, install, maintain, replace and use its own
proprietary security system for the Expansion Building or Available Space(s), as
applicable. In connection with such security system (the "Security System"), the
following shall pertain:

                (i) The Security System shall be subject to the prior written
approval of Landlord, not to be unreasonably withheld, conditioned or delayed.

                (ii) Tenant shall be solely responsible to obtain all
governmental approvals and permits required with respect to the Security System.
Installation of the Security System shall be in accordance with the plans
therefor approved by Landlord and all required governmental approvals and
permits.

                (iii) Tenant shall be solely responsible to maintain, repair and
replace the Security System. In no event shall Landlord have any obligations
with respect to the Security System.

                (iv) The Security System shall not interfere with any other
systems for the Landlord Improvements on the Initial Premises or Expansion Land,
as applicable.

                (v) There shall be no additional charge to or rent payable by
Tenant hereunder on account of Tenant's exercise of its rights pursuant to this
Section.

                (vi) Upon the expiration of this Lease or any earlier
termination of this Lease (including a termination as to one or more Buildings
or one or more Available Spaces), Tenant shall remove the Security System from
the Premises (or portion(s) thereof as to which this Lease is terminated) in
accordance with the provisions of Section 6.5.


                                       67


Section 13.32 Communications Equipment

            (a) Tenant shall be entitled to install, maintain, replace and use,
at Tenant's sole cost and expense, on the roof of each Building in which Tenant
leases space, satellite and/or microwave antenna(e) and/or other devices for the
reception and transmission of telecommunications transmissions/signals. In
connection with such equipment (collectively, the "Communications System"), the
following shall pertain:

                (i) The Communications System shall be subject to the prior
written approval of Landlord, which approval shall not be unreasonably withheld,
conditioned or delayed. Landlord's approval rights shall extend to but are not
limited to the location, size and shielding of the antennae, the method of
installation of the Communications System, the routing of all cabling on and
within the Buildings and all roof penetrations and related flashings. For the
purposes of this clause (i), (A) the cabling route provided or approved by
Landlord from the roofs of the Buildings to the interiors thereof shall be the
least expensive functional route available taking into account the
characteristics of the Buildings and (B) all roof and Building penetrations,
patching, flashings, etc. required with respect to the Communications System
shall be performed by a roofing or other contractor selected by Tenant and
reasonably approved by Landlord but retained and paid by Tenant.

                (ii) Tenant shall be solely responsible to obtain all
governmental approvals and permits required with respect to the Communications
System, including any license(s) necessary to operate the same. Installation and
operation of the Communications System shall be in accordance with the plans
therefor approved by Landlord and all required governmental approvals, permits
and licenses.

                (iii) Tenant shall be solely responsible to maintain, repair and
replace the Communications System. In no event shall Landlord have any
obligations with respect to the Communications System. In performing the
foregoing maintenance, repair and replacement, Tenant and its agents and
employees shall exercise reasonable care to avoid damage to other Building
systems located on the roofs thereof.

                (iv) The Communications system shall not interfere with any
other Building systems located on the Initial Premises or Expansion Premises, as
applicable.

                (v) As to any Building in which Tenant leases all of the Floor
Area in the Building, Tenant shall have the exclusive right to place a
communications system on and in such Building. As to any Building in which
Tenant leases less than all Floor Area, Tenant's right to place a communications
system on and in the Building shall be non-exclusive with any similar rights
Landlord has granted or will grant to other tenants of such Building, provided
that preference shall be given based on relative Floor Areas leased by the
parties.

                (vi) Upon the expiration of this Lease or any earlier
termination of this Lease (including a termination as to one or more Buildings
or one or more Available Spaces), Tenant shall remove the Communications System
from the Premises (or portion(s) thereof as to which this Lease is terminated)
in accordance with the provisions of Section 6.5. All patching and sealing of
Building roofs and structures upon such removal shall be subject to the approval
of Landlord.

                (vii) No antennae or other equipment comprising the
Communications System shall overload the roof of any Building or any structural
portion of any Building. Without limiting the foregoing, Tenant shall be solely
responsible to install and maintain any bracing or other structural
reinforcement required as the result of the Communications System. All such
structural reinforcement shall be subject to the prior written approval of
Landlord, and Tenant shall be solely responsible to obtain all required
governmental permits and approvals with respect to such structural
reinforcement.

                (viii) There shall be no additional charge to or rent payable by
Tenant hereunder on account of Tenant's exercise of its rights under this
Section.


                                       68


            (b) Tenant shall have access, without charge by Landlord, to any
cable television, fiber optic or other communications system available at the
Land. Nothing herein, however, shall require Landlord to connect the Landlord
Improvements on the Land to any such cable television, fiber optic or other
communications system. Tenant shall be responsible, at Tenant's sole cost and
expense, to effect such connection(s), to pay any connection fee and to pay all
usage fees required by the purveyor of such system.

Section 13.33 Publicity

            Each of Landlord and Tenant shall consult with each other prior to
issuing any press release, public statement or other publicity concerning the
transactions provided for in this Lease. Neither Landlord nor Tenant shall issue
any press release, public statement or other publicity with respect to the
transactions provided for in this Lease without the prior written approval of
the other party, both as to the issuance of such publicity and the form and
content thereof. No such publicity release shall disclose the economic terms of
the transactions provided for in this Lease. Subject to the immediately
preceding sentence, any such required approval shall not be unreasonably
withheld, delayed or conditioned by either party hereto. The provisions of this
Section shall not apply to any disclosure described in the last sentence of
Section 13.21.

                                  ARTICLE XIV.
                           IMPROVEMENT OF THE PREMISES

Section 14.1 Landlord's Work

            Landlord shall perform the following work ("Landlord's Work") with
respect to the Initial Premises and the Expansion Land:

            (a) Design and construction of the shell and core of each of the
Buildings located on the Initial Premises (the "Core and Shell Work"). The Core
and Shell Work shall include the following:

                (i) Men's and women's toilet rooms on both floors of each
Building, per local codes, including the Americans With Disabilities Act and
life safety issues. Toilet rooms shall be to a finished condition, with finishes
to be selected by Tenant to match Tenant's Work, as defined in Section 14.6;

                (ii) Drinking fountain at core of each Building, both floors;

                (iii) Electrical/telephone closets;

                (iv) Building stairways for exiting that are required by code,
with base building finishes;

                (v) Mechanical equipment rooms as required for each Building;

                (vi) Drywall on (A) core walls (including elevator lobby), (B)
first and second floor structures (for plenum), (C) perimeter and interior
columns, and (D) interior surface of exterior walls above and below the windows,
all taped and sanded, ready for Tenant's finish work;

                (vii) HVAC: HVAC system to be as selected by Tenant and approved
by Landlord. Primary HVAC duct loop from the mechanical equipment room and
installed on each floor;

                (viii) Fire sprinklers: temporary protection consisting of
mains, laterals and uprights, installed according to applicable codes;

                (ix) Fire protection alarm and communications system installed
according to applicable code;



                                       69


                (x) Smooth and level (1/4" deflection over ten (10) foot span)
concrete floor on each floor in accordance with industry standards;

                (xi) Sufficient electrical power, equipment (including panels,
breakers, transformers, and switchgear) to provide for Tenant's lighting, HVAC,
office, and equipment usage;

                (xii) Window coverings;

                (xiii) Hanging wires for drop ceiling system;

                (xiv) Connection of the electrical lighting system to the
Building's computerized control system (if applicable); and

                (xv) One (1) elevator per Building meeting applicable building
code requirements.

            (b) Design, construction and installation of all site work, parking
lots and landscaping in the Initial Premises (the "Other Work"). The Other Work
shall include the following:

                (i) All landscaping, together with a sprinkler system to serve
the same;

                (ii) All parking areas, including striping, directional signs
and markings, parking bumpers, handicapped markings and signage and all bicycle
racks;

                (iii) All sidewalks, walkways, driveways and street connections;

                (iv) All parking lot lighting, driveway lighting and landscape
lighting;

                (v) Trash enclosures;

                (vi) Underground utilities connections from the main lines of
the purveyors to the Buildings and landscape sprinkler system; and

                (vii) Any exterior recreational facilities approved by Landlord
and Tenant.

            (c) Grading, hydro seeding and installing an irrigation system for
the Expansion Land sufficient to maintain thereon a green lawn (the "Green
Area"). Landlord covenants to maintain the Green Area as a lawn or landscaped
area, at Landlord's cost, until the first to occur of (i) expiration of Tenant's
obligation to pay Expansion Land Rent pursuant to Section 3.4 and (ii) purchase
by Tenant of the Project (as defined in Section 15.1) pursuant to Section 15.1.
Provided, however, that Landlord will continue such maintenance beyond the date
determined pursuant to clause (i), but not beyond the date that Tenant purchases
or leases the Expansion Land and all Buildings thereon, if Tenant executes and
delivers an amendment to this Lease agreeing to pay Landlord, on a monthly basis
as additional rent, all costs of Landlord incurred in such maintenance plus an
administrative fee of fifteen percent (15%). The immediately preceding sentence
is subject to Landlord's termination right in the last sentence of Section 3.4.

            For the purpose of Section 14.3 below, the costs of design and
construction of the Core and Shell Work and Other Work shall be included in
Development Costs; the cost of Landlord's Work with respect to the Green Area
shall also be included in Development Costs of the Initial Premises. Landlord's
Work shall be performed in strict accordance with this Article XIV.


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Section 14.2 Standards for Performance of Landlord's Work

            Landlord's Work shall be performed in accordance with the following:

            (a) All Landlord's Work shall be the sole responsibility of Landlord
as to performance and, subject to Section 14.3, shall be paid for by Landlord.
Landlord shall apply Landlord's diligent and good faith efforts, professional
skills and judgment to carry out all of its obligations pursuant to this Article
XIV and, in doing so, shall use the same degree of care and diligence used by
first class developers of projects similar to the projects contemplated
hereunder.

            (b) The Buildings to be constructed as part of the Initial Premises
shall be two story concrete tilt-up buildings unless otherwise mutually agreed
by the parties. The number, size and configuration of such Buildings will be a
function of Tenant's program for the use of the Buildings. Such program shall
consist of required interior functional layouts for Tenant's use of the
Buildings, including size and proximity of various functions and departments.
The program shall be used to develop the required Floor Areas for the Buildings
and such required Floor Areas shall be used to determine the precise number and
location of the Buildings. For this purpose, there shall be not fewer than two
Buildings nor more than four Buildings.

                Tenant, working with Tenant's development manager and Tenant's
Designer, as defined in Section 14.6, has developed a preliminary program.
Tenant shall review, refine and complete Tenant's program and deliver the same
to Landlord within thirty (30) days after the last execution and delivery of
this Lease. Such program (the "Program") shall be subject to the approval of
Landlord, which approval shall not be unreasonably withheld so long as the
Program reasonably meets the criteria set forth in subsection (e) below and
shall be deemed given unless Landlord disapproves the Program by written notice
to Tenant given by Landlord within ten (10) business days after receipt by
Landlord of the complete Program. If Landlord timely disapproves the Program,
Tenant shall within ten (10) business days revise the same to meet Landlord's
objections and resubmit the Program for Landlord's approval pursuant to this
subsection. The foregoing process shall be repeated as often as necessary to
obtain Landlord's approval or deemed approval of the Program. The Program
approved pursuant to the foregoing process is herein referred to as the
"Approved Program."

                Notwithstanding the foregoing, if Landlord and Tenant cannot
agree upon an Approved Program within forty-five (45) days after Tenant's first
submission to Landlord, either party may at any time thereafter terminate this
Lease by written notice to the other given prior to achieving an Approved
Program. If the parties are entitled to terminate this Lease pursuant to this
provision, and either party timely and properly does so, then:

                (i) This Lease shall terminate upon receipt by the recipient
party of the notice of termination;

                (ii) Each party shall bear its own costs and fees incurred in
the preparation and negotiation of this Lease and in performing its respective
obligations hereunder through the date of termination;

                (iii) If the Memorandum of Lease shall previously have been
recorded, Landlord and Tenant shall promptly execute, acknowledge and deliver
the Mutual Cancellation of Lease and Landlord may record the same; and

                (iv) Neither party shall have any further rights or obligations
pursuant to this Lease.

            (c) Landlord's Work shall be designed by HOK Architects (the
"Project Architect"), and a landscape architect selected by Landlord, approved
by Landlord and Tenant and retained by Landlord. Promptly following the
execution and delivery of this Lease and satisfaction of the condition set forth
in Section 1.3, Landlord shall enter into a contract with the Project Architect.
Such contract shall be upon terms agreed upon by Landlord and the Project
Architect, but must contain provisions to the effect that (i) the Project
Architect has all required state and local licenses and reasonable experience
with projects of the size, quality and scope of


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Landlord's Work, (ii) the Project Architect will provide errors and omissions
insurance in the amount of $1,000,000 per occurrence on a form reasonably
satisfactory to Landlord and Tenant, (iii) the Project Architect agrees in
advance to make Tenant a third-party beneficiary of the contract with Landlord
and (iv) the Project Architect agrees in writing, without qualification,
reservation or fee that, if Tenant purchases the Initial Premises pursuant to
Sections 15.1 or 15.2 hereof, Landlord may assign such contract to Tenant in
connection with such sale. In addition, the scope of work and pricing provisions
(i.e., fees, disbursements and how and when paid) provided for in Landlord's
contract with the Project Architect shall be subject to the approval of Tenant.
Such approval shall not be unreasonably withheld, delayed or conditioned and
shall be deemed given unless Tenant disapproves the same by written notice to
Landlord specifying any required changes to the scope of work and/or pricing
provisions and given within five (5) business days after receipt by Tenant of a
copy of the proposed contract. The Project Architect is agreed by Landlord and
Tenant to be the primary architect who shall design and supervise Landlord's
Work. Landlord and Tenant acknowledge and agree that Landlord's Work may require
the services of a landscape architect. Such determination (i.e., whether a
landscape architect is required) and the selection of the landscape architect to
be retained shall be subject to the mutual approval of Landlord and Tenant.
Tenant's approval of the Landscape Architect shall not be unreasonably withheld,
delayed or conditioned so long as the proposed landscape architect satisfies the
criteria set forth in clauses (i) and (ii) above. Such approval shall be deemed
given unless Tenant shall disapprove the proposed landscape architect by written
notice to Landlord given within ten (10) days after receipt by Tenant of written
notice from Landlord indicating Landlord's selection of the landscape architect.
Upon approval or deemed approval of the landscape architect, Landlord shall
enter into a contract with the landscape architect meeting the requirements of
clauses (i) through (iv). Any landscape architect selected pursuant to this
subsection is herein referred to as the "Landscape Architect."

            (d) All engineering work required in connection with Landlord's Work
shall be performed by structural, mechanical, electrical, plumbing and civil
engineers selected and retained by the Project Architect and reasonably approved
by Landlord and Tenant. Tenant's approval as to each such engineer shall be
deemed given unless Tenant disapproves the same by written notice to Landlord
given within ten (10) days after receipt of written notice from Landlord
identifying such proposed engineer. All such engineers and the Landscape
Architect shall be coordinated by the Project Architect.

            (e) Promptly upon the last of (A) selection and retention of the
Project Architect and Landscape Architect, if any, and (B) approval of the
Approved Program, Landlord shall cause the Project Architect to prepare and
submit to Landlord and Tenant for approval proposed preliminary plans with
respect to the Buildings for the Initial Premises. As and when appropriate
(i.e., once the preliminary plans for the Buildings are sufficiently developed
and approved to permit the Landscape Architect to do so), Landlord shall cause
the Landscape Architect to prepare and submit to Landlord and Tenant for
approval proposed preliminary plans with respect to the exterior landscaping and
parking lots for the Initial Premises. Such preliminary plans shall include a
site plan (the "Master Plan"), space plans and character architectural
elevations for the Buildings. For the purpose of preparation of such preliminary
plans, Tenant and its consultants shall supply to the Project Architect and
Landscape Architect detailed information as to Tenant's requirements for the
Initial Premises. For this purpose, Tenant and Landlord shall work cooperatively
to arrive at a mutually acceptable set of plans for Landlord's Work. Such design
shall be based upon the Approved Program, but shall also, to the extent
feasible, take into account other factors such as overall cost, design
excellence, quality of materials, impact on surrounding properties and the ease
of releasing the Buildings in a multi-tenant format. Approval of the proposed
preliminary plans shall not be unreasonably withheld by Landlord or Tenant
provided that (i) the proposed preliminary plans address Tenant's requirements
as set forth in the Approved Program, (ii) the proposed preliminary plans comply
with the applicable requirements of all governmental authorities having
jurisdiction of the Premises, (iii) the Project Architect advises Landlord and
Tenant that Landlord's Work as set forth on such proposed preliminary plans can
be completed within the Budget Figures (unless Tenant agrees to increase one or
both of the Budget Figures) and (iv) the exterior design is generally compatible
with surrounding properties. Each portion (i.e., the Buildings and the exterior
landscaping and parking lots) of the proposed preliminary plans shall be deemed
approved by a party unless such party disapproves the same by written notice to
the Project


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Architect or Landscape Architect, as applicable, and the other party given
within ten (10) days after receipt of the proposed preliminary plans and
specifying in reasonable detail the items disapproved. In the event of timely
and proper disapproval of the proposed preliminary plans, the Project Architect
or Landscape Architect, as applicable, shall promptly revise the same to meet
such objections and resubmit the same for approval pursuant to this subsection.
Such process shall continue until proposed preliminary plans are approved or
deemed approved by Landlord and Tenant. The approved preliminary plans resulting
from such process are hereby referred to as the "Approved Preliminary Plans."

            (f) Landlord and Tenant have selected Gordon & Williams, Snyder
Langston and Oltman's Construction as potential general contractors with respect
to Landlord's Work (each, a "qualifying contractor"). Landlord and Tenant agree
that all qualifying contractors have all required state and local licenses, have
reasonable experience with work of the size, scope and quality of Landlord's
Work, and are capable of performing Tenant's Work pursuant to Section 14.6 as
well as Landlord's Work.

                Promptly following the approval of the Approved Preliminary
Plans, the Project Architect shall request from each qualifying contractor a
reasonably detailed statement of probable cost to construct Landlord's Work,
with the proposed contractor's fee and general conditions costs or rates of each
contractor and a lump sum amount for pre-construction services separately
stated. Such preliminary estimates shall be based upon a preliminary bid package
prepared by the Project Architect. Such preliminary bid package shall contain
(i) the Approved Preliminary Plans and (ii) specific requirements and procedures
relating to insurance (including builder's risk insurance), change orders and
warranties and guaranties (and the assignability thereof) and no bonding
requirement. The preliminary bid package shall be subject to the reasonable
approval of Tenant prior to delivery to the qualifying contractors, which
approval shall be deemed given unless Tenant disapproves the same by written
notice to Landlord and the Project Architect given within ten (10) days after
Tenant's receipt of the complete package and setting out with specificity the
item(s) disapproved.

                Landlord and Tenant shall mutually select the general contractor
for Landlord's Work based upon the statements of probable cost from the
qualifying contractors. If Landlord and Tenant are unable to agree within ten
(10) days after receipt of the last statement of probable cost, the qualifying
contractor with the lowest total cost statement, including contractor's fee,
general conditions and pre-construction services, shall be the general
contractor with respect to Landlord's Work. The contractor selected pursuant to
the foregoing process is herein referred to as "Landlord's Contractor." From and
after the selection of Landlord's Contractor, Landlord's Contractor shall
coordinate and consult with the Project Architect on the development of the
Approved Working Drawings pursuant to subsection (g) below.

            (g) Promptly upon approval of the Approved Preliminary Plans and
selection of Landlord's Contractor, the Project Architect and Landscape
Architect shall prepare and submit for approval by Landlord and Tenant proposed
working drawings and specifications for Landlord's Work. The proposed working
drawings and specifications shall include all exterior and interior Landlord's
Work, shall include a landscaping and parking plan and shall be in sufficient
detail to permit subcontractor bidding thereon and the obtaining of all
governmental permits and approvals required with respect to Landlord's Work. A
copy of the proposed working drawings and specifications shall be delivered to
Landlord's Contractor with a request for comments as to cost savings
possibilities, further detail requirements and any other comments which
Landlord's Contractor cares to make. Copies of such comments, if any, shall be
furnished to Landlord and Tenant. Approval of the proposed working drawings and
specifications shall not be unreasonably withheld by Landlord or Tenant provided
that (i) the proposed plans and specifications conform to the Approved
Preliminary Plans and (ii) the proposed plans and specifications meet the
requirements of clauses (i) through (iv) of subsection (e) above. The proposed
working drawings and specifications shall be deemed approved by a party unless
such party disapproves the same by written notice to the Project Architect or
Landscape Architect, as applicable, and the other party given within ten (10)
business days after receipt of a complete set of the proposed working drawings
and specifications and specifying in reasonable detail the items disapproved. In
the event of timely and proper disapproval of the proposed working drawings and
specifications, the Project Architect or Landscape Architect, as applicable,
shall


                                       73


revise the same to meet such objections and resubmit the same for approval
pursuant to this subsection. Upon any such resubmission, the time for
disapproval or deemed approval shall be five (5) business days after receipt of
a complete set of the revised working drawings and specifications. The foregoing
process shall continue until proposed working drawings and specifications are
approved or deemed approved by Landlord and Tenant. The approved working
drawings and specifications resulting from the foregoing process are herein
referred to as the "Approved Working Drawings."

            (h) Promptly following approval of the Approved Working Drawings,
the Project Architect shall prepare and provide to Landlord's Contractor a final
bid package consisting of the Approved Working Drawings and the items described
in clause (ii) of subsection (f). Such final bid package shall be subject to the
approval of Tenant prior to submission to Landlord's Contractor, in the manner
and within the time specified in subsection (f). Landlord's Contractor shall,
within thirty (30) days after receipt of the final bid package, obtain all
subcontractor bids required with respect to Landlord's Work and furnish to
Landlord, Tenant and the Project Architect a final bid price for Landlord's Work
utilizing the contractor's fee and general conditions costs or rates set forth
in such contractor's preliminary cost estimate and the bids received from the
proposed subcontractors. Promptly upon receipt of such final bid price, Landlord
shall enter into a construction contract with Landlord's Contractor for
Landlord's Work. Such contract shall be in a guaranteed maximum cost format
(unless Landlord and Tenant agree to use a stipulated sum format), shall utilize
the final bid price supplied by Landlord's Contractor and shall contain the
terms and provisions included in the final bid package. The general contractor's
contract shall be subject to the approval of Tenant. Such approval shall not be
unreasonably withheld, delayed or conditioned, and shall be deemed given unless
Tenant disapproves the same by written notice to Landlord specifying any
required changes and given within five (5) business days after receipt by Tenant
of a copy of the proposed contract.

                If Tenant elects to utilize Landlord's Contractor to perform
Tenant's Work, and if Tenant's working drawings therefor are complete at the
date of approval of the Approved Working Drawings, the final bid package shall
include such working drawings with a request for a separate bid for Tenant's
Work. If Tenant so obtains and accepts a bid from Landlord's Contractor with
respect to Tenant's Work, such work shall be pursuant to a separate contract
between Tenant and Landlord's Contractor.

            (i) Promptly following approval of the Approved Working Drawings,
Landlord shall (or shall cause the Project Architect to) apply for all
governmental permits and approvals required with respect to Landlord's Work. In
connection with such applications:

                (i) Landlord shall (or shall cause the Project Architect to)
diligently pursue such applications in accordance with the Schedule of Landlord
Improvements. Tenant shall cooperate as reasonably requested by Landlord.

                (ii) Landlord shall (or shall cause the Project Architect to)
retain all structural engineers, electrical engineers and other consultants
required to provide engineering and other drawings or plans as necessary to
obtain the required governmental approvals and permits with respect to
Landlord's Work and shall cause the preparation and submission to the relevant
governmental authorities of all such materials. Tenant shall furnish information
and otherwise cooperate as reasonably requested by Landlord.

                (iii) Any changes to the Approved Working Drawings required by
any governmental authorities shall be effected by the Project Architect or
Landscape Architect, as applicable, within seven (7) days after the request for
such change and shall be subject to the approval of Landlord and Tenant in
accordance with subsection (g) above.

            (j) All Landlord's Work shall comply with all Applicable Laws and
all Landlord's Work shall comply with the Approved Working Drawings and all
governmental permits and approvals issued with respect thereto.

            (k) Landlord's Work shall be commenced promptly following the last
of (i) the last execution and delivery of this Lease, (ii) satisfaction or
waiver of the last of the conditions set forth in Article XVI hereof and (iii)
completion of the matters described in


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subsections (b) through (i) above. Subsequent to commencement of Landlord's
Work, Landlord shall, subject to Section 13.16, diligently pursue the same to
completion. Landlord shall use commercially reasonable efforts to complete all
Landlord's Work in accordance with the schedule of improvements attached hereto
as Exhibit "E" and incorporated herein by this reference (the "Schedule of
Landlord Improvements").

            (l) Approximately ten (10) days prior to the Lease Commencement Date
(i.e., Substantial Completion of the Core and Shell Work), but in any event upon
not less than two (2) days prior written notice to the parties, the Project
Architect and representatives of Landlord and Tenant shall conduct a
walk-through of the Initial Premises Buildings and compile a so-called
punch-list of items to be completed, corrected or removed and replaced. Landlord
shall cause its contractor to complete, correct or remove and replace all such
punch-list items of the Core and Shell Work as promptly as practicable following
the compilation and initialing of the punch-list. Such walk-through shall be
scheduled by Landlord.

            (m) For the purposes of this Section, it is understood and agreed
that:

                (i) Landlord's representative with respect to the design and
construction process provided for in this Section shall be Mr. Grant Wilson.

                (ii) Without limiting any of the other provisions of this
Section, Tenant shall have the specific right to monitor the progress of the
Project Architect to assure compliance with the Schedule of Landlord
Improvements. This right shall include, among other things, the rights to (A)
review progress prints at reasonable intervals in the course of the design of
Landlord's Work and (B) attend design review meetings on a regular basis to
assess the degree of completion of design versus the Schedule of Landlord
Improvements. To facilitate such monitoring by Tenant, Landlord shall provide to
Tenant copies of such progress prints as the same are available and notify
Tenant of the dates and times of design review meetings.

Section 14.3 Payment for Landlord's Work

            (a) As used herein, the term "Development Costs" shall mean all
out-of-pocket costs and fees incurred in the design and construction of all Core
and Shell Work and all Other Work with respect to the Initial Premises, plus the
development fee provided for in clause (xiii) below, including but not limited
to the following:

                (i) Design fees for the Core and Shell Work and the Other Work,
including architectural, engineering, landscaping, etc.;

                (ii) All City and transportation fees and the fire suppression
fee applicable to the Initial Premises, exclusive of any in-lieu fees or other
new fees or fee increases negotiated in connection with the general plan
amendment, specific plan amendment, rezoning, final master plan, development
agreement and/or EIR for Landlord's Home Ranch development (collectively the
"Home Ranch Master Entitlements"). For the purposes of this provision, it is
understood and acknowledged that Landlord may be required to pay to the City all
traffic impact fees for the Home Ranch. In the event of such payment by
Landlord, Development Costs shall include reimbursement to Landlord of those
traffic impact fees applicable to the Initial Premises at the standard rate used
for calculating such fees. All such fees shall be reimbursed at the times
typically payable to the collecting authority, except that any such traffic
impact fees so prepaid by Landlord and not theretofore reimbursed shall be paid
at close of the escrow pursuant to Section 15.1;

                (iii) Mitigation fees and costs (such as a right hand turn lane
into the Land) specific to the Initial Premises required as conditions of
approval of the Initial Premises, but excluding mitigation costs, off-site
improvements, exactions or other public benefits for the Home Ranch master
development ("Home Ranch Master Exactions"), i.e., which are requirements,
conditions or mitigation measures of any of the Home Ranch Master Entitlements.
For the purposes hereof, the Home Ranch Master Exactions shall include any
mitigation fees and costs which are included as Home Ranch Master Exactions
under the Home Ranch Master Entitlements, even if such mitigation fees and costs
are subsequently shifted to Initial Premises specific conditions because of
changes in the proposed Home Ranch development. To the extent


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that any Initial Premises specific mitigation fees and costs are not Home Ranch
Master Exactions but are the result of requirements or development conditions of
both the Initial Premises and one or more other parcels within Home Ranch
("Other Benefited Parcel(s)"), such mitigation fees and costs shall be allocated
between the Initial Premises and the Other Benefited Parcel(s) based on the
standards typically used by the City to determine or allocate the amount of such
fees or costs (such as trip-ends, acreage, rentable area, parking requirements,
etc.). If another standard is not typically applied by the City for any fees and
costs described in the immediately preceding sentence, relative acreages shall
be used;

                (iv) Plan check and permit fees;

                (v) Utility connection and deposit fees (but excluding any line
extension fees or other fees or costs recaptured by Landlord or its affiliates
pursuant to any reimbursement agreement or arrangement with the City or a public
utility purveyor);

                (vi) All costs of construction, including grading/site work,
Core and Shell Work, parking lots, landscaping, site lighting, monument sign
structures and contractors' profit and overhead;

                (vii) Legal fees for construction documents;

                (viii) Property taxes and insurance during construction only;

                (ix) Utility consumption during construction only;

                (x) The Leasing Commission, but not the Sale Commission;

                (xi) Costs of design and performance of the work described in
Section 14.1(c);

                (xii) Costs and fees incurred to prepare, process and record the
Map, as defined in Section 17.1;

                (xiii) A development fee equal to four percent (4%) of all
Development Costs, excluding brokerage commission, to compensate Landlord for
providing comprehensive management of the development of the Initial Premises;

                (xiv) At Tenant's option, its out of pocket fees and costs for
its development manager, up to a maximum of $270,000, shall be included in
Development Costs but only to the extent that such costs and fees do not cause
total Development Costs, exclusive of Land cost, to exceed $17 million. The
parties acknowledge that, pursuant to subsection (b), such fees and costs will
be funded by means of monthly draws on Tenant's Loan. If such fees and costs are
over-funded (i.e., the fees and costs cause total Development Costs to exceed
$17 million) and Tenant does not purchase the Project pursuant to the Purchase
Option, Landlord shall not include such fees and costs in the Permanent
Financing with respect to the Initial Premises and shall not return the same to
Tenant as a part of the payoff of Tenant's Loan, as defined in subsection (b)
below; and

                (xv) Costs and fees for financing of all items listed above. For
the purposes of Landlord's Work as to the Initial Premises, such costs and fees
shall be limited to those incurred to obtain Permanent Financing with respect to
the Initial Premises. For the purposes of the Expansion Premises, if applicable,
such costs and fees included in Development Costs shall include (A) the costs
and fees incurred with respect to construction financing of Landlord's Work
(unless Tenant elects to finance the same on the basis provided in subsection
(b) below) through the commencement of payment of Base Rent with respect to the
Expansion Premises and (B) the costs and fees incurred to obtain Permanent
Financing with respect to Landlord's Work with respect to the Expansion
Premises. If Landlord elects to finance more than Development Costs, financing
costs and fees allocable to such excess shall not be included in Development
Costs.


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            Notwithstanding the foregoing, no expenses or costs incurred by
Landlord prior to January 4, 2002, and no costs or exactions for the master
entitlement of the Home Ranch project (as opposed to permit fees and costs for
the development of the Initial Premises), shall be included in Development
Costs. For the purposes of clauses (ii) and (iii) above and this paragraph,
Landlord and Tenant acknowledge that Landlord has entered into a development
agreement (the "Development Agreement) setting forth certain of the Home Ranch
Master Entitlements, the Home Ranch Master Exactions and certain other fees and
mitigation costs. Without limiting the generality of clauses (ii) and (iii),
Landlord and Tenant have set forth on Exhibit "H" attached hereto a listing of
those costs, fees and exactions provided for in the Development Agreement,
together with their agreement as to which of such items are included, in whole
or in part, in the Development Costs.

            (b) Tenant shall lend to Landlord the Development Costs with respect
to the Initial Premises. Such loan ("Tenant's Loan") shall be upon the following
terms and conditions:

                (i) Tenant's Loan shall be disbursed to Landlord monthly
commencing with the first calendar month following the last execution and
delivery of this Lease. Each disbursement shall be made within ten (10) days
after Tenant's receipt of a written recommendation from Landlord setting forth
the amount of the payment due, accompanied by (A) reasonable documentary
evidence as to the amounts spent by Landlord for Development Costs, (B) a
certificate of Landlord's Construction Coordinator, as defined in Section 14.7,
certifying that the amounts spent constitute Development costs pursuant to
subsection (a) above and (C) all supporting documents as shall be required by
the construction contract with Landlord's Contractor. A copy of each application
for payment (and all supporting documents) shall be submitted by Landlord's
Contractor to Tenant's development manager at the same time as submission
thereof to Landlord. Each request for payment may also include a request for the
development fee applicable to the other Development Costs, calculated at the
rate set forth in subsection (a) above. The fees and costs of Tenant's
development manager shall also be included in monthly disbursements of Tenant's
Loan, but only if and to the extent payable pursuant to subsection (a) above.
Tenant's obligations to fund Development Costs pursuant to this clause (i) shall
survive any purchase of the Project by Tenant pursuant to Section 15.1 to and
until completion of punch-list work, if applicable, and the funding of any final
payment due as the result of the final accounting provided for in subsection (d)
below.

                For the purposes of this clause (i), Landlord shall obtain (and
shall cause to be furnished to Tenant's development manager) each monthly
application for payment and the items described in clauses (A), (B) and (C) on
or about the 20th of each calendar month. Thereafter, Landlord shall furnish to
Tenant Landlord's recommendation as to such application on or before the first
of the next calendar month. Tenant shall authorize payment, as provided below,
by the 10th of such calendar month (i.e., within ten (10) calendar days after
Landlord's recommendation as to such application, subject to the next succeeding
paragraph).

                Notwithstanding the two (2) immediately preceding paragraphs,
Tenant may, by written notice to Landlord and Landlord's Contractor given within
the ten (10) day payment period herein, in good faith contest (I) the amount of
the payment requested and/or (II) the propriety of the payment due to lack of or
improper components in the application package. Any such notice shall specify
the defect or irregularity noted by Tenant, the portion of the payment contested
by Tenant and the portion, if any, of the payment not contested by Tenant. If
Tenant timely and properly contests a payment, or a portion thereof, Landlord
shall not make the payment (or portion contested) until the contest is resolved.
Tenant and Landlord shall diligently move to resolve the contest, and upon such
resolution Tenant shall pay any additional amount agreed to be due within five
(5) business days after resolution of the contest.

                To facilitate the disbursements of Tenant's Loan pursuant to
this clause (i), Landlord and Tenant shall establish a design and construction
funding account (the "Funding Account"), as follows:

                    1. The Funding Account shall be with a bank, trust company
or other financial institution with reasonable experience in the business of
construction funding.


                                       77



                    2. Tenant shall select the funding agent and Landlord shall
approve the funding agent, with such approval not to be unreasonably withheld,
delayed or conditioned.

                    3. The Funding Account shall be either an escrow or trust
account, as customarily used by the funding agent. In either event, Tenant shall
be entitled to interest on the account (i.e., investment of the deposits in the
account), subject to availability of funds for the monthly draws provided for in
this clause (ii).

                    4. There shall be at least three deposits into the Funding
Account. The first will be within two (2) business days after execution by
Landlord of an agreement with the Project Architect and shall be in the contract
amount plus all other Development Costs other than those described in the next
two sentences. The second shall be within two (2) business days after selection
of Landlord's Contractor and shall be in the amount of the fee for
pre-construction services estimated by Landlord's Contractor. The third shall be
within two (2) business days after execution by Landlord of a construction
contract with Landlord's Contractor and shall be in the full amount of the
construction contract. In the event of any material increases in the Development
Budget, additional deposits as necessary shall be made within two (2) business
days after approval or deemed approval of such increases.

                    5. The costs and fees of the funding agent shall be paid by
Landlord and not included in Development Costs. Landlord and Tenant have been
advised that the funding agent anticipates a set-up fee for the funding account
of $2,500 and an annual maintenance fee of $7,500 for such account.

                    6. Monthly disbursements from the Funding Account shall
require the signatures of both Tenant's development manager and Landlord's
representative. Each monthly disbursement shall be to a construction account
designated by Landlord.

                    If Tenant fails to timely make any required deposit into the
Funding Account, or to authorize any monthly disbursement pursuant to this
clause (i) (other than due to a timely instituted contest), Landlord may advance
such funds and Tenant shall promptly repay the same to Landlord with interest at
the Default Rate . Such repayment shall be included in Tenant's Loan; the
interest thereon shall not be included in Tenant's Loan. In addition, if Tenant
fails to timely fund the Funding Account or to timely authorize a monthly
disbursement, then (1) Tenant shall be responsible for all penalties and
additional costs incurred by Landlord with respect to Landlord's Work as the
result of such failure to timely fund, and such penalties and costs shall be
included in Development Costs and (2) failure to timely fund, after notice and
failure to cure pursuant to Section 12.1, shall constitute a Default by Tenant
pursuant to this Lease entitling Landlord to exercise all remedies available to
Landlord on account of a default by Tenant hereunder, including termination of
this Lease and recovery of damages from Tenant. In the event of a Tenant
initiated contest, clause (1) above shall apply, and if the contested payout
results in any mechanics' liens, Tenant shall be responsible to bond over or
discharge any lien claims which have become the subject of a foreclosure action
(within ten (10) days after service of a complaint in such action). Clause (2)
above shall apply to any failure of Tenant to timely authorize payment of any
amount agreed to be due as the result of a contest.

