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- -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 --------------------- FORM 10-K

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE YEAR ENDED DECEMBER 31, 2002 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO

COMMISSION FILE NUMBER 000-27115 PCTEL, INC. (Exact Name of Business Issuer as Specified in Its Charter) DELAWARE 77-0364943 (State or Other Jurisdiction of (I.R.S. Employer Incorporation or Organization) Identification Number) 8725 W. HIGGINS ROAD, SUITE 400, 60631 CHICAGO IL (Zip Code) (Address of Principal Executive Office)

(773) 243-3000 (Registrant's Telephone Number, Including Area Code) --------------------- SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: None SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: Common Stock, $0.001 Par Value Per Share. Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. Indicate by a check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Securities Exchange Act of 1934). Yes [X] No [ ] As of June 28, 2002, the last business day of Registrant's most recently completed second fiscal quarter, there were 20,146,748 shares of Registrant's common stock outstanding, and the aggregate market value of such shares held by non-affiliates of Registrant (based upon the closing sale price of such shares on the Nasdaq National Market on June 28, 2002) was approximately $187,364,756. Shares of Registrant's common stock held by each executive officer and director and by each entity that owns 5% or more of Registrant's outstanding common stock have been excluded in that such persons may be deemed to be affiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes. As of March 25, 2003, the number of shares of the Registrant's common stock outstanding was 19,542,702. Certain sections of Registrant's definitive Proxy Statement relating to its Annual Stockholders' Meeting to be held on June 3, 2003 are incorporated by reference into Part III of this Annual Report on Form 10-K. - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------

PCTEL, INC. FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 2002

PART I ITEM 1: BUSINESS This report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These statements include, among other things, statements concerning our future operations, financial condition and prospects, and business strategies. The words "believe," "expect," "anticipate" and other similar expressions generally identify forward-looking statements. Investors in our common stock are cautioned not to place undue reliance on these forward-looking statements. These forward-looking statements are subject to substantial risks and uncertainties that could cause our future business, financial condition, or results of operations to differ materially from our historical results or currently anticipated results. Investors should carefully review the information contained under the caption "Factors That May Affect Our Business, Financial Condition, and Future Operating Results," beginning on page 29 of the section of this report entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations," and elsewhere in, or incorporated by reference into, this report. OVERVIEW AND RECENT DEVELOPMENTS We are a leading developer and supplier of cost-effective Internet access solutions. Today our products enable high-speed Internet connections through analog networks as well as public access Wireless Local Area Networks (WLAN). Additionally, we are developing new technologies and products to address ease of use issues related to wireless local area networks for both traveling and home users. On March 12, 2003, PCTEL, Inc, completed its asset acquisition of Dynamic Telecommunications, Inc., ("DTI"). DTI is a supplier of software-defined radio technology deployed in high-speed wireless scanning receivers, multi-protocol collection and analysis systems, interference measurement systems and radio frequency command and control software solutions. PCTEL intends to use the acquired assets to continue to operate and grow the business of DTI and to expand its presence in the wireless access markets. In May 2002, we acquired the assets of cyberPIXIE, Inc. ("cyberPIXIE"), a wireless access provider. The acquisition of cyberPIXIE is consistent with our strategy and permits us to participate in a new emerging market. As a result of the acquisition, we obtained products and technology that will enable roaming between and among 802.11 wireless and cellular networks. We are a pioneer in developing HSP (host signal processing) technology, a proprietary set of algorithms that enables cost-effective software-based digital signal processing solutions. Our solution utilizes the computational and processing resources of a host central processing unit rather than requiring additional special-purpose hardware. Based on our own research and testing, we believe this architecture can reduce space requirements by 50% and power requirements by 70% compared to conventional hardware-based solutions. The first implementation of our host signal processing technology was in a software modem, or soft modem, in 1995. Various original equipment manufacturers, including Hewlett Packard, Dell, Fujitsu, NEC and Samsung, have integrated our soft modems into their products. Our proprietary software architecture provides significant benefits over traditional hardware-based solutions. Our software architecture: - Reduces the hardware, space and power requirements of conventional hardware-based connectivity devices, which reduces our customers' manufacturing costs while offering superior or comparable performance; - Minimizes the risk of technological obsolescence and enables an array of communication solutions for PCs and alternative Internet access devices that are easily upgradeable; - Allows us to quickly and cost-effectively develop new products to capitalize on rapidly growing market segments such as the developing wireless local area network markets; and - Is compatible with multiple operating systems, including but not limited to Windows (95, 98, 2000, NT, XP) and Linux. 1

CORPORATE BACKGROUND We were incorporated in California in 1994 and reincorporated in Delaware in 1998. Our principal executive offices are located at 8725 W. Higgins Road, Suite 400, Chicago, Illinois 60631. Our telephone number at that address is (773) 243-3000. Our web site is www.pctel.com. The contents of our web site are not incorporated by reference into this Annual Report on Form 10-K. PRODUCTS Analog Modem Products Our HSP modem offering is a mature product. Competitors have over time matched the significant cost advantages that we innovated in this area. As a result, the soft modem business has taken on a commodity characteristic. There is very little product differentiation and the industry generally competes on price and to a lesser extent, customer service. Our current HSP modem roadmap delivers cost reduced product for both AC-link and PCI format modems for PC-OEM qualifications in 2003. We have undertaken a strategic initiative to reduce the number of software code bases required to satisfy various customer and technology requirements. This initiative is expected to be substantially complete in the first half of 2003. We expect to realize significant product maintenance cost savings as a result of this activity. CURRENT PRODUCTS MicroModem(TM). The MicroModem integrates our HSP technology with a micro form-factor, silicon DAA (data access arrangement). In contrast to a conventional hardware modem, our soft architecture replaces the memory chip, digital signal processing chip, universal asynchronous receiver and transmitter, and controller chip with customized software that draws upon the excess capacity of the host central processing unit. Our patented MicroModem further reduces power and size requirements by replacing approximately 90 discrete hardware components with one or two silicon DAA chips. This integration reduces the number of components in a conventional modem data access arrangement by approximately 40%. The MicroModem is certified as being compatible with the telecommunications standards of most industrialized countries, allowing original equipment manufacturers to accomplish seamless global interoperability. The MicroModem currently comes with standard interfaces to computers such as PCI, ACR, Modem Riser and MDC. Lansis(TM). Lansis is a combination HSP modem and LAN (local area network) solution. It allows PC original equipment manufacturers ("OEMs") to implement a solution for LAN connectivity with the same performance as more expensive branded CardBus and Personal Computer Memory Card International Association (PCMCIA) cards. Combined with V.92 modem functionality, it provides a cost-effective alternative to provide modem and network connectivity to the PC customer. Solsis II. Solsis is our embedded solution for Internet access devices that either do not use a central processing unit or lack the excess processing capacity necessary to support our HSP solution. Solsis operates on Texas Instruments DSPs (digital signal processing); targeted for Internet appliances, such as set-top boxes, game consoles and other Internet access devices. In the fourth quarter of 2001, we began to ship the second generation of our Solsis embedded solution that utilizes a two-chip solution versus the previous five-chip version. This further reduces the cost and power consumption for these non-PC Internet appliances. Solsis II utilizes the new TI TMS320C54V90 DSP, integrating all modem functions into the DSP except the line side DAA chip. In the second quarter of 2002 we completed development of our Solsis solution and shifted to a software-licensing model with two partners. In this model, PCTEL receives royalty revenue for each unit shipped by these partners. 2

WLAN Products Our WLAN products are offered as the Segue(TM) product line. This suite of products provides both client and infrastructure solutions for public WLAN environments. Client products enable public WLAN access and ease of use across a wide range of Microsoft operating systems. The infrastructure products enable cost effective "hot spot" deployments within the constraints of widely recognized networking and security standards. Customers for our WLAN products are not typically individual end-users, but Internet access service providers such as WISPs (Wireless ISPs), cellular carriers, or other service aggregators. CURRENT PRODUCTS Segue(TM) Roaming Client. The Segue(TM) Roaming Client is a PC-based application developed to allow users to easily locate and connect to WLAN and Wireless WAN (GPRS, CDMA 1x or other 2.5G cellular networks) data networks. The Segue(TM) Roaming Client provides the following benefits over "browser only" type solutions currently available today: - Consistent look and feel regardless of operating system platform - Easily branded to match customer identity - Automatic presentation of user credentials dependant on network being accessed - Easy location of WLAN networks utilizing an integrated database - Service Provider control of customer experience by "pushing" configuration, hot spot location, and other data to the client - User or Service Provider prioritization of network connection choices (between multiple WLANs and/or WWANs) The Segue(TM) Roaming Client currently supports over 50 different models of WLAN cards from leading manufacturers, such as Cisco, Agere, Linksys, D-Link, and Melco. The client supports 2.5G PCMCIA cards from Novatel Wireless and Sierra Wireless for WWAN access. The client supports Win98, WinME, Win2K and XP Microsoft operating systems. Product supporting for the PocketPC operating system was released in March 2003. Segue(TM) Network Gateway. The Segue(TM) Network Gateway provides carriers with a cost-effective, straightforward process for deploying new 802.11 hot spots and a simple means for bringing existing hot spots under their service umbrella. The Segue(TM) Network Gateway can support multiple access points at each hot spot and ensure that only authorized users gain access to the hot spot resources. The product is designed to be centrally administered, eliminating the need for local support and maintenance. Network reporting features can easily relay status of any device on the network to a centralized SNMP management tool such as HP Openview or Tivoli. In addition, all configuration and software updates can be handled centrally. Segue(TM) Network Controller. The Segue(TM) Network Controller provides user identification and billing solution for carriers and their subscribers. In industry standard terms, this element performs the AAA-broker function (Authentication, Authorization, and Accounting). This solution integrates a network of hot spot gateways with the service provider's backend systems. It also supports the authentication of roaming users from any authorized provider. The Segue(TM) Network Controller can be configured to proxy authentication requests to the RADIUS- or LDAP-compliant authentication systems of any other cooperating provider. Using RADIUS accounting, the Segue(TM) Network Controller can relay usage information to the RADIUS-compliant systems of roaming partners. With this capability users can enjoy a single bill for access, regardless of the specific hot spots from which they have chosen to connect. The product serves as the platform for central management of the Segue(TM) Network Gateways connected to this controller. With this capability, hot spot operators can make network-wide changes from a single console and have them propagated across the network rather than configuring each gateway directly. The controller also supports applications that enable subscriber provisioning and accounting plan configuration (pre-paid services, single use sessions, etc.) activities. 3

INTELLECTUAL PROPERTY LICENSING We offer our intellectual property through licensing and product royalty arrangements. We have over 80 patents granted or pending addressing both essential International Telecommunications Union (ITU) and non-essential technologies. Our technology is licensed directly or indirectly by many companies in the communications industry, such as Conexant, ESS Technology, Smart Link and others, who use ITU standard technology. In addition, we are developing wireless spread spectrum intellectual property technologies, which may be patentable. Once developed, we intend to file patents covering such technologies. CUSTOMERS Our MicroModem and Lansis products are targeted for manufacturing integration by PC OEMs, PC motherboard and modem card manufacturers. The Solsis embedded modem products are typically integrated by non-PC Internet access product manufacturers, such as set-top box and game console makers. We sell directly to OEMs and indirectly through a number of distributors. Our WLAN products are targeted for operators of public WLAN service deployments. We currently sell directly to cellular carriers and infrastructure suppliers and indirectly to WISPs through a small number of Value Added Resellers (VARs). For the year ended December 31, 2002, approximately 71% of our revenues were generated by three of our Taiwanese customers, with Lite-On Technology Corporation (GVC Corporation) representing 25%, Askey Computer representing 23% and Prewell International representing 23% of revenues. For the year ended December 31, 2001, approximately 79% of our revenues were generated by three of our customers, with Prewell International representing 47% of revenues, Lite-On Technology Corporation (GVC Corporation) representing 22% and Askey Computer representing 10% of revenues. SALES, MARKETING AND SUPPORT We sell our products directly to modem board and motherboard manufacturers who assemble and distribute the end product directly to original equipment manufacturers and systems integrators and indirectly through distributors. In many cases, modems are manufactured by third parties on behalf of the final brand name original equipment manufacturer. We focus on developing long-term customer relationships with our direct and indirect customers. In many cases, our indirect original equipment manufacturer customers specify our products be included on their modem boards or motherboards purchased from board manufacturers. We employ a direct sales force with a thorough level of technical expertise, product background and industry knowledge. Our sales force includes a team of application engineers to assist customers in designing, testing and qualifying system designs that incorporate our products. Our sales force also supports the sales efforts of our distributors. We believe the depth and quality of our sales support team is critical to: - Achieving design wins, - Improving customers' time to market, - Maintaining a high level of customer satisfaction, and - Engendering customer loyalty for our next generation of products. Our marketing strategy is focused on further building market awareness and acceptance of our new products. Our marketing organization also provides a wide range of programs, materials and events to support the sales organization. As of December 31, 2002, we employed 29 individuals in sales, marketing and support and maintained regional sales support operations in Tokyo, Japan, Taipei, Taiwan, Seoul, Korea and Paris, France. 4

BACKLOG Sales of our products are generally made pursuant to standard purchase orders, which are officially acknowledged by us according to our terms and conditions. Due to industry practice, which allows customers to cancel or reschedule orders with limited advance notice to us prior to shipment without significant penalties, we believe that our backlog, while useful for scheduling production, is not a meaningful indicator of future revenues. RESEARCH AND DEVELOPMENT We recognize that a strong technical base is essential to our long-term success and have made a substantial investment in research and development. We will continue to devote substantial resources to product development and patent submissions. We monitor changing customer needs and work closely with our customers, partners and market research organizations to track changes in the marketplace, including emerging industry standards. As of December 31, 2002, we employed 47 employees in research and development. MANUFACTURING We procure DAA chips from Silicon Laboratories, Inc. of Austin, Texas on a purchase order basis. We have a limited guaranteed supply of data access arrangement chips through a long-term business arrangement with Silicon Labs. We have no guaranteed supply or long-term contract agreements with any other of our suppliers. LICENSES, PATENTS AND TRADEMARKS We seek to protect our technology through a combination of patents, copyrights, trade secret laws, trademark registrations, confidentiality procedures and licensing arrangements. We have over 80 patents granted or pending addressing both essential ITU and non-essential technologies that are relevant to our analog modem technology. Because of the fast pace of innovation and product development, our products are often obsolete before the patents related to them expire. As a result, we believe that the duration of the applicable patents is adequate relative to the expected lives of our products. We believe that our patent portfolio is one of the largest in the analog modem market. To supplement our proprietary technology, we have licensed rights to use patents held by third parties. We have received communications from 3Com, Padcom, Syndia and Unisys, and may receive communications from other third parties in the future, claiming to own patent rights in technologies that are part of communications standards adopted by the ITU, such as V.90, V.34, V.42bis and V.32bis, and other common communications technologies, including soft modems and wireless LANs. These third parties claim that our products utilize their patented technologies and have requested that we enter into license agreements with them. During 2002, we settled patent infringement litigation against ESS Technology and have licensed certain Townshend V.90 patents. In addition, there are numerous risks that result from our reliance on our proprietary technology in the conduct of our business. See "Factors That May Affect Our Business, Financial Condition, and Future Operating Results," beginning on page 26 of this Annual Report on Form 10-K. COMPETITION The Internet access device market is intensely competitive. Our current competitors include Agere Systems, Broadcom, Conexant, ESS Technology and SmartLink. With the maturing of standards and cost demands of customers, the analog modem market has taken on commodity characteristics where price is the dominant basis of competition. 5

The current trend in the PC marketplace is for increasing integration at the motherboard level. Typical solutions today already integrate Ethernet adapters on the motherboard for cost advantages. In line with this trend, we may in the future also face competition from predominantly Taiwan based core logic chipset suppliers that will integrate modem functionality with PC core logic and audio subsystems. We believe that these competitors may include Intel, Realtek Semiconductor Corporation, Acer Laboratories Inc., and Silicon Integrated Systems among others. With our WLAN products, our competition varies based on product offering. Competitors for our Segue(TM) Roaming Client range from operating system suppliers such as Apple or Microsoft (which offers a level of WLAN client support through its Windows XP offering) to WLAN NIC suppliers (that bundle minimal clients with their hardware offering) to service aggregators that provide a client as part of their service offering such as GRIC, iPASS, and Boingo. We are unique in that many of these competitors are potential customers for our branded client offering. There are few "client only" competitors in the WLAN space. We compete favorably in the client space as a result of our support for a wide variety of client hardware devices, down level operating system support, and the ability to easily brand products to end user requirements. For our infrastructure offering, there are many competitors offering products supporting similar customers. These competitors are Aptilo, Cisco, Colubris, Nokia, Nomadix, and Pronto. We compete on the basis of price, our unique features (such as centralized manageability and ease of deployment), and system level capabilities made possible by solutions utilizing both our client and infrastructure components. EMPLOYEES As of December 31, 2002, we employed 111 people full-time, including 29 in sales and marketing, 47 in research and development, and 35 in general and administrative functions. None of our employees are represented by a labor union. We consider our employee relations to be good. RECENT DEVELOPMENTS On March 5, 2003, we filed in the U.S. District Court for the Northern District of California a patent infringement lawsuit against 3Com Corporation. Our lawsuit against 3Com Corporation alleges infringement by 3Com Corporation of one of our patents and asks for a declaratory judgment that certain 3Com patents are invalid and not infringed. On March 4, 2003, 3Com filed in the U.S. District Court for the Northern District of Illinois a patent infringement lawsuit against us claiming that our HSP modem products infringe certain 3Com patents, and amended its complaint to ask for a declaratory judgment that one of our patents is invalid and not infringed. The patents that are the subject of 3Com's amended complaint and our complaint are the same patents. We believe that we have meritorious claims and defenses in our dispute with 3Com. However, because the action is still in its early stages, we are not able to predict the outcome at this time. On March 12, 2003, PCTEL, Inc. completed its asset acquisition of Dynamic Telecommunications, Inc., ("DTI"). DTI is a supplier of software-defined radio technology deployed in high-speed wireless scanning receivers, multi-protocol collection and analysis systems, interference measurement systems and radio frequency command and control software solutions. In connection with the acquisition, PCTEL, DTI, PCTEL Maryland, Inc., a wholly-owned subsidiary of PCTEL, and DTI Holdings, Inc., the sole shareholder of DTI, entered into an Asset Purchase Agreement dated as of March 12, 2003 (the "Purchase Agreement") under which PCTEL Maryland acquired substantially all of the assets of DTI, including intellectual property, receivables, property and equipment and other tangible and intangible assets used in DTI's business. PCTEL intends to use the acquired assets to continue to operate and grow the business of DTI and to expand its presence in the wireless access markets. In exchange for the acquired assets, PCTEL paid DTI $10 million in cash. In addition, DTI may be entitled to earn-out payments if PCTEL Maryland meets specified financial targets in fiscal years 2003 and 2004. 6