                (ii) Tenant's Loan may be prepaid (i.e., paid before the
principal and interest thereof become due pursuant to the succeeding clauses of
this subsection), in whole or in part, without payment of any interest, penalty
or premium of any type.

                (iii) If and only if this Lease has been terminated based upon a
Landlord default or Landlord transfers the Property in violation of the terms of
the Deed of Trust, (A) interest shall accrue at the Default Rate on
disbursements of Tenant's Loan from the date of such termination or transfer
until such amounts are repaid in full and (B) Landlord shall pay to Tenant such
accrued interest, together with the entire outstanding principal amount of the
Tenant Loan thereof, on or prior to the date (the "Loan Repayment Date") which
is the one hundred eightieth (180th) day after the date of such termination or
transfer, as applicable. Landlord's obligations to repay Tenant's Loan in
accordance with the terms hereof shall survive the termination of this Lease. No
principal payments shall be required with respect to Tenant's



                                       78


Loan prior to the earlier of the Permanent Financing or the Loan Repayment Date.
Failure to repay Tenant's Loan on or prior to such time shall constitute an
Event of Default under Tenant's Deed of Trust. Landlord and Tenant agree that
any acceleration of Tenant's Loan under the terms of this Lease or Tenant's Deed
of Trust or Tenant's enforcement of its rights under Tenant's Deed of Trust,
relate(s) solely to the relationship of Landlord and Tenant as borrower and
lender, to the protection of Tenant's Loan and its security interest in the
Premises and to Tenant's exercise, in its capacity as a lender, of its rights
and remedies as a lender, and that the foregoing do not, nor shall they be
deemed to, constitute a remedy or an election of any remedy by or for Tenant in
connection with Landlord's breach of its obligations hereunder. There shall be
no interest payable on Tenant's Loan except as provided in this clause (iii),
and principal shall be repaid as provided in this clause (iii).

                (iv) Tenant's Loan shall be secured by a deed of trust in the
form attached hereto as Exhibit "K" ("Tenant's Deed of Trust"). Landlord shall
execute, acknowledge and deliver Tenant's Deed of Trust concurrently with
Landlord's execution and delivery of this Lease. Landlord shall record Tenant's
Deed of Trust concurrently with the short form memorandum of this Lease. Upon
such recordation, Landlord shall furnish the original of Tenant's Deed of Trust
to Tenant.

                (v) Subject to clause (ii) of Section 3.1(c), Tenant's Loan
shall be repaid from the proceeds of the Permanent Financing obtained by
Landlord with respect to the Initial Premises. Tenant shall (A) cooperate with
Landlord as reasonably requested in closing such Permanent Financing and (B)
furnish to Landlord, or Landlord's lender or escrow agent, an executed and
acknowledged full reconveyance of Tenant's Deed of Trust for use upon repayment
in full of Tenant's Loan.

                (vi) In no event shall Tenant's Loan exceed the aggregate amount
of Development Costs with respect to the Initial Premises, as determined
pursuant to subsections (a) above and (c) below.

                (vii) To facilitate the payments required pursuant to this
subsection, Landlord and Tenant have developed a development budget (the
"Development Budget") for the Initial Premises. The Development Budget is
attached hereto as Exhibit "L." Payments hereunder shall be made in accordance
with the Development Budget, as the same is modified from time to time. Landlord
shall periodically update and submit the revised Development Budget to Tenant as
actual costs replace estimated costs therein. Any such revisions shall be
subject to the approval of Tenant. Such approval shall not be unreasonably
withheld, delayed or conditioned, and such approval shall be deemed given unless
Tenant disapproves by written notice to Landlord given within five (5) business
days after Tenant's receipt of the revised Development Budget specifying the
item(s) disapproved. Payments with respect to various Development Costs shall
not exceed the amounts thereof as reflected from to time on the then current
Development Budget.

            (c) Subject to reimbursement by Tenant pursuant to subsection (b)
above, all Development Costs shall be paid by Landlord. The parties have agreed
that, with respect to Landlord's Work with respect to the Initial Premises, the
initial budget shall be $46.00 per square foot of Floor Area in the Buildings
for the Core and Shell Work and $4.00 per square foot of the Initial Premises
Land outside of the Buildings for Other Work. The foregoing per square foot
estimates are herein referred to as the "Budget Figures."

                The parties acknowledge and agree that the Budget Figures are
merely estimates, and that the actual cost of Landlord's Work (and the total
Development Costs) will be established based upon the contractor bidding and
selection process set forth in Section 14.2(d). Once the actual cost of
Landlord's Work (the "Actual Cost") is so established, such Actual Cost shall be
increased only by change orders to the construction contract for Landlord's Work
("Change Orders") which:

                (i) Are required to meet changes required as the result of field
inspections (which changes are not the fault of the Project Architect or
Landlord's Contractor) and provide for no increase in the guaranteed maximum
cost of Landlord's Work, decrease such



                                       79


guaranteed maximum cost or increase such guaranteed maximum cost less than
$10,000 per change order and $500,000 in the aggregate; or

                (ii) Are reasonably approved by Landlord and Tenant.

Landlord's Construction Coordinator shall promptly furnish to Landlord and
Tenant, for information purposes only, copies of all Change Orders required
pursuant to clause (i). With respect to all Change Orders described in clause
(ii), Landlord's Construction Coordinator shall furnish the same to Landlord and
Tenant for approval together with a brief explanation of the reason therefor and
a written request for approval. Each such Change Order submitted for approval by
a party shall be deemed approved by such party unless such party reasonably
disapproves the same by written notice to Landlord's Construction Coordinator
delivered within five (5) business days after such party's receipt of the Change
Order and request for approval and specifying with reasonable particularity the
reason for such disapproval. Upon execution and delivery to the contractor of
each Change Order required pursuant to clause (i), and upon approval or deemed
approval of each Change Order described in clause (ii), the Actual Cost of
Landlord's Work shall be increased by the amount of the Change Order. Change
Orders which do not increase the Actual Cost of Landlord's Work or extend the
time for completion of Landlord's Work shall be delivered to Landlord and Tenant
for informational purposes only, and shall not require the approval of Landlord
and Tenant unless such Change Orders reflect a material change to the Approved
Working Drawings, which change has not previously been approved by Landlord and
Tenant.

            (d) Promptly following receipt of Landlord's Contractor's final bid
pursuant to Section 14.2(h), Landlord shall update and submit to Tenant the
Development Budget for the Initial Premises. Thereafter, in the event of any
increase in the total Development Costs for the Initial Premises, Landlord shall
supply to Tenant a new update of the Development Budget. Such updates shall be
prepared and furnished not more frequently than monthly. Within thirty (30) days
after substantial completion of Landlord's Work, Landlord shall supply to Tenant
a final accounting of total Development Costs. Landlord shall accompany such
final accounting with a final draw request on Tenant's Loan pursuant to Section
14.3(b).

Section 14.4 Time for Completion

            Landlord shall use commercially reasonable efforts to commence and
complete Landlord's Work in accordance with the Schedule of Landlord
Improvements. In connection therewith, Landlord and Tenant agree as follows:

            (a) Nothing contained in this Lease or in the Schedule of Landlord
Improvements shall require Landlord to commence Landlord's Work until
satisfaction or waiver of the last of the conditions set forth in Article XVI.

            (b) Landlord shall, as to all permits required from the City,
utilize the third party plan check system available with the City. All costs and
fees of using such system shall be included in Development Costs for the Initial
Premises.

            (c) Any delay by Tenant in meeting any of the dates set forth in the
Schedule of Landlord Improvements, other than such delays as are occasioned by
Landlord, is herein referred to as a "Tenant Delay." In addition if, after
approval of the Approved Working Drawings, Tenant requests changes in Landlord's
Work, Landlord shall effect such changes and (i) all additional design costs
incurred to effect such changes, and any increase in the guaranteed maximum cost
of Landlord's Work, shall be included in Development Costs and (ii) any
additional time to complete Landlord's Work as the result of such changes shall
be a Tenant Delay. For the purposes of clause (ii), additional time to complete
shall constitute a Tenant Delay only if the additional time affects the critical
path of Landlord's Work and shall not be a Tenant Delay if it does not affect
such critical path. By way of example, a structural change in a Building during
construction of the Building structure would be a Tenant Delay, while a change
in landscape features before the start of landscape work would not be a Tenant
Delay. The Lease Commencement Date shall be advanced (i.e., moved earlier in
time) by a period of time equal to the aggregate period of Tenant Delay.


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            (d) Promptly upon Substantial Completion, as defined in subsection
(e) below, of the Core and Shell Work, Landlord shall deliver the Buildings to
Tenant. Such delivery shall be upon not less than ten (10) days prior written
notice to Tenant stating the date upon which the Core and Shell Work shall be
Substantially Complete.

            (e) Substantial Completion shall be separately determined with
respect to the Core and Shell Work, the Other Work and Tenant's Work. As used in
this Lease, the term "Substantial Completion" and "Substantially Complete" shall
mean, with respect to the Core and Shell Work, that (i) such work shall be
substantially completed in accordance with the construction contract, subject
only to minor punch-list items which do not materially interfere with Tenant's
build-out of the Tenant Improvements, (ii) such Substantial Completion shall
have been unconditionally certified by the Project Architect and Landlord's
Contractor in a written certificate delivered to Landlord and Tenant and (iii)
the Building Department of the City shall have given a final sign-off on the
permit for the Core and Shell Work and released the same for utilities to be set
in place. Such terms shall mean, as to the Other Work, that (i) such work shall
be substantially completed in accordance with the construction contract, subject
only to minor punch-list items which do not materially interfere with Tenant's
use of the Land for access and parking (on the Initial Premises Land only), (ii)
the City shall have provided final sign-offs for all such work which requires
such sign-offs and (iii) all landscaping shall be installed and shall be in good
and living condition and all utilities, lighting and sprinkler systems shall be
fully installed and operational.

            (f) The Other Work need not be Substantially Complete as of
Substantial Completion of the Core and Shell Work. The Other Work need only be
at such stage as shall permit entry to the Initial Premises by Tenant's
Contractor in order to commence Tenant's Work. All Other Work and Landlord's
Work with respect to the Grass Area shall be Substantially Complete by the date
of Substantial Completion of Tenant's Work.

Section 14.5 Warranties and Guaranties

            Landlord shall, as a part of the construction contract for
Landlord's Work, obtain a one-year warranty as to materials (or as otherwise
warranted by the manufacturer) and labor from Landlord's general contractor.
Landlord shall also obtain such warranties and guaranties as shall be customary
from all subcontractors, materialmen and equipment suppliers involved in the
performance of Landlord's Work. All such guaranties and warranties shall be
written in a manner permitting assignment of Landlord's rights thereunder to
Tenant. Upon the expiration of the period set forth in Section 6.1(a), Landlord
shall assign to Tenant Landlord's rights under all such warranties and
guaranties. Such assignment shall be without recourse to Landlord and shall be
effected by execution and delivery of an assignment instrument prepared by
Tenant and reasonably approved by Landlord.

Section 14.6 Tenant's Work

            (a) Tenant shall design, conduct and perform (i) all tenant
improvement work with respect to the Buildings included in the Initial Premises
(the "Tenant Improvements") and (ii) all work required to construct or install
all Tenant's Special Facilities, the Security System and the Communications
System. All such work (collectively, "Tenant's Work") shall be in accordance
with the succeeding provisions of this Section 14.6.

            (b) All Tenant's Work shall be the sole responsibility of Tenant, as
to all of design, performance and payment of all costs thereof.

            (c) Tenant's Work shall be designed by HOK Architects or another
architect/space planner retained by Tenant and mutually approved by Landlord and
Tenant ("Tenant's Designer"). If Tenant determines to use an architect/space
planner other than HOK Architects, such Tenant's Designer shall be subject to
the approval or deemed approval of Landlord in the manner provided in Section
14.2(b). All engineering work required in connection with Tenant's Work shall be
performed by engineers selected and retained by Tenant.


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            (d) As used herein, the term Tenant Improvements shall include all
work with respect to the Buildings required for Tenant's use thereof and not
included in the Core and Shell Work.

            (e) Tenant's Work shall be conducted by (in either case, "Tenant's
Contractor") either (i) the general contractor selected pursuant to Section
14.2(f) (but under a separate contract with Tenant) or (ii) another licensed
general contractor meeting the criteria set forth in such Section, selected by
Tenant and approved or deemed approved by Landlord in the manner provided in
Section 14.2(f).

            (f) The working drawings for Tenant's Work shall be subject to the
approval or deemed approval of Landlord in the manner provided in Section
14.2(g).

            (g) Tenant's Designer shall obtain all required governmental permits
and approvals with respect to Tenant's Work in the manner provided in Section
14.2(i), including the right of Landlord and Tenant to approve any changes to
Tenant's Work required by any governmental authority.

            (h) Tenant's Work shall comply with all Applicable Laws, all
applicable requirements of this Lease, the approved working drawings therefor
and all governmental permits and approvals issued with respect thereto.

            (i) Tenant's Work shall be commenced promptly upon delivery of the
Buildings to Tenant (with the Core and Shell Work Substantially Complete), shall
be diligently pursued and shall be completed as promptly as practicable. No
delays in completion of Tenant's Work shall delay the occurrence of the Rent
Commencement Date.

            (j) Tenant shall pay all costs of Tenant's Work, and Section 13.14
hereof shall apply with respect to Tenant's Work.

Section 14.7 Coordination, Cooperation and Change Orders

            Landlord and Tenant acknowledge and agree that prompt attention will
be required with respect to Change Orders requiring the approval of Tenant and
that Tenant's Work may proceed concurrently with portions of Landlord's Work. In
recognition of such facts, Landlord and Tenant agree that:

            (a) Landlord and Tenant, and their respective architects and
contractors, shall coordinate and cooperate as reasonably necessary to avoid
interference by either contractor with the other in the performance of their
respective work on the Initial Premises.

            (b) Ms. Sadie Herrera is hereby designated as Tenant's
representative with respect to design and construction of the Initial Premises.
Such representative ("Tenant's Representative") shall interface with the
architects, Tenant's Contractor and Landlord's Construction Coordinator and
shall have authority to make all design and construction decisions with respect
to the Initial Premises, which decisions shall bind Tenant. Such decisions shall
specifically include the authority to approve or disapprove all Change Orders
with respect to Landlord's Work which require Tenant's approval and all changes
to the Approved Working Drawings for Landlord's Work. Within ten (10) days after
the last execution and delivery of this Lease, Tenant shall supply to Landlord
in writing the address, telephone number(s) and FAX number(s) for Tenant's
Representative and the name, address, telephone number(s) and FAX number(s) of
an alternate Tenant representative with the authority to make all decisions and
provide all approvals or disapprovals described in this subsection if Tenant's
Representative is unavailable for any reason.

            (c) Mr. Grant Wilson is hereby designated as Landlord's Construction
Coordinator with respect to the Initial Premises. Landlord's Construction
Coordinator shall interface with the architects, the contractors and Tenant's
Representative. Landlord's Construction Coordinator shall have the authority to
make all decisions and provide all approvals or disapprovals described in
subsection (b) above, which decisions shall bind Landlord. Within ten (10) days
after the last execution and delivery of this Lease, Landlord shall supply to
Tenant


                                       82


in writing the address, telephone number(s) and FAX number(s) for Landlord's
Construction Coordinator and the name, address, telephone number(s) and FAX
number(s) of an alternate Landlord construction coordinator with the authority
to make all decisions and provide all approvals and disapprovals described in
subsection (b) above if Landlord's Construction Coordinator is unavailable for
any reason. In the event of any disputes as to scheduling and coordination of
Tenant's Work and Landlord's Work, the reasonable determination of Landlord's
Construction Coordinator shall be binding on the parties and their respective
architects and contractors.

            (d) Each of Landlord and Tenant can change its respective
representatives at any time upon not less than ten (10) days written notice to
the other party.

Section 14.8 Expansion Building

            If Tenant exercises the Expansion Option, the Expansion Building and
all other improvements to the Expansion Land shall be designed and constructed
in the manner provided in this Article XIV, except that:

            (a) All references herein to the "Buildings" shall mean the
"Expansion Building." All references herein to the "Initial Premises" shall mean
the "Expansion Premises."

            (b) A new Schedule of Landlord Improvements for the Expansion
Building and related Landlord Improvements to the Expansion Land shall be agreed
upon by Landlord and Tenant and attached to the amendment to this Lease or New
Lease executed with respect to the Expansion Building.

            (c) New Budget Figures for the Core and Shell Work and the Other
Work with respect to the Expansion Premises shall be agreed upon by Landlord and
Tenant and included in the amendment to this Lease executed with respect to the
Expansion Building.

            (d) There shall be no Green Area with respect to the Expansion
Building.

            (e) Unless Tenant elects, at the time Tenant exercises the Expansion
Option, to loan to Landlord the Development Costs for the Expansion Premises,
Landlord may finance such Development Costs with construction and/or Permanent
Financing secured by a lien upon the Expansion Premises. All costs and fees
incurred to obtain such construction financing, all interest paid on such
construction financing through the Rent Commencement Date with respect to the
Expansion Premises and all costs and fees incurred to obtain Permanent Financing
with respect to the Expansion Premises shall be included in Development Costs
for the Expansion Premises.

Section 14.9 Remediation During Construction

            Landlord and Tenant acknowledge and agree that:

            (a) Landlord's predecessor farmed the Land and may have used
chemical pesticides, weed abatement agents and other agricultural chemicals. In
addition, there may be asbestos pipe in the Land due to such farming operation.

            (b) Tenant's Phase I report suggests further testing of the portion
of the Land adjacent to the railroad tracks for the presence of hazardous
materials and Tenant shall, as provided in Section 16.1, perform a Phase II
assessment of such portion of the Land.

            (c) If as the result of such Phase II assessment and/or discoveries
during grading of the Land, items of types described in subsections (a) and/or
(b) are discovered, and this Lease is not terminated pursuant to Sections 1.3,
14.2 or 16.1, then:

                (i) Landlord shall do all remedial work required as a part of
Landlord's Work.


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                (ii) The cost of remediation of materials described in
subsection (a) shall be borne by Landlord and not included in Development Costs.

                (iii) The costs of remediation of any other materials, including
those described in subsection (b), shall be included in Development Costs.

                                   ARTICLE XV.
                            TENANT'S PURCHASE RIGHTS

Section 15.1 Tenant's Option to Purchase

            (a) Provided that (i) Tenant or an assignee permitted without the
consent of Landlord pursuant to Article IX hereof is then the Tenant pursuant to
this Lease and (ii) Tenant is not then in Default pursuant to this Lease, Tenant
shall have the option to purchase the Land and all Landlord Improvements thereon
or under construction thereon (collectively, the "Project"). Such option (the
"Purchase Option") shall be exercised, if at all, by written notice from Tenant
to Landlord given at any time after the last execution and delivery of this
Lease and not later than the expiration of the sixth (6th) full calendar month
following the Rent Commencement Date with respect to the Initial Premises (the
"Purchase Option Period"). If Tenant is not entitled to exercise the Purchase
Option, or is entitled to exercise the Purchase Option but fails to do so in the
manner and within the time specified in this subsection, the Purchase Option
shall lapse and thereafter not be exercisable by Tenant. The Purchase Option
shall be exercisable only as to the entire Project, and shall not be exercisable
as to less than the entire Project.

            (b) If Tenant is entitled to exercise the Purchase Option and timely
and properly does so, then Tenant shall purchase the Project upon the following
terms and conditions:

                (i) The purchase price (the "Project Purchase Price") shall be
equal to the sum of (A) Tenant's Loan, (B) all Development Costs (as defined in
Section 14.3) paid by Landlord and not included in Tenant's Loan, (C) any
prepaid traffic impact fees pursuant to clause (iii) of Section 17.6(b) plus (D)
an amount equal to Twenty Dollars ($20.00) per square foot of the Land (as such
square footage is determined pursuant to Section 3.2 hereof). The Project
Purchase Price shall be paid at close of escrow by delivery of immediately
available funds equal to the sum of the amounts determined pursuant to clauses
(B) and (C) and cancellation of Tenant's Loan in its entirety. In no event shall
the Project Purchase Price include the cost of any Tenant's Work paid for by
Tenant.

                (ii) A purchase and sale escrow (the "Escrow") shall be opened
with Chicago Title Company or another mutually acceptable title/escrow company
in Orange County, California (the "Escrow Agent") within ten (10) business days
after Tenant's exercise of the Purchase Option. Tenant shall have an agreed
thirty (30) day period to conduct a due diligence review of the Project, which
shall be limited solely to a review of title, environmental, entitlement (for
the Expansion Land) and structural matters. Provided Tenant does not terminate
the Escrow within the due diligence period, Escrow shall, subject to subsection
(d) below, close within ten (10) days following the expiration of the due
diligence period.

                (iii) The Project shall be sold to Tenant "AS IS" and with no
representations and warranties by Landlord, except as set forth in the Purchase
and Sale Agreement, as defined below. Landlord shall, however, at the end of the
period described in Section 6.1, assign to Tenant all design and construction
warranties and rights obtained by Landlord and all other ongoing rights of
Landlord under the design, development and construction documents with respect
to the Project.

                (iv) Landlord will pay the premium for a standard owner's CLTA
title policy with respect to the Project in the amount of the Project Purchase
Price and the cost of any endorsements required to cure title defects. Tenant
shall be responsible for all additional premiums and costs for an ALTA extended
coverage policy of title insurance (i.e., the premium difference between a CLTA
policy and an ALTA policy), plus the cost of any endorsements required by Tenant
(other than those required to cure title defects). Landlord shall convey title
to



                                       84


the Project to Tenant subject only to those matters permitted by the Purchase
and Sale Agreement, as defined in subsection (c) below.

                (v) Base Rent and real property taxes shall be prorated at close
of Escrow. Landlord shall pay the documentary transfer tax with respect to the
grant deed, the recording fee for the deed and one-half of escrow agent's fees
and costs. Tenant shall pay the recording fees for the mutual cancellation of
this Lease and a complete reconveyance of Tenant's Deed of Trust, all recording
fees for any deed of trust placed on the Project by Tenant and one-half of
escrow agent's fees and costs. All other costs and fees in connection with the
Escrow shall be paid in accordance with customary escrow practice in Orange
County, California.

            (c) Concurrently with Tenant's exercise of the Purchase Option,
Landlord and Tenant shall execute and deliver a purchase and sale agreement in
the form attached hereto as Exhibit "F" (the "Purchase and Sale Agreement").
Tenant and Landlord shall also execute and deliver such supplemental escrow
instructions not inconsistent with the foregoing as the Escrow Agent may
reasonably request. To the extent the terms and provisions of the Purchase and
Sale Agreement conflict with the terms and provisions of this Section, the terms
and provisions of the Purchase and Sale Agreement shall control.

            (d) Notwithstanding anything to the contrary set forth in
subsections (b) and (c) above, it is understood and agreed that:

                (i) Tenant may elect to exercise the Purchase Option prior to
Substantial Completion of Landlord's Work. If Tenant elects to exercise prior to
Substantial Completion of Landlord's Work, Tenant shall have the option to
either:

                    (A) Close the purchase pursuant to the time frame set out in
clause (ii) of subsection (b); or

                    (B) Extend the close of the purchase escrow until
Substantial Completion of the Core and Shell Work.

Such election shall be included in Tenant's notice of exercise of the Purchase
Option and, if Tenant fails to make an election in such notice, Tenant shall be
deemed to have elected to proceed pursuant to clause (B).

                (ii) If Tenant elects or is deemed to elect to proceed pursuant
to clause (i)(B), then:

                    (A) The close of escrow shall be extended until Substantial
Completion of the Core and Shell Work. Such extension shall not extend the due
diligence period pursuant to clause (ii) of subsection (b).

                    (B) The Project Purchase Price shall be determined in the
manner provided in clause (i) of subsection (b), based upon actual Development
Costs incurred by Landlord.

                    (C) Landlord shall not complete the Other Work, but only so
much thereof as is scheduled for completion by Substantial Completion of the
Core and Shell Work. Landlord shall assign the construction contract to Tenant,
and Tenant shall complete the balance of the Other Work.

                    (D) The Project Purchase Price shall include Landlord's
Development fee on all Development Costs actually included in the Project
Purchase Cost, but without the Breakage Fee, as defined below.

                    (E) Landlord's obligations pursuant to Section 6.1(b) shall
apply to the Shell and Core Work but not the Other Work.


                                       85



                    (F) Tenant shall be responsible for the second installment
of the Leasing Commission payment due to the Broker pursuant to Section 13.11
and the Commission Agreement referenced therein.

                (iii) If Tenant elects to proceed pursuant to clause (i)(A),
then:

                    (A) The close of escrow shall be in accordance with clause
(ii) of subsection (b).

                    (B) The Project Purchase Price shall be determined in the
manner provided in clause (i) of subsection (b), based upon actual Development
Costs incurred by Landlord through close of escrow.

                    (C) Landlord shall not complete either the Shell and Core
Work or the Other Work. Landlord shall assign the construction contract to
Tenant, and Tenant shall complete the balance of the Shell and Core Work and the
Other Work.

                    (D) Clause (ii)(D) shall apply except that there shall be a
"Breakage Fee" of ten percent (10%) of the Development Fee remaining to be paid.
For this purpose, the Development Fee shall be based upon the most current
Development Budget. The Breakage Fee shall be paid at close of the Escrow, if
not previously paid by Tenant to Landlord.

                    (E) Landlord shall have no obligation pursuant to Section
6.1(b) as to either the Shell and Core Work or the Other Work.

                    (F) Clause (ii)(F) shall apply.

Section 15.2 First Offer to Purchase

            (a) In the event (i) Tenant shall not exercise the Purchase Option,
(ii) Tenant or an assignee permitted without the consent of Landlord pursuant to
this Lease is then the tenant pursuant to this Lease, (iii) Tenant is not in
Default pursuant to this Lease and (iv) Landlord desires to sell the Project, or
any portion thereof, during the initial Lease Term (but not any Additional
Term), Landlord shall in writing notify Tenant (a "Sale Notice") of Landlord's
intent to sell the Project or portion thereof identified in the Sale Notice. The
Sale Notice shall be given prior to any offer by Landlord to sell the Project
(or any portion thereof) to a third party.

            (b) Upon receipt of a Sale Notice by Tenant, Tenant shall have
fifteen (15) business days to notify Landlord in writing of Tenant's intent to
purchase the Project or the portion thereof specified in Landlord's Sale Notice.
If Tenant timely notifies Landlord of its intent to purchase the Project or
portion thereof specified in Landlord's Sale Notice, the parties shall proceed
pursuant to subsection (c). If Tenant does not so timely notify Landlord, or
notifies Landlord that it does not intend to purchase the Project or portion
thereof specified in Landlord's Sale Notice (the "Sale Portion"), Landlord may
proceed pursuant to subsection (d).

            (c) If Tenant timely and properly notifies Tenant of its intent to
purchase the Project or Sale Portion, Tenant and Landlord shall, for thirty (30)
days after Tenant's notice, enter into exclusive negotiations to attempt to
reach a mutually satisfactory agreement as to price and terms of the sale. Such
negotiation process shall include at least one good faith written offer by
Tenant (the "Tenant Offer") of the price at which Tenant proposes to purchase
the Project or Sale Portion. If agreement as to price is reached during the
thirty (30) day exclusive negotiation period, the parties shall have an
additional thirty (30) day period to enter into and deliver a purchase and sale
agreement and open a purchase and sale escrow.

            (d) If (i) Tenant fails to timely give the notice provided for in
subsection (b) (or notifies Landlord that Tenant does not intend to purchase the
Project or Sale Portion), or (ii) Tenant and Landlord fail to reach an agreement
as to price within the thirty (30) day exclusive negotiation period pursuant to
subsection (c) or (iii) Tenant and Landlord reach an agreement as to price
during the exclusive negotiation period but fail to execute and deliver a
purchase agreement within the second thirty (30) day period pursuant to
subsection (c), then, in any such event, Landlord shall be free to sell the
Project or Sale Portion to any third party buyer,


                                       86


but only at a price greater than the purchase price contained in the last Tenant
Offer by Tenant pursuant to subsection (c) (the "Tenant Price").

            (e) Notwithstanding the provisions of subsection (d), if Tenant
shall have provided to Landlord at least one Tenant Offer during the exclusive
negotiation period and either (i) Landlord has not executed a definitive
purchase agreement with a third party buyer to sell the Project or Sale Portion
within twelve (12) months after the expiration of the first thirty (30) day
period in subsection (c) above (with no agreement as to price) or twelve (12)
months after the expiration of the second thirty (30) day period in subsection
(c) above (with no execution of a purchase and sale agreement), as applicable,
or (ii) Landlord proposes to sell the Project or Sale Portion at a price equal
to or less than the Tenant Price, then, in either such event, Landlord shall
provide to Tenant a Sale Notice pursuant to subsection (b) and Tenant shall have
the same right specified in subsection (b) to notify Landlord of its intent to
purchase, except that Tenant shall have five (5) business days from receipt of
Landlord's second Sale Notice to give the notice therein described. If Tenant
shall not have provided to Landlord at least one Tenant Offer during the
exclusive negotiation period, then the provisions of this subsection (e) shall
not apply, there shall be no second Sale Notice and Landlord shall be free to
sell the Project or Sale Portion to any third party at any price and upon any
terms agreed upon by Landlord and such third party.

            (f) If (i) Tenant timely and properly notifies Landlord of its
intent to purchase pursuant to subsection (b), Tenant and Landlord reach
agreement upon a sale price and execute and deliver a purchase and sale
agreement pursuant to subsection (c) or (ii) subsection (e) applies and Tenant
timely notifies Landlord of Tenant's intent to purchase in response to
Landlord's second Sale Notice, which purchase shall be at the Tenant Price,
Tenant and Landlord shall proceed to close the sale of the Project or Sale
Portion. Such sale shall be for cash at close of a purchase and sale escrow at
the price agreed upon pursuant to subsection (c) above or the Tenant Price, as
applicable. In addition, in connection with such sale:

                    (A) The purchase price to be paid shall be paid by delivery
of immediately available funds at close of the Escrow;

                    (B) Clause (ii) of Section 15.1(b) shall apply except that
the ten (10) day period to open Escrow shall run from execution and delivery of
a purchase and sale agreement (in the case of subsection (c)) or from Tenant's
acceptance of Landlord's second Sale Notice (in the case of subsection (e));

                    (C) Clauses (iii), (iv) and (v) of Section 15.1(b) shall
apply with respect to such sale; and

                    (D) Section 15.1(c) shall apply with respect to such sale,
except that the Purchase and Sale Agreement shall be modified as described in
Exhibit "M".

            (g) The process provided for in this Section 15.2, and Tenant's
rights hereunder, shall apply only during the initial Lease term and shall apply
only once. In other words, if the process provided for in this Section does not
result in a sale to Tenant of the Project or Sale Portion, and Landlord
thereafter again determines to sell the Project or any portion thereof, Landlord
need not provide to Tenant a Sale Notice and Tenant shall have no rights
pursuant to this Section 15.2 with respect to such sale.

                                  ARTICLE XVI.
                           CONDITIONS TO EFFECTIVENESS

Section 16.1 Conditions to Continued Effectiveness of Lease

            (a) As described in Section 14.9, Tenant has conducted a Phase I
hazardous materials assessment with respect to the Land. Tenant shall, at
Tenant's cost, promptly conduct a Phase II assessment of the Land and furnish a
copy of the results thereof to Landlord. Such assessment shall be completed and
such results shall be furnished to Landlord within thirty (30) days after the
last execution and delivery of this Lease. Each party shall, at its sole
discretion, have the right to review the results of the Phase II assessment. If
such Phase II assessment reveals material amounts of hazardous materials on the
Property other than those covered by


                                       87


Section 14.9(c)(ii), either party may terminate this Lease. Any such termination
of this Lease shall be by written notice from one party to the other given
within ten (10) days after receipt of the results of the Phase II assessment
(the "Drop Dead Date"). If neither party exercises such right of disapproval and
termination by the Drop Dead Date, such right shall lapse and thereafter not be
exercisable by either party. The provisions of this subsection (a) shall be
separately applied to the Expansion Land if Tenant exercises the Expansion
Option, with the thirty (30) day Phase II assessment period to run from the date
of Tenant's exercise of the Expansion Option.

            (b) Due to the zoning of the Land (Planned Development Industrial),
Tenant will be required to obtain City approval of the Master Plan. Such
approval is a discretionary approval by the City, and such approval may result
in a legal challenge (i.e., a court action) by a person or persons opposed to
such approval within thirty (30) days after the final approval of the Master
Plan (the "Second Drop Dead Date"). In the event that a legal challenge is filed
with respect to final approval of the Master Plan on or before the Second Drop
Dead Date, Tenant shall have the option to terminate this Lease. Such option
shall be exercised, if at all, by written notice to Landlord given at any time
after ninety (90) days after the filing of a timely legal challenge and prior to
a dismissal with prejudice or judgment in favor of Landlord with respect to such
challenge. If Tenant is not entitled to exercise such option, or is entitled to
exercise such option but fails to timely exercise, such option shall lapse and
thereafter not be exercisable by Tenant.

                For the purposes of this provision, it is understood and agreed
that (i) Landlord shall obtain the approval of the Master Plan and (ii) Landlord
shall bear the cost of defending any legal challenge to the approval of the
Master Plan. If this Lease is terminated pursuant to this subsection, Tenant
shall reimburse Landlord for one-half of the legal fees and costs incurred
pursuant to clause (ii). If this Lease is not so terminated (i.e., the defense
is successful), the legal fees and costs incurred in such defense shall be
included in Development Costs. If, however, Tenant retains separate counsel with
respect to such defense, the costs and fees of such separate counsel shall be
borne by Tenant.

            (c) If Tenant is entitled to exercise and timely exercises its
option pursuant to subsection (b), or either party timely exercises its option
pursuant to subsection (a), then, in either such event:

                (i) This Lease shall terminate on the date of receipt of notice
of termination;

                (ii) If the Memorandum of Lease shall previously have been
recorded, Landlord and Tenant shall promptly execute, acknowledge and deliver
the Mutual Cancellation of Lease and Landlord shall record the same;

                (iii) If this Lease is terminated pursuant to subsection (a)
above, or subsection (b) above, Landlord shall pay all design fees and costs
incurred by Landlord with respect to the Initial Premises and Tenant shall pay
all design fees and costs incurred by Landlord with respect to the Initial
Premises. In addition, in the event of a termination pursuant to subsection (b),
legal defense fees and costs shall be borne as provided therein. Whether this
Lease is terminated pursuant to subsection (a) or subsection (b), each party
shall bear its own costs and fees incurred in the preparation and negotiation of
this Lease; and

                (iv) Neither party shall have any further rights or obligations
pursuant to this Lease and Tenant shall have no further rights in or to the
Land.

            (d) Neither Landlord nor Tenant shall be obligated to commence
design of, respectively, Landlord's Work or Tenant's Work or to prepare the Map
until satisfaction of the condition set forth in Section 1.3. The cost of any
such work so undertaken by either party prior to the satisfaction of such
condition shall be borne in accordance with clause (c)(iii). If Landlord
undertakes any such work and the conditions set forth in such Section, Section
14.2 and this Section are satisfied, such costs (other than costs related to the
Map) shall be included in Development Costs for the Initial Premises as provided
in Section 14.3.


                                       88


            (e) Promptly following satisfaction of the condition set forth in
subsection (a) above, Landlord shall diligently proceed with the design of
Landlord's Work (i.e., the Core and Shell Work, the Other Work and the work on
the Grass Area). Similarly, promptly following satisfaction of the condition set
forth in subsection (a) above, Tenant shall diligently proceed with the design
of Tenant's Work (including Tenant's Special Facilities, the Security System and
the Communications System).

                                  ARTICLE XVII.
                                  OTHER MATTERS

Section 17.1 Subdivision of Land

            Landlord and Tenant acknowledge that the Land currently consists of
a single legal parcel. Tenant acknowledges that, initially, this Lease covers
the entire Land and all Landlord Improvements to be constructed by Landlord with
respect to the Initial Premises. Prior to the Lease Commencement Date with
respect to the Initial Premises, Landlord shall subdivide the Land into two
separate legal parcels consisting of, respectively, the Initial Premises Land
and the Expansion Land. In connection with such subdivision, the following shall
pertain:

            (a) Subject to the foregoing deadline, Landlord may elect to effect
such subdivision at any time after the execution and delivery of this Lease.