WEB SITE POSTINGS We make our annual report on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K, and amendments to such reports, available free of charge through our web site as soon as reasonably practicable after we electronically file such material with, or furnish it to, the United States Securities and Exchange Commission, at the following address: www.pctel.com. The information in, or that can be accessed through, our web site is not part of this report. ITEM 2: PROPERTIES In August 2002, we entered into an operating lease for our new headquarter facilities in Chicago, Illinois. This office building is 12,624 square feet and the lease expires in August 2007. In October 2002, we entered into an operating lease in Milpitas, California, to be used as an engineering office. This office building is 18,072 square feet and the lease expires September 2007. In addition, we have a subsidiary office in Waterbury, Connecticut, an engineering office in Taipei, Taiwan, and sales support offices in Tokyo, Japan, Taipei, Taiwan and Paris, France. We believe that we have adequate space for our current needs. ITEM 3: LEGAL PROCEEDINGS Ronald H. Fraser v. PC-Tel, Inc., Wells Fargo Shareowner Services, Wells Fargo Bank Minnesota, N.A. On March 19, 2002, plaintiff Ronald H. Fraser filed a complaint in Santa Clara County (California) Superior Court for breach of contract and declaratory relief against us, and for breach of contract, conversion, negligence and declaratory relief against our transfer agent, Wells Fargo Bank Minnesota, N.A. The Complaint seeks compensatory damages allegedly suffered by Mr. Fraser as a result of the tax liability from failure to facilitate a transaction by Mr. Fraser during a secondary offering on April 14, 2000. In July 2002, we responded to the complaint, denying Mr. Fraser's claims and asserting numerous affirmative defenses. Wells Fargo and the Company have each filed cross-complaints against the other for indemnity. Discovery is underway. No trial date has been set. We believe that we have meritorious defenses and intend to vigorously defend the action. Litigation with 3Com On March 5, 2003, we filed in the U.S. District Court for the Northern District of California a patent infringement lawsuit against 3Com Corporation. Our lawsuit against 3Com Corporation alleges infringement by 3Com Corporation of one of our patents and asks for a declaratory judgment that certain 3Com patents are invalid and not infringed. On March 4, 2003, 3Com filed in the U.S. District Court for the Northern District of Illinois a patent infringement lawsuit against us claiming that our HSP modem products infringe certain 3Com patents, and amended its complaint to ask for a declaratory judgment that one of our patents is invalid and not infringed. The patents that are the subject of 3Com's amended complaint and our complaint are the same patents. We believe that we have meritorious claims and defenses in our dispute with 3Com. However, because the action is still in its early stages, we are not able to predict the outcome at this time. 7

ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No stockholder votes took place during the fourth quarter of the year ended December 31, 2002. ITEM 4A: EXECUTIVE OFFICERS OF THE REGISTRANT The following table sets forth information with respect to our executive officers as of March 25, 2003:

Dr. Martin H. Singer has been our Chief Executive Officer and Chairman of the Board since October 17, 2001. Prior to that, Dr. Singer served as our Non-Executive Chairman of the Board since February 2001 and a director for the Company since August 1999. From October 2000 to May 2001, Dr. Singer served as President and Chief Executive Officer of Ultra Fast Optical Systems, Inc. From December 1997 to August 2000, Dr. Singer served as President and CEO of SAFCO Technologies, Inc., a wireless communications company. He left SAFCO in August 2000 after its sale to Agilent Technologies. From September 1994 to December 1997, Dr. Singer served as Vice President and General Manager of the Wireless Access Business Development Division for Motorola, Inc., a communications equipment company. Prior to this period, Dr. Singer held senior management and technical positions in Motorola Inc., Tellabs, Inc., AT&T and Bell Labs. Dr. Singer holds a Bachelor of Arts in Psychology from the University of Michigan, and a Master of Arts and a Ph.D. in Experimental Psychology from Vanderbilt University. Mr. John Schoen has been our Chief Operating Officer, Chief Financial Officer and Secretary since November 12, 2001. Prior to that, Mr. Schoen was Business Development Manager at Agilent Technologies. From May 1999 to July 2001, Mr. Schoen served as Chief Operating Officer and Chief Financial Officer of SAFCO Technologies, Inc. before its acquisition by Agilent Technologies Inc. Prior to this period, Mr. Schoen held various financial positions for over 19 years in Motorola Inc., including Controller of its Wireless Access Business Development Division. Mr. Schoen received a Bachelor of Science in Accounting from DePaul University and is a Certified Public Accountant. Mr. Jeffrey A. Miller has been our Vice President of Product Management & New Technology since September of 2002. Mr. Miller was Vice President of Engineering from November 2001 until his appointment to Vice President of Product Management & New Technology. Prior to that, Mr. Miller was Functional Manager of Wireless Optimization Products, Wireless Network Test Division of Agilent Technologies Inc. From January 1998 to July 2001, Mr. Miller served as Vice President of Engineering of SAFCO Technologies, Inc. and led its Test and Measurement Group before its acquisition by Agilent Technologies Inc. From September 1992 to January 1998, Mr. Miller was a Principal Consultant with Malcolm, Miller & Associates providing consulting services to wireless network operators and infrastructure suppliers. From 1978 through September of 1992, Mr. Miller held various technical and management positions at Motorola, Inc.'s Cellular Infrastructure Group. Mr. Miller received a Bachelor of Science in Computer Science from University of Illinois. Mr. Carlton Aihara has been our Vice President of Global Sales since April 2002. Mr. Aihara joined PCTEL as Director of Northern Asia sales in 1998, prior to PCTEL's successful initial public offering. In 2001, Mr. Aihara was promoted to Vice President, Asia Pacific, responsible for PCTEL's Asia Pacific sales. Before joining PCTEL, Mr. Aihara was with Adaptec, Incorporated, where he was Senior Manager of Sales for Adaptec's peripheral technology division IC products. He was based in Japan, responsible for Northern Asia sales which included Japan and Korea. Prior to Adaptec, Mr. Aihara held various sales management 8

positions with Sandisk Corporation and Epson's Semiconductor group. Mr. Aihara has also held engineering, marketing, and sales positions at Oki Semiconductor, USA, Inc. and Fairchild Semiconductor, a Schlumberger Company. Mr. Aihara holds a BSEE from the University of California at Berkeley Mr. Biju Nair joined PCTEL in January of 2002. After helping to jump start PCTEL's Wireless Business, Biju took over responsibilities as the Vice President of Product Development. Prior to joining PCTEL, Biju served from July 2000 to January 2002 as the Global Manager of Wireless Planning, Design and Management solutions at Agilent Technologies. Prior to its acquisition by Agilent Technologies, Biju served from April 1994 to July 2000 as Vice President and General Manager of Global Software Products at SAFCO Technologies in Chicago. In that capacity, he designed OPAS, the industry's leading wireless post processing software and led the company's launch of its VoicePrint test and measurement product. Biju holds B.S and M.S degrees in Electronics and Computer Engineering and an advanced degree in Computer Science from Illinois Institute of Technology in Chicago. Biju is the author of numerous publications for the wireless industry and has presented technical papers at major wireless seminars and panels. Mr. Mark D. Wilson has been our Vice President, Licensing Programs since the position was established in April 2002. Previously, Mr. Wilson was our Vice President of Marketing since joining the company in July 2000. Before joining us, Mr. Wilson served from September 1999 to June 2000 as director of product management for privately-held NARUS, Inc., a leading provider of Internet business infrastructure solutions. With more than twenty years of experience in the industry, Mr. Wilson's portfolio of industry experience includes upper-level management positions in firms such as Hewlett Packard, where he was charged with market development and product management for the Internet Business Unit of the VeriFone Division (May 1997 -- September 1999). While with Cirrus Logic, Inc., he served as Vice President of Customer Marketing. Mr. Wilson also held the position of Vice President of OEM Marketing at IBM Corporation's Storage Systems Division and was Vice President of Marketing at Quantum Corporation. Mr. Wilson holds an MBA from Boston University earned in 1978 and a B.S. in Electrical Engineering from the University of Massachusetts earned in 1973. PART II ITEM 5: MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS PRICE RANGE OF COMMON STOCK Our common stock has been traded on the NASDAQ National Market under the symbol PCTI since our initial public offering on October 19, 1999. The following table shows the high and low sale prices of our common stock as reported by the NASDAQ National Market for the periods indicated.

The closing sale price of our common stock as reported on the NASDAQ National Market on March 25, 2003 was $9.30 per share. As of that date there were 85 holders of record of our common stock. DIVIDENDS We have never declared or paid cash dividends on our capital stock. We currently intend to retain all of our earnings, if any, for use in our business and do not anticipate paying any cash dividends in the foreseeable future. ITEM 6: SELECTED CONSOLIDATED FINANCIAL DATA The following selected consolidated financial data should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations," our Consolidated Financial Statements and related notes and other financial information appearing elsewhere in this Form 10-K. The statement of operations data for the years ended December 31, 2002, 2001 and 2000 and the balance sheet data as of December 31, 2002 and 2001 are derived from audited financial statements included elsewhere in this Form 10-K. The statement of operations data for the years ended December 31, 1999 and 1998 and the balance sheet data as of December 31, 2000, 1999 and 1998 are derived from audited financial statements not included in this Form 10-K. For the year ended December 31, 2002, operating results include a $7.2 million provision for inventory recovery and $0.9 million in restructuring charge. For the year ended December 31, 2001, operating results include $10.9 million provision for inventory losses, $3.8 million in restructuring charge and $16.8 million of impairment of goodwill and intangible assets charge related to our acquisitions of Communications Systems Division ("CSD"), Voyager Technologies, Inc. ("Voyager") and BlueCom Technology Corp. ("BlueCom"). The operating results for the year ended December 31, 2000 include the $1.6 million write-off of in-process research and development costs related to our acquisition of Voyager. For the year ended December 31, 1998, operating results include the $6.1 million write-off of in-process research and development costs related to our acquisition of CSD. The operating results for the year ended December 31, 1999 include an extraordinary loss of $1.6 million related to the early extinguishment of debt.

ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS You should read the following discussion in conjunction with our Consolidated Financial Statements and related notes appearing elsewhere in this Form 10-K. Except for historical information, the following discussion contains forward looking statements that involve risks and uncertainties, including statements regarding our anticipated revenues, profits, costs and expenses and revenue mix. These forward looking statements include, among others, those statements including the words, "may," "will," "plans," "seeks," "expects," "anticipates," "intends," "believes" and words of similar import, constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. You should not place undue reliance on these forward-looking statements. Our actual results could differ materially from those anticipated in these forward-looking statements for many reasons, including the risks faced by us described below and elsewhere in this Form 10-K, and in other documents we file with the SEC. Factors that might cause future results to differ materially from those discussed in the forward looking statements include, but are not limited to, those discussed in "Risks Related to Our Business" and elsewhere in this Form 10-K. OVERVIEW AND RECENT DEVELOPMENTS We provide cost-effective software-based communications solutions that address high-speed Internet connectivity requirements for existing and emerging technologies. Our communications products enable 11

Internet access through PCs and alternative Internet access devices. Our soft modem products consist of a hardware chipset containing a proprietary host signal processing software architecture which allows for the utilization of the computational and processing resources of a host central processor, effectively replacing special-purpose hardware required in conventional hardware-based modems. Together, the combination of the chipset and software drivers are a component part within a computer which allows for telecommunications connectivity. By replacing hardware with a software solution, our host signal processing technology lowers costs while enhancing capabilities. Our strategy is to broaden product offerings that enable cost-effective access in both wired and wireless environments. In May 2002, we acquired the assets of cyberPIXIE, Inc. ("cyberPIXIE"), a wireless access provider. The acquisition of cyberPIXIE is consistent with our strategy and permits us to participate in a new emerging market. As a result of the acquisition, we obtained products and technology that will enable roaming between and among 802.11 wireless and cellular networks. Our wireless product portfolio consists of both PC client and network infrastructure products branded as our Segue(TM) product line. Our wireless client product is a PC based software solution that facilitates roaming and connection to wireless networks. These networks may be public wireless local area network ("WLAN") hot spots, and cellular data networks (wireless wide area networks), as well as private enterprise and home WLANs. Our client products are offered as custom branded offerings associated with a particular carrier and typically includes carrier specific "service finder" location databases. Our client product offers a superior end user experience while simultaneously reducing the costs associated with typical end user support problems that our product addresses. Our infrastructure products consist of software programs and third party computing platforms (embedded or PC servers) that enable the deployment of public WLANs. Our gateway product aggregates WLAN traffic from multiple access points, supports proprietary end user features, provides location specific content, and supports industry standard RADIUS compliant end user authentication and accounting. Our WLAN controller further aggregates gateway traffic and provides storage for end user databases, subscription plans, and central control of gateway management functions. We sell soft modems to manufacturers and distributors principally in Asia through our sales personnel, independent sales representatives and distributors. Our sales to manufacturers and distributors in Asia were 86%, 91% and 91% of our total sales for the years ended 2002, 2001, and 2000, respectively. The predominance of our sales is in Asia because our customers are primarily motherboard and modem manufacturers, and the majority of these manufacturers are located in Asia. In many cases, our indirect original equipment manufacturer customers specify that our products be included on the modem boards or motherboards that they purchase from the board manufacturers, and we sell our products directly to the board manufacturers for resale to our indirect original equipment manufacturer customers, both in the United States and internationally. The economic downturn that began in 2000 and has continued throughout 2001 and 2002 has adversely affected our business and operating results. In particular, since the fourth quarter of 2000, our customers, primarily our PC motherboard and distribution manufacturers, have been adversely impacted by significantly lower PC demand which has, in turn, lowered demand for our products. As a result, our revenues decreased from $97.2 million in 2000 to $41.0 million in 2001 and $48.8 million in 2002. Partly as a consequence of the economic slowdown, during 2001, we reduced our headcount from 198 personnel at the end of 2000 to 108 at the end of 2001. We further reduced our headcount in 2002 by an additional 27 persons. Our sales are concentrated among a limited number of customers and the loss of one or more of these customers could cause our revenues to decrease. Continuing decreases in the average selling prices of our products will result in decreased revenue as well. As of December 31, 2002, we have $53.0 million in cash and cash equivalents. In addition, at December 31, 2002, we have $58.4 million in short-term investments, that potentially subject us to credit and market risks. To mitigate credit risk related to short-term investments, we have an investment policy to preserve the value of capital and generate interest income from these investments without undue exposure to 12

risk fluctuations by investing in highly rated, short-term investments. Market risk is the potential loss due to the change in value of a financial instrument due to interest rates or equity prices. Our investment policy is to stipulate short durations, limiting interest rate exposure. We maintain our portfolio of cash equivalents and short-term investments in a variety of securities, including both government and corporate obligations with ratings of A or better and money market funds. CRITICAL ACCOUNTING POLICIES Our significant accounting policies are more fully described in Note 1 to the consolidated financial statements included in this Form 10-K. The preparation of our consolidated financial statements in accordance with generally accepted accounting principles require us to make estimates and judgments that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the period reported. By their nature, these estimates and judgments are subject to an inherent degree of uncertainty. Management bases its estimates and judgments on historical experience, market trends, and other factors that are believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions. Management believes the following critical accounting policies affect its more significant judgments and estimates used in the preparation of its consolidated financial statements. REVENUE RECOGNITION Revenues consist primarily of sales of products to original equipment manufacturers ("OEMs") and distributors. Revenues from sales to customers are recognized upon shipment when title and risk of loss passes to the customers, when the price is fixed or determinable and when there is evidence of an arrangement, unless we have future obligations or have to obtain customer acceptance, in which case revenue is deferred until such obligations have been satisfied or customer acceptance has been achieved. We provide for estimated sales returns and customer rebates related to sales to OEMs at the time of shipment. Customer rebates are recorded against revenues. As of December 31, 2002 and 2001, we have an allowance for customer rebates recorded against accounts receivable of $95,000 and $200,000, respectively, and accrued customer rebates of $1.7 million and $2.1 million, respectively, presented as current accrued liabilities on the balance sheet. Accrued customer rebates will be paid to the customers, upon request, in the future unless they are forfeited by the customer. Revenues from sales to distributors are made under agreements allowing price protection and rights of return on unsold products. We record revenue relating to sales to distributors only when the distributors have sold the product to end-users. Customer payment terms generally range from letters of credit collectible upon shipment to open accounts payable 60 days after shipment. Royalty revenue is recognized when confirmation of royalties due to us is received from licensees or for non-refundable minimal royalty agreements, over the period that the Company provides support to the customer and where we offer extended payment terms, as payments are received. Furthermore, revenues from technology licenses are recognized after delivery has occurred, the amount is fixed or determinable and collection is reasonably assured. To the extent there are extended payment terms on these contracts, revenue is recognized as the payments become due and the cancellation privilege lapses. To date, we have not offered post-contract customer support. In instances where the Company provides non-recurring engineering services to customers, the Company recognizes revenue as the services are completed, using the percentage of completion basis of accounting in accordance with Statement of Position 81-1, "Accounting for Performance and Construction Type Contracts." INVENTORY WRITE-DOWNS AND RECOVERIES Inventories are stated at the lower of cost or market and include material, labor and overhead costs. Inventories as of December 31, 2002 and 2001 were composed of finished goods and work-in-process only. We regularly monitor inventory quantities on hand. Based on our current estimated requirements, it was 13

determined that there was excess inventory and those excess amounts were fully reserved as of December 31, 2002 and 2001. Due to competitive pressures and technological innovation, it is possible that these estimates could increase in the near term. Due to the changing market conditions, the recent economic downturn and technological innovations, inventory write-downs of $10.9 million were recorded in the second half of 2001. Given the volatility of the market, the age of the inventories on hand and the expected introduction of new products in 2002, we wrote down excess inventories to net realizable value based on forecasted demand and firm purchase order commitments from our major suppliers. Actual demand may differ from forecasted demand and such difference may have a material effect on our financial position and results of operations. For the year ended December 31, 2002, we did not record any additional inventory write-downs. We sold part of the written down inventories and recovered $7.2 million of the former write-downs for the year ended December 31, 2002. As of December 31, 2002, the cumulative write-down for excess inventory on hand was $2.1 million. Our products may attract static electricity charges over time and have a limited shelf life. Accordingly, in addition to the write-down of excess inventory, we also provide a reserve against obsolete inventory. As of December 31, 2001, the cumulative write-down for obsolete inventory on hand was $1.4 million. In 2002, we scrapped the entire balance of these obsolete inventories. ACCRUED ROYALTIES We record an accrual for estimated future royalty payments for relevant technology of others used in our product offerings in accordance with SFAS No. 5, "Accounting for Contingencies." The estimated royalties accrual reflects management's broader litigation and cost containment strategies, which may include alternatives such as entering into cross-licensing agreements, cash settlements and/or ongoing royalties based upon our judgment that such negotiated settlements would allow management to focus more time and financial resources on the ongoing business. Accordingly, the royalties accrual reflects estimated costs of settling claims rather than continuing to defend our legal positions and is not intended to be, nor should it be interpreted as, an admission of infringement of intellectual property, valuation of damages suffered by any third parties or any specific terms that management has predetermined to agree to in the event of a settlement offer. We have accrued our best estimate of the amount of royalties payable for royalty agreements already signed, agreements that are in negotiation and unasserted but probable claims of others using advice from third party technology advisors and historical settlement rates. Should a review of our estimated royalty result in a conclusion that a lower accrual is necessary, then there would be a positive effect on earnings. As of December 31, 2002 and 2001, we had accrued royalties of approximately $3.7 million and $12.3 million, respectively. However, the amounts accrued may be inadequate and we may be required to take additional charges if royalty payments are settled at a higher rate than expected, based on our experience of royalty rates normally charged by licensors in our industry. In addition, settlement arrangements may require royalties for both past and future sales of the associated products. If this is the case our gross margins will decrease on these future product sales. On March 19, 2002, Townshend entered into a settlement agreement with us, which settled the Federal Court Action and State Court Action. The settlement agreement required us to make a cash royalty payment on March 19, 2002, of $14.3 million related to past liability and prepayment of future royalties due to reserves which had been established in prior periods in anticipation of settlement. As of December 31, 2002, we have classified the prepayment as other assets, of which $1.1 million represents the current portion and $2.3 million represents the long-term portion. INCOME TAXES We provide for income taxes under the provisions of SFAS No. 109, "Accounting for Income Taxes". SFAS No. 109 requires an asset and liability based approach in accounting for income taxes. Deferred income tax assets and liabilities are recorded based on the differences between the financial statement and tax bases of assets and liabilities using enacted tax rates. Valuation allowances are provided against assets which are not likely to be realized. 14

We currently have subsidiaries in Japan, France, Taiwan and Yugoslavia as well as branch offices in Taiwan and Korea. The complexities brought on by operating in several different tax jurisdictions inevitably lead to an increased exposure to worldwide taxes. Should review of our tax fillings and such reviews result in unfavorable adjustments to our tax returns, our operating results and financial position could be materially and adversely affected. As part of the process of preparing our consolidated financial statements, we are required to estimate our income taxes, which involves estimating our actual current tax exposure together with assessing temporary differences resulting from differing treatment of items for tax and accounting purposes. These differences result in deferred tax assets and liabilities. Significant management judgment is required to assess the likelihood that our deferred tax assets will be recovered from future taxable income. We maintain a full valuation allowance against our deferred tax assets. In the event we were to determine that we would be able to realize our deferred tax assets in the future in excess of its net recorded amount, an adjustment to the deferred tax asset would increase income in the period such determination was made. RESULTS OF OPERATIONS YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000 (ALL AMOUNTS IN TABLES, OTHER THAN PERCENTAGES, ARE IN THOUSANDS) REVENUES

Our revenues primarily consist of product sales of soft modems to board manufacturers and distributors in Asia. Product Revenues increased $4.0 million for the year ended December 31, 2002 from 2001. The revenue increase was primarily due to stronger modem sales, in particular, one of our major customers significantly increased purchases in the second half of the year. Software and licensing revenues amounted to $5.1 million for the year ended December 31, 2002, compared with $1.3 million for 2001. Licensing revenue includes $2.8 million from the settlement of the ESS litigation as well as $1.6 million from another large customer. Revenues decreased $56.2 million for the year ended December 31, 2001 from 2000. The revenue decrease was primarily attributable to 53% less unit shipments as a result of an abnormally poor PC market caused by poor economic conditions. Additionally, the decrease in sales revenues was due to a 9% decrease in average selling prices. Software and licensing revenues amounted to $1.3 million for the year ended December 31, 2001, compared with $4.3 million for 2000. GROSS PROFIT

Cost of revenues consists primarily of chipsets we purchase from third party manufacturers and also includes accrued intellectual property royalties, cost of operations and distribution costs. Provision for inventory losses are also included in the determination of gross profit. 15

Product gross profit increased $22.2 million for the year ended December 31, 2002 compared to the prior year primarily as a result of the provision for inventory losses of $10.9 million recorded in 2001, an inventory recovery of $7.2 million recognized in the year ended December 31, 2002 and the elimination of goodwill amortization of $1.7 million resulting from write-off of goodwill arising from the acquisition of the Communications Systems Division ("CSD"). These improvements in gross profit were partially offset by decreasing average selling prices commonly seen in the industry. Gross profit as a percentage of product revenues increased from 5.3% for the year ended December 31, 2001 to 57.7% for the year ended December 31, 2002 for the same reasons. Gross profit from licensing and royalty revenue increased $3.8 million for the year ended December 31, 2002 from 2001 due to increased royalty and licensing revenue in 2002 compared with 2001. As a percentage of revenues, we expect gross profit to decrease in the next year as a result of the decreasing average selling prices commonly seen in the industry. In addition, the fixed portion of our costs as a percentage of revenue decreased as a result of the benefit of restructuring activities commenced in 2001 and the increase in revenues. Gross profit decreased $41.1 million for the year ended December 31, 2001 compared to the same period in 2000 primarily due to decreased sales revenues and the provision for inventory losses of $10.9 million recorded in 2001. Gross profit as a percentage of product revenue decreased from 44.5% for the year ended December 31, 2000 to 5.3% for the year ended December 31, 2001 because of the provision for inventory losses and because average selling prices decreased faster than the rate of cost reduction. In addition, the fixed portion of our costs as a percentage of revenue increased due to the decrease in revenues. RESEARCH AND DEVELOPMENT

Research and development expenses include costs for software and hardware development, prototyping, certification and pre-production costs. We expense all research and development costs as incurred. For the year ended December 31, 2002, total research and development costs incurred were $10.0 million, compared to $11.6 and $14.1 million for 2001 and 2000, respectively. Research and development expenses decreased by $1.6 million for the year ended December 31, 2002 compared to 2001 primarily because of decreased personnel expenses resulting from the reductions in force that occurred throughout fiscal year 2001 and the savings from the closure of the Connecticut engineering center in June 2002. This decrease in research in development expenses was offset by our expansion of research and development efforts in wireless products and utilities. In 2002, we closed down our Connecticut engineering center which focused on embedded products and shifted our research and development efforts to wireless products and utilities. As a percentage of revenues, research and development costs decreased for the year ended December 31, 2002 for the same reasons as above as well as due to our higher revenues in fiscal 2002. As a percentage of revenues, we expect research and development costs to remain the same in 2003 as we continue to invest in the development of wireless products and utilities. Research and development expenses decreased $2.6 million for the year ended December 31, 2001, compared to 2000 as a result of the completion of certain projects and the reduction in headcount gradually through the year. As a percentage of revenues, research and development increased for the year ended December 31, 2001 because of lower revenues in 2001. Research and development headcount decreased from 76 to 47 from December 31, 2000 to December 31, 2001 and 2002. 16

SALES AND MARKETING

Sales and marketing expenses consist primarily of personnel costs, sales commissions and marketing costs. Sales commissions payable to our distributors are recognized as expenses when our products are "sold through" from the distributors to end-users so that the commission expense is matched with related recognition of revenues. Marketing costs include promotional costs, publication/graphics costs, public relations and trade shows. Sales and marketing expenses decreased $3.3 million for the year ended December 31, 2002 compared to 2001. The decrease in spending is primarily due to decreased personnel expenses as a result of the reductions in force that occurred in fiscal year 2001 and the second quarter of 2002. As a percentage of revenues, we expect sales and marketing costs to remain the same in 2003. Sales and marketing expenses decreased $3.4 million for the year ended December 31, 2001 compared to 2000. The decrease in spending reflects the reduction of sales and marketing personnel as a result of lower revenues and the reduction in force in 2001. Sales and marketing headcount decreased from 75 to 34 from December 31, 2000 to December 31, 2001 and to 29 at December 31, 2002. GENERAL AND ADMINISTRATIVE

General and administrative expenses include costs associated with our general management and finance functions as well as professional service charges, such as legal, tax and accounting fees. Other general expenses include rent, insurance, utilities, travel and other operating expenses to the extent not otherwise allocated to other functions. General and administrative expenses decreased $8.6 million for the year ended December 31, 2002 compared to 2001. The decrease was primarily due to decreased legal costs associated with the patent infringement litigation against Smart Link, ESS Technology and Dr. Brent Townshend which were settled in May 2001, February 2002 and March 2002, respectively, offset by an increase in headcount from 31 in 2001 to 35 in 2002. As a percentage of revenues, we expect general and administrative costs to remain relatively the same in 2003. However, should any new litigation arise in 2003, our legal costs and general and administrative expenses could significantly increase. General and administrative expenses increased $6.0 million for the year ended December 31, 2001 compared to 2000. The increase was primarily due to the increased legal costs associated with the patent infringement litigation against Smart Link, ESS and Townshend and offset by the reduction in headcount to 31 from 47. ACQUIRED IN-PROCESS RESEARCH AND DEVELOPMENT

Upon completion of the Voyager acquisition on February 24, 2000, we immediately expensed $1.6 million representing purchased in-process technology that had not yet reached technological feasibility and had no alternative future use. The $1.6 million expensed as in-process research and development was approximately 9% of the purchase price. During 2002, we expensed in process technology of $0.1 million in connection with our acquisition of cyberPIXIE. AMORTIZATION OF GOODWILL AND INTANGIBLE ASSETS

Amortization of goodwill and intangible assets decreased from $3.1 million for the year ended December 31, 2001 to $88,000 for the year ended December 31, 2002. In prior years, we purchased assets or businesses that resulted in the creation of goodwill and other intangible assets. In the second half of 2001, pursuant to SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of," we evaluated the recoverability of our long-lived assets, including intangibles acquired from CSD, Voyager and BlueCom, and recorded impairment charges totaling $16.8 million. As a result of the impairment charges, the carrying value of the related goodwill was reduced to approximately $0.4 million. Additionally, effective January 1, 2002, we have adopted the provisions of SFAS No. 142, "Goodwill and Other Intangibles," under which goodwill is no longer being amortized but rather tested for impairment at least annually. In May 2002, we acquired the assets of cyberPIXIE for a total of $1.6 million in cash. The Company followed the guidance of SFAS 141 for this acquisition. The purchase price of $1.6 million was allocated to the tangible and identifiable assets acquired and liabilities assumed based on their estimated fair values at the date of acquisition as determined by an independent valuation firm. We attributed $0.1 million to in-process research and development and $0.9 million to developed technology. We expensed in-process research and development and amortize the developed technology. The $0.9 million excess of the purchase price over the fair value of the net identifiable assets was allocated to goodwill. On December 14, 2000, we completed the acquisition of BlueCom. The acquisition was accounted for under the purchase method of accounting. The difference of $1.1 million by which the purchase price exceeded tangible and identifiable intangible assets was allocated to goodwill. On February 24, 2000, we completed the acquisition of Voyager. The acquisition was structured as a tax-free reorganization and was accounted for under the purchase method of accounting. We attributed $1.6 million of the purchase price to in-process research and development, which we expensed immediately, $0.5 million to intellectual property and $0.3 million to workforce, both of which are being amortized. The difference by which the purchase price exceeded the fair value of the tangible and identifiable intangible assets acquired was $16.2 million and was allocated goodwill. Goodwill was being amortized in 2001 and 2000, prior to our adoption of SFAS 142. IMPAIRMENT OF GOODWILL AND INTANGIBLE ASSETS

In the second half of 2001, pursuant to SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of," we evaluated the recoverability of the long-lived assets, including intangibles acquired from CSD, Voyager and BlueCom, and recorded impairment charges totaling $16.8 million. Due to the economic downturn, we determined that CSD's estimated future undiscounted cash flows were below the carrying value of CSD's long-lived assets. Accordingly, during the third quarter of 2001, we adjusted the carrying value of CSD's long-lived assets, primarily goodwill, to their estimated fair value of approximately $0.4 million, resulting in an impairment charge of approximately $4.5 million. The estimated 18

fair value was based on anticipated future cash flows discounted at a rate commensurate with the risk involved. We determined the goodwill and intangible assets acquired from Voyager, as a result of the recent corporate restructuring and reorganization, that there are no future cash flows expected from this business. Accordingly, during the third quarter of 2001, we wrote off the carrying value of Voyager's long-lived assets, primarily goodwill, resulting in an impairment charge of approximately $11.1 million. In regards to the goodwill and intangible assets acquired from BlueCom, as a result of the corporate restructuring and reorganization, we determined that there are no future cash flows expected from this business. Accordingly, during the fourth quarter of 2001, we wrote off the carrying value of BlueCom's long-lived assets, resulting in an impairment charge of approximately $1.2 million. RESTRUCTURING CHARGES

During 2001, we announced a series of actions to streamline support for our voiceband business and sharpen our focus on emerging growth sectors. These measures were part of two restructuring program and included a reduction in worldwide headcount of 64 employees. The restructuring resulted in $3.8 million of charges for the year ended December 31, 2001, consisting of severance and employment related costs of $2.5 million and costs related to closure of excess facilities of $1.3 million. In June 2002, we further reduced worldwide headcount by 20 employees (consisting of 13 research and development employees, 5 sales and marketing employees and 2 general and administrative employees). In September 2002, we announced our intention to move our corporate headquarters to Chicago, Illinois. As a result of the move, 5 general and administrative employees were replaced, resulting in additional severance and employment related costs. Additionally, in the fourth quarter of 2002, we further reduced our headcount by 7 research and development employees. The relocation and restructuring resulted in additional charges of $928,000 consisting of severance, employment related costs and costs related to closure of excess facilities. Net restructuring charges for year ended December 31, 2002 was $850,000. AMORTIZATION OF DEFERRED STOCK COMPENSATION

In connection with the grant of restricted stock to employees' in 2002 and 2001 we recorded deferred stock compensation of $3.7 million and $1.8 million, respectively, representing the fair value of our common stock on the date the restricted stock was granted. There was no grant of restricted stock to employees in 2000. Such amounts are presented as a reduction of stockholders' equity and are amortized ratably over the vesting period of the applicable shares. In connection with the grant of stock options to employees prior to our initial public offering in 1999, we recorded deferred stock compensation of $5.4 million representing the difference between the exercise price and deemed fair value of our common stock on the date these stock options were granted. Such amount is presented as a reduction of stockholders' equity and is amortized ratably over the vesting period of the applicable options. The amortization of deferred stock compensation decreased $394,000 for the year ended December 31, 2002 compared to 2001 primarily due to the termination of employees in 2002, offset by additional expenses related to the restricted stock grants in 2001 and 2002. We expect the amortization of deferred stock compensation to be approximately $300,000 per quarter through 2003 and decreasing thereafter, based on restricted stock grants and stock option grants through December 31, 2002. The amount of deferred stock 19

compensation expense to be recorded in future periods could decrease if options for which accrued but unvested compensation has been recorded are forfeited. If we grant additional restricted stock, the amortization of deferred compensation will increase. The amortization of deferred stock compensation decreased $227,000 for the year ended December 31, 2001 compared to the year ended 2000 primarily due to the termination of employees in 2001 and the corresponding reversal of the remaining deferred stock compensation balance. This decrease was offset by the additional expense related to the restricted stock grants in 2001. In 2003 and in future years, amortization of deferred stock compensation that will be recorded assuming no terminations would be as follows: AMORTIZATION OF DEFERRED STOCK COMPENSATION