            (b) Landlord shall be solely responsible to prepare and process a
parcel map (the "Map") to effect such subdivision. Landlord shall pay all costs
incurred to prepare and process the Map, including, but not limited to,
engineering costs, all governmental fees and costs and the costs of recording
the Map. Such costs and fees shall not be included in Development Costs with
respect to the Initial Premises.

            (c) Tenant shall cooperate as reasonably requested by Landlord in
connection with the processing and approval of the Map, including execution of
the Map, if legally required, and execution and delivery of such other
instruments as may be required by law to process the Map and obtain all
approvals required to record the Map.

            (d) Any subdivision provided for in this Section shall:

                (i) Result in one legal parcel encompassing the entire Initial
Premises (i.e., all Buildings on the Initial Premises Land, associated parking
at a ratio of four (4) spaces per 1,000 square feet of Floor Area of such
Buildings and all associated hardscaping and landscaping).

                (ii) Not materially alter the rights and obligations of Tenant
pursuant to this Lease. In other words, no such subdivision shall reduce the
size of the Initial Premises Land or any rights of Tenant therein or reduce or
eliminate any rights of Tenant with respect to the Expansion Land, including the
rights of Tenant pursuant to Sections 1.4 and 1.5.

Section 17.2 Common Areas

            (a) Initially, Tenant shall be the sole Tenant of the Initial
Premises and shall have the exclusive right to use all areas and improvements
comprising a part of the Initial Premises and located outside of the Buildings
(the "Initial Premises Exterior Areas"). Similarly, if Tenant exercises the
Expansion Right, Tenant shall be the sole Tenant of the Expansion Building and
shall have the exclusive right to use all areas and improvements located on the
Expansion Land and located outside of the Expansion Building (the "Expansion
Land Exterior Areas").

            (b) If Tenant ceases to be the sole tenant of the Initial Premises
(i.e., Tenant exercises an Extension Option for less than all Buildings in the
Initial Premises), or Tenant becomes the tenant of only a portion of the Floor
Area on the Expansion Land (i.e., Tenant adds one or more Available Spaces to
the Premises), then, from and after the occurrence of either such event (a
"Common Area Event"):


                                       89



                (i) Those portions of the Initial Premises Exterior Areas or the
Expansion Land Exterior Areas not occupied by Tenant's Special Facilities shall
become "common areas." For this purpose, common areas shall mean all areas (and
all improvements thereon) within the exterior boundaries of the Initial
Premises, Expansion Premises or Land which (A) are not now or hereafter held for
exclusive use by Tenant, or any other tenant of the Initial Premises, Expansion
Premises or Land and (B) are made available for the common use of Landlord,
Tenant and other occupants and their respective employees and invitees in or
around the Initial Premises, Expansion Premises or Land. Common Areas shall
include, without limiting the generality of the foregoing, all parking areas,
entrances, exits, landscaped and planted areas, retaining walls, irrigation
systems and controllers, drains, sewers, lighting fixtures, wiring, electrical
panels and automatic control systems, driveways, delivery passages, loading
docks, sidewalks, stairways, ramps, open and enclosed courts and malls, central
identification signs and structures designed for the use of all owners,
occupants, employees and invitees and shall include any "greenbelt" or set back
areas maintained by Landlord on any parcel leased for the exclusive use of a
tenant. Common Areas shall include lobbies or other common areas within any
building which is leased to more than one tenant and shall include any legal
parcel which constitutes a portion of the Initial Premises, Expansion Premises
or Land and on which no buildings have been or may be constructed for occupancy.

                (ii) If but only if either the Initial Premises or the Expansion
Premises becomes a multi-tenant project, the rules and regulations attached
hereto as Exhibit "I" shall govern and control Tenant's use of such common areas
to the extent applicable thereto. Initially, such Exhibit "I" shall not apply to
the Initial Premises. Moreover, in the event of any inconsistency between this
Lease and Exhibit "I," this Lease shall control. No application of the Rules and
Regulations shall materially adversely affect Tenant's then operation in, at or
from the Premises.

                (iii) Landlord shall operate and maintain the common areas, and
Tenant shall pay to Landlord, as additional rent, a proportionate share of the
costs thereof, and Landlord's overhead allowance, in accordance with Article VI
of this Lease and an amendment to this Lease to be executed and delivered in
connection with and concurrently with such Common Area Event.

Section 17.3 Reciprocal Easement Agreement

            If there are any Common Facilities, as defined in Section 6.3(b),
Tenant shall initially operate, maintain, repair and replace such Common
Facilities pursuant to Section 6.3(b) and the costs of such operation,
maintenance, repair and replacement shall be borne by Tenant and Landlord as
provided in Section 6.3(b). If (a) imposed as a condition to approval or
recordation of the Map or (b) Tenant does not exercise either the Purchase
Option or the Expansion Option and either (i) Landlord proposes to develop the
Expansion Land or (ii) Tenant ceases to be the sole tenant of the Initial
Premises (any event in clause (a) and clause (b) a "Trigger Event" herein), then
Landlord shall prepare and Tenant and Landlord shall execute and deliver a
reciprocal easement agreement (the "REA") covering the use, maintenance, repair
and replacement of each such Common Facility and payment and allocation of the
costs thereof. The REA shall be intentionally short and simple and shall contain
the following principal provisions:

                    (A) A non-exclusive right of use for all tenants, occupants
(and employees, invitees and business visitors, if applicable) of the Initial
Premises as to any Common Facility located on the Expansion Land, and a
non-exclusive right of use for all tenants, occupants (and employees, invitees
and business visitors, if applicable) of the Expansion Land as to any Common
Facility located on the Initial Premises.

                    (B) Until the first to occur of (1) development of the
Expansion Land and (2) Tenant ceasing to be the sole tenant of the Initial
Premises, Tenant shall operate, maintain, repair and replace all Common
Facilities, whether located on the Initial Premises or the Expansion Land,
pursuant to Section 6.2 and pay all costs thereof.

                    (C) Subsequent to the first to occur of the events described
in clause (B), Landlord shall operate, maintain, repair and replace all Common
Facilities located on



                                       90


the Expansion Land. The costs thereof shall be allocated between the tenants on
the Expansion Land and the tenant(s) on the Initial Premises based on their
respective Floor Areas.

                    (D) Until Tenant ceases to be the sole tenant of the Initial
Premises, Tenant shall operate, maintain, repair and replace all Common
Facilities located on the Initial Premises, with the costs thereof allocated as
provided in clause (C). Thereafter, Landlord shall operate, maintain, repair and
replace such common facilities, with the costs thereof allocated as provided in
clause (C).

                    (E) For the termination of the REA upon the first to occur
of (1) expiration or any earlier termination of this Lease and (2) a purchase by
Tenant of the entire Project.

                    (F) Such other provisions as are customary for instruments
such as the REA.

            Notwithstanding the provisions of clauses (A) through (E), if any
Common Facility is a driveway which supplies access to both the Initial Premises
and the Expansion Land, Tenant does not exercise the Expansion Option and
Landlord elects to develop the Expansion Land, then during the period of
construction by Landlord, Landlord shall maintain and repair such common
driveway, bear all costs thereof and keep open the driveway for ingress to and
egress from the Initial Premises.

Section 17.4 Relocation Costs

            Tenant shall be solely responsible, both as to performance and
payment of the costs thereof, to relocate from its present facilities to the
Initial Premises. No portion of the allowance shall be applied to payment of
such relocation costs.

Section 17.5 Trip Ends

            Landlord and Tenant acknowledge that, as provided in Section 1.6(a),
there is both a Floor Area Entitlement and a Trip Budget for the Land. In
connection therewith, Landlord and Tenant agree as follows:

            (a) Subject to subsection (c) below, the Entitlement and the Trip
Budget for the Land are as set forth in Section 1.6(a) and shall not change.

            (b) In the event that Tenant exercises the Purchase Option, upon the
close of the sale the entire Trip Budget will be assigned and allocated to
Tenant as a part of the sale as provided in the Purchase and Sale Agreement.

            (c) After the Purchase Option has expired and until the Expansion
Option expires without exercise by Tenant, Landlord shall reserve sufficient
a.m. and p.m. trips (up to the entire remaining Trip Budget) to satisfy the trip
requirements for development of the maximum remaining Entitlement for the
Expansion Land as Office. Any excess trips above the allocation to the Initial
Premises and those reserved pursuant to the immediately preceding sentence may
be allocated by Landlord to any other portion of the Home Ranch. If the
Expansion Option is not exercised, Landlord may allocate any portion of the Trip
Budget not allocated to the Initial Premises to any other portion of the Home
Ranch.

            (d) Any portion of the Trip Budget not allocated to the Initial
Premises or the Expansion Premises may be allocated by Landlord to any other
portion of the Home Ranch.

Section 17.6 Traffic Impact Fees

            As described on Exhibit "H" and in Section 14.3, Tenant shall be
required to pay Traffic Impact Fees with respect to the development of
Improvements to the Land. In connection with such fees (the "Fees"), Landlord
and Tenant agree as follows:


                                       91



            (a) In the event that any or all of such Fees are not required to be
prepaid (i.e., in a single lump payment by Landlord), then (i) Landlord shall
pay the Fees (using Tenant's Loan funds) as to the Initial Premises as a part of
the Development Costs when required to be paid by the City with respect to the
Initial Premises, (ii) if Tenant exercises the Expansion Option, Landlord shall
pay such Fees as to the Expansion Premises as a part of the Development Costs
thereof when required to be paid by the City and (iii) if Tenant exercises the
Purchase Option, Tenant shall pay such Fees as to the Expansion Land at the time
Tenant develops the same.

            (b) If any or all of such Fees are required by the City to be
prepaid (i.e., in a single lump payment by Landlord, then (i) Landlord shall
reimburse itself for the Fees as to the Initial Premises (using Tenant's Loan
funds) as a part of the Development Costs for the Initial Premises when such
Fees would otherwise (absent such prepayment commitment) have been paid to the
City (i.e., upon issuance of a certificate of occupancy), (ii) if Tenant
exercises the Expansion Option, Landlord shall reimburse itself for the Fees as
to the Expansion Premises as a part of the Development Costs for the Expansion
Premises when such Fees would otherwise (absent such prepayment commitment) have
been paid to the City (i.e., upon issuance of a certificate of occupancy) and
(iii) if Tenant exercises the Purchase Option, Tenant shall reimburse Landlord
for the Fees applicable to the Expansion Land at Close of the Escrow based upon
the Fees which would be applicable to the Expansion Land assuming the
development of the full remaining Entitlement and a corporate headquarters
designation (the "Fee Reimbursement"). The Fee Reimbursement shall be the only
reimbursement required from Tenant to Landlord related to such prepaid Fees, and
the Fee Reimbursement shall not be changed based upon any recharacterization of
the Expansion Land by the City (e.g., recharacterization as office or
industrial).

            (c) The provisions of this Section shall survive the close of the
Escrow.


                                       92


            IN WITNESS WHEREOF the parties hereto have executed this Build to
Suit Lease as of the ______ day of _______________, 2002.

                                   C.J. SEGERSTROM & SONS, a California
                                   partnership

                                   By   Henry T. Segerstrom Management LLC,
                                        a California limited liability company,
                                        Manager


                                        By
                                           -------------------------------------
                                                                         Manager

                                   By   HTS Management Co., Inc., a California
                                        corporation, Manager

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

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

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

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

                                                     "Landlord"

(AFFIX CORPORATE SEAL)                  EMULEX CORPORATION, a California
                                        corporation


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

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

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

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

                                                         "Tenant"


                                       93




                                PLOT PLAN OF LAND


                                [Diagram of Land]


                                  EXHIBIT "A"




                            LEGAL DESCRIPTION OF LAND

            That certain real property located in the City of Costa Mesa, County
of Orange, State of California and more particularly described as follows:

            Parcel 3 of Parcel Map 94-120, in the City of Costa Mesa, County of
Orange, State of California, as per Map filed in Book 284, Pages 7 and 10,
inclusive, of Parcel Maps, in the Office of the County Recorder of said County.


                                  EXHIBIT "B"






RECORDING REQUESTED BY
AND WHEN RECORDED MAIL TO:

LATHAM & WATKINS
650 Town Center Drive, Suite 2000
Costa Mesa, CA 92626
Attn:  James W. Daniels, Esq.





- --------------------------------------------------------------------------------
                                                (Space Above for Recorder's Use)



               MEMORANDUM OF LEASE, PURCHASE AND EXPANSION OPTIONS
                 AND RIGHTS OF FIRST OFFER TO PURCHASE AND LEASE


                                               THIS LEASE HEREIN IS FOR A PERIOD
                                                     OF TIME LESS THAN 99 YEARS.

                                                              A.P.N.  140-041-61
                                                                      140-041-58


            C.J. SEGERSTROM & SONS, a California general partnership
("Landlord"), hereby leases to EMULEX CORPORATION, a California corporation
("Tenant"), that certain real property located in the City of Costa Mesa,
California and more particularly described on Exhibit "A" attached hereto (the
"Premises").

            1. The rent payable by Tenant and the other terms of the tenancy are
set forth in a certain unrecorded lease instrument between Landlord and Tenant
dated April 15, 2002 (the "Lease"), the provisions of which Lease are
incorporated herein by this reference, and covering the Premises. The term of
the Lease shall be for a period of ten (10) full lease years, commencing as
provided in the Lease.

            2. The Lease also provides to Tenant (a) the options to extend the
term of the Lease for two (2) additional periods of five (5) years each, (b) an
option to purchase the Premises, (c) certain first rights of offer to purchase
the Premises, (d) an option to add additional leased space to the Premises and
(e) certain rights of first offer to lease other space in the Premises. The
terms of all such options and first offer rights are as set forth in the Lease.

            3. This instrument is executed solely for recording purposes and
nothing herein shall be deemed or construed to modify or vary the terms of the
Lease.

                                  EXHIBIT "C"




            IN WITNESS WHEREOF, the undersigned have executed this Memorandum of
Lease as of the _____ day of ____________________, 2002.

EMULEX CORPORATION, a              C.J. SEGERSTROM & SONS, a California
California corporation             partnership


By                                 By   Henry T. Segerstrom Management LLC,
  -----------------------------         a California limited liability company,
Title:                                  Manager
      -------------------------

By                                           By
  -----------------------------                 --------------------------------
                                                                         Manager
Title:
      -------------------------    By   HTS Management Co., Inc., a California
             "Tenant"                   corporation, Manager

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

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

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

                                        Title:
                                               ---------------------------------
                                                          "Landlord"


                                       2


STATE OF CALIFORNIA

COUNTY OF __________________

            On ________________________, before me,
____________________________, Notary Public, personally appeared
_____________________________________________ and
__________________________________________, personally known to me OR proved to
me on the basis of satisfactory evidence to be the persons whose names are
subscribed to the within instrument and acknowledged to me that they executed
the same in their authorized capacities, and that by their signatures on the
instrument the persons, or the entity upon behalf of which the persons acted,
executed the instrument.

            WITNESS my hand and official seal.

                                            ------------------------------------
                                            Signature of Notary







STATE OF CALIFORNIA

COUNTY OF __________________

            On ________________________, before me,
____________________________, Notary Public, personally appeared
_____________________________________________ and
__________________________________________, personally known to me OR proved to
me on the basis of satisfactory evidence to be the persons whose names are
subscribed to the within instrument and acknowledged to me that they executed
the same in their authorized capacities, and that by their signatures on the
instrument the persons, or the entity upon behalf of which the persons acted,
executed the instrument.

            WITNESS my hand and official seal.


                                            ------------------------------------
                                            Signature of Notary









RECORDING REQUESTED BY
AND WHEN RECORDED MAIL TO:

LATHAM & WATKINS
650 Town Center Drive, Suite 2000
Costa Mesa, CA 92626
Attn:  James W. Daniels, Esq.





- --------------------------------------------------------------------------------
                                                (Space Above for Recorder's Use)



                          MUTUAL CANCELLATION OF LEASE

            THIS MUTUAL CANCELLATION OF LEASE is made and entered into as of the
______ day of _______________________, ______, by and between C.J. SEGERSTROM &
SONS, a California general partnership ("Landlord"), and EMULEX CORPORATION, a
California corporation ("Tenant"), with respect to the following:

                                    RECITALS

            A. Landlord is the landlord and Tenant is the tenant under that
certain unrecorded lease dated April 15, 2002. Such instrument and any and all
prior amendments or supplements thereto are herein collectively referred to as
the "Lease."

            B. The Lease is evidenced by a certain short form memorandum of
lease recorded on ______________________, 2002 as Instrument No. 2002-__________
in the Office of the County Recorder of Orange County, California.

            C. The Lease describes certain real property located in the City of
Costa Mesa, County of Orange, State of California and more particularly
described on Exhibit "A" attached hereto and incorporated herein by this
reference (the "Premises").

            D. Landlord and Tenant mutually desire to cancel and terminate the
Lease and all modifications, amendments and supplements thereof effective
___________________, which date shall be the date of cancellation and
termination of the Lease irrespective of the date of the execution and
recordation of this instrument.

            NOW THEREFORE, for and in consideration of the Premises, and for
good and valuable consideration, the receipt and adequacy of which are hereby
acknowledged, Landlord and Tenant do hereby mutually cancel the Lease and all
modifications, amendments and supplements thereof, and the leasehold created
thereby, effective on _________________.

            The undersigned declare:

            Documentary transfer tax is $0.

            ( ) Computed on full value of property conveyed, or

            ( ) Computed on full value less value of liens and encumbrances, or

            (x) Consideration less than $100

            ( ) Unincorporated area; (x) City of Costa Mesa


                                  EXHIBIT "D"




            IN WITNESS WHEREOF, the parties hereto have executed this Mutual
Cancellation of Lease as of the day and year first above written.

EMULEX CORPORATION, a              C.J. SEGERSTROM & SONS, a California
California corporation             partnership


By                                 By   Henry T. Segerstrom Management LLC,
  -----------------------------         a California limited liability company,
Title:                                  Manager
      -------------------------

By                                      By
  -----------------------------            --------------------------------
                                                       Manager
Title:
      -------------------------    By   HTS Management Co., Inc., a California
             "Tenant"                   corporation, Manager

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

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

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

                                        Title:
                                               ---------------------------------
                                                          "Landlord"

                                       2




STATE OF CALIFORNIA

COUNTY OF __________________

            On ________________________, before me,
____________________________, Notary Public, personally appeared
_____________________________________________ and
__________________________________________, personally known to me OR proved to
me on the basis of satisfactory evidence to be the persons whose names are
subscribed to the within instrument and acknowledged to me that they executed
the same in their authorized capacities, and that by their signatures on the
instrument the persons, or the entity upon behalf of which the persons acted,
executed the instrument.

            WITNESS my hand and official seal.


                                            ------------------------------------
                                            Signature of Notary







STATE OF CALIFORNIA

COUNTY OF __________________

            On ________________________, before me,
____________________________, Notary Public, personally appeared
_____________________________________________ and
__________________________________________, personally known to me OR proved to
me on the basis of satisfactory evidence to be the persons whose names are
subscribed to the within instrument and acknowledged to me that they executed
the same in their authorized capacities, and that by their signatures on the
instrument the persons, or the entity upon behalf of which the persons acted,
executed the instrument.

            WITNESS my hand and official seal.


                                            ------------------------------------
                                            Signature of Notary







                        SCHEDULE OF LANDLORD IMPROVEMENTS

                         Emulex Corporation - Home Ranch

                             Updated March 19, 2002

                                  (Preliminary)

DATE                         MILESTONE

March 1 (done)        Architect (HOK) selected

March 20              Final lease document executed

April 19              Initial design program submitted by Emulex to Segerstrom
                      for review and approval (2 weeks)

May 6                 Design program approved by Emulex and Sengstrom

August 19             Emulex Master Plan submitted to City for processing (10
                      weeks)

October 28            Emulex Masterplan approved by City

November 4            Shell contractor commences construction of shell (7
                      months)

May 5, 2003           Interiors contractor commences construction of interior
                      improvements (3 months)

June 2                Completion of shell construction

August 4, 2003        Completion of interior improvement construction; Emulex
                      move-in


                                  EXHIBIT "E"




                       FORM OF PURCHASE AND SALE AGREEMENT



                           PURCHASE AND SALE AGREEMENT
                                       AND
                            JOINT ESCROW INSTRUCTIONS



                             C.J. SEGERSTROM & SONS,
                        A CALIFORNIA GENERAL PARTNERSHIP


                                  AS "SELLER,"


                                       AND


                               EMULEX CORPORATION,
                            A CALIFORNIA CORPORATION,


                                   AS "BUYER"




                                  EXHIBIT "F"



                                TABLE OF CONTENTS



                                                                                 PAGE
                                                                                 ----
                                                                           
1.      DEFINITIONS................................................................1

        1.1            "Sale Land".................................................1
        1.2            "Due Diligence Period"......................................2
        1.3            "Funds".....................................................2
        1.4            "Improvements"..............................................2
        1.5            "Laws"......................................................2
        1.6            "Liabilities"...............................................2
        1.7            "Property"..................................................2
        1.8            "Personal Property".........................................2
        1.9            "Closing Date," "Closing," "Close of Escrow"................2
        1.10           "City"......................................................2
        1.11           "Days"......................................................3
        1.12           "Opening of Escrow".........................................3
        1.13           "Escrow Holder".............................................3
        1.14           "Business Day"..............................................3
        1.15           "Lease".....................................................3
        1.16           "Construction Contracts"....................................3
        1.17           "Construction Deliveries"...................................3
        1.18           "Warranties"................................................3
        1.19           "Deposit"...................................................4
        1.20           "Escrow"....................................................4
        1.21           "Development Agreement".....................................4
        1.22           "Breakage Fee"..............................................4
        1.23           "Traffic Impact Fees".......................................4
        1.24           "Trip Ends".................................................4
        1.25           "Tenant's Deed of Trust"....................................4

2.      SALE OF THE PROPERTY.......................................................5

3.      ESCROW.....................................................................5

        3.1            General Instructions........................................5
        3.2            Tax Reporting Person........................................5
        3.3            Opening of Escrow...........................................5

4.      PURCHASE PRICE.............................................................5

        4.1            Purchase Price..............................................5
        4.2            Deposit.....................................................6
        4.3            Closing Funds...............................................6

5.      CONDITIONS TO CLOSING......................................................6

        5.1            Buyer's Contingencies.......................................6
        5.1.1  Title Approval......................................................6
        5.1.2  Due Diligence Review................................................8


                                       i



                                TABLE OF CONTENTS
                                  (continued)


                                                                                 PAGE
                                                                                 ----
                                                                           
        5.1.3  Performance by Seller...............................................9
        5.1.4  Truth of Seller's Representations and Warranties...................10
        5.1.5  Title Policy.......................................................10
        5.1.6  [Certificate(s) of Occupancy.......................................10
        5.1.7  No Condemnation....................................................10
        5.1.8  Casualty...........................................................10
        5.2            Seller's Opportunity to Cure; Termination of Escrow
                          and This Agreement......................................10
        5.2.1  Buyer's Approval, Disapproval or Waiver of Conditions..............10
        5.2.2  Seller's Cure with Respect to Title................................11
        5.2.3  Termination of Escrow and This Agreement by Buyer..................12
        5.3            Seller's Contingency.......................................12
        5.4            Limited Representations and Warranties.....................12
        5.5            Rights Upon Termination....................................13
        5.6            Seller's Inability To Cure.................................14
        5.7            Force Majeure..............................................14
        5.8            Satisfaction of Conditions.................................14

6.      CLOSING OF ESCROW.........................................................14

        6.1            Closing Date...............................................14
        6.2            Deposits by Seller.........................................16
        6.2.1  Grant Deed.........................................................16
        6.2.2  FIRPTA Affidavit...................................................16
        6.2.3  Mutual Cancellation................................................16
        6.2.4  Assignment.........................................................16
        6.2.5  Copies of Documents................................................16
        6.2.6  Evidence of Authority..............................................16
        6.2.7  Additional Items...................................................16
        6.2.8  Assignment of Development Agreement................................17
        6.3            Deposits by Buyer..........................................17
        6.3.1  Mutual Cancellation................................................17
        6.3.2  Evidence of Authority..............................................17
        6.3.3  Additional Items...................................................17
        6.3.4  Assignment.........................................................18
        6.3.5  Development Agreement Assignment...................................18
        6.4            Issuance of Title Policy...................................18
        6.5            Prorations.................................................19
        6.6            Closing Costs..............................................20
        6.7            Disbursements by Escrow Holder.............................20
        6.8            Completion and Distribution of Documents...................20
        6.9            Seller's Election of 1031 Exchange.........................21
        6.9.1  Simultaneous Exchange..............................................21
        6.9.2  Non-Simultaneous Exchange..........................................21
        6.9.3  Expenses and Documents.............................................21
        6.9.4  Indemnity..........................................................22
        6.10           Disputed Portion...........................................22


                                       ii



                                TABLE OF CONTENTS
                                  (continued)


                                                                                 PAGE
                                                                                 ----
                                                                           
7.      DEFAULTS AND REMEDIES.....................................................23

        7.1            Default by Either Party....................................23
        7.2            Cancellation Charges.......................................23
        7.3            LIQUIDATED DAMAGES.........................................23
        7.4            Specific Performance by Seller.............................24

8.      REPRESENTATIONS AND WARRANTIES............................................25

        8.1            In General.................................................25
        8.2            By Each Party..............................................25
        8.2.1  Authority..........................................................25
        8.2.2  Binding Effect.....................................................25
        8.2.3  Compliance.........................................................25
        8.3            By Seller Only.............................................25
        8.3.1  Not a Foreign Person...............................................25
        8.3.2  Agreements.........................................................25
        8.3.3  Documents..........................................................26
        8.3.4  Hazardous Materials................................................26
        8.3.5  Organization.......................................................26
        8.3.6  Fee Ownership......................................................26
        8.3.7  No Litigation......................................................26
        8.3.8  Condemnation.......................................................26
        8.3.9  Zoning.............................................................26
        8.3.10 No Violation.......................................................27
        8.3.11 Utility Service....................................................27
        8.3.12 Development Agreement..............................................27
        8.3.13 Entitlement and Trip Budget........................................27

9.      CERTAIN EVENTS PRIOR TO CLOSING...........................................27


10.     POST-CLOSING MATTERS......................................................28

        10.1           Confidentiality............................................28
        10.2           Seller's Construction Warranty.............................29
        10.3           Assignment of Warranties...................................29
        10.4           General Release and Indemnification........................29

11.     BROKERS...................................................................30


12.     MISCELLANEOUS PROVISIONS..................................................31

        12.1           Assignment; Binding on Successors..........................31
        12.2           Fees and Other Expenses....................................31
        12.3           Approval and Notices.......................................31
        12.4           Jurisdiction...............................................32
        12.5           Interpretation.............................................32
        12.6           Gender; Joint Obligations..................................33
        12.7           No Waiver..................................................33
        12.8           Modifications..............................................33


                                      iii


                                TABLE OF CONTENTS
                                  (continued)


                                                                                 PAGE
                                                                                 ----
                                                                           
        12.9           Severability...............................................33
        12.10          Survival...................................................33
        12.11          Merger of Prior Agreements.................................33
        12.12          Time of Essence............................................34
        12.13          Counterparts...............................................34
        12.14          Exhibits...................................................34
        12.15          Cooperation of Parties.....................................34
        12.16          Preliminary Change of Ownership Report.....................34
        12.17          No Third Party Beneficiaries...............................34
        12.18          Alternative Dispute Resolution Procedure...................34
        12.19          Property Disclosures.......................................36
        12.20          Escrow Holder Not to Be Concerned..........................36
        12.21          Possession.................................................37
        12.22          Calculation of Days........................................37
        12.23          Covenant as to Trip Ends...................................37


                                       iv


                                TABLE OF CONTENTS


Exhibit         Description
- -------         -----------

   A            Legal Description of Land

   A-1          Depiction of Land

   B            Escrow General Provisions

   C            Form of Grant Deed

   D            Form of FIRPTA Certificate

   E            Form of Assignment of Personal Property

   F            Form of Assignment and Assumption of Development Agreement


                                       v






                           PURCHASE AND SALE AGREEMENT
                          AND JOINT ESCROW INSTRUCTIONS


To:   Chicago Title Company            Sub-Escrow Identification:
      16969 Von Karman Avenue          203008184 ("Escrow")
      Irvine, California 92714         Attn:  Ms. Margie Wheeler, Escrow Officer
                                       Tel. No.  (949) 263-2500
                                       Fax No.   (949) 263-1022

            This Purchase and Sale Agreement and Joint Escrow Instructions (the
"Agreement") is entered into as of ________________ ____, 200__, by and between
C.J. SEGERSTROM & SONS, a California general partnership ("Seller"), and EMULEX
CORPORATION, a California corporation ("Buyer"), as follows:

                                    RECITALS

            A. Seller is the landlord and Buyer is the tenant pursuant to a
certain Build To Suite Lease dated April 15, 2002 (the "Lease") covering certain
Land and Landlord Improvements, both as defined in the Lease.

            B. Pursuant to Section 15.1 of the Lease, Buyer has exercised the
Purchase Option, as defined in such Section, to purchase all of the Land and all
Landlord Improvements constructed or to be constructed on the Land.

            C. Seller and Buyer enter into this Agreement to set forth more
fully the terms of the purchase in accordance with Recital B above.


                                    AGREEMENT

                           ARTICLE XVIII. DEFINITIONS

                The following terms, when used in this Agreement, shall have the
following meanings, unless the context clearly indicates otherwise:



Section 18.1 "Sale Land" shall mean that certain real property located between
Sunflower Avenue and South Coast Drive to the west of Susan Street in the City
of Costa Mesa, California, together with all appurtenant rights thereto,
including, without limitation, all appurtenant easements and development rights
relating to the Sale Land and Improvements, but excluding those rights reserved
to Seller pursuant to Section 1.7. The Sale Land is described on Exhibit A
attached hereto and incorporated herein by this reference. The Sale Land is as
depicted on Exhibit A-1 attached hereto and incorporated herein by this
reference.

Section 18.2 "Due Diligence Period" shall mean the period described in Section
5.1.2 below, unless the date of expiration of such period would be a day other
than a Business Day, in which case the Due Diligence Period shall expire on the
next following Business Day.

Section 18.3 "Funds" shall mean immediately available funds in the form of cash,
wire transfer of funds, or a certified or bank cashier's check drawn on a
reputable financial institution.

Section 18.4 "Improvements" shall mean, collectively, all Landlord Improvements,
as defined in the Lease, located on the Sale Land, or any portion thereof.

Section 18.5 "Laws" shall mean all applicable governmental laws, codes,
ordinances, regulations, judgments, permits, approvals and other requirements.

Section 18.6 "Liabilities" shall mean any claim, liability, loss, cost, action,
damage, expense or fee, including but not limited to reasonable attorneys' fees
and costs of defense.

Section 18.7 "Property" shall mean, collectively, the Sale Land, the
Improvements and the Personal Property. The Property shall not include, and
there are hereby excluded from the Property and reserved to Seller, all water,
oil, minerals and gas located beneath the surface of the Sale Land but without
right of surface entry or entry within 200 vertical feet of the surface of the
Sale Land and without the right to deprive the Sale Land of structural support
or to interfere with Buyer's use of the Sale Land and Improvements.

Section 18.8 "Personal Property" shall mean, collectively, all Warranties, as
defined below, agreements, utility contracts, approvals (governmental or
otherwise), plans and specifications, entitlements and other rights relating to
the construction, ownership, use and operation of all or any part of the Sale
Land or the Improvements.

Section 18.9 "Closing Date," "Closing," "Close of Escrow" shall have the
meanings set forth in Section 6.1.

Section 18.10 "City" shall mean the City of Costa Mesa, California.

Section 18.11 "Days" shall mean, whenever a number of days is referred to
herein, calendar days unless expressly stated to be Business Days.

Section 18.12 "Opening of Escrow" shall have the meaning set forth in Section
3.3.

Section 18.13 "Escrow Holder" shall be the entity designated as such pursuant to
Section 3.1.

                                       2


Section 18.14 "Business Day" shall mean any day other than a Saturday, Sunday or
other day on which banks located in Orange County, California may or must be
closed.

Section 18.15 "Lease" shall have the meaning set forth in Recital A.

Section 18.16 "Construction Contracts" shall mean any construction management,
construction or professional services contracts entered into by Seller, any
affiliate of Seller or any other person or entity on behalf of or for Seller, on
the one hand, and the respective contractors and consultants named therein (the
"Contractors"), on the other hand, in connection with the performance of
Seller's obligations to construct or perform Landlord's Improvements (also
defined as "Landlord's Work"), as defined in the Lease.

Section 18.17 "Construction Deliveries" shall mean those respective documents,
"as built" plans, ratifications, reports, surveys and studies which the
Contractors are required to deliver under the respective Construction Contracts,
but excluding the Warranties.

Section 18.18 "Warranties" shall mean all Contractor warranties and guaranties,
and all rights and claims of Seller, any affiliate of Seller or any other person
or entity acting on behalf of or for Seller with respect to the Improvements,
including without limitation, all rights of Seller under the Construction
Contracts for the Improvements and any bonds issued by any Contractor in
connection therewith, and all construction or manufacturer's warranties,
guaranties or certifications which are required to be delivered to Seller (or to
Buyer, if so provided in the Lease) under the Construction Contracts. Each
Warranty shall, at the time such Warranty is transferred to Buyer pursuant to
this Agreement, be either (a) fully assignable to Buyer, with no consent of any
third party required or with such third party's unconditional written consent,
if required or (b) issued in the name of Buyer.

Section 18.19 "Deposit" shall mean the entire deposit held by Escrow Agent
pursuant to Section 4.2, including all accrued interest thereon.

Section 18.20 "Escrow" shall mean the purchase and sale escrow with respect to
the Property established by Seller and Buyer pursuant to Section 3.1 below.

Section 18.21 "Development Agreement" shall mean that certain Development
Agreement for Home Ranch dated December 3, 2001 and effective January 3, 2002
between the City, on the one hand, and Seller, Segerstrom Properties LLC and
Henry T. Segerstrom Properties LLC, on the other hand, and recorded on March 20,
2002, as Instrument No. 2002-__________, in the Official Records of the County
Recorder of Orange County, California (the "Official Records").

Section 18.22 "Breakage Fee" shall mean an amount determined pursuant to Section
15.1 of the Lease and payable by Buyer to Seller at Close of Escrow. The
Breakage Fee is in addition to and not included in the Purchase Price.


                                       3


Section 18.23 "Traffic Impact Fees" shall mean $___________, the amount
determined pursuant to Section 17.6 of the Lease and payable by Buyer to Seller
at Close of Escrow. The Traffic Impact Fees are in addition to and not included
in the Purchase Price. For this purpose, Traffic Impact Fees for the Expansion
Land, as defined in the Lease, shall be determined as if the Expansion Land is
classified as "Corporate Headquarters." The foregoing Traffic Impact Fees shall
be the only reimbursement required from Buyer to Seller related to such fees,
and shall not be changed based upon any recharacterization of the Expansion
Land.

Section 18.24 "Trip Ends" shall mean that number of aggregate daily number of
vehicle trips into or out of the Property, consisting of both A.M. and P.M.
trips, set forth in Exhibit F to this Agreement and applicable to the Property.

Section 18.25 "Tenant's Deed of Trust" shall mean that certain Deed of Trust,
Assignment of Rents and Leases, Security Agreement and Fixture Filing dated
March ___, 2002, executed by Seller in favor of Buyer, as Beneficiary, and
Escrow Holder, as Trustee, and recorded on ___________ ___, 2002, as Instrument
No. 2002-__________, in the Official Records.

                        ARTICLE XIX. SALE OF THE PROPERTY

                Buyer agrees to purchase from Seller, and Seller agrees to sell
to Buyer, the Property upon the terms, covenants and conditions set forth in
this Agreement.


                                       4


                               ARTICLE XX. ESCROW

Section 20.1 General Instructions. Chicago Title Company is hereby designated as
escrow holder (the "Escrow Holder"). Escrow Holder's general conditions or
provisions, which are attached hereto as Exhibit B, are incorporated by
reference herein; provided, however, that in the event of any inconsistency
between Exhibit B and any of the provisions of this Agreement, the provisions of
this Agreement shall control. Buyer and Seller each shall also execute, deliver
and be bound by such further escrow instructions or other instruments as may be
reasonably requested by the other party or by Escrow Holder from time to time,
so long as the same are consistent with this Agreement. Escrow Holder shall
comply, but shall have no liability whatsoever for complying, with the
unilateral instructions of only one party without the consent of the other party
hereto if expressly required to do so in this Agreement.

Section 20.2 Tax Reporting Person. For purposes of complying with Internal
Revenue Code Section 6045(e), as amended effective January 1, 1991, Escrow
Holder is hereby designated as the "person responsible for closing the
transaction," and also as the "reporting person" for purposes of filing any
information returns (and Escrow Holder shall file any such required returns)
with the Internal Revenue Service concerning this transaction, as required by
law.