OTHER INCOME, NET

Other income, net, consists of interest income, net of interest expense of $131,000 in 2000. Interest income is expected to fluctuate over time. Interest income decreased $2.9 million for year ended December 31, 2002 compared to 2001 primarily due to lower average cash balances and the decrease in interest rates in 2002. Other income, net, decreased $1.1 million for the year ended December 31, 2001 compared to 2000 primarily due to the decrease in interest rates in 2001 and lower average cash balances in 2001. PROVISION FOR INCOME TAXES

The realization of deferred tax assets is dependent on future profitability. During the third quarter of 2001, we recorded $5.3 million of provision for income taxes to establish valuation allowances against deferred tax assets in accordance with the provisions of FASB No. 109, "Accounting for Income Taxes" as a result of uncertainties regarding realizability. Our effective tax rate was below the statutory tax rate of 35% during 2002 primarily due to the recognition of benefits relating to various tax deductible accruals, reserves and net operating losses previously unrecognized as well as tax credit for research and development activities in the amounts of $2,368K and $560K, respectively. The negative tax rate for the year ended December 31, 2001 is primarily attributable to the establishment of a valuation allowance against our net deferred tax assets. 20

LIQUIDITY AND CAPITAL RESOURCES

The net cash used in operating activities of $8.6 million for the year ended December 31, 2002 was primarily attributable to a decrease in accrued royalties of $8.7 million primarily attributable to the $14.3 million settlement payment in relation to the litigation with Dr. Brent Townshend in March 2002, a decrease in accrued liabilities of $4.3 million attributable to adverse inventory commitments and lower legal expenses, an increase in accounts receivable of $2.2 million attributable to high levels of shipments toward the end of 2002, compared with 2001, an increase in prepaid expenses and other assets of $2.7 million attributable to the settlement with Dr. Townshend which included prepaid of future royalty obligations and an increase in accounts payable of $3.4 million, attributable to increase inventory needs due to higher level of shipments, partially offset by net income of $6.2 million, depreciation and amortization of $2 million a tax benefit from stock options exercised of $1 million and a decrease of inventories of $1.9 million, attributable to improved management of inventory levels. The net cash provided by operating activities of $4.3 million for the year ended December 31, 2001 was primarily attributable to a decrease in accounts receivable of $22.7 million attributable to improved collection management, an add-back for the non-cash impairment of goodwill and intangible assets of $16.8 million, depreciation and amortization of $6.7 million, a decrease of inventories of $10.4 million attributable to reduced revenue levels a decrease in deferred tax assets of $5.2 million and increase of taxes payable of $2.2 million, amortization of stock based compensation of $1 million, and tax benefits from stock option exercises of $1.5 million, partially offset by net losses of $58.2 million, a decrease in accounts payable of $4.2 million attributable to the timing of payments to vendors. The net cash used in operating activities of $5.2 million for the year ended December 31, 2000 was primarily attributable to an increase in accounts receivable of $20.6 million caused by a large increase in revenue and an increase in inventories of $8.9 million attributable to inventory requirements to meet the higher revenue levels. Net cash provided by investing activities for the year ended December 31, 2002 consists primarily of proceeds from the sales and maturities of short-term investments of $78.2 million, net of purchases of short-term investments of $49.9 million, purchases of cyberPIXIE of $1.6 million and purchases of property and equipment of $0.6 million. Net cash provided by financing activities for the year ended December 31, 2002 consists of proceeds from the issuance of common stock associated with stock option exercises and from share purchases through the employee stock purchase plan, offset by shares repurchased by the Company. In August 2002, the Board of Directors authorized the repurchase of up to 1,000,000 shares of our common stock. During the three months ended December 31, 2002, we repurchased 775,800 shares of our outstanding common stock for approximately $5.3 million. The Company completed the stock repurchase in February 2003. The repurchased shares are retired immediately after the repurchases. In February 2003, PCTEL extended its stock repurchase program and announced its intention to repurchase up to one million additional shares on the open market from time to time. The Company's repurchase activities will be at management's discretion based on market conditions and the price of the Company's common stock. As of March 2003, we repurchased 261,200 shares of our common stock for approximately $1.9 million. As of December 31, 2002, we had $111.7 million in cash, cash equivalents and short-term investments and working capital of $106.6 million. Accounts receivable, as measured in days sales outstanding, was 30 days at December 31, 2002 compared to 34 days in December 31, 2001. The decrease in days sales outstanding from December 31, 2001 to 2002 was primarily due to the continued cash collection efforts throughout 2002. 21

The decrease in net cash provided by operating activities for the year ended December 31, 2001 compared to 2000 was primarily due to the decrease in accounts receivable and inventories. Net cash provided by investing activities for the year ended December 31, 2001 consisted of maturities and sales of short-term investments of $82.1 million, offset by purchases of property and equipment of $702,000 and purchases of short-term investments of $75.8 million. Net cash provided by financing activities for the year ended December 31, 2001 consisted of proceeds from issuance of common stock from stock option exercises and shares issued through the employee stock purchase plan. We believe that our existing sources of liquidity, consisting of cash, short-term investments and cash from operations, will be sufficient to meet our working capital needs for the foreseeable future. We will continue to evaluate opportunities for development of new products and potential acquisitions of technologies or businesses that could complement our business. We may use available cash or other sources of funding for such purposes. However, possible investments in or acquisitions of complementary businesses, products or technologies, or cash settlements resulting from new litigation, may require us to use our existing working capital or to seek additional financing. In addition, if the current economic downturn prolongs, we will need to continue to expend our cash reserves to fund our operations. As of December 31, 2002, we have non-cancelable operating leases for office facilities of $3.1 million through 2007, unpaid restructuring (termination compensation) of $106,000 through the first half of 2003 and no outstanding firm inventory purchase contract commitments with our major suppliers. CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS The following summarizes our contractual obligations under operating leases for office facilities through 2007 and operating leases for equipment through 2005 and the effect such obligations are expected to have on our liquidity and cash flow in future periods. Our aggregate future minimum rental payments under these leases at December 31, 2002, are as follows (in thousands):

2003........................................................ $ 958 2004........................................................ 671 2005........................................................ 600 2006........................................................ 611 2007........................................................ 427 ------ Future minimum lease payments............................... $3,267 ======

RECENT ACCOUNTING PRONOUNCEMENTS In June 2002, the Financial Accounting Standards Board ("FASB") issued SFAS No. 146, "Accounting for Exit or Disposal Activities"'. SFAS No. 146 addresses significant issues regarding the recognition, measurement, and reporting of costs that are associated with exit and disposal activities, including restructuring activities that are currently accounted for under EITF No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)." The scope of SFAS No. 146 also includes costs related to terminating a contract that is not a capital lease and termination benefits that employees who are involuntarily terminated receive under the terms of a one-time benefit arrangement that is not an ongoing benefit arrangement or an individual deferred-compensation contract. SFAS No. 146 will be effective for exit or disposal activities that are initiated after December 31, 2002 and early application is encouraged. We will adopt SFAS No. 146 on January 1, 2003. The provisions of EITF No. 94-3 shall continue to apply for an exit activity initiated under an exit plan that met the criteria of EITF No. 94-3 prior to the adoption of SFAS No. 146. The effect on adoption of SFAS No. 146 will change, on a prospective basis, the timing of when restructuring charges are recorded from a commitment date approach to when the liability is incurred. In November 2002, the FASB issued FASB Interpretation No. 45 ("FIN 45"), "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others." FIN 45 requires that a liability be recorded in the guarantor's balance sheet upon issuance of a guarantee. In addition, FIN 45 requires disclosures about the guarantees that an entity has issued, including a reconciliation 22

of changes in the entity's product warranty liabilities. The initial recognition and initial measurement provisions of FIN 45 are applicable on a prospective basis to guarantees issued or modified after December 31, 2002, irrespective of the guarantor's fiscal year-end. The disclosure requirements of FIN 45 are effective for financial statements of interim or annual periods ending after December 15, 2002. Adoption of this standard did not have a material impact on the Company's financial position, results of operations, or cash flows. In January 2003, the FASB issued Interpretation No. 46 ("FIN 46"), "Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51." FIN 46 requires certain variable interest entities to be consolidated by the primary beneficiary of the entity if the equity investors in the entity do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. FIN 46 is effective immediately for all new variable interest entities created or acquired after January 31, 2003. For variable interest entities created or acquired prior to February 1, 2003, the provisions of FIN 46 must be applied for the first interim or annual period beginning after June 15, 2003. We are currently assessing the impact of FIN 46 on our consolidated financial statements. In November 2002, the Emerging Issues Task Force ("EITF") reached a consensus on Issue No. 00-21, "Revenue Arrangements with Multiple Deliverables." EITF Issue No. 00-21 provides guidance on how to account for arrangements that involve the delivery or performance of multiple products, services and/or rights to use assets. The provisions of EITF Issue No. 00-21 will apply to revenue arrangements entered into in fiscal periods beginning after June 15, 2003. The Company believes that the adoption of this standard will have no material impact on its financial position, results of operations, or cash flows. In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based Compensation-Transition and Disclosure ("SFAS 148"). SFAS 148 amends FASB Statement No. 123, "Accounting for Stock-Based Compensation" to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, this statement amends the disclosure requirements of Statement No. 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. Generally the provisions of SFAS 148 are effective for financial statements for fiscal years ending after December 15, 2002. The Company anticipates that it will continue to follow Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees." Adoption of this standard did not have a material impact on the Company's financial position, results of operations, or cash flows. FACTORS THAT MAY AFFECT OUR BUSINESS, FINANCIAL CONDITION AND FUTURE OPERATING RESULTS This annual report on Form 10-K, including this Management's Discussion and Analysis, contains forward-looking statements. These forward-looking statements are subject to substantial risks and uncertainties that could cause our future business, financial condition or results of operations to differ materially from our historical results or currently anticipated results, including those set forth below. RISKS RELATED TO OUR BUSINESS CONTINUING DECREASES IN THE AVERAGE SELLING PRICES OF OUR PRODUCTS COULD RESULT IN DECREASED REVENUES. Product sales in the connectivity industry have been characterized by continuing erosion of average selling prices. Price erosion experienced by any company can cause revenues and gross margins to decline. We believe that the average selling price of our products is likely to continue to decline in the future due principally to competitive pressure. This pricing pressure will likely reduce our gross margins, adversely affect our operating results and may result in the decrease in the price of our stock. In addition, we believe that the widespread adoption of industry standards in the soft modem industry is likely to further erode average selling prices, particularly for analog modems. Adoption of industry standards is driven by the market requirement to have interoperable modems. End-users need this interoperability to ensure modems from different manufacturers communicate with each other without problems. Historically, users have deferred purchasing modems until these industry standards are adopted. However, once these standards are accepted, it lowers the barriers to entry and price erosion results. Decreasing average selling 23

prices in our products could result in decreased revenues even if the number of units that we sell increases. Therefore, we must continue to develop and introduce next generation products with enhanced functionalities that can be sold at higher gross margins. Our failure to do this could cause our revenues and gross margins to decline. OUR FUTURE SUCCESS DEPENDS ON OUR ABILITY TO DEVELOP AND SUCCESSFULLY INTRODUCE NEW AND ENHANCED PRODUCTS, PARTICULARLY, WIRELESS PRODUCTS AND TECHNOLOGY, THAT MEET THE NEEDS OF OUR CUSTOMERS AND ACHIEVE BROAD MARKET ACCEPTANCE. Our revenue depends on our ability to anticipate our customers' needs and develop products that address those needs. In particular, our future success will depend on our ability to introduce new products for the wireless market, anticipate improvements and enhancements in wireless technology and in WLAN standards, and to develop products that are competitive in the rapidly changing wireless market. Introduction of new products and product enhancements will require coordination of our efforts with those of our suppliers and manufacturers to rapidly achieve volume production. If we fail to coordinate these efforts, develop product enhancements or introduce new products that meet the needs of our customers as scheduled, our revenues may be reduced and our business may be harmed. We may not be successful in timely introducing new wireless products as a result of our relative inexperience in developing, marketing, selling and supporting these products. We cannot assure you that product introductions will meet the anticipated release schedules or that our wireless products will be competitive in the market. Furthermore, given the emerging nature of the wireless market, there can be no assurance our products and technology will not be rendered obsolete by alternative or competing technologies. If we are unable to successfully compete in a particular market with internally developed products, we may have to license technology from other businesses or acquire other businesses as an alternative to internal research and development. OUR BUSINESS AND OUR ABILITY TO GROW REVENUES HAVE BEEN ADVERSELY IMPACTED BY THE ECONOMIC SLOWDOWN AND RELATED UNCERTAINTIES AFFECTING MARKETS IN WHICH WE OPERATE. Since the fourth quarter of 2000, our customers, primarily our PC motherboard and distribution manufacturers, have been impacted by significantly lower PC demand. As a result, our revenues and earnings in fiscal year 2001 and 2002 were negatively affected. Because we expect PC demand to continue to be weak for the foreseeable term, we expect our revenues and earnings to remain at the same level in 2003 as a result of the adverse economic environment. Adverse economic conditions worldwide have contributed to a technology industry slowdown, particularly a rapid deterioration in the demand for PCs, and have impacted our business, resulting in: - reduced demand for most of our products, - increased price competition for our products, - increased risk of excess and obsolete inventories, - excess facilities and manufacturing capacity, and - higher overhead costs, as a percentage of revenues. Recent political and social turmoil in many parts of the world, including actual incidents and potential future acts of terrorism and the current war in Iraq, may continue to put pressure on global economic conditions. These political, social and economic conditions and uncertainties make it extremely difficult for PCTEL and for our customers to accurately forecast and plan future business activities and for us to forecast customer demand for our products. We must forecast and place purchase orders for specialized semiconductor chips several months before we receive purchase orders for our products from our own customers. This forecasting and order lead time requirement limits our ability to react to fluctuations in demand for our products. These fluctuations can be unexpected and may cause us to have excess inventory or a shortage of a particular product. This reduced predictability challenges our ability to operate profitably and to increase revenues. In particular, it is difficult to develop and implement strategies, sustainable business models and efficient operations, and it is difficult for us to effectively manage outsourced relationships. If the current economic or market conditions continue or further deteriorate, there could be additional material adverse impact on our financial position, revenues, results of operations and cash flow. 24

During the second half of 2001, due to the changing market conditions, recent economic downturn and technological innovation, a provision for inventory losses of $10.9 million was charged against operations. Given the volatility of the market, the age of the inventories on hand and the expected introduction of new products later in 2002, we wrote down inventories to net realizable value based on forecasted demand and firm purchase order commitments from our major suppliers in 2001. Actual demand may differ from forecasted demand and such difference may have a material effect on our financial position and result of operations. For the year ended December 31, 2002, we did not record any additional inventory write-downs. We sold part of the written down inventories and recovered $7.2 million of the former write-downs for the year ended December 31, 2002. As of December 31, 2002, the cumulative write-down for excess inventory on hand was $2.1 million. OUR SALES ARE CONCENTRATED AMONG A LIMITED NUMBER OF CUSTOMERS AND THE LOSS OF ONE OR MORE OF THESE CUSTOMERS COULD CAUSE OUR REVENUES TO DECREASE. Our sales are concentrated among a limited number of customers. If we were to lose one or more of these customers, or if one or more of these customers were to delay or reduce purchases of our products, our sales revenues may decrease. For the year ended December 31, 2002, approximately 80% of our revenues were generated by four of our customers, representing 25%, 23%, 23% and 9% of revenues, respectively. All of these customers may in the future decide not to purchase our products at all, purchase fewer products than they did in the past or alter their purchasing patterns, because, among other reasons: - we do not currently have any long-term purchase arrangements or contracts with these or any of our other customers, - our product sales to date have been made primarily on a purchase order basis, which permits our customers to cancel, change or delay product purchase commitments with little or no notice and without penalty, and - many of our customers also have pre-existing relationships with current or potential competitors which may affect our customers' purchasing decisions. We expect that a small number of customers will continue to account for a substantial portion of our revenues for at least the next 12 to 18 months and that a significant portion of our sales will continue to be made on the basis of purchase orders. WE HAVE SIGNIFICANT SALES CONCENTRATED IN ASIA. CONTINUED POLITICAL AND ECONOMIC INSTABILITY IN ASIA AND DIFFICULTY IN COLLECTING ACCOUNTS RECEIVABLE MAY MAKE IT DIFFICULT FOR US TO MAINTAIN OR INCREASE MARKET DEMAND FOR OUR PRODUCTS. Our sales to customers located in Asia accounted for 86% of our total revenues for the year ended December 31, 2002. The predominance of our sales is in Asia, mostly in Taiwan and China, because our customers are primarily motherboard or modem manufacturers that are located there. In many cases, our indirect original equipment manufacturer customers specify that our products be included on the modem boards or motherboards, the main printed circuit board containing the central processing unit of a computer system, that they purchase from board manufacturers, and we sell our products directly to the board manufacturers for resale to our indirect original equipment manufacturer customers, both in the United States and internationally. Due to the industry-wide concentration of modem manufacturers in Asia, we believe that a high percentage of our future sales will continue to be concentrated with Asian customers. As a result, our future operating results could be uniquely affected by a variety of factors outside of our control, including: - delays in collecting accounts receivable, which we have experienced from time to time, - fluctuations in the value of Asian currencies relative to the U.S. dollar, which may make it more costly for us to do business in Asia and which may in turn make it difficult for us to maintain or increase our revenues, 25

- changes in tariffs, quotas, import restrictions and other trade barriers which may make our products more expensive compared to our competitors' products, and - political and economic instability. FAILURE TO MANAGE OUR TECHNOLOGICAL AND PRODUCT GROWTH COULD STRAIN OUR MANAGEMENT, FINANCIAL AND ADMINISTRATIVE RESOURCES. Our ability to successfully sell our products and implement our business plan in rapidly evolving markets requires an effective management planning process. Future product expansion efforts could be expensive and put a strain on our management by significantly increasing the scope of their responsibilities and by increasing the demands on their management abilities during periods of constrained spending. We are focusing on the wireless areas as well as placing substantial effort on sustaining our leadership position in the analog modem space. To effectively manage our growth in these new technologies, we must enhance our marketing, sales, research and development areas. With revenues either stabilizing or declining, these efforts will have to be accomplished with limited resources. This will require management to effectively manage significant technological advancement within reduced budgets. COMPETITION WITHIN THE CONNECTIVITY AND WIRELESS NETWORKING INDUSTRIES IS INTENSE AND IS EXPECTED TO INCREASE SIGNIFICANTLY. OUR FAILURE TO COMPETE SUCCESSFULLY COULD MATERIALLY HARM OUR PROSPECTS AND FINANCIAL RESULTS. The connectivity device and wireless markets are intensely competitive. We may not be able to compete successfully against current or potential competitors. Our current competitors include Agere Systems, Broadcom, Conexant, ESS Technology and Smart Link. We expect competition to increase in the future as current competitors enhance their product offerings, new suppliers enter the connectivity device and wireless markets, new communication technologies are introduced and as additional networks are deployed. In addition, our client software competes with software developed internally by Network Interface Card (NIC) vendors, service providers for local 802.11 networks, and with software developed by large systems integrators. Increased competition could adversely affect our business and operating results through pricing pressures, the loss of market share and other factors. The principal competitive factors affecting wireless markets include the following: - maintaining effective data throughput and coverage area, interference immunity and network security and scalability, - keeping product costs low while, at the same time, increasing roaming capability, decreasing power consumption and the size of products and improving product reliability, ease of use, brand recognition and product features and applications, - integration with existing technology, - maintaining industry standards and obtaining product certifications as wireless networks continue to become more sophisticated, - decreasing product time to market, - complying with changes to government regulations with respect to each country served and related to the use of radio spectrum, and - obtaining favorable OEM relationships, marketing alliances, effective distribution channels. We could, in the future, be at a disadvantage to competitors in both the wireless and broadband markets that have broader distribution channels, brand recognition, extensive patent portfolios and more diversified product lines, particularly 3Com, Alcatel, Analog Devices, GlobespanVirata, Intersil and Proxim. Additionally, numerous companies have announced their intention to develop competing products in the connectivity products market, including several companies offering low-price WLAN products. Competitors in the market for products and technology that enable roaming between and among 802.11 wireless and cellular networks include Aptilo, Boingo, BVRP, Cisco, Colubris, Funk, GRIC, IBM, iPass, ipUnplugged, Microsoft, NetnearU, Nokia, Nomadix, Pronto Networks, Sierra Wireless and Starfish. We could also face future competition from companies that offer alternative communications solutions, or from large computer 26

companies, PC peripheral companies and other large networking equipment companies. Furthermore, we could face competition from certain of our customers, which have, or could acquire, wireless engineering and product development capabilities, or might elect to offer competing technologies. We can offer no assurance that we will be able to compete successfully against these competitors or that the competitive pressures we face will not adversely affect our business or operating results. Many of our present and potential competitors have substantially greater financial, marketing, technical and other resources with which to pursue engineering, manufacturing, marketing, and distribution of their products. These competitors may succeed in establishing technology standards or strategic alliances in the connectivity device and wireless markets, obtain more rapid market acceptance for their products, or otherwise gain a competitive advantage. We can offer no assurance that we will succeed in developing products or technologies that are more effective than those developed by our competitors. Furthermore, we compete with companies that have high volume manufacturing and extensive marketing and distribution capabilities that we do not possess. We can offer no assurance that we will be able to compete successfully against existing and new competitors as the connectivity wireless markets evolve and the level of competition increases. OUR BUSINESS WILL DEPEND ON RAPIDLY EVOLVING TELECOMMUNICATIONS AND INTERNET INDUSTRIES. Our future success is dependent upon the continued growth of the data communications and wireless industries, particularly with regard to Internet usage. The global data communications and Internet industries are evolving rapidly and it is difficult to predict potential growth rates or future trends in technology development. We cannot assure you that the deregulation, privatization and economic globalization of the worldwide telecommunications market that has resulted in increased competition and escalating demand for new technologies and services will continue in a manner favorable to us or our business strategies. In addition, there can be no assurance that the growth in demand for wireless and Internet services, and the resulting need for high speed or enhanced data communications products and wireless systems, will continue at its current rate or at all. OUR REVENUE MAY DECLINE AND OUR ABILITY TO GROW OUR BUSINESS MAY BE THREATENED IF THE DEMAND FOR WIRELESS SERVICES IN GENERAL AND WLAN PRODUCTS IN PARTICULAR DOES NOT CONTINUE TO GROW. Our success in the wireless market is dependent on the continued trend toward wireless telecommunications and data communications services. If the rate of growth slows and service providers reduce their capital investments in wireless infrastructure or fail to expand into new geographic markets, our revenue may decline. Wireless access solutions are unproven in the marketplace and some of the wireless technologies have only been commercially introduced in the last few years. We only began offering wireless products in the second quarter of fiscal 2002. If wireless access technology turns out to be unsuitable for widespread commercial deployment, we may not be able to generate enough sales to achieve and grow our business. We have listed below some of the factors that we believe are key to the success or failure of wireless access technology: - reliability and security of wireless access technology and the perception by end-users of its reliability and security, - capacity to handle growing demands for faster transmission of increasing amounts of data, voice and video, - the availability of sufficient frequencies for network service providers to deploy products at commercially reasonable rates, - cost-effectiveness and performance compared to wire line or other high speed access solutions, whose prices and performance continue to improve, - suitability for a sufficient number of geographic regions, and - availability of sufficient site locations for wireless access. The factors listed above influence our customers' purchase decisions when selecting wireless versus other high speed access technology. For example, because of the frequency with which individuals using cellular phones experience fading or a loss of signal, customers often have the perception that all wireless technologies 27

will have the same reliability constraints even though the wireless technology underlying wireless access products does not have the same problems as cellular phones. In some geographic areas, because of adverse weather conditions that affect wireless transmissions, but not wire line technologies, wireless products are not as successful as wire line technology. In addition, future legislation, legal decisions and regulation relating to the wireless telecommunications industry may slow or delay the deployment of wireless networks. Wireless access solutions, including WLANs, compete with other high-speed access solutions such as digital subscriber lines, cable modem technology, fiber optic cable and other high-speed wire line and satellite technologies. If the market for our wireless solutions fails to develop or develops more slowly than we expect due to this competition, our sales opportunities will be harmed. Many of these alternative technologies can take advantage of existing installed infrastructure and are generally perceived to be reliable and secure. As a result, they have already achieved significantly greater market acceptance and penetration than wireless access technologies. Moreover, current wireless access technologies have inherent technical limitations that may inhibit their widespread adoption in many areas. We expect wireless access technologies to face increasing competitive pressures from both current and future alternative technologies. In light of these factors, many service providers may be reluctant to invest heavily in wireless access solutions, including WLANs. If service providers do not continue to establish WLAN "hot spots," we may not be able to generate sales for our WLAN products and our revenue may decline. CONNECTIVITY DEVICES GENERALLY REQUIRE INDIVIDUAL GOVERNMENT APPROVALS THROUGHOUT THE WORLD TO OPERATE ON LOCAL TELEPHONE NETWORKS. THESE CERTIFICATIONS, COLLECTIVELY REFERRED TO AS HOMOLOGATION, CAN DELAY OR IMPEDE THE ACCEPTANCE OF OUR PRODUCTS ON A WORLDWIDE BASIS. Connectivity products require extensive testing prior to receiving certification by each government to be authorized to connect to their telephone systems. This testing can delay the introduction of or, in extreme cases, prohibit product usage in a particular country. International Telecommunications Union standards seek to provide a worldwide standard to avoid these issues, but they do not eliminate the need for testing in each country. In addition to government certifications, individual Internet service providers can also have unique line conditions that must be addressed. Since most large PC manufacturers want to be able to release their products on a worldwide basis, this entire process can significantly slow the introduction of new products. OUR GROSS MARGINS MAY VARY BASED ON THE MIX OF SALES OF OUR PRODUCTS AND LICENSES OF OUR INTELLECTUAL PROPERTY, AND THESE VARIATIONS MAY CAUSE OUR NET INCOME TO DECLINE. We derive a significant portion of our sales from our software-based connectivity products. We expect gross margins on newly introduced products generally to be higher than our existing products. However, due in part to the competitive pricing pressures that affect our products and in part to increasing component and manufacturing costs, we expect gross margins from both existing and future products to decrease over time. In addition, licensing revenues from our intellectual property historically have provided higher margins than our product sales. Changes in the mix of products sold and the percentage of our sales in any quarter attributable to products as compared to licensing revenues could cause our quarterly results to vary and could result in a decrease in gross margins and net income. WE MAY NEVER ACHIEVE THE ANTICIPATED BENEFITS FROM OUR ACQUISITION OF DYNAMIC TELECOMMUNICATIONS, INC. We acquired Dynamic Telecommunications, Inc. in March 2003 as part of our continuing efforts to expand our wireless business and product offerings. We may experience difficulties in achieving the anticipated benefits of our acquisition of Dynamic Telecommunications. Dynamic Telecommunication's business utilizes software-defined radio technology to optimize and plan wireless networks. This acquisition represents a significant expansion of and new direction for our wireless business. Potential risks with this acquisition include: - possible impairment of relationships with employees and customers as a result of the acquisition of Dynamic Telecommunications; 28

- successfully developing and marketing security-related applications for the software-defined radio technology of Dynamic Telecommunications; - inability to retain key employees of Dynamic Telecommunications; - diversion of management's attention from other business concerns; - impairment of assets related to resulting goodwill, and reductions in our future operating results from amortization of intangible assets; and - difficulties in assimilation of acquired personnel, operations, technologies or products. Furthermore, under the asset purchase agreement, PCTEL has an obligation to pay additional consideration to Dynamic Telecommunications if the business of Dynamic Telecommunications meets specified revenue targets. Any such earn-out payments may be paid, at our option, in cash or a combination of cash and our common stock. If the earn-out payments are paid in common stock, this would dilute our existing stockholders. WE MAY EXPERIENCE INTEGRATION OR OTHER PROBLEMS WITH POTENTIAL ACQUISITIONS, WHICH COULD HAVE AN ADVERSE EFFECT ON OUR BUSINESS OR RESULTS OF OPERATIONS. NEW ACQUISITIONS COULD DILUTE THE INTERESTS OF EXISTING STOCKHOLDERS, AND THE ANNOUNCEMENT OF NEW ACQUISITIONS COULD RESULT IN A DECLINE IN THE PRICE OF OUR COMMON STOCK. We may in the future make acquisitions of, or large investments in, businesses that offer products, services, and technologies that we believe would complement our products or services, including wireless products and technology. We may also make acquisitions of, or investments in, businesses that we believe could expand our distribution channels. Even if we were to announce an acquisition, we may not be able to complete it. Additionally, any future acquisition or substantial investment would present numerous risks, including: - difficulty in integrating the technology, operations or work force of the acquired business with our existing business, - disruption of our on-going business, - difficulty in realizing the potential financial or strategic benefits of the transaction, - difficulty in maintaining uniform standards, controls, procedures and policies, - possible impairment of relationships with employees and customers as a result of integration of new businesses and management personnel, and - impairment of assets related to resulting goodwill, and reductions in our future operating results from amortization of intangible assets. We expect that future acquisitions could provide for consideration to be paid in cash, shares of our common stock, or a combination of cash and our common stock. If consideration for a transaction is paid in common stock, this would further dilute our existing stockholders. OUR REVENUES MAY FLUCTUATE EACH QUARTER DUE TO BOTH DOMESTIC AND INTERNATIONAL SEASONAL TRENDS. We have experienced and expect to continue to experience seasonality in sales of our connectivity products. These seasonal trends materially affect our quarter-to-quarter operating results. Our revenues are typically higher in the third and fourth quarters due to back-to-school and holiday purchases as well as purchase decisions made based on the calendar year-end budgeting requirements of purchasers of our products. We are currently expanding our sales in international markets, particularly in Asia. To the extent that our revenues in Asia or other parts of the world increase in future periods, we expect our period-to-period revenues to reflect seasonal buying patterns in these markets. 29

ANY DELAYS IN OUR NORMALLY LENGTHY SALES CYCLES COULD RESULT IN CUSTOMERS CANCELING PURCHASES OF OUR PRODUCTS. Sales cycles for our products with major customers are lengthy, often lasting nine months or longer. In addition, it can take an additional nine months or more before a customer commences volume production of equipment that incorporates our products. We expect sales cycles for our wireless products to be lengthy as well. Sales cycles with our major customers are lengthy for a number of reasons, including: - our original equipment manufacturer customers usually complete a lengthy technical evaluation of our products, over which we have no control, before placing a purchase order, - the commercial integration of our products by an original equipment manufacturer is typically limited during the initial release to evaluate product performance, and - the development and commercial introduction of products incorporating new technologies frequently are delayed. A significant portion of our operating expenses is relatively fixed and is based in large part on our forecasts of volume and timing of orders. The lengthy sales cycles make forecasting the volume and timing of product orders difficult. In addition, the delays inherent in lengthy sales cycles raise additional risks of customer decisions to cancel or change product phases. If customer cancellations or product changes were to occur, this could result in the loss of anticipated sales without sufficient time for us to reduce our operating expenses. WE RELY HEAVILY ON OUR INTELLECTUAL PROPERTY RIGHTS, WHICH OFFER ONLY LIMITED PROTECTION AGAINST COMPANIES WHO MAY INFRINGE UPON OUR INTELLECTUAL PROPERTY. UNAUTHORIZED USE OF OUR TECHNOLOGY MAY RESULT IN DEVELOPMENT OF PRODUCTS THAT COMPETE WITH OUR PRODUCTS, WHICH COULD CAUSE OUR MARKET SHARE AND OUR REVENUES TO BE REDUCED. Our success is heavily dependent upon our proprietary technology. We rely primarily on a combination of patent, copyright and trademark laws, trade secrets, confidentiality procedures and contractual provisions to protect our proprietary rights. These means of protecting our proprietary rights may not be adequate. We have over 80 patents granted or pending addressing both essential International Telecommunications Union and non-essential technologies. Pending patents may never be issued. These patents, both issued and pending, may not provide sufficiently broad protection against third party infringement lawsuits or they may not prove enforceable in actions against alleged infringers. Despite precautions that we take, it may be possible for unauthorized third parties to copy aspects of our current or future products or to obtain and use information that we regard as proprietary. We may provide our licensees with access to the proprietary information underlying our licensed applications. Additionally, our competitors may independently develop similar or superior technology. Finally, policing unauthorized use of software is difficult, and some foreign laws, including those of various countries in Asia, do not protect our proprietary rights to the same extent as United States laws. Litigation may be necessary in the future to enforce our intellectual property rights, to protect our trade secrets or to determine the validity and scope of the proprietary rights of others. Litigation could result in substantial costs and diversion of resources. WE ARE SUBJECT TO LITIGATION REGARDING INTELLECTUAL PROPERTY, WHICH HAS DIVERTED MANAGEMENT ATTENTION, IS COSTLY TO DEFEND AND COULD PREVENT US FROM USING OR SELLING THE CHALLENGED TECHNOLOGY. In recent years, there has been significant litigation in the United States involving intellectual property rights, including rights of companies in our industry. We have from time to time in the past received correspondence from third parties alleging that we infringe the third party's intellectual property rights. We expect these claims to increase as our intellectual property portfolio becomes larger. Intellectual property claims against us, and any resulting lawsuit, may result in our incurring significant expenses and could subject us to significant liability for damages and invalidate what we currently believe are our proprietary rights. These lawsuits, regardless of their merits or success, would likely be time-consuming and expensive to resolve and 30

could divert management's time and attention. Any potential intellectual property litigation against us could also force us to do one or more of the following: - cease selling, incorporating or using products or services that incorporate the infringed intellectual property, - obtain from the holder of the infringed intellectual property a license to sell or use the relevant technology, which license may not be available on acceptable terms, if at all, or - redesign those products or services that incorporate the disputed intellectual property, which could result in substantial unanticipated development expenses. - the recent patent lawsuit with 3Com. If we are subject to a successful claim of infringement and we fail to develop non-infringing intellectual property or license the infringed intellectual property on acceptable terms and on a timely basis, our revenues could decline or our expenses could increase. We may in the future initiate claims or litigation against third parties for infringement of our intellectual property rights or to determine the scope and validity of our proprietary rights or the proprietary rights of our competitors. These claims could also result in significant expense and the diversion of technical and management personnel's attention. WE HAVE ACCRUED FOR NEGOTIATED LICENSE FEES AND ESTIMATED ROYALTY SETTLEMENTS RELATED TO EXISTING AND PROBABLE CLAIMS OF PATENT INFRINGEMENT. IF THE ACTUAL SETTLEMENTS EXCEED THE AMOUNTS ACCRUED, ADDITIONAL LOSSES COULD BE SIGNIFICANT, WHICH WOULD ADVERSELY AFFECT FUTURE OPERATING RESULTS. We recorded an accrual for estimated future royalty payments for relevant technology of others used in our product offerings in accordance with SFAS No. 5, "Accounting for Contingencies." The estimated royalties accrual reflects management's broader litigation and cost containment strategies, which may include alternatives such as entering into cross-licensing agreements, cash settlements and/or ongoing royalties based upon our judgment that such negotiated settlements would allow management to focus more time and financial resources on the ongoing business. Accordingly, the royalties accrual reflects estimated costs of settling claims rather than continuing to defend our legal positions, and is not intended to be, nor should it be interpreted as, an admission of infringement of intellectual property, valuation of damages suffered by any third parties or any specific terms that management has predetermined to agree to in the event of a settlement offer. We have accrued our best estimate of the amount of royalties payable for royalty agreements already signed and unasserted, but probable, claims of others using advice from third party technology advisors and historical settlements. Should the final license agreements result in royalty rates significantly higher than our current estimates, our business, operating results and financial condition could be materially and adversely affected. IN ORDER FOR US TO OPERATE AT A PROFITABLE LEVEL AND CONTINUE TO INTRODUCE AND DEVELOP NEW PRODUCTS FOR EMERGING MARKETS, WE MUST ATTRACT AND RETAIN OUR EXECUTIVE OFFICERS AND QUALIFIED TECHNICAL, SALES, SUPPORT AND OTHER ADMINISTRATIVE PERSONNEL. Our past performance has been and our future performance is substantially dependent on the performance of our current executive officers and certain key engineering, sales, marketing, financial, technical and customer support personnel. If we lose the services of our executives or key employees, replacements could be difficult to recruit and, as a result, we may not be able to grow our business. Competition for personnel, especially qualified engineering personnel, is intense. We are particularly dependent on our ability to identify, attract, motivate and retain qualified engineers with the requisite education, background and industry experience. As of December 31, 2002, we employed a total of 47 people in our engineering department. If we lose the services of one or more of our key engineering personnel, our ability to continue to develop products and technologies responsive to our markets will be impaired. 31