Section 20.3 Opening of Escrow. Escrow shall be deemed open when (a) this
Agreement, fully signed by both parties either together or in counterparts, is
delivered to Escrow Holder and (b) Buyer has delivered to Escrow Holder the
Deposit provided for, in Funds. The last of such events shall be the "Opening of
Escrow." The Opening of Escrow shall occur within five (5) Business Days after
the last execution of this Agreement. Escrow Holder shall immediately notify
Buyer, Seller and their respective attorneys orally and in writing of the
official date of the Opening of Escrow.

                           ARTICLE XXI. PURCHASE PRICE

Section 21.1 Purchase Price. The purchase price for the Property (the "Purchase
Price") shall be as determined pursuant to Section 15.1 of the Lease and
Sections 6.1 and 6.10 of this Agreement. The Purchase Price shall be paid as
provided in Sections 4.2, 4.3 and Article 6.

Section 21.2 Deposit. At the Opening of Escrow, Buyer shall deposit with Escrow
Holder the sum of $100,000 in Funds (the "Deposit"). Escrow Holder shall hold
the Deposit in such number of interest-bearing accounts as shall be fully
insured by the Federal Deposit Insurance Corporation, such account(s) to be
selected by Buyer on a funds investment form provided by Escrow Holder, subject
to collection and subject to availability of the Deposit for use in accordance
with the provisions of this Section. All interest earned on the Deposit shall
accrue to Buyer's benefit.

            Except as provided in Section 5.5, the Deposit and all accrued
interest thereon shall become non-refundable upon the expiration of the Due
Diligence Period, provided that Buyer has not earlier terminated this Agreement
and the Escrow pursuant to Article 5. If Escrow closes, the entire Deposit and
all accrued interest thereon shall be credited against the Purchase Price.

                                       5


            If Escrow fails to close pursuant to the provisions of this
Agreement for any reason other than Buyer's default, the Deposit and all accrued
interest thereon, less any Escrow fees and costs for which Buyer is responsible,
shall be returned to Buyer in full. If Escrow fails to close under the
provisions of this Agreement as a result of Buyer's default, the entire Deposit
plus all accrued interest thereon shall be delivered to and retained by Seller
as non-refundable liquidated damages under Section 7.3 below.

Section 21.3 Closing Funds. On the last Business Day before the Close of Escrow,
Escrow Holder shall calculate and Buyer shall wire Funds into Escrow (using
wiring instructions reasonably satisfactory to Escrow Holder) in an amount
which, together with the credit for Tenant's Loan, as defined in the Lease,
shall equal the sum of the Purchase Price, the Breakage Fee, if applicable, the
Traffic Impact Fees, if applicable, plus any other sums payable by Buyer
hereunder (the "Closing Funds").

                       ARTICLE XXII. CONDITIONS TO CLOSING

Section 22.1 Buyer's Contingencies. The obligation of Buyer to purchase the
Property shall be subject to satisfaction of each of the conditions set forth in
this Section 5.1 and elsewhere in this Agreement, which conditions must be
satisfied within the respective time periods specified therefor. Seller and
Buyer expressly acknowledge and agree that each of the conditions in this
Section 5.1 is for the benefit of and may be waived by Buyer as hereinafter
provided in its sole discretion.

            (a) Title Approval.

                (i) Buyer shall have approved the condition of title to the Sale
Land as provided in this Section 5.1.1. Seller has obtained from Chicago Title
Company (the "Title Company"), under order number 203008184, a title binder or
leasehold policy pursuant to the Lease and covering the Sale Land (herein, the
"Preliminary Report"), together with legible copies of all documents (the "Title
Documents") shown on the Preliminary Report as exceptions affecting title to the
Property and a plot plan depicting the locations of the easements described in
the Preliminary Report. Buyer has approved all exceptions shown on Schedule B to
the Preliminary Report, which exceptions are listed on Exhibit "G" to the Lease
(such approved exceptions are herein referred to as the "Permitted Exceptions").
Seller shall deliver to Buyer an update (which may be an updated preliminary
title report or a supplement or amendment to the Preliminary Report) to the
Preliminary Report (the "Update"), together with legible copies of all new
exceptions, if any, appearing on the Update (the "Updated Title Documents") and
a plot plan depicting the location of any easements appearing on the Update and
not appearing on the Preliminary Report. Buyer shall take title to, and Seller
shall deliver, title to the Property subject only to the following exceptions
(the "Title Exceptions"): (i) all Permitted Exceptions, (ii) the Permitted
Development Easements, as defined in the Lease, (iii) the other items described
in Section 6.4, (iv) any exceptions created or caused by Buyer and (v) any new
items shown on the Update which are expressly approved in writing by Buyer. Any
item(s) not so expressly approved within ten (10) days after delivery of the
last of the items to be delivered pursuant to this Section shall be deemed
disapproved and must be addressed by Buyer pursuant to the two succeeding
paragraphs of this Section.

                                       6


            Seller covenants that (x) Seller shall not create or cause any liens
or encumbrances against the Property other than Tenant's Deed of Trust and the
Permitted Development Easements and (y) Seller shall cause to be removed from
record title to the Property at or prior to the Close of Escrow all delinquent
taxes, bonds and assessments which are not the responsibility of Buyer pursuant
to the Lease, all involuntary liens or encumbrances against the Property other
than those which are created or caused by Buyer and any judgment liens against
Seller which affect title to the Property. The aggregate obligation of Seller
pursuant to clause (y) shall not exceed the cash portion of the Purchase Price.
As to any liens or encumbrances created by Seller against the Property in
violation of clause (x), Seller must remove the same at or prior to Closing
without regard to the amount thereof. If Buyer desires to have the Title Company
issue any endorsements to the Title Policy, then Buyer shall notify Seller and
Escrow Holder of the desired endorsements within thirty (30) days after delivery
of the Updated Title Documents. Any such endorsements shall be at the cost and
expense of Buyer, and issuance of such endorsements shall not be a condition to
Closing.

            For the purposes of the immediately preceding paragraph:

            (1) Seller shall make arrangements to remove from record title to
the Property at or prior to Close of Escrow all items described in clause (x)
other than Tenant's Deed of Trust and the Permitted Development Easements. Such
removal may be effected by payment, bonding or other method sufficient to permit
the Title Company to issue the Title Policy, as defined in Section 6.4.

            (2) Buyer has recorded a memorandum of the Purchase Option to
establish Buyer's priority as to the Property. As to delinquent taxes, bonds and
assessments for which Seller is responsible, Seller must remove the same from
record title to the Property at or prior to Close of Escrow in any manner
provided in clause (1). As to all other involuntary liens, encumbrances and
judgment liens against the Property, Buyer does not agree to subordinate its
priority as to the Property. Rather, Seller shall cause the same to be removed
from the Title Policy at or before Close of Escrow in any manner described in
clause (1), including escrow of the entire cash portion of the Purchase Price
for the benefit of the holders of such involuntary liens, encumbrances and
judgment liens, if necessary.

            (3) To the extent necessary to accomplish the matters described in
clause (2) or to address Intervening Liens pursuant to Section 5.1.1(b), Buyer
and Seller shall extend the Close of Escrow for such time as may be reasonably
necessary, not to exceed 120 days, without reduction in the Purchase Price, but
Buyer's Base Rent pursuant to the Lease shall be reduced in the manner set forth
in the last paragraph of Section 6.1 for any portion of such extension in excess
of thirty (30) days or, if Seller is not diligently attempting to eliminate such
Intervening Lien, for the entire period of such extension.

                (ii) Any liens, encumbrances, easements, restrictions,
conditions, covenants, rights, rights-of-way, and other matters affecting title
to the Property which are created or which may appear of record after the date
of the Update but before the Closing Date and which are not Title Exceptions and
are not created or caused by Buyer (collectively, the "Intervening Liens") shall
also be subject to Buyer's approval (pursuant to the last sentence of the first
paragraph of Section 5.1.1(a)) (after written notice to Buyer thereof from any
source)

                                       7


and, unless so approved, must be addressed by Seller pursuant to the last two
paragraphs of such Section.

            (b) Due Diligence Review. Buyer shall have satisfactorily completed
its due diligence review of the Property and, subject to the limitations in this
Section 5.1.2, shall have approved or be deemed to have approved the condition
of the Property. The Due Diligence Period review shall be limited to (a)
environmental review of the Property, (b) structural review of the Improvements
on the Sale Land, (c) review of existing entitlements for the Expansion Land,
(d) review of the as-built plans for the Improvements constructed by Seller
(only if Landlord's Improvements have been Substantially Completed, as defined
in the Lease), the forms of the Warranties, reports and other deliveries in
connection with the Improvements constructed by Seller, including those required
to be delivered by Seller pursuant to Section 14.5 of the Lease. The Due
Diligence Period shall specifically extend to Buyer's review of contamination
with hazardous materials and similar physical features. Buyer may obtain a Phase
I Environmental Assessment with respect to the Property. Buyer shall not perform
a Phase II Environmental Assessment or any other invasive physical testing with
respect to the Property except with the prior approval of Seller or Seller's
representative, which approval shall not be unreasonably withheld, delayed or
conditioned if the Phase I Environmental Assessment indicates the need for such
invasive physical testing. For the purposes of this provision (i) invasive
physical testing shall include all borings and drillings, (ii) Seller's
representative shall initially be Jeffrey M. Reese and (iii) Seller may change
its representative at any time by written notice to Buyer. Such review and
investigation, any testing or sampling conducted by Buyer and all reports and
analyses prepared in connection therewith shall be the sole responsibility of
Buyer, both as to performance and payment therefor and shall be conducted within
the limitations set forth above.

            To the extent not previously delivered to Buyer, Seller shall,
within ten (10) days after the Opening of Escrow, deliver to Buyer correct and
complete copies of all pertinent reports, maps, surveys, contracts, studies,
warranties, guaranties and other written information in Seller's possession or
control with respect to the ownership or construction of the Property,
including, without limitation, all reports, maps, studies, notifications and
other written information in Seller's possession or control, if any, which
relate to the environmental condition of the Property (collectively, the
"Diligence Documents"). As used herein, the term "pertinent" shall mean related
to or concerning the Property as currently configured, approved and occupied,
and shall not include superseded parcel maps, outdated surveys, title reports
and policies, and similar material which is outdated (for whatever reason),
superseded or replaced by more current materials.

            Buyer shall be deemed to have approved all the matters referenced in
this Section 5.1.2 unless Buyer has delivered to Seller and Escrow Holder
written notice of its reasonable disapproval thereof, specifying with reasonable
particularity the grounds for such disapproval, within thirty (30) days after
the later of (A) the Opening of Escrow and (B) Seller's delivery of all
Diligence Documents (the "Due Diligence Period"). The exercise of Buyer's
discretion with respect to the Property shall be limited to the matters
described above in this Section 5.1.2.

                                       8


            Buyer and Seller specifically agree that there is NO financing
condition to the close of the purchase of the Property. Accordingly, Buyer's due
diligence review pursuant to this Section shall not include such item (i.e.,
financing) and such issue shall not be a ground for termination of this
Agreement and the Escrow by Buyer pursuant to this Section or any other
provision of this Agreement.

            (c) Performance by Seller. On or before the Closing Date, Seller
shall have performed, and hereby covenants to perform, all obligations of Seller
hereunder to be performed by the Closing Date, including this Article 5 and:

                (i) Seller shall have executed and delivered to Escrow Holder
each and all of the documents to be delivered to Escrow Holder by Seller and
described in Section 6.2.

                (ii) Seller shall have delivered to Buyer the Construction
Deliveries.

                (iii) Seller shall have delivered correct and complete copies of
the Warranties.

                (iv) If the Closing Date will be on or after Substantial
Completion of the Landlord Improvements, Seller shall, notwithstanding anything
in this Agreement to the contrary, remain responsible to complete all punch-list
items with respect to the Landlord Improvements, whether prior to or subsequent
to the Closing Date. Seller shall retain from Seller's contractor sufficient
funds to insure completion of all punch-list work. For purposes of this
provision:

                    (A) Seller specifically covenants and agrees to complete all
punch-list items with respect to the Landlord Improvements, whether before or
after the Closing Date, and promptly following such completion, to deliver to
Buyer all Construction Deliveries not delivered at Close of Escrow.

                    (B) Buyer shall be entitled to retain the unpaid (as of the
Closing Date) portion of the Development Fee, as defined in the Lease, but not
to exceed ten percent (10%) of the total Development Fee, until completion of
all punch-list work. Buyer shall continue to make payments of the Development
Fee pursuant to the Lease after Close of Escrow (but not more than ninety
percent (90%) in the aggregate) and shall pay the retention to Seller, outside
of Escrow, within ten (10) business days after completion of the last of the
punch-list work.

                    (C) Buyer shall continue to Fund Development Costs, as
defined in the Lease, incurred after Close of Escrow (such as the retention for
Seller's contractor and the Development Fee) until all such Development Costs
are paid in full.

                (d) Truth of Seller's Representations and Warranties. Seller's
representations and warranties set forth in Sections 8.2 and 8.3 shall be true
and correct as of the Close of Escrow.

                (e) Title Policy. The Title Company shall be irrevocably and
unconditionally committed to issue to Buyer the Title Policy, subject only to
the matters set forth in Section 6.4.

                                       9


            [Only if Close of Escrow at or after Substantial Completion.]

            (f) [Certificate(s) of Occupancy. Unless revoked or rendered invalid
due to the actions of Buyer, the certificate(s) or temporary certificate(s) of
occupancy issued for the Improvements (to the extent such certificate(s) is
(are) required for Buyer to occupy the Improvements) shall have been issued and
shall be in full force and effect.]

            (g) No Condemnation. There shall be neither pending nor threatened a
condemnation proceeding of the type described in the second paragraph of Article
9.

            (h) Casualty. The Lease shall not have been terminated pursuant to
Article VIII thereof.

Section 22.2 Seller's Opportunity to Cure; Termination of Escrow and This
Agreement.

            (a) Buyer's Approval, Disapproval or Waiver of Conditions. In the
event that Buyer disapproves of the condition set forth in Section 5.1.2, such
writing shall also state the specific grounds for disapproval and/or
non-satisfaction thereof. In the event that Buyer fails to approve, disapprove
or waive the condition in Section 5.1.2 within the time and in the manner
therein specified, then such condition shall be deemed conclusively approved or
satisfied by Buyer and thereafter shall not be a condition precedent to the
performance by Buyer and Seller of their respective obligations hereunder.

            (b) Seller's Cure with Respect to Title. To the extent that any
title exception, condition or Intervening Lien is not a Title Exception and is
not approved by Buyer in writing pursuant to Section 5.1.1(a) or Section
5.1.1(b), then Seller shall have until 5:00 p.m. Pacific Time on the fifth (5th)
Business Day following the expiration of Buyer's approval period without
approval by Buyer in which to investigate the disapproved item(s) and to notify
Buyer and Escrow Holder in writing how Seller has cured or will cure the items
not approved prior to the Close of Escrow.

            Any cure or proposed cure by Seller pursuant to this Section 5.2.2
shall be subject to the approval of Buyer in Buyer's reasonable discretion. Such
reasonable discretion shall include the right to review and approve or
disapprove any Seller Endorsement, as defined in Section 6.4, offered as a cure
of a title exception not approved by Buyer. Such approval shall be deemed given
unless Buyer disapproves of such cure or proposed cure by written notice to
Seller and Escrow Holder given within five (5) Business Days after Buyer's
receipt of Seller's written notice pursuant to this Section 5.2.2 describing in
reasonable detail the cure effected or to be effected. Such approval shall not
be unreasonably withheld so long as the cure effected or proposed by Seller does
not materially adversely affect the value, financeability or use of the Property
and is sufficient to (i) permit issuance of the Title Policy pursuant to Section
6.4 and (ii) permit Buyer to obtain a policy of ALTA Lender's Title Insurance
without the disapproved items for a loan to Buyer with respect to the Property.
It shall be reasonable for Buyer to disapprove a Seller Endorsement offered as a
cure if the Title Company is unwilling to commit to issue the same endorsement
on a subsequent sale of the Property by Buyer and, absent such Seller
Endorsement, the title exception endorsed over would materially adversely affect
the use or value of the Property. If Seller proposes a cure pursuant to this
Section 5.2.2, and Buyer

                                       10


approves or is deemed to approve such cure, Seller shall use commercially
reasonable efforts, at Seller's sole cost and expense, to effect the cure
proposed by Seller on or prior to the Closing Date. If (A) Seller proposes a
cure, Buyer approves or is deemed to approve such cure but Seller is unable to
effect such cure or (B) if Buyer timely disapproves Seller's proposed cure with
respect to any item(s) described in this Section, then, in any such case, Buyer
may within five (5) business days after the event described in clause (A) or
(B), as applicable, in its sole and absolute discretion, elect by written notice
to Seller and Escrow Holder to cure such item(s). In the event of an election by
Buyer to cure pursuant to this Section, Close of Escrow shall be extended as
necessary as provided in Section 5.1.1(a), such cure shall be at Seller's cost
and expense (but only to the extent provided in Section 5.1.1(a)) and Seller
shall cooperate with Buyer and execute and deliver such documents, affidavits
and other instruments as reasonably necessary to enable Buyer to effect such
cure. Such covenant of cooperation shall not require Seller to incur any costs
or assume any obligations other than or in addition to those costs and
obligations to be paid or assumed by Seller pursuant to this Agreement,
including those set forth in Section 5.1.1(a).

            (c) Termination of Escrow and This Agreement by Buyer.

                (i) If (i)(A) there is a title exception, condition or
Intervening Lien which is not a Title Exception and is not approved by Buyer in
writing pursuant to Sections 5.1.1(a) or 5.1.1(b), AND (B) Buyer reasonably
disapproves a proposed cure by Seller pursuant to Section 5.2.2, then Buyer
shall have until 5:00 p.m. Pacific Time on the tenth (10th) Business Day
following the later of (1) its receipt of Seller's notice (2) the date that
Buyer is notified of and/or reasonably determines that Seller has not cured or
will not be able to cure such disapproved condition(s), to notify Seller and
Escrow Holder in writing that Buyer in its sole and absolute discretion either:

1.      Waives its prior objections to such condition and will proceed to
        purchase the Property, subject to any then remaining conditions, without
        any reduction in or offset to the Purchase Price; or

2.      Elects to cure such disapproved item(s) itself pursuant to the terms of
        Section 5.2.2; and

3.      Elect to extend the Escrow within the time frame set forth in Section
        5.1.1(a) as reasonably necessary to cure such disapproved condition; or

4.      Terminates Escrow and this Agreement.

                (ii) If the conditions set forth in Section 5.1 (other than
Section 5.1.1) fail to occur, then Escrow and this Agreement shall automatically
terminate upon receipt by Seller and Escrow Holder of Buyer's written notice
indicating such disapproval or the failure of such condition(s). Such notice, in
the case of the condition set forth in Section 5.1.2, shall be given within the
Due Diligence Period. Such notice, in the case of all other conditions set forth
in Section 5.1 (other than 5.1.1), may be given at any time prior to the Closing
Date.

                                       11


Section 22.3 Seller's Contingency. The obligation of Seller to sell the Property
shall be subject to Buyer performing all obligations of Buyer hereunder to be
performed by the Closing Date.

Section 22.4 Limited Representations and Warranties. Except as expressly
provided to the contrary in this Agreement, including, without limitation,
Sections 8.2, 8.3 and 10.1, it is expressly understood and agreed that Buyer is
acquiring the Property "AS IS," in its present state and condition, without any
representations or warranties from Seller of any kind whatsoever, either express
or implied. In particular, subject to the foregoing, Seller makes no
representation or warranty respecting the use, condition, title, operation or
management of the Property, or compliance with any applicable Laws relating to
zoning, subdivision, planning, buildings, fire, safety, earthquake, health or
environmental matters, the presence or absence of toxic or hazardous waste or
materials, or compliance with any other covenants, conditions and restrictions
(whether or not of record). Seller has disclosed to Buyer the facts that (a) the
Sale Land was used in the farming operations of Seller, (b) in connection with
such farming operations, chemical pesticides and weed control agents may have
been applied, which applications may have resulted in residual levels of such
chemicals in the soil on the Sale Land and (c) Seller is aware of, and has
advised Buyer that, the property located to the west of the Land (the "Western
Parcel") and owned by the Los Angeles Times (the "Times") has underground
hazardous materials contamination believed to result from leakage from an
underground fuel tank maintained by the Times. To Seller's knowledge, such
hazardous materials have not migrated from the Western Parcel onto or under the
Land. Apart from the foregoing usages, Seller is not aware of any prior use of
the Property which would indicate that there are or may be hazardous materials
present in or on the Property. Buyer represents that it is knowledgeable in real
estate matters and is relying upon Buyer's own investigation and analysis in
purchasing the Property, together with the express representations and
warranties of Seller set forth herein. Buyer further represents that it has had,
and will have during the Due Diligence Period, ample opportunity to inspect and
will, in fact, make all of the investigations Buyer deems necessary in
purchasing the Property. The foregoing representation is expressly subject to
Seller's cooperation and compliance with the terms of this Agreement, including
but not limited to Section 5.1.2. If this Agreement is not terminated but Buyer
acquires the Property as provided herein, Buyer shall have thereby approved all
aspects of the Property and this transaction and thereby waives any claim or
liability against Seller, except as specifically provided herein to the
contrary.

Section 22.5 Rights Upon Termination.

(i) If the Escrow and this Agreement are terminated by Buyer in the manner and
within the applicable time period(s) provided pursuant to Section 5.2.3, or
otherwise for failure of Seller to perform its obligations pursuant to this
Agreement, then (i) all instruments in Escrow shall be returned to the party
depositing the same, (ii) Buyer shall return all items previously delivered by
Seller to Buyer, (iii) Buyer and Seller shall each pay one-half (1/2) of all
Escrow and title cancellation charges (unless Section 7.2 applies), (iv) the
Deposit and all accrued interest thereon shall be returned to Buyer and (v)
neither party shall have any further rights, obligations or liabilities
whatsoever to the other party concerning the Property by reason of this
Agreement, except as expressly stated in this Agreement to survive termination.

                                       12


                (ii) If the Escrow and this Agreement are terminated by Seller
for failure of Buyer to perform its obligations pursuant to this Agreement, then
(i) all instruments in Escrow shall be returned to the party depositing the
same, (ii) Buyer shall return all items previously delivered by Seller to Buyer,
(iii) Buyer and Seller shall each pay one-half ( 1/2) of all Escrow and title
cancellation charges (unless Section 7.2 applies) and (iv) neither party shall
have any further rights, obligations or liabilities whatsoever to the other
party concerning the Property by reason of this Agreement, except as expressly
stated in this Agreement to survive termination. Moreover, Seller shall be
entitled to retain the entire Deposit and all interest accrued thereon.
Notwithstanding anything to the contrary set forth in this Agreement, the Lease
shall survive any termination of this Agreement and shall remain in full force
and effect.

Section 22.6 Seller's Inability To Cure. If a cure by Seller has been approved
by Buyer pursuant to Section 5.2, Seller shall use all commercially reasonable
efforts to effect, on or prior to the Closing Date, the approved cure proposed
by Seller. If Seller proposes a cure, Buyer approves such cure, and Seller fails
to effect such cure on or before the last Business Day before Close of Escrow,
then Buyer, in its sole discretion, may elect in writing any of the alternatives
available to Buyer pursuant to Sections 5.2.2 and 5.2.3; provided, however, that
by mutual agreement the parties may elect to extend the Close of Escrow as
provided in Section 5.1.1(a) in order to provide Seller with additional time to
cure any title item. The provisions of this Section shall not apply to Seller's
cure obligations pursuant to the second paragraph of Section 5.1.1(a), which
obligations shall be absolute.

Section 22.7 Force Majeure. In the event that, as of the Closing Date, (a) each
of the parties has performed its respective obligations hereunder, (b) the
Escrow is in a position to close pursuant to Article 6 and (c) the parties are
prevented from closing due to a cause beyond the reasonable control of the
parties, then:

                (i) The Escrow shall be extended for up to an additional thirty
(30) days beyond the date specified for closing in Section 6.1;

                (ii) The parties shall take all actions reasonably available to
them to attempt to eliminate such delaying cause and close the Escrow; and

                (iii) If the parties are unable to close the Escrow within such
additional thirty (30) day period, either party may terminate this Agreement and
the Escrow by written notice to the other party and Escrow Holder given at any
time after the end of such thirty (30) day period and prior to the close of the
Escrow. Any termination pursuant to this clause (c) shall have the effects
described in clauses (i) through (v) of Section 5.5(a).

                                       13


Section 22.8 Satisfaction of Conditions. Each party shall cooperate as
reasonably requested by the other party to permit satisfaction of all conditions
to closing of the within transaction. The foregoing covenant of cooperation
shall not, however, require either party to pay any money or assume any
obligations in addition to those amounts and obligations agreed to be paid or
assumed by such party pursuant to this Agreement.

                        ARTICLE XXIII. CLOSING OF ESCROW

Section 23.1 Closing Date. Escrow shall close on or before 5:00 p.m. Pacific
Time on the tenth (10th) day following expiration of the Due Diligence Period
(the "Scheduled Closing Date"), unless (i) earlier terminated by Buyer or
Seller, (ii) extended pursuant to any express provision of this Agreement,
including but not limited to Sections 5.6 and 5.7 hereof or (iii) extended by
mutual agreement of Seller and Buyer, in each case pursuant to the applicable
provision(s) of this Agreement. The terms "Close of Escrow," "Closing Date"
and/or "Closing" are used in this Agreement to mean the time and date the Grant
Deed is recorded in the Office of the Recorder of Orange County, California (the
"Official Records").

            Notwithstanding the foregoing, if the Purchase Price has not been
determined at least three (3) Business Days prior to the Scheduled Closing Date,
then at Buyer's election:

                (i) The Escrow shall be extended as necessary to determine the
Purchase Price pursuant to Section 15.1 of the Lease, but not longer than an
additional thirty (30) days; or

                (ii) The Escrow shall close on the Scheduled Closing Date,
subject to the other provisions of this Agreement, and pursuant to Section 6.3
Buyer shall deposit with Escrow Holder the entire Purchase Price requested by
Seller in Seller's good faith determination thereof set forth in a notice to
Buyer and Escrow Holder delivered at least three (3) Business Days prior to the
Scheduled Closing Date (the "Seller Purchase Price"). However, Escrow Holder
shall disburse to Seller at Closing the Seller Purchase Price less the portion
thereof identified by Buyer in a good faith written notice to Seller and Escrow
Holder at the time of such deposit as in dispute (the "Disputed Portion"). The
Disputed Portion shall be retained by Escrow Holder and disbursed subsequent to
the Closing Date pursuant to Section 6.10.

The election by Buyer provided for in this Section shall be made by written
notice to Seller and Escrow Holder delivered at least one (1) business day prior
to the Scheduled Closing Date. If Buyer fails to make a timely election pursuant
to this Section, Buyer shall have elected to proceed pursuant to clause (b)
above. If (A) Buyer timely elects to proceed pursuant to clause (a) and (B) the
final Purchase Price has not been determined by the expiration of the thirty
(30) day period provided for in clause (a), Buyer and Seller shall proceed to
close the Escrow pursuant to clause (b) above on the fifth (5th) Business Day
following the expiration of such thirty (30) day period. Nothing contained in
this paragraph shall be deemed or construed to relieve either party of any
obligation, or to deprive either party of any right, with respect to the
determination of the Purchase Price pursuant to the applicable provisions of the
Lease. Moreover, nothing contained in this paragraph shall be deemed or
construed to affect the determination of the Rent Commencement Date or the
accrual of rent pursuant to the Lease.

                                       14


            Notwithstanding anything in this Section to the contrary, if the
Closing Date would otherwise occur on or after November 25 of any calendar year,
Seller may elect to defer the Closing Date to the first Business Day of the next
succeeding January. Such election shall be made by written notice to Buyer and
Escrow Holder not less than five (5) days prior to the date on which the Closing
Date would otherwise occur. If Seller is entitled to defer the Closing Date
pursuant to this paragraph and elects to do so then, for the period from the
date on which Close of Escrow would have occurred but for such deferral through
the actual Close of Escrow, Base Rent pursuant to the Lease with respect to the
Initial Premises shall be reduced. Such reduction shall be based upon a
calculation of the Land component of Base Rent for such period using the prime
rate of Bank of America (Los Angeles) as in effect on the originally scheduled
Closing Date rather than eleven and one-half percent (11 1/2%). Seller shall
make the adjustment required pursuant to this paragraph, and any closing
adjustment required to reflect such Base Rent decrease shall be accomplished in
the manner provided in Section 6.5.

Section 23.2 Deposits by Seller. At or before 2:00 p.m. on the Business Day
before the Close of Escrow, Seller shall deliver to Escrow Holder the following
items for handling as described below; provided that Escrow Holder need not be
concerned with the form or content but only with manual delivery of all of the
following other than the items described in Sections 6.2.1, 6.2.2 and 6.2.3:

            (a) Grant Deed. A duly executed and acknowledged grant deed
conveying the Land and Improvements to Buyer in the form of attached Exhibit C
(the "Grant Deed");

            (b) FIRPTA Affidavit. At least two (2) counterparts of a duly
executed certificate, executed by Seller and in the form of Exhibit D attached
hereto (the "FIRPTA Affidavit");

            (c) Mutual Cancellation. At least two (2) counterparts, duly
executed and acknowledged by Seller, of a mutual cancellation of the Lease in
the form attached as Exhibit D to the Lease (the "Mutual Cancellation");

            (d) Assignment. At least two (2) counterparts, duly executed by
Seller, of an assignment (the "Personal Property Assignment") to Buyer of all
rights of Seller (or any affiliate of or person or entity acting for or on
behalf of Seller) in and to the Personal Property (other than the Warranties),
the Construction Contracts and the Construction Deliveries in the form of
Exhibit E attached hereto;

            (e) Copies of Documents. True and correct copies of all Personal
Property, Construction Contracts, Construction Deliveries and Warranties;

            (f) Evidence of Authority. Such certificates or documents as may be
reasonably required by Escrow Holder in order to cause the Title Policy to be
issued and the Close of Escrow to occur;

            (g) Additional Items. Any additional funds and/or instruments,
signed and properly acknowledged by Seller, if appropriate, as may be reasonably
necessary to comply with Seller's obligations under this Agreement; and


                                       15



            (h) Assignment of Development Agreement. At least two (2)
counterparts, duly executed and acknowledged by Seller, the other entities
identified as "Assignor" therein and the City, of a partial assignment and
assumption of the Development Agreement in the form attached hereto as Exhibit F
(the "Development Agreement Assignment"). For this purpose, Seller shall use
good faith, commercially reasonable efforts to cause the City to execute,
acknowledge and deliver the Development Agreement Assignment at or prior to
Close of Escrow (and Buyer shall have the right to extend the Closing Date as
reasonably necessary in order to obtain City's execution of the Development
Agreement Assignment).

Section 23.3 Deposits by Buyer. At or before 2:00 p.m. on the Business Day prior
to the Close of Escrow (early enough on the Closing Date as to the wire transfer
provided for in Section 6.3.2 to permit closing on the Closing Date), Buyer
shall deliver or cause to be delivered to Escrow Holder:

            (a) Mutual Cancellation. At least two (2) counterparts, duly
executed and acknowledged by Buyer, of the Mutual Cancellation;

            6.3.2 FUNDS. Immediately available Closing Funds by wire transfer
into Escrow Holder's depository bank account in an amount equal to the Purchase
Price plus the Breakage Fee and the Traffic Impact Fees, in each case if
applicable, and all closing costs, charges and prorations payable by Buyer
hereunder less (a) the principal amount of Tenant's Loan pursuant to Section
14.3 of the Lease, (b) the Deposit and all accrued interest thereon and (c) any
credit to which Seller is entitled with respect to the Leasehold Policy, as
defined in the Lease. Concurrently with the delivery of the Closing Funds, Buyer
shall deliver to Escrow Holder a full release and reconveyance of Tenant's Deed
of Trust, duly executed and acknowledged by the Trustee thereunder (the "Full
Reconveyance"). For the purposes of this subsection, the Breakage Fee shall be
payable only if and to the extent (i) a Breakage Fee is payable pursuant to
Section 15.1 of the Lease (i.e., Landlord, at Tenant's election, does not
complete Landlord's Improvements) and (ii) the Breakage Fee has not previously
been paid by Buyer to Seller outside of and prior to Close of Escrow. Traffic
Impact Fees applicable to the Sale Land shall be payable only if the same shall
have been prepaid by Seller and Seller shall not, through the funding of
Development Costs by Buyer, have been reimbursed for the total such fees paid by
Seller with respect to the Sale Land.

            (b) Evidence of Authority. Any documents authorizing purchase of the
Property by Buyer which may be reasonably required by the Title Company in order
to issue the Title Policy described in Section 6.4 and close Escrow; and

            (c) Additional Items . Any additional Funds and/or instruments,
signed and properly acknowledged by Buyer, if appropriate, as may be reasonably
necessary to comply with Buyer's obligations under this Agreement.

            (d) Assignment. At least two (2) counterparts, duly executed by
Buyer, of the Personal Property Assignment.

            (e) Development Agreement Assignment. At least two (2) counterparts,
duly executed and acknowledged by Buyer, of the Development Agreement
Assignment.

                                       16


Section 23.4 Issuance of Title Policy. At the Close of Escrow, the Title Company
shall be irrevocably committed to issue to Buyer a 1970 Form ALTA owner's
extended coverage policy of title insurance (the "Title Policy"), together with
such endorsements required by Buyer pursuant to Section 5.1 and/or such
endorsements, if any, which have been approved by Buyer and are required to cure
Buyer's objections to title ("Seller's Endorsements"), as applicable. Such Title
Policy shall have a liability amount in the amount of the gross Purchase Price
set forth in or determined pursuant to Sections 4.1 and 6.1, shall cover the
Property and shall insure fee title vested in Buyer, free of all encumbrances,
except:

                (i) All general and special real property taxes and assessments
a lien not yet delinquent or for which Buyer is responsible under the Lease;

                (ii) The Title Exceptions;

                (iii) The reservations contained in the Grant Deed;

                (iv) Any exceptions created or caused by the actions of Buyer or
its agents or employees;

                (v) The Permitted Development Easements; and

                (vi) Any other title exceptions expressly approved in writing by
Buyer pursuant to Sections 5.1.1(a) and/or 5.1.1(b).

Buyer shall be responsible, at Buyer's cost, to provide any survey required in
connection with the Title Policy and neither such survey nor such Title Policy
shall delay the Closing Date. If Buyer fails to provide any survey or other
requirement for the Title Policy by the Closing Date, Escrow Holder shall
nevertheless close the Escrow and provide to Buyer a CLTA Standard Owner's
Policy which complies with the provisions of this Section 6.4. The cost of the
Title Policy and the endorsements thereon shall be borne by Buyer and Seller as
provided in Section 6.6 below. In addition, Seller shall execute and deliver
such certificates, mechanics lien indemnifications and other instruments as
shall be reasonably required for the issuance of the Title Policy and/or the
endorsements described in this Section and in Section 5.1. Nothing herein,
however, shall be deemed or construed to require Seller to bear any costs or to
assume any obligations over and above those costs to be borne and those
obligations to be undertaken by Seller pursuant to this Agreement and/or the
Lease.

Section 23.5 Prorations.

                (i) All property taxes and assessments on the Property and any
service and maintenance charges for the Property, whether paid in installments
or not, shall be prorated between Buyer and Seller as of the Closing Date based
upon the most current statements and information available to Escrow Holder or
otherwise provided by Seller and agreed upon by Buyer, including any known
supplemental reassessments. Subject to the preceding proration provision, Buyer
shall be responsible for all installments of bonds and assessments secured by
the Property which are due and payable after the Closing. For the purposes of
this subsection, property taxes and assessments shall, to the extent that the
information is available to do so, be prorated through Escrow to reflect the
obligations of Buyer and Seller with respect thereto

                                       17


pursuant to the Lease. Buyer and Seller recognize that, due to possible parcel
map prepayments and construction supplemental bills, it is likely or probable
that all real property taxes and assessments cannot be prorated through Escrow.
In light of such fact, Buyer and Seller agree that:

                    (A) Buyer and Seller shall make such prorations through
Escrow as can be reasonably made by them based upon the best information then
available to them.

                    (B) All prorations required and not possible through Escrow
shall be made by Buyer and Seller outside of and after close of the Escrow.

                    (C) Section 12.10 of the Lease shall be applicable to all
disputes arising out of the process provided for in clauses (i) and (ii) above.

                    (D) The covenants set forth in this Section 6.5(a), Section
12.10 of the Lease and Article IV of the Lease shall survive the Close of Escrow
until all prorations required by this Section are completed.

                    (E) Nothing contained in this subsection shall modify or
defeat the allocation of property taxes and assessments set forth in the Lease.

Subject to the foregoing, Seller and Buyer shall reasonably cooperate to develop
a proration closing statement for delivery to and use by Escrow Holder pursuant
to this subsection.