WE MAY HAVE TO CONTINUE TO REDUCE OUR HEADCOUNT, WHICH MAY HINDER OUR ABILITY TO DEVELOP AND GROW OUR BUSINESS, WHICH MAY ULTIMATELY AFFECT OUR ABILITY TO BE PROFITABLE. In 2001, we reduced our workforce by 90 employees. In 2002, we further reduced our workforce by 27 employees. If economic conditions and the PC market do not improve, or if we decide to pursue new business structures or focus on different sectors, we may need to reduce our workforce further. This may result in, as it has in the past, additional charges and costs relating to severance and employment costs, as well as the closure of excess facilities. If such an action is taken, it may temporarily inhibit our ability to develop new products, our profitability and our ability to attract and retain other employees. WE HAVE PUT IN PLACE COST REDUCTION PROGRAMS TO REDUCE OUR EXPENSES FOR THE HOST SIGNAL PROCESSING BUSINESSES. WE MAY HAVE TO CONTINUE TO REDUCE OUR EXPENSES IN THIS BUSINESS, WHICH MAY HINDER OUR ABILITY TO BECOME PROFITABLE. As part of the cost reduction programs put in place on the HSP business in 2001 and 2002, we reduced our workforce by 90 employees in 2001 and an additional 27 employees in 2002. If economic conditions and the PC market do not improve, we may need to continue to reduce expenses relating to the host signal processing business. This may result in, as it has in the past, additional charges and costs relating to severance and employment costs, as well as the closure of excess facilities. If such an action is taken, it may temporarily inhibit our ability to become profitable. WE RELY ON INDEPENDENT COMPANIES TO MANUFACTURE, ASSEMBLE AND TEST OUR PRODUCTS. IF THESE COMPANIES DO NOT MEET THEIR COMMITMENTS TO US, OUR ABILITY TO SELL PRODUCTS TO OUR CUSTOMERS WOULD BE IMPAIRED. We do not have our own manufacturing, assembly or testing operations. Instead, we rely on independent companies to manufacture, assemble and test the semiconductor chips that are integral components of our products. Most of these companies are located outside of the United States. There are many risks associated with our relationships with these independent companies, including reduced control over: - delivery schedules, - quality assurance, - manufacturing costs, - capacity during periods of excess demand, and - access to process technologies. In addition, the location of these independent parties outside of the United States creates additional risks resulting from the foreign regulatory, political and economic environments in which each of these companies exists. Further, some of these companies are located near earthquake fault lines. While we have not experienced any material problems to date, failures or delays by our manufacturers to provide the semiconductor chips that we require for our products, or any material change in the financial arrangements we have with these companies, could have an adverse impact on our ability to meet our customer product requirements. We design, market and sell application-specific integrated circuits and outsource the manufacturing and assembly of the integrated circuits to third party fabricators. The majority of our products and related components are manufactured by three principal companies: Taiwan Semiconductor Manufacturing Corporation, ADMTek and Silicon Laboratories Inc. We expect to continue to rely upon these third parties for these services. Currently, the data access arrangement chips used in our soft modem products are provided by a sole source, Silicon Laboratories, on a purchase order basis, and we have only a limited guaranteed supply of data access arrangement chips through a long-term business arrangement with Silicon Laboratories. We have no guaranteed supply or long-term contract agreements with any of our other suppliers. Although we believe that we would be able to qualify an alternative manufacturing source for data access arrangement chips within a relatively short period of time, this transition, if necessary, could result in loss of purchase orders or customer relationships, which could result in decreased revenues. In addition, many of the potential alternative sources of components for our products that could potentially provide us with components have existing relationships with our competitors or potential competitors and may be unwilling to enter into agreements with us. If our 32

relationship with Silicon Laboratories, or any relationship we enter in the future with other manufacturers, is impaired for competitive reasons or otherwise, this could prevent us from being able to deliver our products, damage our customer relationships and materially adversely affect our operating results and financial condition. UNDETECTED SOFTWARE ERRORS OR FAILURES FOUND IN NEW PRODUCTS MAY RESULT IN A LOSS OF CUSTOMERS OR A DELAY IN MARKET ACCEPTANCE OF OUR PRODUCTS. Our products may contain undetected software errors or failures when first introduced or as new versions are released. To date, we have not been made aware of any significant software errors or failures in our products. However, despite testing by us and by current and potential customers, errors may be found in new products after commencement of commercial shipments, resulting in loss of customers or delay in market acceptance. OUR FINANCIAL POSITION AND RESULTS OF OPERATIONS MAY BE ADVERSELY AFFECTED IF TAX AUTHORITIES CHALLENGE US AND THE TAX CHALLENGES RESULT IN UNFAVORABLE OUTCOMES. We currently have subsidiaries in Japan, France, Taiwan and Yugoslavia as well as branch offices in Taiwan and Korea. The complexities resulting from by operating in several different tax jurisdictions inevitably leads to an increased exposure to worldwide tax challenges OUR CALIFORNIA FACILITIES AND THE FACILITIES OF SOME OF THE INDEPENDENT COMPANIES UPON WHICH WE RELY TO MANUFACTURE, ASSEMBLE AND TEST OUR PRODUCTS ARE LOCATED IN REGIONS THAT ARE SUBJECT TO EARTHQUAKES AND OTHER NATURAL DISASTERS. Our California facilities are located near major earthquake fault lines. If there is a major earthquake or any other natural disaster in a region where one of our facilities is located, it could significantly disrupt our operations in that region. In addition, some of the independent companies upon which we rely to manufacture substantially all of our products are located outside of the United States in places that have experienced significant earthquakes in the past and could be subject to additional earthquakes. Any earthquake or other natural disaster in regions where the companies that manufacture, assemble and test our products are located could materially disrupt production capabilities and could result in our experiencing a significant delay in delivery, or substantial shortage, of our products. RISKS RELATED TO OUR INDUSTRY IF THE MARKET FOR PRODUCTS USING OUR HOST SIGNAL PROCESSING TECHNOLOGY DOES NOT GROW AS WE PLAN, OR IF OUR PRODUCTS ARE NOT ACCEPTED IN THESE MARKETS, OUR REVENUES MAY BE ADVERSELY AFFECTED. Our success depends on market demand and growth patterns for products using our host signal processing, or HSP, technology in soft analog modems. Market success for our products depends primarily on cost and performance benefits relative to competing solutions. Although we have shipped a significant number of soft modems since we began commercial sales of these products, the current level of demand for soft modems may not continue or increase. Further, our success in the soft modem market is dependent on developing, selling and supporting next generation products and applications. If these new products are not accepted in the markets as they are introduced, our revenues and profitability will be negatively affected. IF THE WIRELESS MARKET DOES NOT GROW AS WE ANTICIPATE, OR IF OUR WIRELESS PRODUCTS ARE NOT ACCEPTED IN THESE MARKETS, OUR REVENUES MAY BE ADVERSELY AFFECTED. Our future success depends on market demand and growth patterns for products using wireless technology. Our wireless products may not be successful as a result of the following reasons: - intense competition in the wireless market, - our relative inexperience in developing, marketing, selling and supporting these products, and - inability of these products to complement our legacy business. 33

If these new wireless products are not accepted in the markets as they are introduced, our revenues and profitability will be negatively affected. OUR INDUSTRY IS CHARACTERIZED BY RAPIDLY CHANGING TECHNOLOGIES. IF WE ARE NOT SUCCESSFUL IN RESPONSE TO RAPIDLY CHANGING TECHNOLOGIES, OUR PRODUCTS MAY BECOME OBSOLETE AND WE MAY NOT BE ABLE TO COMPETE EFFECTIVELY. The Internet access business is characterized by rapidly changing technologies, short product life cycles and frequent new product introductions. To remain competitive, we have successfully introduced several new products with advanced technologies since PCTEL was founded. We continue to develop and sell advanced analog modem products in order to remain competitive in our core business. The market for high speed Internet connectivity is also characterized by rapidly changing technologies and strong competition, such as broadband and wireless solutions, which provide higher modem speeds and faster Internet access. While these alternative technologies offer much faster data rates, they are comparatively more costly than analog modems. They are also not as widely available in the world markets. We will continue to evaluate, develop and introduce technologically advanced products that will position us for possible growth in the Internet access market. If we are not successful in response to rapidly changing technologies, our products may become obsolete and we may not be able to compete effectively. CHANGES IN LAWS OR REGULATIONS, IN PARTICULAR, FUTURE FCC REGULATIONS AFFECTING THE BROADBAND MARKET, INTERNET SERVICE PROVIDERS, OR THE COMMUNICATIONS INDUSTRY, COULD NEGATIVELY AFFECT OUR ABILITY TO DEVELOP NEW TECHNOLOGIES OR SELL NEW PRODUCTS AND THEREFORE, REDUCE OUR PROFITABILITY. The jurisdiction of the Federal Communications Commission, or FCC, extends to the entire communications industry, including our customers and their products and services that incorporate our products. Future FCC regulations affecting the broadband access services industry, our customers or our products may harm our business. For example, future FCC regulatory policies that affect the availability of data and Internet services may impede our customers' penetration into their markets or affect the prices that they are able to charge. In addition, international regulatory bodies are beginning to adopt standards for the communications industry. Although our business has not been hurt by any regulations to date, in the future, delays caused by our compliance with regulatory requirements may result in order cancellations or postponements of product purchases by our customers, which would reduce our profitability. RISKS RELATED TO OUR COMMON STOCK OUR STOCK PRICE MAY BE VOLATILE BASED ON A NUMBER OF FACTORS, SOME OF WHICH ARE NOT IN OUR CONTROL. The trading price of our common stock has been highly volatile. Our stock price could be subject to wide fluctuations in response to a variety of factors, many of which are out of our control, including: - actual or anticipated variations in quarterly operating results, - announcements of technological innovations, - new products or services offered by us or our competitors, - changes in financial estimates by securities analysts, - conditions or trends in our industry, - our announcement of significant acquisitions, strategic partnerships, joint ventures or capital commitments, - additions or departures of key personnel, - mergers and acquisitions, and - sales of common stock by us or our stockholders. 34

In addition, the NASDAQ National Market, where many publicly held telecommunications companies, including PCTEL, are traded, often experiences extreme price and volume fluctuations. These fluctuations often have been unrelated or disproportionate to the operating performance of these companies. In the past, following periods of volatility in the market price of an individual company's securities, securities class action litigation often has been instituted against that company. This type of litigation, if instituted, could result in substantial costs and a diversion of management's attention and resources. PROVISIONS IN OUR CHARTER DOCUMENTS MAY INHIBIT A CHANGE OF CONTROL OR A CHANGE OF MANAGEMENT WHICH MAY CAUSE THE MARKET PRICE FOR OUR COMMON STOCK TO FALL AND MAY INHIBIT A TAKEOVER OR CHANGE IN OUR CONTROL THAT A STOCKHOLDER MAY CONSIDER FAVORABLE. Provisions in our charter documents could discourage potential acquisition proposals and could delay or prevent a change in control transaction that our stockholders may favor. These provisions could have the effect of discouraging others from making tender offers for our shares, and as a result, these provisions may prevent the market price of our common stock from reflecting the effects of actual or rumored takeover attempts and may prevent stockholders from reselling their shares at or above the price at which they purchased their shares. These provisions may also prevent changes in our management that our stockholders may favor. Our charter documents do not permit stockholders to act by written consent, do not permit stockholders to call a stockholders meeting, and provide for a classified board of directors, which means stockholders can only elect, or remove, a limited number of our directors in any given year. Our board of directors has the authority to issue up to 5,000,000 shares of preferred stock in one or more series. The board of directors can fix the price, rights, preferences, privileges and restrictions of this preferred stock without any further vote or action by our stockholders. The rights of the holders of our common stock will be affected by, and may be adversely affected by, the rights of the holders of any preferred stock that may be issued in the future. Further, the issuance of shares of preferred stock may delay or prevent a change in control transaction without further action by our stockholders. As a result, the market price of our common stock may drop. ITEM 7A: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK We are exposed to market risks. We manage the sensitivity of our results of operations to credit risks and interest rate risk by maintaining a conservative investment portfolio which is comprised solely of highly-rated, short-term investments. We have investments in both fixed rate and floating rate interest earning instruments. Fixed rate securities may have their fair market value adversely impacted based on the duration of such investments if interest rates rise, while floating rate securities and the reinvestment of funds from matured fixed rate securities may produce less income than expected if interest rates fall. Due in part to these factors, our future investment income may fall short of expectations. The primary objective of our investment activities is to preserve principal while at the same time maximizing yields without significantly increasing risk. To achieve this objective, we maintain our portfolio of cash equivalents, short-term and long-term investments in a variety of securities, including both government and corporate obligations with ratings of A or better, and money market funds. We have accumulated a $263,000 unrealized holding gain as of December 31, 2002. We do not hold or issue derivative, derivative commodity instruments or other financial instruments for trading purposes. We are exposed to currency fluctuations, as we sell our products internationally. We manage the sensitivity of our international sales by denominating all transactions in U.S. dollars. Our exposure to foreign exchange rate fluctuations arises in part from translation of the financial statements of foreign subsidiaries into U.S. dollars in consolidation. As exchange rates vary, these results, when translated, may vary from expectations and adversely impact overall expected profitability. The effect of foreign exchange rate fluctuations for the years ended December 31, 2002 and 2001 was $35,000 and $0, respectively. 35

ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA PCTEL, INC. INDEX TO THE CONSOLIDATED FINANCIAL STATEMENTS

REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Shareholders of PCTEL, Inc.: In our opinion, the consolidated financial statements listed in the accompanying index present fairly, in all material respects, the financial position of PCTEL, Inc. and its subsidiaries at December 31, 2002, and the results of their operations and their cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the accompanying index presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements and financial statement schedule are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audit. We conducted our audit of these statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit provide a reasonable basis for our opinion. The financial statements of PCTEL, Inc. as of December 31, 2001, and for each of the two years in the period ended December 31, 2001, were audited by other independent accountants who have ceased operations. Those independent accountants expressed an unqualified opinion on those financial statements in their report dated January 22, 2002. (except with respect to the matters discussed in Note 11, as to which the date was March 27, 2002) As discussed in Note 2 to the Consolidated Financial Statements, effective January 1, 2002, the Company changed its method of accounting for goodwill in accordance with Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets". PRICEWATERHOUSECOOPERS LLP San Jose, California February 10, 2003, except as to note 16, which is as of March 21, 2003 37

THE FOLLOWING REPORT IS A COPY OF A REPORT PREVIOUSLY ISSUED BY ARTHUR ANDERSEN LLP AND HAS NOT BEEN REISSUED BY ARTHUR ANDERSEN LLP. THE DISCLOSURES IN NOTES 11 REFERRED TO IN THE ARTHUR ANDERSEN REPORT BELOW ARE INCLUDED IN NOTE 12 IN THE FISCAL 2002 CONSOLIDATED FINANCIAL STATEMENTS. REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To PCTEL, Inc.: We have audited the accompanying consolidated balance sheets of PCTEL, Inc. (a Delaware corporation) and subsidiaries as of December 31, 2001 and 2000 and the related consolidated statements of operations, stockholders' equity and cash flows for each of the three years in the period ended December 31, 2001. These financial statements and the schedule referred to below are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of PCTEL, Inc. and subsidiaries as of December 31, 2001 and 2000, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2001 in conformity with accounting principles generally accepted in the United States of America. Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The schedule listed in Item 14(a)2 is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in the audits of the basic consolidated financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. ARTHUR ANDERSEN LLP San Jose, California January 22, 2002 (except with respect to the matters discussed in Note 11, as to which the date is March 27, 2002) 38

PCTEL, INC. CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE DATA)

The accompanying notes are an integral part of these consolidated financial statements. 39

PCTEL, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE DATA)

The accompanying notes are an integral part of these consolidated financial statements. 40

PCTEL, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (IN THOUSANDS)

The accompanying notes are an integral part of these consolidated financial statements. 41

PCTEL, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)

The accompanying notes are an integral part of these consolidated financial statements. 42

PCTEL, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED: DECEMBER 31, 2002 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES NATURE OF OPERATIONS We were originally incorporated in California in February 1994, and in July 1998, we reincorporated in Delaware. We provide cost-effective software-based communications solutions that address high-speed Internet connectivity requirements for existing and emerging technologies. Our communications products enable Internet access through PCs and alternative Internet access devices. Our soft modem products consist of a hardware chipset containing a proprietary host signal processing software architecture which allows for the utilization of the computational and processing resources of a host central processor, effectively replacing special-purpose hardware required in conventional hardware-based modems. Together, the combination of the chipset and software drivers are a component part within a computer which allows for telecommunications connectivity. By replacing hardware with a software solution, our host signal processing technology lowers costs while enhancing capabilities. Our strategy is to broaden product offerings that enable cost-effective access in both wired and wireless environments. In May 2002, we acquired the assets of cyberPIXIE, a wireless access provider. The acquisition of cyberPIXIE is consistent with our strategy and permits us to participate in a new emerging market. As a result of the acquisition, we obtained products and technology that will enable roaming between and among 802.11 wireless and cellular networks. Our wireless product portfolio consists of both PC client and network infrastructure products branded as our Segue(TM) product line. Our wireless client product is a PC based software solution that facilitates roaming and connection to wireless networks. These networks may be public wireless local area network ("WLAN") hotspots, and cellular data networks (wireless wide area networks), as well as private enterprise and home WLANs. Our client products are offered as custom branded offerings associated with a particular carrier and typically includes carrier specific'service finder' location databases. Our client product offers a superior end user experience while simultaneously reducing the costs associated with typical end user support problems that our product addresses. Our infrastructure products consist of software programs and third party computing platforms (embedded or PC servers) that enable the deployment of public WLANs. Our gateway product aggregates WLAN traffic from multiple access points, supports proprietary end user features, provides location specific content, and supports industry standard RADIUS compliant end user authentication and accounting. Our WLAN controller further aggregates gateway traffic and provides storage for end user databases, subscription plans, and central control of gateway management functions. We are subject to certain risks including the impact of the continued economic slowdown, concentration of sales among a limited number of customers, continuing decreases in the average selling prices of our products, concentration of sales in Asia, the Company's ability to develop and successfully introduce new and enhanced products such as wireless products, the outcome of potential litigation involving intellectual property, competition from larger, more established companies and dependence on key suppliers. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the periods reported. Actual results could differ from those estimates. 43

PCTEL, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) FOR THE YEAR ENDED: DECEMBER 31, 2002 BASIS OF CONSOLIDATION AND FOREIGN CURRENCY TRANSLATION We use the United States dollar as the functional currency for our financial statements, including the financial statements of our subsidiaries in foreign countries, with the exception of our Japanese subsidiary for which the functional currency is the Japanese Yen. Assets and liabilities of our Japanese operations are translated to U.S. dollars at the exchange rate in effect at the applicable balance sheet date, and revenues and expenses are translated using average exchange rates prevailing during that period. Translation gains (losses) of our Japanese subsidiary are recorded in accumulated other comprehensive income as a component of stockholders' equity. All gains and losses resulting from other transactions originally in foreign currencies and then translated into U.S. dollars are included in net income. At December 31, 2002 the cumulative translation adjustment was $35,000. As of December 31, 2002, we had subsidiaries in Japan, France, Taiwan and Yugoslavia. These consolidated financial statements include the accounts of PCTEL and our subsidiaries after eliminating intercompany accounts and transactions. CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS We divide our financial instruments into three different classifications. Cash equivalents: Are money market and debt instruments that mature within 90 days after we originally purchase them. Restricted cash: Is a certificate of deposit that supports a stand-by letter of credit in connection with facilities lease obligations and is restricted for use by the Company. Short-term investments: Are marketable debt instruments that generally mature between three months and two years from the date we purchase them. All of our short-term investments are classified as current assets and available-for-sale. As of December 31, 2002, short-term investments consisted of high-grade corporate securities with maturity dates of approximately five months to two years. These investments are recorded at current fair market value and any unrealized holding gains and losses (based on the difference between market price and book value) are reflected as other comprehensive income/loss in the stockholders' equity section of the balance sheet. We have accumulated a $263,000 unrealized holding gain as of December 31, 2002. Realized gains and losses and declines in value of securities judged to be other than temporary are included in interest income (expense) and have not been significant to date. Interest and dividends of all securities are included in interest income. The carrying amounts reported for cash equivalents and short-term investments are considered to approximate fair values based upon the short maturities of these financial statements. CONCENTRATIONS OF CREDIT RISK AND OTHER RISKS AND UNCERTAINTIES Financial instruments that potentially subject us to credit risk consist primarily of short-term investments and trade receivables. 44

PCTEL, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) FOR THE YEAR ENDED: DECEMBER 31, 2002 To mitigate credit risk related to short-term investments, we maintain our portfolio of cash equivalents and short-term investments with reputable financial institutions and in a variety of securities, including both government and corporate obligations with ratings of A or better and money market funds. For trade receivables, credit risk is the potential for a loss due to a customer not meeting its payment obligations. Our customers are concentrated in the personal computer industry and modem board manufacturer industry segment and in certain geographic locations. Estimates are used in determining an allowance for amounts which we may not be able to collect based on current trends, the length of time receivables are past due and historical collection experience. Provisions for and recovery of bad debts are recorded against revenue in our consolidated statements of operations. We perform ongoing evaluations of our customers' credit limits financial condition and generally require no collateral. As of December 31, 2002, three customers accounted for approximately 33%, 30% and 21% of gross accounts receivable, respectively. As of December 31, 2001, two customers accounted for approximately 48% and 22% of gross accounts receivable. For the years ended December 31, 2002, 2001 and 2000, we purchased integrated circuits from a limited number of vendors. If these vendors are unable to provide integrated circuits in a timely manner and we are unable to find alternative vendors, our business, operating results and financial condition could be materially adversely affected. The majority of our revenues are derived from a limited number of products utilizing host signal processing technology. The market for these products is characterized by frequent transitions in which products rapidly incorporate new features and performance standards. A failure to develop products with required feature sets or performance standards or a delay in bringing a new product to market could adversely affect our operating results. In addition, continuing decreases in the average selling prices of our products could affect our revenues and operating results. INVENTORIES Inventories are stated at the lower of cost or market and include material, labor and overhead costs. Inventories as of December 31, 2002 and 2001 were composed of finished goods only. We regularly monitor inventory quantities on hand. Based on our current estimated requirements, it was determined that there was excess inventory and those excess amounts were fully reserved as of December 31, 2002 and 2001. Due to competitive pressures and technological innovation, it is possible that these estimates could increase in the near term. For the year ended December 31, 2002, we did not record any additional inventory write-downs. We sold part of the written down inventories and recovered $7.2 million of the former write-downs for the year ended December 31, 2002. As of December 31, 2002, the allowance for inventory losses was $2.1 million. PREPAID AND OTHER ASSETS Prepaid and other assets are stated at cost and are amortized over their useful lives (up to one year) of the assets. 45

PCTEL, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) FOR THE YEAR ENDED: DECEMBER 31, 2002 Prepaid and other assets consists of the following (in thousands):

PROPERTY AND EQUIPMENT Property and equipment are stated at cost and are depreciated using the straight-line method over the estimated useful lives (three to seven years) of the assets. Leasehold improvements are amortized over the corresponding lease term. Property and equipment consists of the following (in thousands):

SOFTWARE DEVELOPMENT COSTS We account for software development costs in accordance with SFAS No. 86, "Accounting for the Costs of Computer Software to be Sold, Leased or Otherwise Marketed." Our products include a software component. To date, we have expensed all software development costs because these costs were incurred prior to the products reaching technological feasibility. REVENUE RECOGNITION Revenues consist primarily of sales of products to original equipment manufacturers ("OEMs") and distributors. Revenues from sales to customers are recognized upon shipment when title and risk of loss passes to the customers, when the price is fixed or determinable and when there is evidence of an arrangement, unless we have future obligations or have to obtain customer acceptance, in which case revenue is deferred until such obligations have been satisfied or customer acceptance has been achieved. We provide for estimated sales returns and customer rebates related to sales to OEMs at the time of shipment. Customer rebates are recorded against revenues. Once the gross amount has been collected, the accrued customer rebate is then reclassified to accrued liabilities. As of December 31, 2002 and 2001, we have an allowance for customer rebates recorded against accounts receivable of $95,000 and $200,000, respectively, and accrued customer rebates of $1.7 million and $2.1 million, respectively, presented as current accrued liabilities on the balance sheet. Accrued customer rebates will be paid to the customers, upon request, in the future unless they are forfeited by the customer. 46

PCTEL, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) FOR THE YEAR ENDED: DECEMBER 31, 2002 Revenues from sales to distributors are made under agreements allowing price protection and rights of return on unsold products. We record revenue relating to sales to distributors only when the distributors have sold the product to end-users. Customer payment terms generally range from letters of credit collectible upon shipment to open accounts payable 60 days after shipment. Royalty revenue is recognized when confirmation of royalties due to us is received from licensees or for non-refundable minimal royalty agreements, over the period that the Company provides support to the customer and where we offer extended payment terms, as payments are received. Furthermore, revenues from technology licenses are recognized after delivery has occurred, the amount is fixed or determinable and collection is reasonably assured. To the extent there are extended payment terms on these contracts, revenue is recognized as the payments become due and the cancellation privilege lapses. To date, we have not offered post-contract customer support. In instances where the Company provides non-recurring engineering services to customers, the Company recognizes revenue as the services are completed, using the percentage of completion basis of accounting in accordance with Statement of Position 81-1, "Accounting for Performance and Construction Type Contracts." INCOME TAXES We provide for income taxes under the provisions of SFAS No. 109, "Accounting for Income Taxes". SFAS No. 109 requires an asset and liability based approach in accounting for income taxes. Deferred income tax assets and liabilities are recorded based on the differences between the financial statement and tax bases of assets and liabilities using enacted tax rates. Valuation allowances are provided against assets which are not likely to be realized. STOCK-BASED COMPENSATION We use the intrinsic value method of Accounting Principles Board Opinion No. 25 ("APB 25"), "Accounting for Stock Issued to Employees," and its interpretations in accounting for our employee stock options Pro forma information regarding net income (loss) and net income (loss) per share as if we recorded compensation expense based on the fair value of stock-based awards have been presented in accordance with Statement of Financial Accounting Standards No. 148, "Accounting for Stock-Based Compensation -- Transition and Disclosure" and are as follows for the years ended December 31, 2002, 2001 and 2000 (in thousands, except per share data):

PCTEL, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) FOR THE YEAR ENDED: DECEMBER 31, 2002 The Company calculated the fair value of each option grant on the date of grant using the Black-Scholes option pricing model as prescribed by SFAS 123 using the following assumptions:

The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options, which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility and expected option life. Because our employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate the existing models may not necessarily provide a reliable single measure of the fair value of our employee stock options. Based on the Black-Scholes option pricing model, the weighted average estimated fair value of employee stock option grants was $3.78 for 2002, $4.11 for 2001 and $16.96 for 2000. Restricted stock awards are recorded at the fair market value of the stock on the date of grant and is expensed over the vesting period. EARNINGS PER SHARE We compute earnings per share in accordance with SFAS No. 128, "Earnings Per Share". SFAS No. 128 requires companies to compute net income per share under two different methods, basic and diluted, and present per share data for all periods in which statements of operations are presented. Basic earnings per share is computed by dividing net income by the weighted average number of shares of common stock outstanding, less shares subject to repurchase. Diluted earnings per share is computed by dividing net income by the weighted average number of common stock and common stock equivalents outstanding. Common stock equivalents consist of stock options and warrants using the treasury stock method. Common stock options and warrants are excluded from the computation of diluted earnings per share if their effect is anti-dilutive. The weighted average common stock option grants excluded from the calculations of diluted net loss per share were 200,000 for both the years ended December 31, 2002 and 2001. 48

PCTEL, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) FOR THE YEAR ENDED: DECEMBER 31, 2002 The following table provides a reconciliation of the numerators and denominators used in calculating basic and diluted earnings per share for the years ended December 31, 2002, 2001 and 2000, respectively (in thousands, except per share data):

GOODWILL AND OTHER INTANGIBLE ASSETS DISCLOSURE In July 2001, the Financial Accounting Standards Board ("FASB") issued SFAS No.'s 141 and 142, "Business Combinations" and "Goodwill and Other Intangible Assets", respectively. SFAS No. 141 requires all business combinations initiated after June 30, 2001 to be accounted for using the purchase method. SFAS No. 142 supersedes Accounting Principles Board Opinion ("APB") No. 17 and addresses the financial accounting and reporting standards for goodwill and intangible assets subsequent to their initial recognition. SFAS No. 142 requires that goodwill no longer be amortized. It also requires that goodwill and other intangible assets be tested for impairment at least annually and whenever events or circumstances occur indicating that goodwill might be impaired. Additionally, an acquired intangible asset should be separately recognized if the benefit of the intangible asset is obtained through contractual or other legal rights, or if the intangible asset can be sold, transferred, licensed, rented, or exchanged, regardless of the acquirer's intent to do so. We adopted SFAS No. 142 on January 1, 2002 at which time we ceased amortization of goodwill. The provisions of SFAS No. 142 are effective for fiscal years beginning after December 15, 2001 and must be applied to all goodwill and other intangible assets that are recognized in an entity's balance sheet at the beginning of that fiscal year. If amortization expenses related to goodwill that is no longer amortized had been excluded from operating expenses for the years ended December 31, 2001 and 2000, diluted earnings per share would have increased by $0.22 and $0.23, respectively. 49

PCTEL, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) FOR THE YEAR ENDED: DECEMBER 31, 2002 The changes in the carrying amount of goodwill as of December 31, 2002 and 2001 were as follows:

The following table reflects the adjusted net income and net income per share as if SFAS No. 142 had been effective as of January 1, 2000:

For the years ended December 31, 2001 and 2000, goodwill amortization of $4.3 million and $4.8 million, respectively, included $1.7 million and $2.2 million of goodwill amortization classified as cost of revenues in the Consolidated Statements of Operations. 50

PCTEL, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) FOR THE YEAR ENDED: DECEMBER 31, 2002 COMPREHENSIVE INCOME The following table provides the calculation of other comprehensive income for the years ended December 31, 2002, 2001 and 2000 (in thousands):

RECENT ACCOUNTING PRONOUNCEMENTS In June 2002, the FASB issued SFAS No. 146, "Accounting for Exit or Disposal Activities". SFAS No. 146 addresses significant issues regarding the recognition, measurement, and reporting of costs that are associated with exit and disposal activities, including restructuring activities that are currently accounted for under EITF No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)." The scope of SFAS No. 146 also includes costs related to terminating a contract that is not a capital lease and termination benefits that employees who are involuntarily terminated receive under the terms of a one-time benefit arrangement that is not an ongoing benefit arrangement or an individual deferred-compensation contract. SFAS No. 146 will be effective for exit or disposal activities that are initiated after December 31, 2002 and early application is encouraged. We will adopt SFAS No. 146 on January 1, 2003. The provisions of EITF No. 94-3 shall continue to apply for an exit activity initiated under an exit plan that met the criteria of EITF No. 94-3 prior to the adoption of SFAS No. 146. The effect on adoption of SFAS No. 146 will change, on a prospective basis, the timing of when restructuring charges are recorded from a commitment date approach to when the liability is incurred. In November 2002, the Financial Accounting Standards Board ("FASB") issued FASB Interpretation No. 45 ("FIN45"), "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others." FIN 45 requires that a liability be recorded in the guarantor's balance sheet upon issuance of a guarantee. In addition, FIN 45 requires disclosures about the guarantees that an entity has issued, including a reconciliation of changes in the entity's product warranty liabilities. The initial recognition and initial measurement provisions of FIN 45 are applicable on a prospective basis to guarantees issued or modified after December 31, 2002, irrespective of the guarantor's fiscal year-end. The disclosure requirements of FIN 45 are effective for financial statements of interim or annual periods ending after December 15, 2002. Adoption of this standard did not have a material impact on the Company's financial position, results of operations, or cash flows. In January 2003, the FASB issued Interpretation No. 46 ("FIN 46"), "Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51." FIN 46 requires certain variable interest entities to be consolidated by the primary beneficiary of the entity if the equity investors in the entity do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. FIN 46 is effective immediately for all new variable interest entities created or acquired after January 31, 2003. For variable interest entities created or acquired prior to February 1, 2003, the provisions of FIN 46 must be applied for the 51