                (ii) Buyer shall obtain its own insurance with respect to the
Property and shall not succeed to Seller's insurance. There shall be no
proration with respect to liability insurance with respect to the Property. To
the extent that Seller carries casualty insurance with respect to the Property
and Landlord's Improvements thereon, Buyer shall be responsible for the premiums
therefor (and Seller's overhead allowance with respect thereto) through the
Closing Date to the extent specified in the Lease. Seller may cancel such
insurance as of the Closing Date and Buyer shall place its own casualty
insurance with respect to the Property and the improvements thereon. Except as
provided in subsection (a) above and this subsection (b), there shall be no
prorations or adjustments with respect to the Property.

                                       18

 Section 23.6 Closing Costs. Subject to Section 7.2, Seller shall pay the
premium for a CLTA owner's standard title policy, any premiums for the Seller
Endorsements, if any, all documentary transfer taxes, all costs for recording
the Grant Deed and the Development Agreement Assignment, and one-half (1/2) of
all Escrow costs and fees. Buyer shall pay any additional premium for the Title
Policy (i.e., the difference between the premium for the aforementioned CLTA
policy and the premium for the Title Policy), the premiums for any endorsements
to the Title Policy (other than the Seller's Endorsements), all costs for
recording the Mutual Cancellation and the Full Reconveyance, one-half (1/2) of
all Escrow costs and fees, and any costs and expenses relating to Buyer's
obtaining the Full Reconveyance and any financing to acquire the Property. Any
other costs and fees shall be paid by the party causing the same to be incurred
or, if not directly attributable to a party, in accordance with southern
California escrow practice. Buyer and Seller shall each bear their own legal and
accounting costs and fees.

Section 23.7 Disbursements by Escrow Holder. Upon the Close of Escrow, Escrow
Holder shall disburse or retain, as applicable, all Funds deposited with Escrow
Holder by Buyer in payment of the Purchase Price, the Breakage Fee and the
Traffic Impact Fees, in each case as applicable, as follows:

            1. Deduct therefrom all costs chargeable to the account of Seller
            pursuant hereto;

            2. Retain any Disputed Portion pursuant to Sections 6.1 and 6.10 and
            distribute the remaining balance of the Funds to or at the direction
            of Seller promptly upon the Close of Escrow. If such Funds to be
            disbursed to Seller cannot be transferred to Seller in sufficient
            time after the Closing for Seller to invest the Funds itself on the
            Closing Date, then Escrow Holder shall hold and invest the Funds
            overnight as instructed by Seller; and

            3. To the extent that Buyer has deposited total Funds in excess of
            the Purchase Price, costs and fees payable by Buyer and any other
            amounts payable by Buyer, distribute such excess funds to or at the
            direction of Buyer promptly upon the Close of Escrow.

Section 23.8 Completion and Distribution of Documents. Escrow Holder shall also
undertake the following at or promptly after the Close of Escrow:

            4. Determine the documentary transfer tax based upon the Purchase
            Price and complete the documentary transfer tax statement.

            5. If necessary, Escrow Holder is authorized and instructed to
            insert the date Escrow closes as the date of any documents conveying
            or terminating interests herein or to become operative as of the
            Closing Date (including the Mutual Cancellation, Personal Property
            Assignment and Development Agreement Assignment). Compile completely
            executed (and acknowledged, if required) copies of the Mutual
            Cancellation, Personal Property Assignment and Development Agreement
            Assignment, if delivered in partially executed and acknowledged
            counterparts.

                                       19


            6. Cause the Grant Deed, the Full Reconveyance, the Mutual
            Cancellation and the Development Agreement Assignment, in that
            order, and any other recordable instruments which the parties so
            direct to be recorded in the Official Records. Escrow Holder is
            hereby instructed not to affix the amount of the documentary
            transfer tax on the face of the Deed but to pay on the basis of a
            separate affidavit of Seller not made a part of the public record,
            in accordance with Section 11932 of the California Revenue and
            Taxation Code.

            7. Cause each non-recorded document to be delivered to the party
            acquiring rights thereunder, or for whose benefit such document was
            obtained.

Section 23.9 Seller's Election of 1031 Exchange. Seller may elect to sell the
Property to Buyer in the form of a tax-deferred exchange pursuant to Section
1031 of the Internal Revenue Code of 1986, as amended (a "1031 Exchange"). In
the event that Seller shall so elect, Seller shall give written notice to Buyer
and Escrow Holder of such election not less than five (5) days before the Close
of Escrow and the following shall apply:

            (a) Simultaneous Exchange. Seller shall attempt to identify before
the Closing other property which qualifies as "like-kind" property for a 1031
Exchange (the "Target Property") by Seller giving written notice to Buyer and
Escrow Holder identifying the Target Property prior to the Closing.

            (b) Non-Simultaneous Exchange. If Seller has not so identified the
Target Property before the Closing Date, then Seller shall proceed to Close of
Escrow as provided in this Agreement unless Seller at its option enters into an
exchange agreement with an accommodation party ("Accommodator") in order to
facilitate a non-simultaneous or so-called "Starker deferred" exchange. If an
Accommodator is so designated, Seller shall cause the Accommodator (i) to
acquire title to the Property from Seller at or before the Closing, (ii) to
transfer title to the Property to Buyer at the Closing for the Purchase Price,
and (iii) to acquire and convey the Target Property to Seller after the Closing.

            (c) Expenses and Documents. Buyer shall cooperate with any such 1031
Exchange, including but not limited to executing and delivering additional
documents reasonably requested or approved by Seller; provided, that Buyer shall
not be required to incur any additional Liabilities or financial obligations as
a consequence of any of the foregoing exchange transactions and Buyer's
cooperation shall be subject to the specific limitations set forth in this
Section. Without limiting the generality of the foregoing, Buyer shall not be
required to execute any agreement with an Accommodator unless such agreement is
required by Laws to effect such exchange. All expenses beyond those amounts
agreed to be paid by Buyer in this Agreement resulting from any aspect of the
1031 Exchange, and any difference in equity between the Target Property and the
Property, shall be borne solely by Seller. Any risk that such an exchange or
conveyance might not qualify as a tax-deferred transaction shall also be borne
by Seller. In no event shall the 1031 Exchange delay or extend the Closing Date.
Moreover, any out-of-pocket expenses incurred by Buyer in cooperating with such
exchange shall be credited against the Purchase Price.

                                       20


            In no event shall Buyer be required to take title to any property,
including the Target Property, other than the Property in connection with the
1031 Exchange, and the Close of the Escrow shall not be contingent in any way
upon the acquisition of the Target Property. The 1031 Exchange shall not relieve
Seller from liability for any representation, warranty or covenant of Seller or
diminish any right or remedy of Buyer with respect to Seller. Buyer shall not be
liable to Seller for any adverse tax consequences suffered or incurred by Seller
in the event this Agreement is terminated or fails to close on the Closing Date,
whether or not such termination or failure is due to an actual or alleged
default by Buyer hereunder. This Section 6.9.3 shall survive the Close of Escrow
or termination of this Agreement.

            (d) Indemnity. Seller shall defend, indemnify and hold Buyer
harmless against and reimburse Buyer for any claims, demands, actions,
liabilities, damages, losses, obligations, fines, penalties, costs and expenses,
including, without limitation, attorneys' fees and all court costs which may
arise or be asserted against Buyer in connection with the 1031 Exchange, which
are greater, by reason of Seller's participation in any 1031 Exchange, than
those which Buyer would have incurred were it not for such 1031 Exchange.

Section 23.10 Disputed Portion. In the event that the Escrow closes on the basis
of clause (b) of Section 6.1, then the following shall pertain:

                (i) Escrow Holder shall retain rather than disburse to Seller
the Disputed Portion.

                (ii) The Disputed Portion shall be invested in the manner
provided in Section 4.2.

                (iii) The Disputed Portion shall be disbursed to Seller and/or
Buyer, as applicable, in accordance with:

                    (A) Mutual instructions of Buyer and Seller, which may be
delivered in counterparts; or

                    (B) The decision of an arbitrator in an arbitration held
pursuant to Section 12.10 of the Lease which determines the amount of the
Purchase Price. Delivery of such decision to Escrow Holder may be made by either
Seller or Buyer.

                (iv) Interest accrued shall be disbursed in the same
proportion(s) as disbursement of the Disputed Portion pursuant to subsection
(c).

                (v) Buyer and Seller shall each pay one-half ( 1/2) of the fees
of Escrow Holder for acting as the escrow holder of the Disputed Portion
pursuant to this Section 6.10.

                                       21


                       ARTICLE XXIV. DEFAULTS AND REMEDIES

Section 24.1 Default by Either Party. If Escrow fails to close when and as
provided in Section 6.1 above (including any applicable extensions pursuant to
this Agreement) due to the failure of either party to perform any obligation
under this Agreement, then the nondefaulting party may elect, by written notice
to the defaulting party and to Escrow Holder, to terminate Escrow and this
Agreement. That termination shall be effective three (3) days after delivery of
such notice; provided, that (i) the nondefaulting party has performed or is in a
position to perform all conditions on its part to be performed as of the
termination date; and (ii) the defaulting party has not cured the default and
the nondefaulting party has not waived such default by the effective termination
date. Without in any way affecting the validity of such termination, both Buyer
and Seller agree to execute and deliver mutual termination instructions in a
form specified by Escrow Holder in order to satisfy Escrow Holder's reasonable
cancellation requirements. Except as otherwise provided in this Article 7,
Escrow Holder and the parties shall, upon such termination, return all of the
other party's funds and documents then held by them to the party depositing or
delivering the same. Thereafter, each of the parties shall be discharged and
released from all obligations and liabilities except as otherwise provided in
Sections 7.2, 7.3 and 7.4 and except for those obligations and liabilities which
are expressly intended to survive the termination of this Agreement.

Section 24.2 Cancellation Charges. A defaulting party shall be liable for all
escrow, title cancellation and similar charges, in addition to any other damages
or remedies due the nondefaulting party (except as limited by Sections 7.1, 7.3
or 7.4). If Close of Escrow fails to occur for any reason other than a party's
default, Buyer and Seller shall each pay one-half (1/2) of any escrow, title
cancellation or similar charges.

                                       22


Section 24.3 LIQUIDATED DAMAGES. IF BUYER FAILS TO COMPLETE THE PURCHASE OF THE
PROPERTY AND SUCH FAILURE CONSTITUTES A BREACH OF THIS AGREEMENT, BUYER, BY ITS
INITIALS FOLLOWING THIS SECTION, AGREES THAT THE DEPOSIT AND ALL INTEREST
ACCRUED THEREON SHALL CONSTITUTE LIQUIDATED DAMAGES TO SELLER FOR SUCH BREACH
AND FAILURE TO CLOSE BY BUYER. THE PAYMENT OF SUCH AMOUNT IS NOT INTENDED AS A
FORFEITURE OR A PENALTY WITHIN THE MEANING OF CALIFORNIA CIVIL CODE SECTIONS
3275 OR 3369 OR SIMILAR AUTHORITIES, BUT IS INTENDED TO CONSTITUTE LIQUIDATED
DAMAGES TO SELLER PURSUANT TO THE REQUIREMENTS OF CALIFORNIA CIVIL CODE SECTIONS
1671, 1676 AND 1677. BUYER AND SELLER AGREE THAT THE AFORESAID SUM IS A FAIR AND
REASONABLE AMOUNT FOR LIQUIDATED DAMAGES FOR SUCH A BREACH AND FAILURE TO CLOSE
UNDER THE CIRCUMSTANCES EXISTING AT THE TIME THIS AGREEMENT IS ENTERED INTO.
ESCROW HOLDER IS HEREBY AUTHORIZED AND INSTRUCTED TO RELEASE SUCH SUMS TO SELLER
UPON THE DELIVERY OF UNILATERAL WRITTEN INSTRUCTIONS TO ESCROW HOLDER BY SELLER,
AND ESCROW HOLDER IS HEREBY RELIEVED OF ALL LIABILITY THEREFOR. SELLER
ACKNOWLEDGES AND AGREES THAT SELLER'S RETENTION OF THE DEPOSIT AND THE ACCRUED
INTEREST THEREON PURSUANT TO THIS SECTION SHALL BE SELLER'S SOLE AND EXCLUSIVE
REMEDY AS TO SUCH DEFAULT(S) AND FAILURE TO CLOSE IN THE EVENT OF ANY DEFAULT(S)
AND FAILURE TO CLOSE BY BUYER. IT IS UNDERSTOOD AND AGREED THAT THIS SECTION
APPLIES ONLY TO A FAILURE OF BUYER TO CLOSE THE ESCROW, WHICH FAILURE IS A
DEFAULT OR BREACH OF THIS AGREEMENT. AS USED HEREIN, ALL REFERENCES TO THE
"DEPOSIT" SHALL MEAN THE AGGREGATE AMOUNT THEN HELD BY ESCROW HOLDER PURSUANT TO
ARTICLE 4.

            NOTWITHSTANDING THE FOREGOING, (a) IN NO EVENT SHALL THIS SECTION
7.3 LIMIT THE DAMAGES RECOVERABLE BY EITHER PARTY AGAINST THE OTHER PARTY (i)
UPON SUCH OTHER PARTY'S INDEMNIFICATION OBLIGATIONS PURSUANT TO THIS AGREEMENT
OR (ii) UPON OR WITH RESPECT TO THIRD PARTY CLAIMS AND (b) THIS SECTION 7.3
SHALL NOT LIMIT SELLER'S RIGHT TO RECOVER COSTS, EXPENSES AND ATTORNEYS' FEES TO
ENFORCE THE PROVISIONS OF THIS SECTION 7.3. NOTWITHSTANDING ANYTHING TO THE
CONTRARY HEREIN, NEITHER BUYER'S DEFAULT HEREUNDER NOR SELLER'S TERMINATION OF
THIS AGREEMENT AS A RESULT THEREOF SHALL TERMINATE THE LEASE.

                ---------------------            ----------------------
                Seller's Initials                Buyer's Initials


                                       23


Section 24.4 Specific Performance by Seller. If Seller defaults under any
obligation in this Agreement, then in lieu of termination as provided in Section
7.1, Buyer may compel specific performance by Seller of Seller's obligation to
convey the Property as provided herein. In addition, Buyer may recover any
provable actual damages which Buyer may incur as the result of such default by
Seller, in addition to such specific performance. In no event, however, shall
Seller ever be liable for any punitive or consequential damages and Buyer hereby
specifically waives the right to recover the same. Actual damages recoverable by
Buyer may include those provided in Sections 11 and 12.2 below. By its signature
hereto, Seller acknowledges that damages would be an inadequate remedy to Buyer
in the event of a default by Seller pursuant to this Agreement and consents to
the entry of an order or judgment for specific performance in the event of a
default by Seller. Nothing contained in this Section shall preclude Buyer from
recovering the Deposit and Buyer's attorneys' fees and expenses of so doing
pursuant to Section 12.2 if Seller defaults and Buyer elects not to seek
specific performance.

                   ARTICLE XXV. REPRESENTATIONS AND WARRANTIES

Section 25.1 In General. In addition to any express agreements of either party
contained herein, the following constitute representations and warranties by
each party to the other, which shall be true and correct as of the expiration of
the Contingency Period and the Close of Escrow, in each case, and the truth and
accuracy of such representations shall constitute a condition to the Close of
Escrow for the benefit of the party to whom such representations and warranties
were made.

Section 25.2 By Each Party. Each party hereto covenants, represents and warrants
to the other as follows:

            (a) Authority. Such party has full power and authority to enter into
and comply with the terms of this Agreement, and the individuals executing this
Agreement on behalf of such party have actual right and authority to bind that
party to the terms of this Agreement.

            (b) Binding Effect. No action or consent which has not been obtained
is necessary to make this Agreement, and this Agreement and all documents to be
executed hereunder are, the valid and legally binding obligations of such party,
enforceable in accordance with their respective terms.

            (c) Compliance. To the best knowledge of such party, this Agreement
and that party's performance of the obligations herein contained do not and will
not contravene any provision of any present judgment, order, decree, writ or
injunction, or any provision of any Laws currently applicable to such party, or
any evidence of indebtedness or security therefor or other agreement to which
such party is a participant or by which any of such party's properties may be
bound.

Section 25.3 By Seller Only.

            (a) Not a Foreign Person. Seller represents and warrants to Buyer,
in accordance with Section 1445 of the Internal Revenue Code and Sections 18805,
18815 and 26131 of the California Revenue and Taxation Code, that (a) Seller is
not now, and at Closing

                                       24


will not be, a "foreign person," and (b) Buyer need not withhold tax at the
Closing as a result of this transfer.

            (b) Agreements. There are no agreements entered into by Seller
concerning the operation and maintenance of the Property which would bind Buyer
or the Property for more than thirty (30) days after the Close of the Escrow,
other than the Title Exceptions and the Permitted Development Easements.

            (c) Documents. Seller has delivered (or will deliver) to Buyer
copies of all Diligence Documents in Seller's possession or under Seller's
control. The copies shall be true and correct copies of such Diligence Documents
as are in Seller's possession.

            (d) Hazardous Materials. Except as described in Section 5.4 of this
Agreement, to the best of Seller's actual knowledge, but with no duty to
investigate, there are no hazardous materials located in, on or under the Land
or located near the Land which could migrate onto the Land.

            (e) Organization. Seller and each partner of Seller which is not a
natural person has been duly organized and is validly existing under the laws of
the State of California. Seller has the full right, power and authority to
execute and deliver this Agreement and to perform the obligations of Seller
hereunder. The persons executing this Agreement on behalf of Seller are
authorized to do so and to bind Seller to the obligations of Seller hereunder.

            (f) Fee Ownership. Seller is the fee owner of the Property and no
person or entity other than Buyer has any present or future right (whether or
not contingent) to occupy, use or acquire any interest in the Property, or any
portion thereof, except as listed in the Title Report.

            (g) No Litigation. There is no action, suit, arbitration,
unsatisfied order or judgment, governmental investigation or proceeding pending,
or to Seller's knowledge, threatened against Seller which, if determined
adversely to Seller, could individually or in the aggregate materially interfere
with the rights of Buyer hereunder. There is no litigation which has been filed
against Seller that arises out of ownership of the Property and which, if
determined adversely to Seller, would materially adversely affect the Property,
the Intended Use, as defined in the Lease, or Seller's ability to perform
hereunder.

            (h) Condemnation. Seller has not received any written notice of any
condemnation proceeding related to the Property.

            (i) Zoning. The Sale Land is currently in the Planned Development
Industrial zoning classification of the City of Costa Mesa (the "City").

            (j) No Violation. Seller has not received any written notice from
any governmental entity or agency alleging that the Property violates any
provision of any federal or state statute or any ordinance of the City.

            (k) Utility Service. Main water, sewer, gas, electrical and
telephone lines are available in the streets adjacent to the Sale Land for
connections from such main lines to the Improvements constructed or to be
constructed on the Sale Land.

                                       25


            (l) Development Agreement. The Development Agreement has not been
terminated, cancelled, modified or amended and there are no proceedings pending
or threatened to cancel, terminate, modify or amend the Development Agreement.

            (m) Entitlement and Trip Budget. The Floor Area, as defined in the
Lease, entitlement of the Sale Land is a 0.4 FAR (the "Entitlement"). The trip
budget for the Sale Land is 376 trips (AM) and 362 (PM) (the "Trip Budget").
There are no proceedings pending or threatened to modify the zoning of, the
Entitlement of or the Trip Budget for the Sale Land.

            For purposes of Sections 8.2.3, 8.3.4 and 8.3.7, Seller's knowledge
shall mean to the knowledge of Seller's agents, Jeffrey M. Reese and J. Barney
Page, and as to 8.3.4 only, Theodore W. Segerstrom.

            Notwithstanding anything herein to the contrary, all representations
and warranties set forth in this Section 8 shall survive the Closing for a
period of one (1) year thereafter, but only as to claims made by a demand for
arbitration filed and served within one (1) year after the Closing Date, or
shall be forever barred.

                  ARTICLE XXVI. CERTAIN EVENTS PRIOR TO CLOSING

                If any portion of the Property, or any interest therein, is
taken before the Closing Date as a result of any street widening or other
condemnation (including the filing of any notice of intended condemnation or
proceedings in the nature of eminent domain), Seller shall immediately give
Buyer notice of the taking. Buyer shall nonetheless proceed with the purchase of
the Property and consummate this Agreement in accordance with its terms, and all
awards payable by reason of such taking shall belong to Buyer.

                Notwithstanding the foregoing, in the event of any taking by
condemnation (including the filing of any notice of intended condemnation or
proceedings in the nature of eminent domain or the threat of such proceedings)
prior to the Closing Date of such portion of the Property as shall adversely
affect the ability of Buyer to utilize the remainder of the Property for the
Intended Use, Buyer shall have the option to terminate this Agreement. Such
option shall be exercised, if at all, by written notice to Seller and Escrow
Holder given within fifteen (15) days after Buyer's receipt from Seller of
written notice of such taking or intended taking and the portion of the Property
taken or proposed to be taken. If Buyer is entitled to terminate and timely and
properly terminates this Agreement pursuant to this Article 9, then:

                (i) This Agreement shall terminate upon Seller's receipt of
Buyer's notice of termination;

                (ii) All instruments in Escrow shall be returned to the party
depositing the same;

                (iii) Buyer and Seller shall each pay one-half (1/2) of all
Escrow and title cancellation charges;

                                       26


                (iv) Neither party shall have any further rights, obligations or
liabilities whatsoever to the other party concerning the Property by reason of
this Agreement except as expressly stated in this Agreement to survive
termination; and

                (v) The Lease shall continue in effect unless terminated
pursuant to Section 10.1 thereof.

If Buyer does not timely and properly terminate this Agreement pursuant to this
Article 9, then the first paragraph hereof shall apply with respect to such
taking or proposed taking.

                                       27


                       ARTICLE XXVII. POST-CLOSING MATTERS

Section 27.1 Confidentiality. Each party shall hold in strict confidence the
terms and conditions set forth in this Agreement, and the other information
related to the Property obtained from the other (collectively, "Confidential
Information"). Notwithstanding the foregoing, neither party shall incur
liability for disclosure of Confidential Information: (a) to its employees and
employees of its affiliates, accountants, attorneys, insurance brokers,
consultants, and others to the extent such disclosure is necessary or desirable
in connection with Buyer's evaluation of the Property (in which event, to the
fullest extent possible, the person receiving the information shall be informed
of its confidential nature and instructed to maintain the confidentiality of the
same), (b) that is, or hereafter becomes, part of the public domain other than
through a breach by Buyer or Seller of its obligations in this paragraph, (c)
that Buyer receives from a third party who is not under the confidentiality
obligations contained in this paragraph, (d) in response to a subpoena in
litigation, or (e) as otherwise necessary in connection with litigation or as
required by law. Each party will use reasonable efforts to consult with the
other prior to responding to any inquiries made by any third party respecting
the transactions contemplated by this Agreement. Whether or not the Escrow
closes, each party shall treat as Confidential Information the Purchase Price
for a period of twelve (12) months after Close of Escrow or termination of this
Agreement, as applicable. Notwithstanding the foregoing, Seller and Buyer
acknowledge and agree that Buyer may or will be required to disclose the terms
hereof and/or to file this Lease in or with Buyer's public filings pursuant to
the Securities Act of 1933, the Securities Exchange Act of 1934 or the rules and
regulations under such acts.

Section 27.2 Seller's Construction Warranty. Neither anything contained in this
Agreement nor the Close of the Escrow shall terminate or otherwise affect
Seller's obligations contained in Section 6.1(b) of the Lease, all of which
obligations shall survive for the entire period set forth in such Section (the
"Warranty Period"). The obligations of Seller pursuant to such Section 6.1(b)
are herein referred to as "Seller's Warranty Obligations."

Section 27.3 Assignment of Warranties. Upon the expiration of the Warranty
Period, Seller shall deliver to Buyer the originals of all Warranties and shall
execute and deliver to Buyer an assignment of all Warranties. Such assignment
shall be in the form attached hereto as Exhibit E, including the representations
and warranties therein contained. To the extent that any Warranty runs in favor
of a parent, subsidiary or affiliate of Seller or any other person or entity
acting on behalf of or for Seller, Seller shall cause such parent, subsidiary,
affiliate or other person to join in such assignment.

Section 27.4 General Release and Indemnification.

                (i) Except as expressly provided to the contrary in this
Agreement, Buyer hereby releases the "Releasees" hereunder, consisting of Seller
and each of its past, present and future partners, officers, trustees,
beneficiaries, members, managers, employees, agents, representatives, attorneys,
successors and assigns, or any of them, of and from any and all manner of action
or actions, cause or causes of action, in law or in equity, suits, debts, liens,
contracts, agreements, promises or Liabilities of any nature whatsoever, known
or unknown, fixed or contingent, arising out of, based upon or relating to the
Property, including the existence of toxic or hazardous wastes or materials of
any kind, on, under or about the Property, or arising

                                       28


from any use of the Property, including, any claims for contribution or
reimbursement pursuant to the Comprehensive Environmental Response, Compensation
and Liability Act of 1980, as amended (42 U.S.C. Section 6601, et seq.), or any
other or similar state or federal environmental statute, rule or decision.

            The foregoing release shall not apply to (i) any claims with respect
to the rights reserved (i.e., minerals, water, etc.) by Seller as described in
Section 1.7, (ii) any claim in connection with a breach of a representation,
warranty or indemnification obligation hereunder, (iii) claims for
indemnification by Buyer pursuant to Section 13.7(b) of the Lease, (iv) the
other obligations of Seller which survive the Close of Escrow as provided in
this Agreement, (v) the obligations of Seller pursuant to Article 11 of this
Agreement and Section 6.1(b) of the Lease and (vi) any claim for fraud on the
part of Seller in connection with this Agreement or the Lease. Section 12.2
shall apply with respect to any claims of the types described in clauses (i)
through (vi). Any claim described in this paragraph must be made by a demand for
arbitration filed and served within one (1) year after the Closing Date or shall
be forever barred. Provided, however, that, as to the representations and
warranties to be set forth in the assignment provided for in Section 10.3, such
one (1) year period shall run from the date of delivery of such assignment to
Buyer In addition, Buyer agrees that it will not initiate any action (but
excluding a cross-complaint for purposes of bringing Seller into any action
initiated by a third party) against Seller pursuant to the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended, or
any other or similar state or federal environmental statute, rule, or decision,
but shall not be required to indemnify Seller against any liability which Seller
may have under any such statute, rule or decision as the result of Seller's
ownership of the Property.

            BUYER ACKNOWLEDGES THAT IT HAS BEEN ADVISED BY LEGAL COUNSEL AND IS
FAMILIAR WITH THE PROVISIONS OF CALIFORNIA CIVIL CODE SECTION 1542, WHICH
PROVIDES AS FOLLOWS:

            "A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES
            NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING
            THE RELEASE, WHICH IF KNOWN BY HIM, MUST HAVE MATERIALLY AFFECTED
            HIS SETTLEMENT WITH THE DEBTOR."

            BUYER, BEING AWARE OF THIS CODE SECTION, HEREBY EXPRESSLY WAIVES ANY
RIGHTS IT MAY HAVE THEREUNDER, AS WELL AS UNDER ANY OTHER STATUTES OR COMMON LAW
PRINCIPLES OF SIMILAR EFFECT.

                                --------------------
                                Buyer's Initials

                (ii) In addition to the other indemnities of Buyer contained
herein, those provisions of the Lease by which Buyer indemnifies Seller from and
against Liabilities based upon or relating to the Property, whether accruing
prior to or after the Closing Date, shall survive the Closing. Payment shall not
be condition precedent to enforcement of any such indemnification provision.

                                       29


                (iii) The provisions of this Section 10.4 shall survive the
execution and delivery of this Agreement and the Grant Deed and the occurrence
of the Closing.

                             ARTICLE XXVIII. BROKERS

                    Seller shall pay to Julien J. Studley, Inc. ("Broker") a
commission with respect to that portion of the Property denominated as the
Expansion Land in the Lease. Such commission shall be payable in the amount and
at the time determined in that certain letter agreement dated July 20, 2001
(with any amendments thereto, the "Letter") between Seller and Broker and shall
not be included in Development Costs pursuant to the Lease. Seller shall
indemnify, defend and hold Buyer and the Property harmless against any liability
for the commission due Broker pursuant to the Letter with respect to the within
sale. The last two sentences of the next succeeding paragraph shall also apply
with respect to such indemnification obligation.

                    Except as provided in the immediately preceding paragraph,
Seller and Buyer each represents and warrants to the other that no broker or
finder or other real estate agent is entitled to any commission, finder's fee or
other compensation with respect to this Agreement resulting from any action on
its part. Each party agrees to indemnify, defend, protect and hold the other
party and the Property harmless against any liability for any broker's
commission or finder's fee for which it is responsible or which is asserted as a
result of its own act or omission in connection with this transaction. Payment
shall not be a condition precedent to enforcement of the foregoing
indemnification provision. The foregoing indemnification provision shall include
a covenant by each indemnifying party to defend the indemnified party against
all claims for which indemnification is available with legal counsel selected by
its liability insurance carrier or otherwise reasonably satisfactory to the
indemnified party.

                                       30


                     ARTICLE XXIX. MISCELLANEOUS PROVISIONS

Section 29.1 Assignment; Binding on Successors. This Agreement shall be binding
upon and shall inure to the benefit of Buyer and Seller and their respective
representatives, successors and assigns; provided, however, that Buyer shall not
have the right to assign this Agreement or any interest or right under this
Agreement or under the Escrow or to appoint a nominee to act as Buyer under this
Agreement without obtaining the prior written consent of Seller, which consent
shall be in the sole and absolute discretion of Seller. No such assignment shall
relieve Buyer of its obligations hereunder. Any attempted assignment in
violation of this provision shall be null and void.

Section 29.2 Fees and Other Expenses. Except as otherwise provided herein, each
of the parties hereto shall pay its own fees and expenses in connection with
this Agreement. In any dispute or action between the parties arising out of this
Agreement or the Escrow, or in connection with the Property, the prevailing
party shall be entitled to have and recover from the other party all losses,
damages, costs and expenses (including without limitation court costs and
reasonable attorneys' fees) related thereto, whether by final judgment or by out
of court settlement.

Section 29.3 Approval and Notices. Any approval, disapproval, demand, document
or other notice or communication (collectively, a "Notice") required or
permitted to be given hereunder shall be in writing and may be served
personally, by commercial delivery or private courier service, by registered or
certified mail (return receipt requested, postage prepaid) or by facsimile
transmission. Any Notice shall be effective (i) upon personal delivery, (ii)
when received or refused as indicated by the date on the return invoice or
receipt showing delivery or refusal or (iii) upon receipt of a legible
transmission on a Business Day. The parties' addresses for Notices are as
follows:


               TO BUYER:            Emulex Corporation
                                    3535 Harbor Boulevard
                                    Costa Mesa, California 92626
                                    Attn:  Ms. Sadie Herrera,
                                           EVP HR and Facilities
                                    Fax: (714) 556-0252

               COPIES TO:           John F. Simonis, Esq.
                                    Paul, Hastings, Janofsky & Walker, LLP
                                    695 Town Center Drive, 17th Floor
                                    Costa Mesa, California 92626
                                    Fax: (714) 979-1921

               TO SELLER:           C.J. Segerstrom & Sons
                                    3315 Fairview Road
                                    Costa Mesa, California 92626
                                    Attn:  Chief Financial Officer
                                    Fax: (714) 918-4425

                                       31


               COPIES TO:           LATHAM & WATKINS
                                    Twentieth Floor
                                    650 Town Center Drive
                                    Costa Mesa, California 92626
                                    Attn:  James W. Daniels, Esq.
                                    Fax:   (714) 755-8290

Notice of change of address shall be given by written Notice in the manner
detailed in this paragraph. Rejection or other refusal to accept or the
inability to deliver because of changed address of which no Notice was given
shall be deemed to constitute receipt of the Notice.

                                       32


Section 29.4 Jurisdiction. This Agreement shall be construed under the laws of
the State of California. Venue and jurisdiction of any action arising out of
this Agreement shall exclusively be in any state or federal court sitting in the
County of Orange, State of California.

Section 29.5 Interpretation. Each provision herein shall be construed in all
cases as a whole according to its fair meaning, neither strictly for nor against
either Buyer or Seller and without regard for the identity of the party
initially preparing this Agreement. Titles and captions are inserted for
convenience only and shall not define, limit or construe in any way the scope or
intent of this Agreement. References to sections are to sections as numbered in
this Agreement unless expressly stated otherwise.

Section 29.6 Gender; Joint Obligations. As used in this Agreement, the
masculine, feminine or neuter gender and the singular or plural number shall
each be deemed to include the others where and when the context so dictates. If
more than one party is the Buyer or Seller hereunder, the obligations of all
such parties shall be joint and several.

Section 29.7 No Waiver. A waiver by either party of a breach of any of the
covenants, conditions or agreements to be performed by the other party shall not
be construed as a waiver of any succeeding breach of the same or other
covenants, conditions or agreements.

Section 29.8 Modifications. Any alteration, change or modification of or to this
Agreement, in order to become effective, must be made in writing and in each
instance signed on behalf of each party to be charged.

Section 29.9 Severability. If any term, provision, condition or covenant of this
Agreement or its application to any party or circumstances shall be held, to any
extent, invalid or unenforceable, the remainder of this Agreement, or the
application of the term, provision, condition or covenant to persons or
circumstances other than those as to whom or which it is held invalid or
unenforceable, shall not be affected, and shall be valid and enforceable to the
fullest extent permitted by law.

Section 29.10 Survival. Each representation, warranty, covenant and agreement of
the parties to be performed hereunder after the Closing, shall, subject to the
time limitations set forth in Article 8 and the provisions of Section 10.4,
survive Close of Escrow until full performance of such obligations.

                                       33


Section 29.11 Merger of Prior Agreements. This Agreement and the Exhibits hereto
contain the entire understanding between the parties relating to the sale
transaction contemplated by this Agreement. All prior or contemporaneous
agreements, understandings, representations and statements, whether direct or
indirect, oral or written, are merged into and superseded by this Agreement, and
shall be of no further force or effect. In connection with the foregoing, those
portions of the Lease governing the purchase of the Property by Buyer from
Seller are subsumed into and superseded by the provisions of this Agreement.
Those portions of the Lease which are not so superseded shall survive the
Closing Date as necessary to give effect to the rights and obligations of the
parties hereunder and thereunder until fulfillment of such rights and
satisfaction of such obligations in full. Moreover, all provisions of the Lease
to which reference is made herein for the purpose of any determination required
pursuant to this Agreement are incorporated herein by this reference. Either
party may deliver to Escrow Holder along with this Agreement a true and complete
copy of the Lease. By its signature hereto, Escrow Holder agrees to comply with
the provisions of Section 10.1 with respect to the Lease.

Section 29.12 Time of Essence. Time is of the essence of this Agreement.

Section 29.13 Counterparts. This Agreement may be signed in multiple
counterparts which, when duly delivered and taken together, shall constitute a
single binding Agreement between the parties. It shall not be necessary for both
parties to execute the same counterparts of this Agreement for this Agreement to
become effective.

Section 29.14 Exhibits. All exhibits attached to this Agreement are incorporated
herein by reference.

Section 29.15 Cooperation of Parties. Each party agrees to execute and deliver
any other and further instruments and documents and take such other actions as
may be reasonably necessary or proper in order to accomplish the intent of this
Agreement. The foregoing covenant shall not require either party to pay any
costs or assume any obligations other than or in addition to those to be paid or
assumed by such party pursuant to this Agreement.

Section 29.16 Preliminary Change of Ownership Report. Buyer shall be fully
responsible for all matters in connection with the filing of a Preliminary
Change of Ownership Report in accordance with California Revenue and Taxation
Code Section 480.3.

Section 29.17 No Third Party Beneficiaries. The provisions of this Agreement are
intended to be solely for the benefit of the parties hereto, and the execution
and delivery of this Agreement shall not be deemed to confer any rights upon,
nor obligate either of the parties hereunder, to any person or entity other than
the parties to this Agreement.

Section 29.18 Alternative Dispute Resolution Procedure.

                (i) Except as provided in subsection (b) below, any controversy,
dispute or claim of whatsoever nature arising out of, in connection with, or in
relation to the interpretation, performance or breach of this Agreement,
including any claim based on contract, tort or statute, shall be determined by
final and binding arbitration conducted before a single arbitrator at a location
determined by the arbitrator in Orange County, California and administered by
Judicial Arbitration & Mediation Services, Inc. ("JAMS"), or if JAMS shall not

                                       34


then exist, such other organization as to which Seller and Buyer agree. If
Seller and Buyer are unable to so agree within fifteen (15) days after the
dispute arises, the organization shall be selected by the presiding judge of the
Orange County Superior Court or his or her designee upon application by any
party to the dispute. Judgment upon any award rendered by the arbitrator may be
entered by any state or federal court having jurisdiction thereof.

                (ii) The provisions of this Section shall not apply to:

                    (A) Any specific controversy, dispute, question or issue as
to which this Agreement specifically provides another method of determining such
controversy, dispute, question or issue and provides that a determination
pursuant to such method is final and binding, unless both Seller and Buyer agree
in writing to waive such procedure and to proceed instead pursuant to this
Section.

                    (B) Any request or application to any state or federal court
having jurisdiction thereof for an order or decree granting any provisional or
ancillary remedy (such as a temporary restraining order or injunction) in aid of
or with respect to any right or obligation of either party to this Agreement,
and any preliminary determination of the underlying controversy, dispute,
question or issue as is required to determine whether or not to grant the relief
requested or applied for. A final and binding determination of such underlying
controversy, dispute, question or issue shall be made by an arbitration
conducted pursuant to this Section after an appropriate transfer or reference to
JAMS upon motion or application of either party hereto. Any ancillary or
provisional relief which is granted pursuant to this clause (ii) shall continue
in effect pending an arbitration determination and entry of judgment thereon
pursuant to this Section.

                    (C) Exercise of any remedies to enforce any judgment entered
based upon a determination made by arbitration pursuant to this Section.

                (iii) Any arbitration pursuant to this Section shall be
conducted in accordance with the streamlined Arbitration Rules and Procedures of
JAMS (the "Rules"), regardless of the amount in dispute, except that, whether or
not such Rules so provide:

                    (A) There shall be a pre-hearing conference prior to the
arbitration hearing to reach agreement on procedural matters, arrange for the
exchange of information, obtain stipulations and attempt to narrow the issues to
be arbitrated.

                    (B) There shall be no mediation or settlement conferences
unless all parties agree thereto in writing.

                    (C) Discovery shall be limited to that permitted by the
Rules, and "good cause" where a condition to discovery shall be strictly
construed.

                    (D) All motions shall be in letter form and hearings thereon
shall be by conference telephone calls unless the arbitrator orders otherwise.

                    (E) Hearings shall require only twenty (20) days prior
written notice.

                                       35


                    (F) All notices in connection with any arbitration may be
served in any manner permitted by Section 12.3 of this Agreement.

                    (G) Fees and costs paid or payable to JAMS shall be included
in "expenses" for purposes of Section 12.2. The arbitrator shall specifically
have the power to award to the prevailing party such party's reasonable expenses
incurred in such proceeding, except as otherwise provided in subsection (d)
below. Reasonable expenses shall include attorneys' fees and fees and costs paid
or payable to JAMS.

                    (H) The selection of the arbitrator shall be in accordance
with the then existing Rules of JAMS, provided that Seller and Buyer may agree
to extend the period of time by which an arbitrator must be selected by them. In
the event that the parties are unable to agree upon an arbitrator within thirty
(30) days after submission of a matter to arbitration, the arbitrator shall be
appointed by the administrator of the Orange County office of JAMS or its
successor, if any, as provided in the Rules.

                    (I) The arbitration award shall include findings of fact and
conclusions of law and shall not be limited as to amount.

                (iv) As soon as practicable after selection of the arbitrator,
the arbitrator or his or her designated representative shall determine a
reasonable estimate of anticipated fees and costs of the arbitrator and shall
deliver a statement to each party setting forth that party's pro rata share of
such fees and costs. Each party shall deposit its pro rata share of such fees
and costs with the arbitrator within ten (10) days after receipt of such
statement. If either party fails to make a required deposit hereunder, the other
party may make such deposit on behalf of the defaulting party and the amount of
such deposit, plus interest thereon at ten percent (10%) per annum, shall be
awarded against the defaulting party by the arbitrator in making any final
arbitration award without regard to whether the defaulting party is the
prevailing party in the arbitration pursuant to this Section.

                (v) The arbitrator shall have no authority or power to award any
party any exemplary or punitive damages.

                                       36


Section 29.19 Property Disclosures. As required by California law, Seller has
delivered to Buyer a natural hazards disclosure report with respect to the Sale
Land.

Section 29.20 Escrow Holder Not to Be Concerned. Sections 5.4, 8.1, 8.2, 8.3,
10, 12.19, 12.21 and 12.23 are agreements solely between Seller and Buyer, and
Escrow Holder need not be concerned therewith.

Section 29.21 Possession. As to any portion of the Property of which Buyer does
not currently hold possession, Buyer shall be entitled to possession of the
Property from and after the Closing Date.

Section 29.22 Calculation of Days. Whenever, as to any action to be taken within
a specified number of days, the last day of the specified period is a Saturday,
Sunday or recognized legal holiday, such specified period shall be deemed to
expire on the first succeeding day which is not a Saturday, Sunday or recognized
legal holiday.

Section 29.23 Covenant as to Trip Ends. Tenant covenants that, with respect to
Tenant's use of the Property, Tenant shall not, at any time, utilize or attempt
to utilize any additional trips allocated to the balance of the Home Ranch
except by transfer from the owner of those trips.


                                       37


            IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the date first above written.

"BUYER":                               "SELLER":

EMULEX CORPORATION, a California       C.J. SEGERSTROM & SONS, a California
corporation                            general partnership


By                                     By    Henry T. Segerstrom Management LLC,
   -----------------------------             a California limited liability
Title:                                       company, Manager
      --------------------------
                                             By
                                                --------------------------------
By                                                                       Manager
   -----------------------------
Title:                                 By    HTS MANAGEMENT CO., INC.,
      --------------------------             a California corporation, Manager

"ESCROW HOLDER":

The undersigned acknowledges                 By
receipt of this Agreement and                   --------------------------------
agrees to act in accordance with             Title:
all applicable provisions contained                -----------------------------
herein.
                                             By
CHICAGO TITLE COMPANY, a California             --------------------------------
corporation                                  Title:
                                                   -----------------------------

By
   ---------------------------------
Title:
       -----------------------------
Dated:                      , 200
       ---------------------      --



                                       38



                            LEGAL DESCRIPTION OF LAND


ALL THAT CERTAIN LAND SITUATED IN THE STATE OF CALIFORNIA, COUNTY OF ORANGE,
CITY OF COSTA MESA, DESCRIBED AS FOLLOWS:

PARCEL 3 OF PARCEL MAP 94-120, IN THE CITY OF COSTA MESA, COUNTY OF ORANGE,
STATE OF CALIFORNIA, AS PER MAP FILED IN BOOK 284, PAGES 7 TO 10, INCLUSIVE, OF
PARCEL MAPS, IN THE OFFICE OF THE COUNTY RECORDER OF SAID COUNTY.


                                    Exhibit A





                                DEPICTION OF LAND

                                [TO BE SUPPLIED]




                                   Exhibit A-1





                            GENERAL ESCROW PROVISIONS

(a)     All funds received in this Escrow shall be deposited in a separate
        escrow fund account or accounts of CHICAGO TITLE COMPANY (for the
        benefit of the parties hereto) with a State or National Bank qualified
        to do business in the State of California, such that each account shall
        be fully insured at all times by the Federal Deposit Insurance
        Corporation, to the maximum extent permitted by law. All disbursements
        shall be made by check of CHICAGO TITLE COMPANY, or by wire transfer
        from CHICAGO TITLE COMPANY, as selected by the payee.

(b)     You are authorized to prepare, obtain, record and deliver the necessary
        instruments to carry out the terms and conditions of this Escrow and to
        order to be issued at Close of Escrow the policy of title insurance as
        called for in these instructions. Close of Escrow shall mean the date
        instruments are recorded.

(c)     All adjustments and prorations shall be made on the basis of a 30-day
        month.

(d)     You are not to be held accountable or liable for the sufficiency or
        correctness as to form, manner of execution, or validity of any
        instrument deposited in this Escrow, nor as to the identity, authority
        or rights of any person executing the same. Your duties hereunder shall
        be limited to the proper handling of such money and the proper
        safekeeping of such instruments, or other documents received by you as
        Escrow Holder, and for the disposition of same in accordance with the
        written instructions accepted by you in this Escrow.

(e)     You shall have no responsibility of notifying any of the parties to this
        Escrow of any sale, resale, loan, exchange or other transaction
        involving any property herein described or of any profit realized by any
        person, firm or corporation in connection therewith, regardless of the
        fact that such transaction(s) may be handled by you in this Escrow or in
        another escrow.

(f)     No notice, demand or change of instruction shall be of any effect in
        this Escrow unless given in writing by all parties affected thereby and
        except as otherwise specifically provided in the Agreement to which
        these General Provisions are attached. In the event a demand for the
        funds on deposit in this Escrow is made, not concurred in by all parties
        hereto, the Escrow Holder, regardless of who made demand therefor, may,
        except as expressly provided to the contrary in the Agreement, elect to
        do any of the following:

        (i)    After three (3) business days from the date Escrow Holder was
               first notified that the Escrow is to be canceled and/or demand
               for funds was made, absent mutually concurring instructions
               providing for payment of funds and the disposition to be made of
               this Escrow, the Escrow Holder may return all funds and documents
               to the parties depositing same, and without liability therefor.

                        Exhibit B to Purchase Agreement




        (ii)   Withhold and stop all further proceedings in, and performance of,
               this Escrow pending a resolution of any conflict by and between
               the parties hereto.

        (iii)  File a suit in interpleader and obtain an order from the court
               allowing Escrow Holder to deposit all funds and documents in
               court and have no further liability hereunder, except for its own
               negligent or willful misconduct or any breach by Escrow Holder of
               any obligations in this Agreement.

(g)     If the conditions of this Escrow have not been complied with at the time
        herein provided, you are nevertheless to complete the same as soon as
        the conditions (except as to time) have been complied with, unless Buyer
        has made written demand upon you for the return of money and instruments
        deposited by Buyer.

(h)     All parties hereto agree, jointly and severally, to pay on demand, as
        well as to indemnify and hold you harmless from and against all costs,
        damages, judgments, attorneys' fees, expenses, obligations and
        liabilities of any kind or nature which, in good faith, you may incur or
        sustain in connection with this Escrow, whether arising before or
        subsequent to the close of this Escrow, except to the extent caused by
        the negligence or willful misconduct of the Escrow Holder.

(i)     Unless the Agreement otherwise provides or unless otherwise instructed
        by either Buyer or Seller, you are authorized to furnish copies of these
        instructions, any supplements or amendments thereto, notices of
        cancellation and closing statements to the attorneys named in this
        Escrow.

(j)     These instructions may be executed in counterparts, each of which when
        so executed shall, irrespective of the date of its execution and
        delivery, be deemed an original, and said counterparts together shall
        constitute one and the same instrument.

(k)     These instructions shall become effective as an Escrow only upon the
        delivery thereof to the Escrow Holder signed by all parties thereto.

(l)     Any funds abandoned or remaining unclaimed, after good faith efforts
        have been made by the Escrow Holder to return same to the party(ies)
        entitled thereto, shall be assessed a holding fee of $50.00 annually.
        After seven (7) years the amount thereafter remaining unclaimed may
        escheat to the State of California.

(m)     All documents, closing statements, and balances due the parties to this
        Escrow are to be mailed by ordinary mail to said parties at the
        addresses shown opposite their signatures, unless otherwise instructed.

(n)     Notwithstanding the foregoing, if Escrow Holder is also acting as Title
        Company under this Agreement, nothing set forth in these General Escrow
        Provisions shall limit any liability set forth in the Title Policy
        provided for in the Agreement.

                        Exhibit B to Purchase Agreement

                                     Page 2



(o)     For purposes of complying with Internal Revenue Code Section 6045(e), as
        amended effective January 1, 1991, Escrow Holder is hereby designated as
        the "person responsible for closing the transaction" and also as the
        "reporting person," for purposes of filing any information returns with
        the Internal Revenue Service concerning this transaction, as required by
        law.

                        Exhibit B to Purchase Agreement

                                     Page 3



RECORDING REQUESTED BY:

Chicago Title Company

WHEN RECORDED MAIL TO:

- ---------------------------------
- ---------------------------------
- ---------------------------------
- ---------------------------------
Attn:
      ---------------------------

MAIL TAX STATEMENTS TO ADDRESS ABOVE.

- --------------------------------------------------------------------------------
                                                (Space Above for Recorder's Use)


                                   GRANT DEED

            FOR VALUE RECEIVED, C.J. SEGERSTROM & SONS, a California general
partnership ("Grantor"), hereby GRANTS to EMULEX CORPORATION, a California
corporation ("Grantee"), that certain real property and all improvements located
thereon, situated in the City of Costa Mesa, Orange County, California, and
described on Schedule "1" attached hereto and by this reference incorporated
herein (the "Property").

            EXCEPTING AND RESERVING UNTO Grantor, its successors and assigns,
together with the right to grant and transfer all or a portion of the same, any
and all underground water, water rights, oil, oil rights, minerals, mineral
rights, natural gas, natural gas rights and other hydrocarbons by whatsoever
name known and all rights therein, geothermal steam, and all products derived
from any of the foregoing, that may be within or under the Property, together
with the perpetual right of drilling, pumping, mining, extracting, exploring and
operating therefor and storing in and removing the same from the Property or any
other property, including the right to whipstock or directionally drill, pump
and mine from property other than the Property, water, oil or gas wells, tunnels
and shafts into, through or across the subsurface of the Property, and to bottom
such whipstocked or directionally drilled wells, tunnels and shafts under and
beneath or beyond the exterior limits thereof, and to redrill, retunnel, equip,
maintain, repair, deepen and operate any such wells, tunnels or shafts;
provided, however, that in no event shall Grantor or its successors or assigns
have the right to drill, pump, mine or excavate through the surface or the upper
200 feet of the subsurface of the Property. Provided, however, that Grantor
shall have no right to enter upon the surface of the Property, to deprive the
Property of structural support or otherwise interfere in any way with Grantee's
development, construction or operation of the Property for Grantee's intended
use thereof.

            SUBJECT TO:

            (a) All real property taxes and assessments, whether general or
special and a lien not delinquent, against the Property.

                        Exhibit C to Purchase Agreement





            (b) All other liens, encumbrances, easements, rights of way,
covenants, conditions, restrictions, reservations, rights, dedications and
offers of dedication of record or apparent.

            IN WITNESS WHEREOF, Grantor has executed this Grant Deed as of
- -------------------, -----.

                                   C.J. SEGERSTROM & SONS, a California
                                   general partnership

                                   By    Henry T. Segerstrom Management LLC,
                                         a California limited liability company,
                                         Manager

                                         By
                                            ------------------------------------
                                                                         Manager

                                   By    HTS MANAGEMENT CO., INC.,
                                         a California corporation, Manager

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

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


                        Exhibit C to Purchase Agreement

                                     Page 2


STATE OF CALIFORNIA   )
                      )   ss.
COUNTY OF ORANGE      )


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

            WITNESS my hand and official seal


- ---------------------------------------
SIGNATURE OF NOTARY PUBLIC




STATE OF CALIFORNIA   )
                      )   ss.
COUNTY OF ORANGE      )


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

            WITNESS my hand and official seal



- ---------------------------------------
SIGNATURE OF NOTARY PUBLIC


                        Exhibit C to Purchase Agreement




                                  SCHEDULE "1"
                        LEGAL DESCRIPTION OF THE PROPERTY

ALL THAT CERTAIN LAND SITUATED IN THE STATE OF CALIFORNIA, COUNTY OF ORANGE,
CITY OF COSTA MESA, DESCRIBED AS FOLLOWS:




                        Exhibit C to Purchase Agreement




                              SEPARATE STATEMENT OF
                            DOCUMENTARY TRANSFER TAX



County Recorder
Orange County

Dear Sir:

            In accordance with California Revenue and Taxation Code Section
11932, it is requested that this Statement of Documentary Transfer Tax due not
be recorded with the attached deed, but be affixed to the deed after recordation
and before return as directed on the deed.

            The deed names C.J. SEGERSTROM & SONS, a California general
partnership, as Grantor, and EMULEX CORPORATION, a California corporation, as
Grantee. The land and improvements being transferred are located in the City of
Costa Mesa, County of Orange, State of California.

            The amount of the documentary transfer tax due on the attached deed
is ____________________________________________________ Dollars and
____________/100 ($_______________), computed on the full value of the land and
improvements.

                                   C.J. SEGERSTROM & SONS, a California
                                   general partnership

                                   By    Henry T. Segerstrom Management LLC,
                                         a California limited liability company,
                                         Manager

                                         By
                                            ------------------------------------
                                                                         Manager

                                   By    HTS MANAGEMENT CO., INC.,
                                         a California corporation, Manager


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

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


                        Exhibit C to Purchase Agreement





                                FIRPTA AFFIDAVIT

            Section 1445 of the Internal Revenue Code provides that a transferee
of a United States real property interest must withhold tax if the transferor is
a foreign person. To inform the transferee that withholding of tax is not
required upon the disposition of a United States real property interest by C.J.
SEGERSTROM & SONS, a California general partnership ("Seller"), the undersigned
hereby certify the following on behalf of Seller:

            Seller is not a foreign corporation, foreign partnership, foreign
trust, or foreign estate (as those terms are defined in the Internal Revenue
Code and Income Tax Regulations);

            Seller's U.S. employer tax identification number is 95-1877493; and

            Seller's office address is 3315 Fairview Road, Costa Mesa, CA 92626.

            Seller understands that this certification may be disclosed to the
Internal Revenue Service by transferee and that any false statement contained
herein could be punished by fine, imprisonment, or both.

            The undersigned Managers of Seller declare that he/she/they has/have
examined this certification and to the best of her/his/their knowledge and
belief it is true, correct and complete, and he/she/they further declare that
he/she/they has/have authority to sign this document on behalf of Seller.

Dated:  _______________, ________

HENRY T. SEGERSTROM MANAGEMENT LLC, a          HTS MANAGEMENT CO., INC.,
California limited liability company,          a California corporation, Manager
Manager

By                                             By
   ----------------------------------             ------------------------------
                              Manager
                                               Title:
                                                      --------------------------

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


                                   Exhibit D





                 ASSIGNMENT AND ASSUMPTION OF PERSONAL PROPERTY

            THIS ASSIGNMENT AND ASSUMPTION OF PERSONAL PROPERTY (the
"Assignment") is made and entered into as of the _____ day of ______________,
20__ by and between C.J. SEGERSTROM & SONS, a California general partnership
("Assignor"), and EMULEX CORPORATION, a California corporation ("Assignee"),
with respect to the following:


                                    RECITALS

            A. Assignor is the "Seller" and Assignee is the "Buyer" pursuant to
a certain Purchase and Sale Agreement and Joint Escrow Instructions dated
______________ __, 20___ (the "Agreement"). Pursuant to the Agreement, Assignor
is selling and Assignee is purchasing certain real property and improvements
described on Schedule 1 attached hereto (the "Property").

            B. In connection with the sale of the Property, Seller is required
to assign to Buyer all Warranties, as defined in the Agreement, agreements,
utility contracts, approvals (governmental or otherwise), plans and
specifications, entitlements and other rights relating to the construction,
ownership, use and operation of the Property (collectively, the "Personal
Property"). The Personal Property is listed on Schedule 2 attached hereto. This
Assignment is executed to satisfy such obligation.


                                    AGREEMENT

            IN CONSIDERATION OF the foregoing recitals and the mutual covenants
contained herein, Assignor and Assignee agree as follows:

            1. Assignment. Assignor hereby assigns and transfers to Assignee all
of Assignor's right, title and interest in and under the Personal Property.

            2. Assumption. Assignee hereby accepts the foregoing assignment and
assumes and agrees to be bound by all obligations of Assignor under the Personal
Property accruing from and after the Effective Date, as defined below, of this
Assignment. Such assumption relates only to the Personal Property as listed on
Schedule 2, and does not extend to other items which would be within the
definition of Personal Property but for not being included on Schedule 2.

            3. Effective Date. The Effective Date of this Assignment shall be
the date upon which there is recorded in the Office of the County Recorder of
Orange County, California a deed to the Property executed by Seller in favor of
Buyer.

            4. Indemnity. Assignor shall indemnify, defend and hold harmless
Assignee from and against all claims, losses, costs, liabilities and expenses
(including, without limitation, reasonable attorneys' fees and costs) arising
out of the failure or alleged failure of Assignor to perform any of the
obligations of the Assignor pursuant to the Personal Property and accruing

                        Exhibit E to Purchase Agreement




prior to the Effective Date. Assignee shall indemnify, defend and hold harmless
Assignor from and against any and all claims, losses, costs, liabilities and
expenses (including, without limitation, reasonable attorneys' fees and costs)
arising out of the failure or alleged failure of Assignee to perform any of the
obligations of the Assignor pursuant to the Personal Property and accruing on or
after the Effective Date. The foregoing indemnification provisions shall each
contain a covenant by the indemnifying party to defend the indemnified party
against all claims for which indemnification is available hereunder with legal
counsel appointed by the liability insurance carrier for the indemnifying party.
Payment shall not be a condition precedent to recovery upon the foregoing
indemnification provisions.

            5. Successors and Assigns. All of the terms, covenants and
conditions set forth herein shall be binding upon and inure to the benefit of
Assignor and Assignee and their respective successors and assigns.

            6. Warranties. Assignor represents and warrants to Assignee that
each item included in the Personal Property either (a) is fully assignable to
Assignee with no consent required from any third party, (b) has appended thereto
the unqualified consent of any third party from whom a consent to the within
assignment is required or (c) was issued or created in the name of Assignee as a
party, co-party or third party beneficiary thereof.

            7. No Implied Representations. There are no representations and
warranties in connection with this Assignment other than as expressly set forth
in the Agreement and this Assignment. Except for such express representations
and the indemnification set forth in paragraph 4, Assignee shall have no claims
against Assignor pursuant to the provisions of the Personal Property.

                        Exhibit E to Purchase Agreement

                                     Page 2



            IN WITNESS WHEREOF, Assignor and Assignee have executed and
delivered this Agreement and Assumption of Personal Property to be effective as
provided in paragraph 3 above.

C.J. SEGERSTROM & SONS, a California            EMULEX CORPORATION, a California
general partnership                             corporation

By    Henry T. Segerstrom Management LLC,       By
      a California limited liability                ----------------------------
      company, Manager                          Title:
                                                       -------------------------
      By
         ------------------------------
                                Manager
                                                By
                                                   -----------------------------
By    HTS MANAGEMENT CO., INC.,                 Title:
      a California corporation, Manager                -------------------------
                                                            "Assignee"

      By
         ------------------------------
      Title:
             --------------------------
                    "Assignor"



                        Exhibit E to Purchase Agreement


                                     Page 3



RECORDING REQUESTED BY
AND WHEN RECORDED MAIL TO:


John F. Simonis, Esq.
Paul Hastings Janofsky & Walker, LLP
695 Town Center Drive, 17th Floor
Costa Mesa, CA 92626

- --------------------------------------------------------------------------------
                                 (Space above this line for Recorder's use only)


                        PARTIAL ASSIGNMENT AND ASSUMPTION
                            OF DEVELOPMENT AGREEMENT
                                  (HOME RANCH)

            This PARTIAL ASSIGNMENT AND ASSUMPTION OF DEVELOPMENT AGREEMENT
(this "Assignment") is dated as of this day of __________, 200__, by and between
C.J. Segerstrom & Sons, a California general partnership ("CJS"), Segerstrom
Properties LLC, a California limited liability company, and Henry T. Segerstrom
Properties LLC, a California limited liability company (collectively,
"Assignor"), Emulex Corporation, a California corporation ("Assignee"), and the
City of Costa Mesa, a general law city ("City").

                                    RECITALS

            A. Assignor is the owner of land located in the City of Costa Mesa,
County of Orange, California, consisting of approximately 93.34 acres, which is
commonly known as the "Home Ranch" and is more particularly described on Exhibit
A attached hereto and incorporated herein by this reference (the "Home Ranch").

            B. Assignor and City are parties to that certain Development
Agreement for the Home Ranch dated December 3, 2001 (the "Development
Agreement"), and having a term of 15 years commencing on January 3, 2002, which
contains certain rights, duties and obligations relating to the development of
Home Ranch with retail, office, and industrial uses.

            C. CJS, as "Seller," and Assignee, as "Buyer," have entered into a
certain Purchase and Sale Agreement and Escrow Instructions (the "Purchase
Agreement"), dated as of _______________, pursuant to which Assignor is selling
to Assignee certain real property within the Home Ranch, which real property is
described on Exhibit B attached hereto and incorporated herein by this reference
(the "Sale Property"). The portions of Home Ranch other than the Sale Property
are sometimes collectively referred to herein as the "Other Property."

            D. Pursuant to the terms of the Purchase Agreement, Assignor is
obligated to assign and convey to Assignee certain of its rights and interests
under the Development Agreement, as the Development Agreement relates to the
Sale Property. In addition, Assignor and Assignee have agreed that Assignor
shall delegate to Assignee certain of the obligations of Assignor under the
Development Agreement relating to the Sale Property, and that those


                         Exhibit F to Purchase Agreement



obligations not delegated to and assumed by Assignee pursuant to this Assignment
shall remain the obligations of Assignor, as set forth herein.

            E. The purpose of this Assignment is to set forth the terms and
provisions agreed upon between Assignor and Assignee with respect to the
assignment of certain rights and interests and the delegation of certain
obligations of Assignor under the Development Agreement, as the Development
Agreement relates to the Sale Property.

            NOW, THEREFORE, in consideration of the mutual covenants and
agreements set forth herein, and for good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereby
agree as follows:

            1. Partial Assignment. Assignor hereby assigns, conveys and
transfers to Assignee all of Assignor's rights and interests under the
Development Agreement to the extent such rights and interests relate to,
benefit, or are reasonably necessary for the ownership, development or use of,
the Sale Property, including, without limitation, all Development Approvals (as
defined in the Development Agreement) and other vested entitlement and
development rights with respect to the Sale Property including any fees prepaid
pursuant to Exhibit F to the Development Agreement.

            2. Delegation and Assumption of Obligations.

                2.1 Assignor hereby delegates to Assignee and Assignee hereby
assumes those obligations of Assignor under the Development Agreement which
relate specifically to improvements and dedications within the boundaries of the
Sale Property, including those obligations relating to onsite development and
the payment of any permit or occupancy fees which have not been prepaid by
Assignor (but excluding any obligation to prepay fees for any property other
than the Sale Property) and the indemnity obligations arising under the
Development Agreement with respect to any future development on the Sale
Property.

                2.2 The parties acknowledge that the obligations referenced in
Section 2.1 (the "Assumed Obligations") are the only "Owner" obligations under
the Development Agreement being assumed by Assignee hereunder and that Assignee
is not assuming and Assignor shall remain fully responsible for all obligations
of the "Owner" under the Development Agreement with respect to the Other
Property and for any exactions or improvements required under the terms of the
Development Agreement outside the boundaries of the Sale Property (collectively,
the "Retained Obligations").

            3. Density/Trip Allocations. The parties acknowledge and agree that
pursuant to Section 1.1(o) of the Development Agreement, the Sale Property has
been allocated a maximum density of 0.4 FAR. Assignor hereby irrevocably
allocates and assigns to Assignee 376 a.m. and 362 p.m. peak trips from the
overall trip budget for the Home Ranch, which trips shall hereafter be the
property of Assignee and may not be used by Assignor for the development of any
of the Other Property.

            4. Pre-Paid Fees and Costs. Assignor, Assignee and City all
acknowledge and agree that [list any pre-paid fees and costs such as Traffic
Impact Fees under first paragraph

                         Exhibit F to Purchase Agreement

                                     Page 2



and intersection improvement costs pursuant to second paragraph of Section A of
Exhibit F of Development Agreement] applicable to the Sale Property have been
paid in full.

            5. No Cross-Defaults. City and Assignor agree that any default by
Assignor with respect to the Retained Obligations shall not be considered a
default by Assignee as to the Sale Property and shall not impact Assignee's
development rights with respect to the Sale Property under the Development
Agreement.

            6. Estoppel. In accordance with Section 3.16 of the Development
Agreement, Assignor and City each certify to Assignee that: (i) the Development
Agreement is in full force and effect and a binding obligation of the parties
thereto; (ii) the Development Agreement has not been amended or modified except
as set forth on Exhibit C attached hereto; and (iii) to the best knowledge of
such party, the other parties to the Development Agreement are not in default of
their respective obligations under the Development Agreement except as set forth
on Exhibit D attached hereto.

            7. Amendment to Development Agreement. Assignor and Assignee agree
that any amendment to the Development Agreement requiring the approval of the
"Owner" that affects the Sale Property shall require the approval in writing of
both Assignor and Assignee. Assignor shall have the right to amend the
Development Agreement without the approval of Assignee if the amendment does not
affect the Sale Property or otherwise modify the Development Agreement in a
manner that affects Assignee's rights, obligations or liabilities thereunder.
Hereafter, Assignor shall have no rights as they relate to modification of the
Development Agreement solely with respect to the Sale Property.

            8. Contingency. The parties hereby agree that the effectiveness of
this Assignment is contingent upon the completion of the sale of the Sale
Property to Assignee pursuant to the provisions of the Purchase Agreement, which
completion shall be evidenced by the recordation of a grant deed conveying the
Sale Property to Assignee. If such grant deed is not recorded in the Official
Records on or before ___________________, then this Assignment shall be of no
force or effect whatsoever.

            9. Miscellaneous.

                9.1 Interpretation; Governing Law. This Assignment shall be
construed according to its fair meaning and as if prepared by all parties
hereto. This Assignment shall be construed in accordance with and governed by
the laws of the State of California. Any action hereunder shall be brought in a
court of competent jurisdiction located in Orange County, California.

                9.2 Hold Harmless. Assignor agrees to indemnify and hold
Assignee harmless from and against any and all losses, costs, liabilities,
damages and expenses, including, without limitation, reasonable attorneys' fees,
accruing prior to the date hereof and arising out of any default or alleged
default of Assignor, as "Owner" under the Development Agreement. Assignee agrees
to indemnify and hold Assignor harmless from and against any and all losses,
costs, liabilities, damages and expenses including, without limitation,
reasonable attorneys' fees, accruing on or after the date hereof and arising out
of any default or alleged default of Assignee

                         Exhibit F to Purchase Agreement

                                     Page 3


in connection with the Assumed Obligations. The covenants in this Section 9.2
shall run with the land and shall be binding on, and inure to the benefit of,
the parties hereto, and to their respective successors and assigns who succeed
to title to the Home Ranch Project, as defined in the Development Agreement, or
a portion thereof.

                9.3 Attorneys' and Other Fees. In the event of any dispute
between the parties hereto or institution of any action or proceeding to
interpret or enforce the provisions of this Assignment, or arising out of the
subject matter of this Assignment or the transaction contemplated hereby, the
prevailing party shall be entitled to recover its reasonable expenses,
attorneys' fees and costs, including professional or expert consultation or
testimony fees, both at trial and on any appeal and in any administrative
proceeding.

                9.4 Authority. Each of the parties hereto represents and
warrants to the others that the person or persons executing this Assignment on
behalf of such party is or are authorized to execute and deliver this Assignment
and that this Assignment shall be binding upon such party.

                9.5 Further Assurances. Assignor and Assignee each agree to do
such further acts and things and to execute and deliver such additional
agreements and instruments as the other may reasonably request to consummate,
evidence, confirm or more fully implement the agreements of the parties as
contained herein.

                9.6 Execution in Counterparts. This Assignment may be executed
in several counterparts, and all so executed shall constitute one agreement
between the parties hereto, notwithstanding that all parties are not signatories
to the original or the same counterpart.

            [BALANCE OF THIS PAGE LEFT BLANK; SIGNATURE PAGES FOLLOW]


                         Exhibit F to Purchase Agreement


                                     Page 4


            IN WITNESS WHEREOF, the parties have executed this Partial
Assignment and Assumption of Development Agreement (Home Ranch) to be effective
as of the date of the satisfaction of the contingency set forth in Section 8
above.



                                                       
C.J. SEGERSTROM & SONS,                                   EMULEX CORPORATION,
a California general partnership                          a California corporation

By    Henry T. Segerstrom Management LLC, a
      California limited liability
      company, Manager                                    By
                                                             -----------------------------------
      By                                                  Title:
         ----------------------------------                      -------------------------------
                                    Manager

By    HTS MANAGEMENT CO., INC.,                           By
      a California corporation, Manager                      -----------------------------------
                                                          Title:
      By                                                         -------------------------------
         ----------------------------------                        "Assignee"
      Title:
            -------------------------------

SEGERSTROM PROPERTIES LLC,                                CITY OF COSTA MESA
a California limited liability company

By    Henry T. Segerstrom Properties LLC, a               By:
      California limited liability company,                   ----------------------------------
      Manager                                                 Mayor Of The City Of Costa Mesa
                                                                            "City"
      By    Henry T. Segerstrom Management
            LLC, A California limited liability           ATTEST:
            company, Manager
                                                          --------------------------------------
            By                                            City Clerk, City Of Costa Mesa
               --------------------------------
                                        Manager
                                                          APPROVED AS TO FORM:
By    Ruth Ann Moriarty Properties LLC, a
      a California limited liability company,
      Manager                                             -------------------------------------
                                                          City Attorney, City Of Costa Mesa
      By
         --------------------------------------
                                        Manager

HENRY T. SEGERSTROM PROPERTIES LLC, a California
limited liability company

By    Henry T. Segerstrom Management LLC, a
      California limited liability company, Manager

      By
         --------------------------------------
                                        Manager
                      "Assignor"



                         Exhibit F to Purchase Agreement

                                     Page 5

                                   EXHIBIT "A"

                  LEGAL DESCRIPTION OF THE HOME RANCH PROPERTY

PARCEL A

Parcels 1 and 3, as shown on Parcel Map 94-120 in the City of Costa Mesa, County
of Orange, filed in Book 284, Pages 7 through 10 of Parcel Maps, in the office
of the County Recorder of said County.

PARCEL B

Parcel 1, as shown on Parcel Map 84-379 in the City of Costa Mesa, County of
Orange, filed in Book 194, Pages 13 and 14 of Parcel Maps, in the office of the
County Recorder of said County.

PARCEL C

PARCEL 1

That certain parcel of land situated in the City of Costa Mesa, County of
Orange, State of California, being Parcels 3 and 4 of Parcel Map No. 79-381 as
shown on a map thereof filed in Book 139, Pages 21 through 24 of Parcel Maps, in
the Office of the County Recorder of said Orange County, together with that
portion of Parcel 2 of said Parcel Map No. 79-381 lying westerly of the
following described line:

COMMENCING at the northwest corner of said Parcel 4; thence along the northerly
line of said parcel map North 89 degrees 25'40" East 1370.17 feet to the
beginning of a tangent curve, concave northerly and having a radius of 1384.00
feet; thence along said curve and northerly line easterly 89.79 feet through a
central angle of 03 degrees 43'02" to a point on a non-tangent curve concave
westerly and having a radius of 1135.50 feet; a radial line of said curve from
said point bears North 88 degrees 08'36" West, said point also being the TRUE
POINT OF BEGINNING; thence leaving said northerly line along said curve
southerly 87.13 feet through a central angle of 04 degrees 23'48"; thence
tangent from said curve South 06 degrees 15'12" West 119.68 feet to the
beginning of a tangent curve concave easterly and having a radius of 1161.09
feet; thence along said curve southerly 154.54 feet through a central angle of
07 degrees 37'33"; thence along a radial line of said curve North 88 degrees
37'39" East 7.83 feet; thence South 00 degrees 53'48" East 198.66 feet to the
beginning of a tangent curve concave northeasterly and having a radius of 513.45
feet; thence along said curve southerly 439.17 feet through a central angle of
49 degrees 00'24"; thence along a radial line of said curve North 40 degrees
05'48" East 12.79 feet to a point on a non-tangent curve concave northeasterly
and having a radius of 500.66 feet, said curve being concentric with said curve
hereinabove described as having a radius of 513.45 feet; thence along said
concentric curve southeasterly 117.49 feet through a central angle of 13 degrees
26'45" to the southerly line of said Parcel 2.


                         Exhibit F to Purchase Agreement
                                      A-1


               EXCEPTING THEREFROM that portion described as follows:

COMMENCING at the northwest corner of said Parcel 4; thence along the northerly
line of said parcel map North 89 degrees 25'40" East 1169.02 feet to the TRUE
POINT OF BEGINNING; thence continuing along said northerly line North 89 degrees
25'40" East 201.15 feet to the beginning of a tangent curve concave northerly
and having a radius of 1384.00 feet; thence along said curve and northerly line
easterly 89.79 feet through a central angle of 03 degrees 43'02" to a point on a
non-tangent curve concave westerly and having a radius of 1135.50 feet, a radial
line of said curve from said point bears North 88 degrees 08'36" West; thence
leaving said northerly line along said curve southerly 87.13 feet through a
central angle of 04 degrees 23'48"; thence tangent from said curve South 06
degrees 15'12" West 119.68 feet to the beginning of a tangent curve concave
easterly and having a radius of 1161.09 feet; thence along said curve southerly
125.26 feet through a central angle of 06 degrees 10'52"; thence non-tangent
from said curve South 88 degrees 33'29" West 249.74 feet; thence North 79
degrees 24'20" West 10.08 feet; thence North 00 degrees 53'48" West 329.52 feet
to the TRUE POINT OF BEGINNING;

ALSO EXCEPTING THEREFROM Parcels 101839-1 and 101839-2 as described in that
certain Grant Deed to the State of California, recorded October 27, 2000, as
Instrument No. 20000582392 of Official Records, in the Office of the County
Recorder of said Orange County.

And ALSO EXCEPTING THEREFROM Parcels 101837-1 and 101837-3 as described in that
certain Grant Deed to the State of California recorded October 27, 2000 as
Instrument No. 20000582393 of Official Records, in the Office of the County
Recorder of said Orange County.

CONTAINING: 17.246 Acres, more or less.

PARCEL 2

That certain parcel of land situated in the City of Costa Mesa, County of
Orange, State of California, being those portions of Parcels 2 and 3 of Parcel
Map No. 79-381 as shown on a map thereof filed in Book 139, Pages 21 through 24
of Parcel Maps, in the Office of the County Recorder of said Orange County
described as follows:

COMMENCING at the northwest corner of Parcel 4 of said Parcel Map No. 79-381;
thence along the northerly line, of said parcel map North 89 degrees 25'40" East
1169.02 feet to the TRUE POINT OF BEGINNING; thence continuing along said
northerly line North 89 degrees 25'40" East 201.15 feet to the beginning of a
tangent curve concave northerly and having a radius of 1384.00 feet; thence
along said curve and northerly line easterly 89.79 feet through a central angle
of 03 degrees 43'02" to a point on a non-tangent curve concave westerly and
having a radius of 1135.50 feet, a radial line of said curve from said point
bears North 88 degrees 08'36" West; thence leaving said northerly line along
said curve southerly 87.13 feet through a central angle of 04 degrees 23'48";
thence tangent from said curve South 06 degrees 15'12" West 119.68 feet to the
beginning of a tangent curve concave easterly and having a radius of 1161.09
feet; thence along said curve southerly 125.26 feet through a central angle of
06 degrees 10'52"; thence non-tangent from said curve South 88 degrees 33'29"
West 249.74 feet; thence North 79 degrees 24'20" West 10.08 feet; thence North
00 degrees 53'48" West 329.52 feet to the TRUE POINT OF BEGINNING;


                         Exhibit F to Purchase Agreement
                                      A-2


CONTAINING: 2.074 Acres, more or less.

PARCEL 3

That certain parcel of land situated in the City of Costa Mesa, County of
Orange, State of California, being that portion of Parcel 2 of Parcel Map No.
79-381 as shown on a map thereof filed in Book 139, Pages 21 through 24 of
Parcel Maps, in the Office of the County Recorder of said Orange County, lying
easterly of the following described line:

COMMENCING at the northwest corner of said Parcel 4; thence along the northerly
line of said parcel map North 89 degrees 25'40" East 1370.17 feet to the
beginning of a tangent curve, concave northerly and having a radius of 1384.00
feet; thence along said curve and northerly line easterly 89.79 feet through a
central angle of 03 degrees 43'02" to a point on a non-tangent curve concave
westerly and having a radius of 1135.50 feet, a radial line of said curve from
said point bears North 88 degrees 08'36" West, said point also being the TRUE
POINT OF BEGINNING; thence leaving said northerly line along said curve
southerly 87.13 feet through a central angle of 04 degrees 23'48"; thence
tangent from said curve South 06 degrees 15'12" West 119.68 feet to the
beginning of a tangent curve concave easterly and having a radius of 1161.09
feet; thence along said curve southerly 154.54 feet through a central angle of
07 degrees 37'33"; thence along a radial line of said curve North 88 degrees
37'39" East 7.83 feet; thence South 00 degrees 53'48" East 198.66 feet to the
beginning of a tangent curve concave northeasterly and having a radius of 513.45
feet; thence along said curve southerly 439.17 feet through a central angle of
49 degrees 00'24"; thence along a radial line of said curve North 40 degrees
05'48" East 12.79 feet to a point on a non-tangent curve concave northeasterly
and having a radius of 500.66 feet, said curve being concentric with said curve
hereinabove described as having a radius of 513.45 feet; thence along said
concentric curve southeasterly 117.49 feet through a central angle of 13 degrees
26'45" to the southerly line of said Parcel 2.

EXCEPTING THEREFROM Parcels 101837-1, 101837-2 and 101837-3 as described in that
certain Grant Deed to the State of California recorded October 27, 2000 as
Instrument No. 20000582393 of Official Records, in the Office of the County
Recorder of said Orange County.

CONTAINING: 31.214 Acres, more or less.

SUBJECT TO all Covenants, Rights, Rights-of-Way and Easements of Record.


                         Exhibit F to Purchase Agreement
                                      A-3


                                    EXHIBIT B

                                THE SALE PROPERTY



                         Exhibit F to Purchase Agreement
                                      B-1


                                    EXHIBIT C

                       EXCEPTIONS TO ESTOPPEL (SECTION 6)

                          [include only if applicable]



                                   EXHIBIT "F"


                              PERMITTED EXCEPTIONS

IN ADDITION TO THE EXCEPTIONS SHOWN BELOW, THIS POLICY OF TITLE INSURANCE TO BE
ISSUED UNDER THE TERMS OF THIS BINDER WILL CONTAIN THE APPLICABLE PRINTED
EXCEPTIONS AND EXCLUSIONS SHOWN ON THE ATTACHED LIST.

EXCEPTIONS.

1.      PROPERTY TAXES, INCLUDING ANY ASSESSMENTS COLLECTED WITH TAXES, TO BE
        LEVIED FOR THE FISCAL YEAR 2002-2003 THAT ARE A LIEN NOT YET DUE.

2.      THE LIEN OF SUPPLEMENTAL OR ESCAPED ASSESSMENTS OF PROPERTY TAXES, IF
        ANY, MADE PURSUANT TO THE PROVISIONS OF PART 0.5, CHAPTER 3.5 OR PART 2,
        CHAPTER 3, ARTICLES 3 AND 4 RESPECTIVELY (COMMENCING WITH SECTION 75) OF
        THE REVENUE AND TAXATION CODE OF THE STATE OF CALIFORNIA AS A RESULT OF
        THE TRANSFER OF TITLE TO THE VESTED NAMED IN SCHEDULE A, OR AS A RESULT
        OF CHANGES IN OWNERSHIP OR NEW CONSTRUCTION OCCURRING AFTER THE DATE OF
        POLICY.

3.


                                  EXHIBIT "G"


                    ALLOCATION OF DEVELOPMENT AGREEMENT ITEMS



                      Exhibit F*                            Tenant Bears**      Tenant Not Bear
                      ----------                            --------------      ---------------
                                                                       
A.     Traffic Impact Fees                                        X
       Improvements beyond General Plan                                                X
       Site Access Improvements                                                        X
       Susan Street Offramp                                                            X
       Future Unanticipated Right of Way Needs                   X***

B.     Cultural Resources                                                              X

C.     Contribution of Ed. Advancement                                                 X

D.     Contribution for High School                                                    X

E.     Contribution to Restoration                                                     X

F.     Residential Component                                                           X

G.     Fire Station                                                                    X
       Fire Suppression Fee                                       X
       Land                                                                            X
       Building Construction                                                           X

H.     Sales and Use Tax Guarantee                                                     X

- ----------
*       Exhibit "F" is Exhibit "F" to the Development Agreement.

**      Fees based on allocation methods used by the City of Costa Mesa.

***     If Tenant becomes fee owner of all or a portion of the Land. Relates
        only to right of way needs within the Land or portion thereof acquired
        by Tenant.


                                  EXHIBIT "H"


                              RULES AND REGULATIONS

        The Premises are located within and constitute a part of a planned
development developed by Landlord as a high-quality business center (the
"Center"). Consistent with such development, Landlord has adopted the following
Rules and Regulations to preserve the high quality of the development and
retains certain reasonable rights of approval to preserve the aesthetic
appearance, quality and value of the Center as a whole.

2.      To the extent that such maintenance and repair is not the responsibility
        of Landlord under the leases for the Center, each tenant shall take all
        actions necessary to preserve the external appearance of his premises in
        a neat, clean and orderly condition and to prevent his operations from
        interfering with the use by other Center occupants of their respective
        premises. By way of illustration but not limitation of the foregoing:

        (a)     Sidewalks, passages, paths, courts, and stairways exterior to
                any Premises shall not be obstructed or used other than for
                ingress and egress. All tenant property shall be located within
                a building or within an approved exterior structure.

        (b)     No trash shall be allowed to accumulate outside of a building,
                except in approved receptacles or screened enclosures.

        (c)     No awnings or other projections shall be attached to the outside
                walls of any building without approval of Landlord.

        (d)     No sign, advertisement or notice shall be exhibited, painted or
                affixed on any part of, or so as to be seen from the outside of,
                any premises without approval.

        (e)     Premises features which reflect or admit light and air shall not
                be covered or obstructed in any way.

        (f)     No tenant shall mark, paint, drill into, or in any way deface
                any exterior part of any building.

        (g)     No bicycles, motorbikes, mopeds, motor scooters, or motorcycles
                shall be stored outside of any building except in approved racks
                or other facilities.

        (h)     No tenant shall permit any unusual or objectionable odor to
                permeate from any building or permit any noises which disturb or
                interfere with occupants of neighboring buildings or those
                having business with them whether from machinery, musical
                instruments, radios, photographs or other sources. No tenant
                shall throw anything out of doors, windows or skylights.

        (i)     All machinery which generates noise and/or vibrations shall be
                placed in approved settings to avoid damage to premises and
                creation of noise and vibrations in areas outside of premises.

        (j)     All electric carts and other vehicles used on the Premises or in
                the Common Areas which are not designed for ordinary use on
                public streets and highways must be approved by Landlord. Such
                vehicles are subject to all rules pertaining to auto safety
                contained herein or pursuant to governmental regulation. All
                approvals required shall be by Landlord, must be in advance in
                writing and shall not be unreasonably withheld, delayed or
                conditioned.

3.      Unless done in compliance with law, no flammable, combustible,
        explosive, caustic or poisonous fluids, chemicals or other substances
        shall be discarded in Center trash receptacles or enclosures or dumped
        into Center sewer or drain systems. All operations which emit gases,
        dust, smoke, particulates and other noxious substances shall be hooded,
        ventilated or otherwise conducted to prevent the escape of such
        substances from the building. Washing, draining, spraying and other
        operations involving use of any liquid


                                  EXHIBIT "I"


        shall be conducted to prevent runoff outside of any building and oozing
        or seepage into other portions of the Center.

4.      Each tenant shall obtain at its own expense and keep in its premises in
        a reasonably accessible place at least one ABC-type fire extinguisher in
        working condition.

5.      Landlord reserves the right to prohibit or impose conditions upon the
        installation in any premises of heavy objects which might overload the
        premises floors.

6.      Landlord may prohibit on-site advertising by any tenant which, in
        Landlord's reasonable opinion, impairs the reputation of the Center, and
        upon written notice from Landlord any tenant shall discontinue such
        advertising.

7.      Employees of Landlord shall not perform any work outside of their
        regular duties except under special instructions from Landlord. Landlord
        will under no circumstances open any building for any tenant or its
        employees.

8.      Water and wash closets, plumbing fixtures, mirrors and partitions shall
        not be used for any purpose other than those for which constructed. No
        sweepings, rubbish, rags or other substances shall be thrown therein.
        All expenses of repair or replacement resulting from misuse shall be
        borne by the tenant who causes the same.

9.      To the extent not permitted by a tenant's lease, no boring or cutting or
        hanging of any objects or items from the roof shall be permitted, except
        with the prior written consent of Landlord, and then only as Landlord
        may direct. The location of exterior telephone boxes, call boxes and
        other equipment affixed to any premises shall be subject to Landlord's
        approval. Landlord will direct electricians as to where and how
        telephone or telegraph wires are to be introduced into any premises.

10.     No air conditioning unit or other similar apparatus shall be installed
        or used by any tenant without the prior written consent of Landlord and
        all installations shall be as directed by Landlord.

11.     In the event that any tenant shall change any lock or install any new
        lock on any exterior or interior door to or within his premises, such
        tenant shall immediately deliver a key to each such lock to Landlord.
        Landlord shall use such keys only for emergency entries and for such
        other purposes as are permitted by these Rules and Regulations and such
        tenant's lease.

12.     A copy of these Rules and Regulations shall be attached to and form a
        part of each tenant lease in the Center. Landlord is not responsible to
        any person for non-observance or violation of these Rules by any tenant
        or other person, provided, however, that Landlord shall enforce these
        Rules and Regulations in a uniform and non-discriminatory manner. Each
        tenant is responsible for any loss or damage occasioned by any violation
        of these Rules by such tenant or by any employee, agent, visitor or
        invitee of such tenant.

13.     No waiver of any Rule by Landlord shall be effective unless in a writing
        signed by Landlord. Landlord may amend these Rules from time to time
        when desirable in Landlord's judgment to preserve good order in the
        Center, for the convenience of tenants or visitors of the Center or to
        comply with any law or regulation now or hereafter in effect. Any
        amendment to these Rules shall be effective and binding upon each tenant
        upon delivery to such tenant of a copy thereof.

                                       2


RECORDING REQUESTED BY AND
WHEN RECORDED MAIL TO:


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

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

- ----------------------------------------
Attention:
           -----------------------------

- --------------------------------------------------------------------------------
                                 (Space Above This Line For Recorder's Use Only)


             SUBORDINATION, NON-DISTURBANCE AND ATTORNMENT AGREEMENT

        THIS SUBORDINATION, NON-DISTURBANCE AND ATTORNMENT AGREEMENT (this
"Agreement"), is made and entered into as of the ___ day of ___________, 200__,
by and among Emulex Corporation, a California corporation ("TENANT"), whose
address is ____________________________________________________________, C.J.
SEGERSTROM & SONS, a California general partnership ("BORROWER"), whose address
is ________________________________________________________________________, and
_______________________, a ____________________________ ("LENDER"), whose
address is _______________________________________________________________.


        A. Lender has agreed to make a mortgage loan (the "Loan") to Borrower
secured by a deed of trust (the "DEED OF TRUST") on Borrower's interest in the
real property legally described in Exhibit "A" attached hereto (the "PREMISES");
and

        B. Tenant is the present lessee under that certain lease, dated as of
_________________, 2002, made by and between Tenant, as Tenant, and Borrower, as
Landlord, demising a portion of the Premises and other property (said lease as
so amended being referred to as the "LEASE"); and

        C. Subject to the terms and conditions of this Agreement, Tenant has
agreed to subordinate its interest in the Lease to the lien of the Deed of Trust
so long as, among other things, Lender agrees not to disturb Tenant's possession
of the portion of the Premises covered by the Lease (the "DEMISED PREMISES").

        NOW, THEREFORE, the parties hereby agree as follows:

        1. Subordination. Subject to the terms and conditions hereinafter set
forth, the Lease, and the rights of Tenant in, to and under the Lease and the
Demised Premises, are hereby subjected and subordinated to the lien of the Deed
of Trust, and to any renewal, substitution, extension, modification or
replacement thereof; provided, however, that notwithstanding anything to the
contrary in this Agreement, any purchase, renewal, first refusal or first offer
rights or options (each such right or option, an "OPTION," and collectively, the
"OPTIONS") of Tenant under the Lease are not hereby subordinated to the lien of
the Deed of Trust.

        2. Tenant Not To Be Disturbed. So long as Tenant is not in default
(beyond any period given Tenant by the terms of the Lease to cure such default)
in the payment of rent or additional rent or performance of any of the terms,
covenants or conditions of the Lease on Tenant's part to be performed, (a)
Tenant's possession of the Demised Premises, and its rights and privileges under
the Lease shall not be diminished or interfered with by Lender, and (b) Lender
will not join Tenant as a party defendant in any action or proceeding
foreclosing the Deed of Trust unless such joinder is necessary to foreclose such
Deed of Trust and then only for such purpose and not for the purpose of
terminating the Lease. Lender represents and warrants that it has received and
reviewed a copy of the Lease.

        3. Tenant to Attorn To Lender. If the Premises shall be sold by reason
of foreclosure (whether judicial or non judicial) or other proceedings brought
to enforce the Deed of

                                  EXHIBIT "J"


        Trust, or the Premises shall be transferred by deed in lieu of
foreclosure, the Lease shall continue in full force and effect as a direct Lease
between the then owner of the Premises, who shall succeed to the rights and
duties of the Landlord, and Tenant for the balance of the term thereof. Tenant
shall attorn to Lender or any other such owner as its Landlord, said attornment
to be effective and self operative without the execution of further instruments;
provided, however, that Lender or any such other owner shall not be (a)
personally liable for any act or omission of Landlord or any prior landlord
which cannot be cured; (b) subject to any offsets or defenses which Tenant might
have against Landlord or any prior landlord except to the extent of Tenant's
right to offsets set forth in the Lease; (c) required or obligated to credit
Tenant with any rent or additional rent for any rental period beyond the then
current month which Tenant might have paid Landlord or any prior landlord; or
(d) liable for the return of any security deposit unless and only to the extent
such security deposit shall have been actually received by Lender. Tenant hereby
agrees that upon the occurrence of any default under the Loan or the documents
evidencing or securing the same, and in the event of a demand on Tenant by
Lender, or its successors and assigns, for the payment to Lender or its
successors and assigns of the rent due under the Lease, Tenant will pay said
rent to Lender and Borrower hereby consents to said payment and releases Tenant
from any and all liability, damages, or claims in connection with any such
payment or payments. Borrower agrees that receipt by Tenant of any such demand
shall be conclusive evidence of the right of Lender to the receipt of said
rental payments. Tenant shall be under no obligation to pay rent to Lender or
any such other owner until Tenant receives written notice from Lender or any
such other owner.

        4. Notice of Default. If Borrower is in material default of one or more
of its obligations under the Lease, Tenant agrees to give written notice thereof
to Lender and Lender shall have the right (but not the obligation) to cure such
default. Tenant agrees not to terminate the Lease (if Tenant has such right
under the circumstances) for a period of thirty (30) days after Lender's receipt
of such written notice.

        5. Notice of Discharge. Borrower shall give notice to Tenant of the
reconveyance or other release of the Deed of Trust within thirty (30) days after
the date the reconveyance or other release is recorded.

        6. Limitation. This Agreement shall not apply to any equipment,
inventory, merchandise, furniture, fixtures or other personal property owned or
leased by Tenant which is now or hereafter placed or installed on the Demised
Premises, and Tenant shall have the full right to remove said property at any
time during or at the expiration of the Lease term.

        7. Notices. Any and all notices required or permitted to be given shall
be in writing and shall be sent, either prepaid by registered or certified
United States mail, return receipt requested, or personal delivery, to the
parties at their addresses set forth above; and shall be deemed given upon the
receipt thereof by the party to whom sent. The addresses to which notices shall
be sent may be changed by any party by notice given pursuant to this paragraph.

        8. Successors And Assigns. This Agreement and each and every covenant,
agreement and other provision hereof shall be binding upon and shall inure to
the benefit of the parties hereto and their representatives, successors and
assigns.

        9. Miscellaneous. This Agreement may not be modified other than by an
agreement in writing, signed by the parties hereto or by their respective
successors in interest. Nothing in this Agreement shall in any way impair or
affect the lien created by the Deed of Trust or the other lien rights of Lender.

            [BALANCE OF THIS PAGE LEFT BLANK; SIGNATURE PAGE FOLLOWS]

                                       2


        10. Counterparts. This Agreement may be executed in counterparts which
together shall constitute but one and the same original.

        IN WITNESS WHEREOF, the parties hereto have each caused this
Subordination, Non-Disturbance and Attornment Agreement to be executed as of the
date first above written.

                                        "LENDER"

                                                                               ,
                                        ---------------------------------------
                                        a
                                          --------------------------------------

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

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

                                        Its:
                                             -----------------------------------


                                        "BORROWER"

                                        C.J. SEGERSTROM & SONS,
                                        a California partnership

                                        By Henry T. Segerstrom Management LLC, a
                                           California limited liability company,
                                           Manager


                                           By
                                              ----------------------------------
                                                                         Manager


                                        By HTS Management Co., Inc., a
                                           California corporation, Manager

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

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


                                        "TENANT"

                                        EMULEX CORPORATION,
                                        a California corporation


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

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

                                        Its:
                                             -----------------------------------

                                       3


                             LENDER'S ACKNOWLEDGMENT

STATE OF CALIFORNIA
COUNTY OF                            ss.

        On this ___ day of _____________, 20__, before me, a Notary Public in
and for the State of California, personally appeared personally known to me (or
proved on the basis of satisfactory evidence) to be the person(s) whose name(s)
is/are subscribed to the within instrument and acknowledged to me that
he/she/they executed the same in his/her/their authorized capacity(ies), and
that by his/her/their signature(s) on the instrument the person(s), or the
entity upon behalf of which the person(s) acted, executed the instrument.

WITNESS my hand and official seal.

Signature
          ------------------------------

My commission expires
                      ------------------


                            BORROWER'S ACKNOWLEDGMENT

STATE OF CALIFORNIA
COUNTY OF                            ss.

        On this ___ day of _____________, 20__, before me, a Notary Public in
and for the State of California, personally appeared personally known to me (or
proved on the basis of satisfactory evidence) to be the person(s) whose name(s)
is/are subscribed to the within instrument and acknowledged to me that
he/she/they executed the same in his/her/their authorized capacity(ies), and
that by his/her/their signature(s) on the instrument the person(s), or the
entity upon behalf of which the person(s) acted, executed the instrument.

WITNESS my hand and official seal.

Signature
          ------------------------------

My commission expires
                      ------------------


                             TENANT'S ACKNOWLEDGMENT

STATE OF CALIFORNIA
COUNTY OF                            ss.

        On this ___ day of _____________, 20__, before me, a Notary Public in
and for the State of California, personally appeared personally known to me (or
proved on the basis of satisfactory evidence) to be the person(s) whose name(s)
is/are subscribed to the within instrument and acknowledged to me that
he/she/they executed the same in his/her/their authorized capacity(ies), and
that by his/her/their signature(s) on the instrument the person(s), or the
entity upon behalf of which the person(s) acted, executed the instrument.

WITNESS my hand and official seal.

Signature
          ------------------------------

My commission expires
                      ------------------

                                       4


                                   EXHIBIT "A"
                                LEGAL DESCRIPTION


THE LAND IS SITUATED IN THE STATE OF CALIFORNIA, COUNTY OF ORANGE, DESCRIBED AS
FOLLOWS:

                                       5


RECORDING REQUESTED BY

AND WHEN RECORDED MAIL TO


John F. Simonis, Esq.
Paul Hastings Janofsky & Walker, LLP
695 Town Center Drive, 17th Floor
Costa Mesa, CA 92626



- --------------------------------------------------------------------------------
                                        SPACE ABOVE THIS LINE FOR RECORDER'S USE


ATTENTION: OFFICE OF THE COUNTY RECORDER -- THIS INSTRUMENT COVERS GOODS THAT
ARE OR ARE TO BECOME FIXTURES ON THE REAL PROPERTY DESCRIBED HEREIN AND THIS
INSTRUMENT IS TO BE FILED OF RECORD IN THE RECORDS WHERE DEEDS OF TRUST ON REAL
ESTATE ARE RECORDED. IN ADDITION, THIS INSTRUMENT SHOULD BE APPROPRIATELY
INDEXED, NOT ONLY AS A DEED OF TRUST, BUT ALSO AS A FINANCING STATEMENT COVERING
GOODS THAT ARE TO BECOME FIXTURES ON THE REAL PROPERTY DESCRIBED HEREIN. THE
NAME AND THE MAILING ADDRESS OF THE BENEFICIARY (SECURED PARTY) AND TRUSTOR
(DEBTOR) ARE SET FORTH IMMEDIATELY BELOW.


      CONSTRUCTION DEED OF TRUST, ASSIGNMENT OF RENTS AND LEASES, SECURITY
                          AGREEMENT AND FIXTURE FILING

        This CONSTRUCTION DEED OF TRUST, ASSIGNMENT OF RENTS AND LEASES,
SECURITY AGREEMENT AND FIXTURE FILING (this "Deed of Trust"), made as of April
15, 2002, between C.J. SEGERSTROM & SONS, a California general partnership,
herein called "Trustor," whose address is 3315 Fairview Road, Costa Mesa,
California 92626, Attn: Chief Financial Officer, CHICAGO TITLE COMPANY, a
California Corporation, herein called "Trustee," whose address is 16969 Von
Karman Avenue, Irvine, California 92612, and EMULEX CORPORATION, a California
corporation, herein called "Beneficiary," whose address is 3535 Harbor
Boulevard, Costa Mesa, California 92626, Attn: EVPHR and Facilities. Trustor
irrevocably grants, transfers and assigns to Trustee in Trust, with Power of
Sale, that property (the "Property") in the City of Costa Mesa, County of
Orange, State of California, described and defined on Exhibit "A" attached
hereto, which Exhibit "A" is incorporated herein by this reference.

        For the purpose of securing the following obligations (the "Secured
Obligations"): (1) repayment of a certain Tenant's Loan as provided for in a
certain unrecorded build to suit lease dated April 15, 2002, between Trustor, as
landlord, and Beneficiary, as tenant (the "Emulex Lease"); and (2) the
performance of each agreement of Trustor incorporated by reference herein,
contained herein or reciting it is so secured.

        1. Assignment of Rents and Leases. Trustor hereby irrevocably,
absolutely, presently and unconditionally assigns to Beneficiary all of
Trustor's right, title and interest in, to and under any and all leases (the
"Leases"), together with all rents (and payments in lieu of rents), revenue,
accounts and other benefits of the Property, including all prepaid rents and
security deposits (some or all collectively, as the context may require,
"Rents"). Beneficiary hereby confers upon Trustor a license (the "License") to
collect and retain the Rents as they become due and payable, so long as no Event
of Default (as defined in Exhibit B), shall exist and be continuing. If an Event
of Default has occurred and is continuing, Beneficiary shall have the right,
which it may choose to exercise in its sole discretion, to terminate this
License upon notice to or demand upon Trustor, and without regard to the
adequacy of Beneficiary's security under this Deed of Trust.

        2. Grant of Security Interest. The parties intend for this Deed of Trust
to create a lien on the Property, and an assignment of the Rents and Leases, all
in favor of Beneficiary. To the extent that any Property or Rents may be or be
determined to be personal property, Trustor as debtor hereby grants Beneficiary
and Trustee as secured parties a security interest in all such personal
property, to secure payment and performance of the Secured Obligations. This
Deed of Trust constitutes a security agreement under Article 9 of the California
Uniform Commercial Code (as amended or recodified from time to time, the "UCC)
covering personal property. Any filing of a financing statement or other
document in the records normally pertaining to personal property shall never be
construed as derogating from or impairing this Deed of Trust or the rights or
obligations of the parties under it.

                                  EXHIBIT "K"


        3. Fixture Filing. This Deed of Trust constitutes a fixture filing under
the UCC, covering any Property which now is or later may become fixtures
attached to the Property under applicable law. For this purpose, the respective
addresses of Trustor, as debtor, and Beneficiary and Trustee, as secured
parties, are as set forth in the preamble to this Deed of Trust. "Fixtures"
shall include all articles of personal property now or hereafter attached to,
placed upon for an indefinite term or used in connection with said real
property, appurtenances and improvements, together with all goods and other
property which are at any time so related to the Property that an interest
arises in them under real estate law.

        4. Other Provisions.


        4.1 Waiver of Statutory Rights. To the extent permitted by law, Trustor
hereby agrees that it shall not and will not apply for or avail itself of any
appraisement, valuation, stay, extension or exemption laws, or any so-called
"Moratorium Laws," now existing or hereafter enacted, in order to prevent or
hinder the enforcement or foreclosure of this Deed of Trust, but hereby waives
the benefit of such laws. Trustor for itself and all who may claim through or
under it waives any and all right to have the property and estates comprising
the Property marshaled upon any foreclosure of the lien hereof and agrees that
any court having jurisdiction to foreclose such lien may order the Property sold
as an entirety.

        4.2 Due on Transfer. Trustor shall not transfer the Property or any
portion thereof or interest therein without the prior written consent of
Beneficiary. Beneficiary may grant or deny such consent in its sole discretion
and, if consent should be given, any such transfer shall be subject to this Deed
of Trust, and any transferee shall assume all of Trustor's obligations hereunder
and agree to be bound by all provisions and perform all obligations contained
herein. In the event of any such transfer without the written consent of
Beneficiary, Beneficiary may, at its option, by demand or notice to Trustor,
declare all sums secured hereby immediately due and payable. Consent to one such
transfer shall not be deemed to be a waiver of the right to require consent to
future or successive transfers. As used herein, the term "transfer" shall mean:
(a) the sale, lease (after the date hereof), conveyance or other transfer of the
Property, or any portion thereof or interest therein, whether voluntarily,
involuntarily, by operation of law or otherwise; (b) any transfer by way of
security, including the placing or permitting the placing on the Property of any
mortgage, deed of trust, assignment of rents or other security device; or (c)
the transfer of a controlling interest in Trustor, whether voluntarily,
involuntarily, by operation of law or otherwise. For purposes hereof, the term
"controlling interest" shall mean any transfer or other disposition of any
interest in such entity whereby the effective control of the management of such
entity is altered, limited or otherwise modified in any manner. The provisions
of this Section shall not apply to a transfer of the Property to an affiliate,
parent or subsidiary of Trustor as permitted by Section 1.4(i) of the Emulex
Lease. Upon any such permitted transfer, the Property shall remain subject to
the terms of this Deed of Trust.

        4.3 Inconsistencies. In the event of any inconsistency between this Deed
of Trust and the Emulex Lease, the terms hereof shall be controlling as
necessary to create, preserve and/or maintain a valid security interest upon the
Property.

        4.4 Exhibit "B." Trustor expressly makes each and all of the agreements,
and adopts and agrees to perform and be bound by each and all of the terms and
provisions set forth in Exhibit "B" attached hereto, which Exhibit "B" is
incorporated herein by this reference.


                                  EXHIBIT "K"


        4.5 Notice of Default Request. The undersigned Trustor requests that a
copy of any notice of default and any notice of sale hereunder be mailed to it
at its address hereinbefore set forth.

        IN WITNESS WHEREOF, Trustor has executed this Construction Deed of
Trust, Assignment of Rents and Leases, Security Agreement and Fixture Filing as
of the date first above written.

                                        C.J. SEGERSTROM & SONS,
                                        a California partnership

                                        By Henry T. Segerstrom Management LLC,
                                           a California limited liability
                                           company, Manager


                                           By
                                              ----------------------------------
                                                                         Manager

                                        By HTS Management Co., Inc., a
                                           California corporation, Manager

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

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

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

                                        Title:
                                               ---------------------------------
                                                          "Trustor"

                                  EXHIBIT "K"


STATE OF CALIFORNIA

COUNTY OF __________________

        On ________________________, before me, ____________________________,
Notary Public, personally appeared _____________________________________________
and __________________________________________, personally known to me OR proved
to me on the basis of satisfactory evidence to be the persons whose names are
subscribed to the within instrument and acknowledged to me that they executed
the same in their authorized capacities, and that by their signatures on the
instrument the persons, or the entity upon behalf of which the persons acted,
executed the instrument.

        WITNESS my hand and official seal.


                                        ----------------------------------------
                                        Signature of Notary


STATE OF CALIFORNIA

COUNTY OF __________________

        On ________________________, before me, ____________________________,
Notary Public, personally appeared _____________________________________________
and __________________________________________, personally known to me OR proved
to me on the basis of satisfactory evidence to be the persons whose names are
subscribed to the within instrument and acknowledged to me that they executed
the same in their authorized capacities, and that by their signatures on the
instrument the persons, or the entity upon behalf of which the persons acted,
executed the instrument.

        WITNESS my hand and official seal.


                                        ----------------------------------------
                                        Signature of Notary


STATE OF CALIFORNIA

COUNTY OF __________________

        On ________________________, before me, ____________________________,
Notary Public, personally appeared _____________________________________________
and __________________________________________, personally known to me OR proved
to me on the basis of satisfactory evidence to be the persons whose names are
subscribed to the within instrument and acknowledged to me that they executed
the same in their authorized capacities, and that by their signatures on the
instrument the persons, or the entity upon behalf of which the persons acted,
executed the instrument.

        WITNESS my hand and official seal.


                                        ----------------------------------------
                                        Signature of Notary



                          EXHIBIT "A" TO DEED OF TRUST

All estate, right, title and interest which Trustor now has or may later acquire
in and to the following property (all or any part of such property, or any
interest in all or any part of it, as the context may require, the "Property"):
the real property located in the County of Orange, State of California, as
described in Schedule 1 attached hereto and incorporated herein by this
reference, together with all existing and future appurtenances thereto (the
"Premises") together with all buildings, structures and improvements now located
or later to be constructed on the Premises (the "Improvements"); together with
all rents, income, revenues, issues and profits of or from the Premises or the
Improvements (including all cash or security deposits), all existing and future
leases and other occupancy agreements and concessions relating to the use and
enjoyment of all or any part of the Premises and Improvements (the "Leases"),
and any and all guaranties and other agreements relating to or made in
connection with any of such Leases; together with all Fixtures (as defined
below) now or later to be attached to, placed in or on, or used in connection
with the ownership, development, use, enjoyment, occupancy, operation or
maintenance of all or any part of the Premises and Improvements; together with
all building materials, equipment, work in process or other personal property of
any kind, whether stored on the Premises or elsewhere, which have been or later
will be acquired for the purpose of being delivered to, incorporated into or
installed in or about the Premises or the Improvements; together with all rights
to the payment of money, reserves, cost savings and deposits, whether now or
later to be received from third parties or deposited by Trustor with third
parties (including all utility deposits), contract rights, development and use
rights and agreements, governmental permits, licenses, approvals, authorizations
and applications (governmental or private), maps, surveys, plans, specifications
and drawings, reports, and other similar work products, chattel paper,
documents, and notes, which arise from or relate to construction, ownership,
operation, management, leasing or use of the Premises or Improvements, or to the
Premises and Improvements generally; together with all insurance policies
pertaining to the Premises and all proceeds, including all claims to and demands
for them, of the voluntary or involuntary conversion of any of the Premises,
Improvements or the other property described above into cash or liquidated
claims, including proceeds of all present and future fire, hazard or casualty
insurance policies and all condemnation awards or payments now or later to be
made by any public body or decree by any court of competent jurisdiction for any
taking or in connection with any condemnation or eminent domain proceeding, and
all causes of action and their proceeds for any damage or injury to the
Premises, Improvements or the other property described above or any part of
them. Trustor acknowledges and agrees that the foregoing collateral description
covers all assets of Trustor relating to the use and enjoyment of all or any
part of the Premises and Improvements. Beneficiary may at any time and from to
time file financing and continuation statements and amendments thereto
reflecting the same.


                          EXHIBIT "A" to DEED OF TRUST


                   SCHEDULE 1 TO EXHIBIT "A" TO DEED OF TRUST
                               DESCRIPTION OF LAND



                   SCHEDULE 1 TO EXHIBIT "A" to DEED OF TRUST


                          EXHIBIT "B" TO DEED OF TRUST

                              ADDITIONAL PROVISIONS

A.      To protect the security of this Deed of Trust, Trustor agrees as
        follows:

        (1) To the extent not the obligation of the tenant under the Emulex
Lease, Trustor shall keep the Property in good condition and repair; not remove
or demolish any building thereon; complete or restore promptly and in good and
workmanlike manner any building which may be constructed, damaged or destroyed
thereon and pay when due all claims for labor performed and materials furnished
therefor in accordance with Article VIII of the Emulex Lease; comply with all
laws affecting said Property or requiring any alterations or improvements to be
made thereon; not commit or permit waste thereof; not commit, suffer or permit
any act upon said Property in violation of law; cultivate, irrigate, fertilize,
fumigate, prune and do all other acts which from the character or use of said
Property may be reasonably necessary; to maintain and preserve its value; and
not initiate or allow any change or variance in any zoning or other property use
classification which affects the Property or any part of it.

        (2) To insure the Property to the extent not the obligation of the
tenant under the Emulex Lease, and such insurance shall be similar in scope,
type and amount to that specified in the Emulex Lease. The amount collected
under any insurance policy shall be paid to Trustor for application to the cost
of rebuilding the Property, but only if the Emulex Lease shall not have been
terminated pursuant to Article VIII thereof. In any case, the release of such
proceeds shall not cure or waive any default or notice of default hereunder or
invalidate any act done pursuant to such notice.

        (3) At Trustor's sole expense to appear in and defend any action or
proceeding purporting to affect the title to and right of possession of the
Property, the security hereof or the rights or powers of Beneficiary or Trustee
(Trustor shall give Beneficiary prompt notice in writing if any claim is
asserted which does or could affect any such matters, or if any action or
proceeding is commenced which alleges or relates to any such claim); and to pay
or reimburse all costs and expenses of Trustee and Beneficiary, including cost
of evidence of title and attorneys' fees in a reasonable sum, in any action or
proceeding in which Beneficiary or Trustee may appear, including in connection
with Beneficiary's or Trustee's efforts to enforce any terms of this Deed of
Trust (whether any lawsuit is filed or not) and/or seek remedies for a default
hereunder.

        (4) To pay: at least ten days before delinquency all taxes and
assessments affecting said property, including assessments on appurtenant water
stock; when due, all encumbrances, charges and liens, with interest, on said
Property or any part thereof, which appear to be prior or superior hereto or
which are not expressly permitted by the Emulex Lease; and all costs, fees and
expenses of this Trust.

Should Trustor fail to make any payment or to do any act as herein provided,
then Beneficiary or Trustee, but without obligation so to do and without notice
to or demand upon Trustor and without releasing Trustor from any obligation
hereof, may: make or do the same in such manner and to such extent as either may
deem necessary to protect the security hereof, Beneficiary or Trustee being
authorized to enter upon said Property for such purposes; appear in and defend
any action or proceeding purporting to affect the security hereof or the rights
or powers of Beneficiary or Trustee; pay, purchase, contest or compromise any
encumbrance, charge, or lien which in the judgment of either appears to be prior
or superior hereto; and, in exercising any such powers, pay necessary expenses,
employ counsel and pay his or her reasonable fees. Trustor shall also pay or
reimburse all of Beneficiary's and Trustee's costs and expenses which may be
incurred in connection with any of the foregoing. If Beneficiary and/or Trustee
chooses to dispose of the Property (or a portion(s) thereof) through one or more
Foreclosure Sales (as defined below), Trustor shall pay all costs, expenses or
other advances that may be incurred or made by Beneficiary and/or Trustee in
each such sale. In any suit to foreclose the lien hereof or enforce any other
remedy of Trustee or Beneficiary under this Deed of Trust, there shall be
allowed and included as additional indebtedness in the decree for sale or other
judgment or decree all reasonable expenditures and expenses which may be paid or
incurred by or on behalf of Trustee and Beneficiary in connection therewith.

Neither Beneficiary nor Trustee shall be directly or indirectly liable to
Trustor or any other person as a consequence of any of the following: (i)
Beneficiary's or Trustee's exercise of or failure to exercise any rights,
remedies or powers granted to Beneficiary and/or Trustee in this Deed of trust;
(ii) Beneficiary's failure or refusal to perform or discharge any obligation or
liability of Trustor under any agreement related to the Property or under this
Deed of Trust; or (iii) any loss sustained by Trustor or any third party
resulting from Beneficiary's failure to lease


                          EXHIBIT "B" to DEED OF TRUST
                                     Page 1


the Property, or from any other act or omission of Beneficiary in managing the
Property, after an Event of Default, unless the loss is caused by the willful
misconduct or gross negligence of Beneficiary. Trustor hereby expressly waives
and releases all liability of the types described above, and agrees that no such
liability shall be asserted against or imposed upon Beneficiary or Trustee.

        (5) To pay or reimburse immediately and without demand (but in no event
later than ten (10) business days after Trustor's receipt of Beneficiary's
written demand therefor) all sums expended by Beneficiary or Trustee of the
nature mentioned in this Exhibit B, with interest from date of expenditure at
the amount allowed by law in effect at the date hereof. All such sums shall be
secured by this Deed of Trust.

        B. It is mutually agreed as follows: (1) That any award of damages in
connection with any condemnation for public use of or injury to said Property or
any part thereof shall be paid in accordance with Article X of the Emulex Lease.
If the Emulex Lease is terminated pursuant to Article X thereof, Trustor's share
of the award must be used to pay in full the Secured Obligations. The payment of
such money shall not cure or waive any default or notice of default hereunder or
invalidate any act done pursuant to such notice.

        (2) Each waiver by Beneficiary must be in writing, and no waiver shall
be construed as a continuing waiver. No waiver shall be implied from any delay
or failure by Beneficiary to take action on account of any default of Trustor.
Consent by Beneficiary to any act or omission by Trustor shall not be construed
as a consent to any other or subsequent act or omission or to waive the
requirement for Beneficiary's consent to be obtained in any future or other
instance.

        (3) At any time or from time to time, without liability therefor and
without notice, upon written request of Beneficiary and presentation of this
Deed of Trust for endorsement, and without affecting the personal liability of
any person for payment of the indebtedness secured hereby, Trustee may: reconvey
any part of said Property; consent to the making of any map or plat thereof;
join in granting any easement thereon; or join in any extension agreement or any
agreement subordinating the lien or charge hereof.

        (4) Upon written request of Beneficiary stating that all sums and
obligations secured hereby have been paid and performed, and upon surrender of
this Deed of Trust to Trustee for cancellation and retention or other
disposition as Trustee in its sole discretion may choose and upon payment of its
fees, Trustee shall reconvey, without warranty, the Property then held
hereunder. The recitals in such reconveyance of any matters or facts shall be
conclusive proof of the truthfulness thereof. The Grantee in such reconveyance
may be described as "the person or persons legally entitled thereto." Neither
Beneficiary nor Trustee shall have any duty to determine the rights of persons
claiming to be rightful grantees of any reconveyance.

        (5) Upon an Event of Default by Trustor in payment of Tenant's Loan or
in performance of any agreement hereunder, Beneficiary may declare all sums
secured hereby immediately due and payable and thereafter shall have the right,
in one or several concurrent or consecutive proceedings, to foreclose the lien
hereof upon the Property or any part thereof, for the Secured Obligations, or
any part thereof, by any proceedings appropriate under applicable law. Trustor
will be in default under this Deed of Trust upon the occurrence of any one or
more of the following events (some or all collectively, "Events of Default;" any
one singly, an "Event of Default"): (a) a "transfer occurs in violation hereof,
(b) the Emulex Lease is terminated by the tenant thereunder due to a breach by
the landlord thereunder; or (c) failure of Trustor to (i) pay any of the
principal of the Tenant Loan when due, (ii) pay interest within five (5) days
after the date when due, (iii) observe or perform any of the other covenants or
conditions by Trustor to be performed under the terms of this Deed of Trust
concerning the payment of money for a period of five (5) days after written
notice from Beneficiary that the same is due and payable; or (iv) observe or
perform any non-monetary covenant or condition contained in this Deed of Trust
for a period of thirty (30) days after written notice from Beneficiary; provided
that if any such failure concerning a non-monetary covenant or condition is
susceptible to cure but cannot reasonably be cured within said thirty (30) day
period, then no Event of Default shall be deemed to exist hereunder so long as
Trustor commences such cure within the initial thirty (30) day period and
diligently and in good faith pursues such cure to completion as promptly as
practicable following the date of Beneficiary's notice. No cure period shall
apply in the event of the termination of the Emulex Lease.

        Beneficiary and/or Trustee may elect to dispose of the Property (or any
portion(s) thereof in any manner Beneficiary may deem to be in its best
interests (any such disposition, a "Foreclosure Sale;" and any two or more,
"Foreclosure Sales"). If Beneficiary chooses to have more than one


                          EXHIBIT "B" to DEED OF TRUST
                                     Page 2


Foreclosure Sale, Beneficiary at its option may cause the Foreclosure Sales to
be held simultaneously or successively, on the same day, or on such different
days and at such different times and in such order as Beneficiary may deem to be
in its best interests. No Foreclosure Sale shall terminate or affect the liens
of this Deed of Trust on any part of the Property which has not been sold, until
all of the Secured Obligations have been paid in full.

        If Beneficiary delivers to Trustee a written declaration of default and
demand for sale and a written notice of default, Trustee shall cause such notice
to be filed for record. After the lapse of such time as may then be required by
law following the recordation of said notice of default, and notice of sale
having been given as then required by law, Trustee, without demand on Trustor,
may sell said Property at the time and place fixed by it in said notice of sale,
either as a whole or in separate parcels, and in such order as it may determine,
at public auction to the highest bidder for cash in lawful money of the United
States, payable at time of sale. Trustee may postpone sale of all or any portion
of said Property by public announcement at such time and place of sale, and from
time to time thereafter may postpone such sale by public announcement at the
time fixed by the preceding postponement. Trustee shall deliver to such
purchaser its deed conveying the property so sold, but without any covenant or
warranty, express or implied. The recitals in such deed of any matters or facts
shall be conclusive proof of the truthfulness thereof. Beneficiary or its
nominee may bid and become the purchaser of all or any part of the Property at
any Foreclosure Sale, and the amount of Beneficiary's successful bid shall be
credited on the Secured Obligations.

        Beneficiary may exercise any or all of the remedies granted to a secured
party under the UCC. Under this power of sale, Beneficiary shall have the
discretionary right to cause some or all of the Property, including any Property
which constitutes personal property, to be sold or otherwise disposed of in any
combination and in any manner permitted by applicable law (including the UCC).
Trustor agrees that such a sale of personal property together with real property
constitutes a commercially reasonable sale of the personal property. Any
proceeds of any such disposition shall not cure any Event of Default or
reinstate any Secured Obligation for purposes of Section 2924c of the California
Civil Code.

        After deducting all costs, fees and expenses of Trustee and of this
Trust, including cost of evidence of title in connection with sale, Trustee
shall apply the proceeds of sale to payment of: all sums expended under the
terms hereof, not then repaid, with accrued interest at the amount allowed by
law in effect at the date hereof; all other sums then secured hereby; and the
remainder, if any, to the Trustor.

        (6) Beneficiary, or any successor in ownership of any indebtedness
secured hereby, may from time to time, by instrument in writing, substitute a
successor or successors to any Trustee named herein or acting hereunder, which
instrument, executed by the Beneficiary and duly acknowledged and recorded in
the office of the recorder of the county or counties where said Property is
situated, shall be conclusive proof of proper substitution of such successor
Trustee or Trustees, who shall, without conveyance from the Trustee predecessor,
succeed to all its title, estate, rights, powers and duties. Said instrument
must contain the name of the original Trustor, Trustee and Beneficiary
hereunder, the book and page where this Deed is recorded and the name and
address of the new Trustee.

        (7) This Deed applies to, inures to the benefit of, and binds all
parties hereto, their heirs, legatees, devisees, administrators, executors,
successors, and assigns. The term Beneficiary shall mean the owner and holder,
including pledgees, of Tenant's Loan, whether or not named as Beneficiary herein
(however, this paragraph (7) does not waive the due-on-transfer provisions
hereof). In this Deed of Trust, whenever the context so requires, the masculine
gender includes the feminine and/or the neuter, and the singular number includes
the plural. No merger shall occur as a result of Beneficiary's acquiring any
other estate in or any other lien on the Property unless Beneficiary consents to
a merger in writing. This Deed of Trust shall be governed by the laws of the
State of California. If any provision of this Deed of Trust should be held
unenforceable or void, that provision shall be deemed severable from the
remaining provisions and shall in no way affect the validity of this Deed of
Trust. Any notice, demand, request or other communication which any party hereto
may be required or may desire to give hereunder shall be given in writing at the
address as set forth above or at such other address as the party to be served
with notice may have furnished in writing to the party seeking or desiring to
serve notice as a place for the service of notice. Any notice or demand
delivered to the person or entity named above to accept notices and demands for
Trustor shall constitute notice or demand duly delivered to Trustor, even if
delivery is refused.


                          EXHIBIT "B" to DEED OF TRUST
                                     Page 3


                           PURCHASE AND SALE AGREEMENT

                                  MODIFICATIONS


1.      Recital B shall be rewritten to reflect exercise of right of first offer
        pursuant to Section 15.2 of the Lease.

2.      Section 1.1 shall reflect the right of first offer property (including
        any Landlord owned personal property and fixtures located thereon).

3.      Sections 1.8 and 1.18 shall include in the Personal Property only such
        Warranties as may then be in force.

4.      Sections 1.16 and 1.17 shall be modified to reflect the property being
        purchased.

5.      Sections 1.22, 1.23, 1.24 and 1.25 shall be deleted.

6.      Section 4.1 shall set forth the Purchase Price for the right of first
        offer property.

7.      The Deposit pursuant to Section 4.2 shall be $500,000.

8.      The Tenant's Loan, Breakage Fee, Fire Suppression Fee and Traffic Impact
        Fees shall be eliminated from Sections 4.3, 6.3.2 and 6.7.

9.      The tenant leases and the Lease shall be added as Title Exceptions in
        Section 5.1.1(a), unless the Tenant disapproves any Tenant Lease(s)
        pursuant to Section 5.1.2 and terminates the Agreement.

10.     The tenant leases and all contracts and agreements affecting the right
        of first offer property shall be added as Tenant due diligence items in
        Section 5.1.2. Tenant may disapprove any Tenant Lease and/or disapprove
        the due diligence items on any reasonable basis.

11.     Clauses (b), (c) and (d) and (i), (ii) and (iii) of Section 5.1.3 shall
        be eliminated.

12.     Delivery of tenant estoppel certificates in the form of attached
        Schedule 1 and commercially reasonable SNDA's from all tenants of the
        right of first offer property, other than Tenant, shall be added as a
        new condition in Section 5.1.9. In addition, Landlord shall reasonably
        cooperate with Tenant in obtaining SNDAs for Tenant's lender in a
        commercially reasonable form, but obtaining such SNDAs shall not be a
        breach by Landlord subject to satisfaction of the reasonable cooperation
        covenant and the provisions of the tenant leases.

13.     Section 6.1 shall be modified to reflect the closing date per the right
        of first offer. The second paragraph shall be deleted in its entirety.

14.     Section 6.2.3 will be deleted unless the right of first offer property
        includes the entire Premises. Sections 6.2.4 and 6.2.5 shall be replaced
        with provisions requiring delivery of tenant estoppels and an assignment
        of leases in the form attached hereto as Schedule 2.

15.     The tenant leases shall be added as permitted encumbrances under Section
        6.4, subject to Tenant's disapproval rights under Section 5.1.2.

16.     Section 6.5 shall be rewritten to include tenant rent and deposits in
        the proration and, as applicable, any allocation of outstanding tenant
        improvement obligations in accordance with the Sale Notice or as
        negotiated by Landlord and Tenant.

17.     Section 6.10 shall be eliminated.

18.     Section 8.3.13 shall be eliminated. Representations shall be added re
        tenant leases as to (a) true and complete copies, (b) full force and
        effect, (c) no defaults, (d) deposits and (e) no other tenant leases.

19.     Sections 10.2 and 10.3 shall be eliminated.


                                  EXHIBIT "M"


20.     Section 10.4 shall be modified to eliminate references to the Lease
        (unless the Premises is included in the right of first offer property)
        and the assignment of Warranties.

21.     The first paragraph of Article 11 shall be eliminated.

22.     Section 12.11 shall be modified to delete references to the Lease unless
        the right of first offer property includes some or all of the Premises.

23.     Section 12.21 shall be modified to reflect that Tenant's right to
        possession is subject to the rights of any tenants of the right of first
        offer property.

24.     Section 12.23 shall be modified to reflect the actual Trip Budget
        required for the uses on the property sold.

25.     The parties shall make any additional changes required to reflect
        particular business terms of the right of first offer.

26.     Basic operational covenants as to continued operation of the property as
        currently operated shall be added.

27.     Restrictions on ability of Landlord to, without consent of Tenant, to
        (a) execute, amend, terminate tenant leases, (b) execute, modify,
        terminate certain contracts and (c) materially modify improvements to
        sale property after due diligence period expires shall be added.

28.     The Partial Assignment of the Development Agreement shall be modified to
        reflect the actual numbers of AM and PM peak trips allocated to the sale
        land.


                                  EXHIBIT "M"
                                     Page 2


                           TENANT ESTOPPEL CERTIFICATE

        THIS TENANT ESTOPPEL CERTIFICATE ("Certificate"), is made and entered
into as of this ___ day of _____, 20__ (the "Effective Date"), by
________________, a ____________ ("Lessee"), in favor of EMULEX CORPORATION, its
successors and assigns ("Purchaser").

                                    RECITALS

        A. Purchaser and C.J. SEGERSTROM & SONS, a California general
partnership ("Lessor"), have entered into a Purchase and Sale Agreement and
Joint Escrow Instructions dated as of _______________ (the "Agreement"), wherein
Purchaser agreed to purchase and Lessor agreed to sell the real property located
in the City of Costa Mesa, County of Orange, State of California (the
"Property"), which is legally described in Exhibit "A" attached hereto.

        B. Lessor and Lessee (or their respective predecessors in interest) have
entered into that certain Lease dated as of ________________ (the "Original
Lease") covering a portion of the Property (the "Premises"), more particularly
described on Exhibit "B" attached hereto.

        C. The Original Lease has been amended and modified pursuant to the
amendments and related documents listed on Exhibit "C" attached hereto (as so
amended, the "Lease").


                                    AGREEMENT

        NOW, THEREFORE, in consideration of the recitals set forth above and for
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged by Lessee, Lessee certifies, warrants and represents to
Purchaser as follows:

        1. Lease. Exhibit "D" attached hereto is a true, complete and correct
copy of all documents and agreements constituting the Lease.

        2. Effectiveness of the Lease. The Lease has been duly executed and
delivered by Lessee and, subject to the terms and conditions thereof, the Lease
is in full force and effect, the obligations of Lessee thereunder are valid and
binding, and there have been no modifications or additions to the Lease, written
or oral, other than those which are listed on Exhibit "C" and included in
Exhibit "D."

        3. Complete Agreement. The Lease constitutes the complete agreement
between Lessor and Lessee relating to the leasing of the Premises and Lessee
claims no rights of any kind whatsoever with respect to the Property, other than
as set forth in the Lease.

        4. Lease Term. The term of the Lease expires on __________ and Lessee
has no right or option to extend the term of the Lease, other than
______________________.

        5. No Purchase Rights. Lessee has no option, right of first refusal,
right of first offer or other right to purchase all or any portion of the
Property.

        6. Rent. The monthly basic rent currently payable under the Lease is
$________, subject to ___ adjustment in accordance with the terms of the Lease.
In addition, Lessee pays __________________ (the "Additional Rent"). Monthly
basic rent and Additional Rent has been paid through _____________.

        7. No Deposits or Prepaid Rent. No security or other deposits or
prepayments of rent have been made by Lessee in connection with the Lease,
except as follows: __________________
________________________________________________________ (if none, write
"None").

        8. Lessor's Obligations. As of the date of this Certificate, Lessor has
performed all obligations required of Lessor under the Lease and Lessor is not
in default under any term, covenant or condition of the Lease. No offsets,
counterclaims or defenses of Lessee


                           Schedule 1 to Exhibit "M"


under the Lease exist against Lessor. No events have occurred which, with the
passage of time or the giving of notice, would constitute a basis for offsets,
counterclaims or defenses against Lessor. There are no outstanding obligations
of Lessor to provide to Lessee (a) any improvements to the Premises, (b) any
allowance for tenant improvements, moving expenses or other costs incurred by
Lessee or (c) any "free rent" or other lease concessions.

        9. Assignment. Lessee has not subleased, assigned, hypothecated,
transferred or alienated any interest of Lessee in the Premises or pursuant to
the Lease except: ______________________________________________________________
(if none, write "None").

        10. Authority. Each individual executing this Certificate represents and
warrants that he or she is duly authorized to execute and deliver this
Certificate on behalf of Lessee and that this Certificate is binding upon Lessee
in accordance with its terms.

        11. Reliance by Purchaser. Lessee executes this Certificate with the
knowledge that this Certificate will be relied on by Purchaser, or its
successors and assigns under the Agreement, in connection with the purchase of
the Property by Purchaser. The date such purchase closes is herein referred to
as the "Effective Date." Lessee shall be bound by the certifications and
covenants contained in this Certificate. In the event of any conflict between
the terms and provisions of this Certificate and of the Lease, the terms and
provisions of this Certificate shall control.

        IN WITNESS WHEREOF, Lessee has executed this Certificate to be effective
as of the Effective Date.

                                                                               ,
                                        ---------------------------------------
                                        a
                                          --------------------------------------

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

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


                           Schedule 1 to Exhibit "M"
                                     Page 2


                       ASSIGNMENT AND ASSUMPTION OF LEASES

        THIS ASSIGNMENT AND ASSUMPTION OF LEASES (the "Assignment") is made and
entered into as of the ___ day of ___________, 20__ by and between C.J.
SEGERSTROM & SONS, a California general partnership ("Assignor"), and EMULEX
CORPORATION, a California corporation ("Assignee"), with respect to the
following:

                                    RECITALS

        A. Assignor is the "Seller" and Assignee is the "Buyer" pursuant to a
certain Purchase and Sale Agreement and Joint Escrow Instructions dated
______________ __, 20___ (the "Agreement"). Pursuant to the Agreement, Assignor
is selling and Assignor is purchasing certain real property and improvements
described on Schedule 1 attached hereto (the "Property").

        B. In connection with the sale of the Property, Seller is required to
assign to Buyer all "Tenant Leases," as defined in the Agreement, with respect
to the Property. This Assignment is executed to satisfy such obligation.


                                    AGREEMENT

        IN CONSIDERATION OF the foregoing recitals and the mutual covenants
contained herein, Assignor and Assignee agree to follows:

        1. Assignment. Assignor hereby assigns and transfers to Assignee all of
Assignor's right, title and interest as "Landlord" or "Lessor" in and under the
Tenant Leases. The Tenant Leases are as listed on Schedule 2 attached hereto.
True, correct and complete copies of the Leases are attached hereto as Schedule
3.

        2. Assumption. Assignee hereby accepts the foregoing assignment and
assumes and agrees to be bound by all obligations of the "Landlord" or "Lessor"
under the Tenant Leases accruing from and after the Effective Date, as defined
below, of this Assignment.

        3. Effective Date. The Effective Date of this Assignment shall be the
date upon which there is recorded in the Office of the County Recorder of Orange
County, California a deed to the Property executed by Seller in favor of Buyer.

        4. Indemnity. Assignor shall indemnify, defend and hold harmless
Assignee from and against all claims, losses, costs, liabilities and expenses
(including, without limitation, reasonable attorneys' fees and costs) arising
out of the failure or alleged failure of Assignor to perform any of the
obligations of the Landlord pursuant to the Tenant Leases and accruing prior to
the Effective Date. Assignee shall indemnify, defend and hold harmless Assignor
from and against any and all claims, losses, costs, liabilities and expenses
(including, without limitation, reasonable attorneys' fees and costs) arising
out of the failure or alleged failure of Assignee to perform any of the
obligations of the Landlord pursuant to the Tenant Leases and accruing on or
after the Effective Date. The foregoing indemnification provisions shall each
contain a covenant by the indemnifying party to defend the indemnified party
against all claims for which indemnification is available hereunder with legal
counsel appointed by the liability insurance carrier for the indemnifying party.
Payment shall not be a condition precedent to recovery upon the foregoing
indemnification provisions.

        5. Successors and Assigns. All of the terms, covenants and conditions
set forth herein shall be binding upon and inure to the benefit of Assignor and
Assignee and their respective successors and assigns.

        6. No Implied Representations. There are no representations and
warranties in connection with this Assignment other than as expressly set forth
in the Agreement. Except for such express representations and the
indemnification set forth in paragraph 4, Assignee shall have no claims against
Assignor pursuant to the provisions of the Tenant Leases.


                           Schedule 2 to Exhibit "M"


        IN WITNESS WHEREOF, Assignor and Assignee have executed and delivered
this Agreement and Assumption of Tenant Leases to be effective as provided in
paragraph 3 above.

C.J. SEGERSTROM & SONS, a California    EMULEX CORPORATION, a California
general partnership                     corporation

By Henry T. Segerstrom Management LLC,  By
   a California limited liability          -------------------------------------
   company, Manager
                                        Title:
                                               ---------------------------------
   By
      -------------------------------
                              Manager
                                        By
                                           -------------------------------------
By HTS MANAGEMENT CO., INC.,
   a California corporation, Manager    Title:
                                               ---------------------------------
                                                          "Assignee"

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

   Title:
          ------------------------------
                   "Assignor"


                           Schedule 2 to Exhibit "M"
                                     Page 2

EX-12.1

                                                                    EXHIBIT 12.1

EMULEX CORPORATION
RATIO OF EARNINGS/DEFICIT OF EARNINGS TO FIXED CHARGES



                                          Six Month                        Fiscal Years
                                            Ended      ----------------------------------------------------
                                        Dec. 30, 2001    2001       2000       1999       1998       1997
                                        -------------  --------   --------   --------   --------   --------
                                                                                 
EARNINGS:
         Pretax income from continuing
           operations                      $(64,261)   $  8,584   $ 43,830   $  5,512   $(10,926)  $  1,063
         Fixed charges                          192         173        138        169        213        323
                                           --------    --------   --------   --------   --------   --------
         Total earnings                    $(64,069)   $  8,757   $ 43,968   $  5,681   $(10,713)  $  1,386
                                           --------    --------   --------   --------   --------   --------
FIXED CHARGES:
         Interest expense                  $      7    $      1   $     32   $     72   $     94   $    185
         Interest within rental
           expense(1)                           185         172        106         97        119        138
                                           --------    --------   --------   --------   --------   --------
         Total fixed charges               $    192    $    173   $    138   $    169   $    213   $    323
                                           --------    --------   --------   --------   --------   --------

RATIO OF EARNINGS TO FIXED CHARGES              N/A          51        319         34        N/A          4
                                           ========    ========   ========   ========   ========   ========

DEFICIT OF EARNINGS TO FIXED CHARGES        (64,261)        N/A        N/A        N/A    (10,926)       N/A
                                           ========    ========   ========   ========   ========   ========

(1) The interest rate used on this calculation was 11.5%.

EX-23.1

                                                                    Exhibit 23.1


                          INDEPENDENT AUDITORS' CONSENT


The Board of Directors
Emulex Corporation:

We consent to the incorporation by reference of our report dated August 4, 2001,
relating to the consolidated balance sheets of Emulex Corporation and
subsidiaries as of July 1, 2001 and July 2, 2000, and the related consolidated
statements of operations, stockholders' equity and cash flows for each of the
years in the three-year period ended July 1, 2001, and the related financial
statement schedule, which report appears in the July 1, 2001, Annual Report on
Form 10-K of Emulex Corporation, and to the reference to our firm under the
heading "Experts" in the prospectus.


                                        KPMG LLP


Orange County, California
April 26, 2002

EX-25.1

                                                                    Exhibit 25.1


                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM T-1

                                    ---------

                       STATEMENT OF ELIGIBILITY UNDER THE
                        TRUST INDENTURE ACT OF 1939 OF A
                    CORPORATION DESIGNATED TO ACT AS TRUSTEE

                Check if an Application to Determine Eligibility
                  of a Trustee Pursuant to Section 305(b)(2)[X]

     STATE STREET BANK AND TRUST COMPANY OF CALIFORNIA, NATIONAL ASSOCIATION
               (Exact name of trustee as specified in its charter)

              United States                                    06-1143380
    (Jurisdiction of incorporation or                       (I.R.S. Employer
organization if not a U.S. national bank)                  Identification No.)

633 West 5th Street, 12th Floor, Los Angeles, California         90071
      (Address of principal executive offices)                 (Zip Code)

           Lynda A. Vogel, Senior Vice President and Managing Director
         633 West 5th Street, 12th Floor, Los Angeles, California 90071
                                 (213) 362-7399
            (Name, address and telephone number of agent for service)

                               EMULEX CORPORATION
               (Exact name of obligor as specified in its charter)

              Delaware                                      51-0300558

   (State or other jurisdiction of                       (I.R.S. Employer
   incorporation or organization)                       Identification No.)

                              3535 Harbor Boulevard
                             Costa Mesa, California
                    (Address of principal executive offices)

                                      92626
                                   (Zip Code)

           1 3/4 % Convertible Subordinated Notes due February 1, 2007
                              (TYPE OF SECURITIES)



                                     GENERAL

ITEM 1. GENERAL INFORMATION.

        FURNISH THE FOLLOWING INFORMATION AS TO THE TRUSTEE:

        (a) NAME AND ADDRESS OF EACH EXAMINING OR SUPERVISORY AUTHORITY TO WHICH
IT IS SUBJECT.

               Comptroller of the Currency, Western District Office, 50 Fremont
        Street, Suite 3900, San Francisco, California, 94105-2292

        (b)  WHETHER IT IS AUTHORIZED TO EXERCISE CORPORATE TRUST POWERS.

               Trustee is authorized to exercise corporate trust powers.

ITEM 2. AFFILIATIONS WITH OBLIGOR.

        IF THE OBLIGOR IS AN AFFILIATE OF THE TRUSTEE, DESCRIBE EACH SUCH
AFFILIATION.

               The obligor is not an affiliate of the trustee or of its parent,
State Street Bank and Trust Company.

               (See notes on page 2.)

ITEM 3. THROUGH ITEM 15. NOT APPLICABLE.

ITEM 16. LIST OF EXHIBITS.

        LIST BELOW ALL EXHIBITS FILED AS PART OF THIS STATEMENT OF ELIGIBILITY.

        1.  A COPY OF THE ARTICLES OF ASSOCIATION OF THE TRUSTEE AS NOW IN
        EFFECT.

               A copy of the Articles of Association of the trustee, as now in
        effect, is on file with the Securities and Exchange Commission as an
        Exhibit with corresponding exhibit number to the Form T-1 of Western
        Digital Corporation, filed pursuant to Section 305(b)(2) of the Trust
        Indenture Act of 1939, as amended (the "Act"), on May 12, 1998
        (Registration No. 333-52463), and is incorporated herein by reference.

        2.  A COPY OF THE CERTIFICATE OF AUTHORITY OF THE TRUSTEE TO COMMENCE
        BUSINESS, IF NOT CONTAINED IN THE ARTICLES OF ASSOCIATION.

               A Certificate of Corporate Existence (with fiduciary powers) from
        the Comptroller of the Currency, Administrator of National Banks is on
        file with the Securities and Exchange Commission as an Exhibit with
        corresponding exhibit number to the Form T-1 of Western Digital
        Corporation, filed pursuant to Section 305(b)(2) of the Act, on May 12,
        1998 (Registration No. 333-52463), and is incorporated herein by
        reference.

        3.  A COPY OF THE AUTHORIZATION OF THE TRUSTEE TO EXERCISE CORPORATE
        TRUST POWERS, IF SUCH AUTHORIZATION IS NOT CONTAINED IN THE DOCUMENTS
        SPECIFIED IN PARAGRAPH (1) OR (2), ABOVE.

               Authorization of the Trustee to exercise fiduciary powers
        (included in Exhibits 1 and 2; no separate instrument).

        4.  A COPY OF THE EXISTING BY-LAWS OF THE TRUSTEE, OR INSTRUMENTS
        CORRESPONDING THERETO.

               A copy of the by-laws of the trustee, as now in effect, is on
        file with the Securities and Exchange Commission as an Exhibit with
        corresponding exhibit number to the Form T-1 of Western Digital
        Corporation, filed pursuant to Section 305(b)(2) of the Act, on May 12,
        1998 (Registration No. 333-52463), and is incorporated herein by
        reference.


                                        1



        5.  A COPY OF EACH INDENTURE REFERRED TO IN ITEM 4. IF THE OBLIGOR IS IN
        DEFAULT.

               Not applicable.

        6.  THE CONSENTS OF UNITED STATES INSTITUTIONAL TRUSTEES REQUIRED BY
        SECTION 321(b) OF THE ACT.

               The consent of the trustee required by Section 321(b) of the Act
               is annexed hereto as Exhibit 6 and made a part hereof.

        7.  A COPY OF THE LATEST REPORT OF CONDITION OF THE TRUSTEE PUBLISHED
        PURSUANT TO LAW OR THE REQUIREMENTS OF ITS SUPERVISING OR EXAMINING
        AUTHORITY.

               A copy of the latest report of condition of the trustee published
               pursuant to law or the requirements of its supervising or
               examining authority is annexed hereto as Exhibit 7 and made a
               part hereof.

                                      NOTES

        In answering any item of this Statement of Eligibility which relates to
matters peculiarly within the knowledge of the obligor or any underwriter for
the obligor, the trustee has relied upon information furnished to it by the
obligor and the underwriters, and the trustee disclaims responsibility for the
accuracy or completeness of such information.

        The answer furnished to Item 2. of this statement will be amended, if
necessary, to reflect any facts which differ from those stated and which would
have been required to be stated if known at the date hereof.

                                    SIGNATURE

        Pursuant to the requirements of the Trust Indenture Act of 1939, as
amended, the trustee, State Street Bank and Trust Company of California,
National Association, a national banking association, organized and existing
under the laws of the United States of America, has duly caused this statement
of eligibility to be signed on its behalf by the undersigned, thereunto duly
authorized, all in the City of Los Angeles, and State of California, on the 8th
day of March, 2002.

                                        STATE STREET BANK AND TRUST COMPANY
                                        OF CALIFORNIA, NATIONAL ASSOCIATION


                                        By:    /S/  Stephen Rivero
                                            -----------------------------------
                                               STEPHEN RIVERO
                                               VICE PRESIDENT



                                        2


                                    EXHIBIT 6


                             CONSENT OF THE TRUSTEE

        Pursuant to the requirements of Section 321(b) of the Trust Indenture
Act of 1939, as amended, in connection with the proposed issuance by Emulex
Corporation of its 1 3/4% Convertible Subordinated Notes due February 1, 2007,
we hereby consent that reports of examination by Federal, State, Territorial or
District authorities may be furnished by such authorities to the Securities and
Exchange Commission upon request therefor.

                                        STATE STREET BANK AND TRUST COMPANY
                                        OF CALIFORNIA, NATIONAL ASSOCIATION


                                        By:    /S/  Stephen Rivero
                                            -----------------------------------
                                               STEPHEN RIVERO
                                               VICE PRESIDENT

Dated: April 8, 2002



                                        3


                                    EXHIBIT 7

Consolidated Report of Condition and Income for A Bank With Domestic Offices
Only and Total Assets of Less Than $100 Million of State Street Bank and Trust
Company of California, a national banking association duly organized and
existing under and by virtue of the laws of the United States of America, at the
close of business December 31, 2001, published in accordance with a call made by
the Federal Deposit Insurance Corporation pursuant to the required law: 12
U.S.C. Section 324 (State member banks); 12 U.S.C. Section 1817 (State nonmember
banks); and 12 U.S.C. Section 161 (National banks).



                                                                                   Thousands
                                                                                   of Dollars
                                                                                   
ASSETS
Cash and balances due from depository institutions:
    Noninterest-bearing balances and currency and coin ..............................    11,525
    Interest-bearing balances .......................................................         0
Securities ..........................................................................         0
Federal funds sold and securities purchased
    under agreements to resell in domestic offices
    of the bank and its Edge subsidiary .............................................         0

Loans and lease financing receivables:
    Loans and leases, net of unearned income ............................         0
    Allowance for loan and lease losses .................................         0
    Allocated transfer risk reserve......................................         0
    Loans and leases, net of unearned income and allowances .........................         0
Assets held in trading accounts .....................................................         0
Premises and fixed assets reserve....................................................         8
Other real estate owned .............................................................         0
Investments in unconsolidated subsidiaries ..........................................         0
Customers' liability to this bank on acceptances outstanding ........................         0
Intangible assets ...................................................................         0
Other assets.........................................................................     1,525
                                                                                         ------

Total assets                                                                             13,058
                                                                                         ======

LIABILITIES

Deposits:
    In domestic offices .............................................................         0
        Noninterest-bearing .............................................         0
        Interest-bearing ................................................         0
    In foreign offices and Edge subsidiary ..........................................         0
        Noninterest-bearing .............................................         0
        Interest-bearing ................................................         0
Federal funds purchased and securities sold under
    agreements to repurchase in domestic offices of
    the bank and of its Edge subsidiary .............................................         0
Demand notes issued to the U.S. Treasury and Trading Liabilities ....................         0
Other borrowed money ................................................................         0
Subordinated notes and debentures ...................................................         0
Bank's liability on acceptances executed and outstanding ............................         0
Other liabilities ...................................................................     7,770

Total liabilities ...................................................................     7,770
                                                                                         ------

EQUITY CAPITAL
Perpetual preferred stock and related surplus........................................         0
Common stock ........................................................................       500
Surplus .............................................................................       750
Undivided profits and capital reserves/Net unrealized holding gains (losses) ........     4,038
Cumulative foreign currency translation adjustments .................................         0

Total equity capital ................................................................     5,228
                                                                                         ------

Total liabilities and equity capital ................................................    13,058
                                                                                         ======




                                        4


I, John J. Saniuk, Vice President and Comptroller of the above named bank do
hereby declare that this Report of Condition and Income for this report date
have been prepared in conformance with the instructions issued by the
appropriate Federal regulatory authority and is true to the best of my knowledge
and belief.


                                        /S/  John J. Saniuk


We, the undersigned directors, attest to the correctness of this Report of
Condition and declare that it has been examined by us and to the best of our
knowledge and belief has been prepared in conformance with the instructions
issued by the appropriate Federal regulatory authority and is true and correct.


                                        /S/  Alan D. Greene
                                        /S/  Bryan R. Calder
                                        /S/  Lynda A. Vogel




                                        5