PCTEL, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) FOR THE YEAR ENDED: DECEMBER 31, 2002 first interim or annual period beginning after June 15, 2003. We are currently assessing the impact of FIN 46 on our consolidated financial statements. In November 2002, the Emerging Issues Task Force ("EITF") reached a consensus on Issue No. 00-21, "Revenue Arrangements with Multiple Deliverables." EITF Issue No. 00-21 provides guidance on how to account for arrangements that involve the delivery or performance of multiple products, services and/or rights to use assets. The provisions of EITF Issue No. 00-21 will apply to revenue arrangements entered into in fiscal periods beginning after June 15, 2003. The Company believes that the adoption of this standard will have no material impact on its financial position, results of operations, or cash flows. In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based Compensation -- Transition and Disclosure ("SFAS 148"). SFAS 148 amends FASB Statement No. 123, "Accounting for Stock-Based Compensation" to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, this statement amends the disclosure requirements of Statement No. 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. Generally the provisions of SFAS 148 are effective for financial statements for fiscal years ending after December 15, 2002. The Company anticipates that it will continue to follow Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees." Adoption of this standard did not have a material impact on the Company's financial position, results of operations, or cash flows. 2. SHORT-TERM INVESTMENTS We invest in high quality, short-term investments, which we classify as available-for-sale. There were no significant differences between amortized cost and estimated fair value of these short-term investments at December 31, 2002 and 2001. The following table presents the estimated fair value breakdown of investment securities by major security type (in thousands):

As of December 31, 2002, $26.1 million of the short-term investments have maturity dates of less than one year and $32.3 million have maturity dates of one to five years. All of our short-term investments are classified as current assets because they are marketable and we have the option to sell them at any time. 3. ACQUISITIONS CyberPIXIE, Inc. In May 2002, we acquired the assets of Chicago-based cyberPIXIE for a total of $1.6 million in cash, including acquisition costs of $224,000. The acquisition was accounted for under the purchase method of accounting and the results of operations of cyberPIXIE were included in our financial statements from May 22, 2002, the date of acquisition. The purchase price of $1.6 million was allocated to the tangible and identifiable intangible assets acquired and liabilities assumed based on their estimated fair values at the date of acquisition as determined by an independent valuation firm. We attributed $183,000 to net assets acquired, $102,000 to in-process research and development and $452,000 to developed technology. The $863,000 excess of the purchase price over the fair value of the net tangible and identifiable intangible assets was allocated to 52

PCTEL, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) FOR THE YEAR ENDED: DECEMBER 31, 2002 goodwill. We expensed in-process research and development and amortize the developed technology over its useful life of three years. The pro forma data has not been disclosed because the amounts are not material. BlueCom Technology Corp. In December 2000, we acquired BlueCom, a Taiwanese Company specializing in the innovation, development and marketing of MMX Signal Processing (MSP) technology for a total consideration of $2.0 million; 11,245 shares of our common stock and $1,557,770 of cash. The acquisition was accounted for under the purchase method of accounting. The purchase price of BlueCom was allocated based upon the estimated fair value of the assets acquired and liabilities assumed, which approximated book value of $170,000. The purchase consideration exceeded the net tangible assets acquired by $2.0 million which was attributed to goodwill ($1,124,000) and other intangible assets, a covenant not to compete ($656,000). Goodwill and other intangible assets were amortized over useful lives of two to five years prior to the impairment recorded in the fourth quarter of 2001. We have included the results of BlueCom from the date of acquisition in the consolidated statements of operations. Voyager Technologies, Inc. In February 2000, we acquired Voyager, a provider of personal connectivity and Internet access technology, for 237,272 shares of our common stock and $2,065,331 of cash in exchange for all shares of Voyager common stock. In addition, 645,157 vested and unvested options to purchase shares of Voyager common stock were converted into 49,056 options to purchase our common stock at the exchange ratio of 0.07604. The acquisition was accounted for under the purchase method of accounting. The following table summarizes the components of the total purchase price and the allocation (in thousands).

Fair value of 237,272 shares of our common stock............ $11,814 Fair value of options for 49,056 shares of our common stock..................................................... 2,504 Cash........................................................ 2,065 Settlement of outstanding claim............................. 1,500 Acquisition costs........................................... 687 ------- Total purchase price...................................... 18,570 Net assets acquired......................................... 762 In-process research and development......................... 1,600 Intellectual property....................................... 500 Assembled workforce......................................... 300 ------- Goodwill.................................................... $15,408 =======

Purchased in-process research and development was expensed immediately. We were amortizing goodwill over its useful life of five years prior to the impairment recorded in the third quarter of 2001. We have included the results of Voyager from the date of acquisition in the consolidated statements of operations. In addition to the 237,272 shares of our common stock issued to the shareholders of Voyager, 30,415 additional shares of common stock were held in an escrow account pending resolution of an outstanding claim. These shares had been treated as contingent consideration and were not initially recognized as purchase price due to the uncertainty of how the claim would be resolved. In May 2000, the outstanding 53

PCTEL, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) FOR THE YEAR ENDED: DECEMBER 31, 2002 claim was settled for $1.5 million which was recognized as additional purchase price in the quarter ended June 30, 2000. As part of the acquisition, we granted 49,056 vested and unvested options to purchase our common stock upon conversion of the outstanding Voyager options, based on the exchange ratio of 0.07604. The fair value of these options was determined using the Black-Scholes option pricing model and the following assumptions: risk-free interest rate of 5.50%; dividend yields of zero; an estimated volatility factor of the market price of our common stock of 75%; and an expected life between three to six months after vest date. The weighted-average estimated fair value of these options was $51.05 per share. The unaudited pro forma financial information for the year ended December 31, 2000 is presented below (in thousands except per share information) as if Voyager and BlueCom had been acquired on January 1. The pro forma information does not purport to be indicative of what would have occurred had the acquisitions been made as of those dates or of results that may occur in the future. Pro forma net income excludes the write-off of acquired in-process research and development of $1.6 million.

4. INVENTORY LOSSES AND RECOVERY Due to the changing market conditions, economic downturn and estimated future requirements, inventory write downs of $10.9 million were recorded in the second half of 2001. Of the $10.9 million, $2.3 million related to firm purchase order commitments with our major suppliers and the remaining $8.6 million related to excess inventory on hand or disposed. For the year ended December 31, 2002, we did not record any additional inventory write-downs having sold part of the written down inventories and recovered $7.2 million of the former write-downs for the year ended December 31, 2002. As of December 31, 2002, the cumulative write down for excess inventory on hand was $2.1 million. As of December 31, 2002 and 2001, the cumulative write down for obsolete inventory on hand was $0 and $1.4 million, respectively. 5. IMPAIRMENT OF GOODWILL AND INTANGIBLE ASSETS Due to the economic downturn, we evaluated the recoverability of the long-lived assets, including intangibles, acquired from CSD, Voyager and BlueCom. In the second half of 2001, pursuant to SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of," and recorded impairment charges totaling $16.8 million. We estimated the expected future cash flow of the business and determined that CSD's estimated future undiscounted cash flows were less than the carrying value of CSD's long-lived assets. Accordingly, during the third quarter of 2001, we adjusted the carrying value of CSD's long-lived assets, primarily goodwill, to their estimated fair value of approximately $0.4 million, resulting in an impairment charge of approximately $4.5 million. The estimated fair value was based on anticipated future cash flows discounted at a rate commensurate with the risk involved. In regards to the goodwill and intangible assets acquired from Voyager and BlueCom, as a result a recent corporate restructuring and reorganization during 2001, we determined that there were no future cash flows expected from these businesses. Accordingly, during the third quarter of 2001, we wrote off the carrying value of Voyager's and BlueCom's long-lived assets, primarily goodwill, resulting in charges of approximately $11.1 million and $1.2 million, respectively. 54

PCTEL, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) FOR THE YEAR ENDED: DECEMBER 31, 2002 6. RESTRUCTURING CHARGES 2001 Restructuring On February 8, 2001, we announced a series of actions to streamline support for our voiceband business and sharpen our focus on emerging growth sectors. These measures were part of a restructuring program and included a reduction in worldwide headcount of a total of 22 employees (consisting 7 research and development employees, 9 sales and marketing employees and 6 general and administrative employees), a hiring freeze and cost containment programs. On May 1, 2001, we announced a new business structure to provide for greater focus on our activities with a significantly reduced workforce. A total of 42 positions were eliminated as part of this reorganization (consisting of 13 research and development, 12 sales and marketing and 17 general and administrative positions). In the fourth quarter of 2001, a total of 26 positions (consisting of 7 research and development, 8 sales and marketing and 11 general and administrative positions) were eliminated to further focus our business. In the aggregate, 90 positions were eliminated during the year ended December 31, 2001. The restructuring resulted in $3.8 million of charges for the year ended December 31, 2001, consisting of severance and employment related costs of $2.5 million and costs related to closure of excess facilities as a result of the reduction in force of $1.3 million. As of December 31, 2002, approximately $2.4 million of termination compensation and related benefits had been paid to terminated employees. As of December 31, 2002, approximately $1.2 million of lease payments and related costs had been paid to the landlord for the excess facilities. The remaining accrual balance of $141,000 will be paid monthly through February 2003. 2002 Restructuring In the quarter ended June 30, 2002, we further eliminated 20 positions (consisting of 13 research and development, 5 sales and marketing and 2 general and administrative positions). In September 2002, we announced our intention to relocate our headquarters and finance functions to Chicago, Illinois. As a result of the move, 5 general and administrative positions were replaced in December 2002 and we further eliminated 7 research and development positions. In the aggregate, 27 positions were eliminated during the year ended December 31, 2002. The restructuring resulted in $928,000 of charges for the year ended December 31, 2002, consisting of severance and employment related costs of $688,000 and costs related to closure of excess facilities as a result of the reduction in force of $240,000. As of December 31, 2002, approximately $582,000 of termination compensation and related benefits had been paid to terminated employees. The remaining accrual balance of $106,000 will be paid on various dates extending through February 2003. As of December 31, 2002, approximately $119,000 of lease payments and related costs had been paid to the landlord for the excess facilities. The remaining accrual balance of $121,000 will be paid monthly through May 2004. 55

PCTEL, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) FOR THE YEAR ENDED: DECEMBER 31, 2002 The combined effect of the two restructurings is:

7. INCOME TAXES We utilize the liability method of accounting for income taxes in accordance with SFAS No. 109 "Accounting for Income Taxes". Under this method, deferred taxes are determined based on the differences between the financial statement and tax bases of assets and liabilities using enacted tax rates. The domestic and foreign components of our income (loss) before provision for income taxes and extraordinary loss were as follows (in thousands):

Our provision for income taxes consisted of the following (in thousands):

PCTEL, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) FOR THE YEAR ENDED: DECEMBER 31, 2002 A reconciliation of the provision for income taxes at the Federal statutory rate compared to our effective tax rate is as follows (in thousands):

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Our net deferred tax asset consists of the following (in thousands):

At December 31, 2002, we have federal and California research and development credit carryforwards of approximately $0.5 million and $1.1 million, respectively. These credits begin to expire in 2020 for federal purposes and can be carried forward indefinitely for California purposes. As of December 31, 2002, we had a full valuation allowance against our deferred tax assets due to the uncertainty surrounding the realization of such assets. Management evaluates on a periodic basis the recoverability of deferred tax assets and the need for a valuation allowance. At such time as it is determined that it is more likely than not that the deferred tax assets are realizable, the valuation allowance will be reduced. 8. PREFERRED STOCK We are authorized to issue up to 5,000,000 shares of preferred stock in one or more series, each with a par value of $0.001 per share. As of December 31, 2002 and 2001, no shares of preferred stock were outstanding. 57

PCTEL, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) FOR THE YEAR ENDED: DECEMBER 31, 2002 9. COMMON STOCK SECONDARY PUBLIC OFFERINGS On April 11, 2000, we effected our secondary public offering of common stock. A total of 2,750,000 shares were sold at a price of $46.50 per share; 650,000 shares were sold by us and 2,100,000 shares were sold by our selling stockholders. The offering resulted in net proceeds to us and the selling stockholders of approximately $28.0 million and $92.8 million, respectively, net of an underwriting discount of $6.4 million and offering expenses of $0.7 million. COMMON STOCK RESERVED FOR FUTURE ISSUANCE As of December 31, 2002, we had reserved shares of common stock for future issuance as follows:

1995, 1997 and 2001 Stock Option Plans...................... 5,899,347 1998 Director Option Plan................................... 200,000 Employee Stock Purchase Plan................................ 1,600,513 --------- Total shares reserved....................................... 7,699,860 =========

STOCK OPTION PLANS 1995 Plan, 1997 Plan, and 2001 Plan In March 1995, the Board of Directors adopted and approved the 1995 Stock Option Plan ("1995 Plan"). Under the 1995 Plan, the Board may grant to employees, directors and consultants options to purchase our common stock at terms and prices determined by the Board. No further options will be granted under the 1995 Plan. However, all outstanding options under the 1995 Plan remain in effect. The 1995 Plan will terminate in 2005. As of December 31, 2002, of the total 3,200,000 shares authorized under the 1995 Plan, 156,032 shares remain available for issuance. In November 1996, the Board of Director adopted and approved the 1997 Stock Option Plan ("1997 Plan"). Under the 1997 Plan, the Board may grant to employees, directors and consultants options to purchase our common stock and/or stock purchase rights at terms and prices determined by the Board. In August 1999, the Board of Directors and our stockholders approved an amendment and restatement of the 1997 Plan that increased the number of authorized shares of our common stock we may issue under the 1997 Plan to 5,500,000. We will further increase annually the number of shares we are authorized to issue under the 1997 Plan by an amount equal to the lesser of (i) 700,000 shares, (ii) 4% of the outstanding shares on such date or (iii) a lesser amount determined by the Board of Directors. The exercise price of incentive stock options granted under the 1997 Plan may not be less than the fair market value of the common stock on the grant date. Nonqualified stock options granted under the 1997 Plan must be at a price equal to at least 85% of the fair market value of our common stock at the date of grant. Options granted under the 1997 Plan may be exercised at any time within ten years of the date of grant or within ninety days of termination of employment, or such shorter time as may be provided in the related stock option agreement. The 1997 Plan will terminate in 2007. As of December 31, 2002, of the total 7,562,413 shares authorized under the 1997 Plan, 964,204 shares remain available for issuance. In August 2001, the Board of Directors adopted and approved the 2001 Nonstatutory Stock Option Plan ("2001 Plan"). Under the 2001 Plan, the Board may grant to employees and consultants options to purchase our common stock at terms and prices determined by the Board. The 2001 Plan does not apply to directors and officers. Options granted under the 2001 Plan may be exercised at any time within ten years from the date of grant or within ninety days of termination of employment, or such shorter time as may be provided in the 58

PCTEL, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) FOR THE YEAR ENDED: DECEMBER 31, 2002 related stock option agreement. The 2001 Plan will terminate in 2011. As of December 31, 2002, of the total 750,000 shares authorized under the 2001 Plan, 473,178 remain available for issuance. The following table summarizes stock option activity under the 1995 Plan, 1997 Plan and 2001 Plan as of December 31, 2002:

In 2001, in connection with the hiring and appointment of two executive officers of the Company, we granted an aggregate amount of 300,000 options at $8.00 per share outside of any stock option plan, pursuant to individual stock option agreements. As of December 31, 2002, all of the 300,000 options are outstanding. 1998 Director Option Plan ("Directors Plan") Our Directors Plan became effective following our IPO in October 1999. We have reserved a total of 200,000 shares of common stock that we can issue under our Directors Plan. Under our 1998 Directors Plan, any new non-employee director elected to the Board of Directors automatically receives a grant of 15,000 shares of common stock. The 15,000 share options will vest one-third as of each anniversary of its date of grant until the option is fully vested, provided that the optionee continues to serve as a director on such dates. After the initial 15,000 share options are granted to the non-employee director, he or she shall automatically be granted an option to purchase 7,500 shares each year on January 1, if on such date he or she shall have served on the Board of Directors for at least six months. The 7,500 share options shall vest completely on the first year anniversary of their date of grant, provided that the optionee continues to serve as a director on such dates. The exercise price of all options shall be 100% of the fair market value per share of the common stock, generally determined with reference to the closing price of the common stock as reported on the NASDAQ National Market on the date of grant. All of the options granted under our 1998 Directors Plan have a term of 59

PCTEL, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) FOR THE YEAR ENDED: DECEMBER 31, 2002 10 years. As of December 31, 2002, of the total 200,000 shares authorized for issuance, we have remaining 87,500 shares that we can grant under the Directors Plan. For the year ended December 31, 2000, we granted 22,500 options at a weighted average exercise price of $59.00 under the Directors Plan and all 22,500 options were outstanding as of December 31, 2000. For the year ended December 31, 2001, there were grants of 52,500 options at a weighted average exercise price of $8.46 and cancellations of 15,000 options at a weighted average exercise price of $33.92 under the Directors Plan. As of December 31, 2001, 60,000 options were outstanding at a weighted average exercise price of $21.05. For the year ended December 31, 2002, there were grants of 75,000 options at a weighted average exercise price of $8.43 and cancellations of 22,500 options at a weighted average exercise price of $25.95 under the Directors Plan. As of December 31, 2002, 112,500 options were outstanding at a weighted average exercise price of $11.66. The following table summarizes information about stock options outstanding under the 1995 Plan, 1997 Plan, 2001 Plan, Directors Plan and Executive Options at December 31, 2002:

As of December 31, 2001, there were 2,043,124 options exercisable at a weighted average exercise price of $16.21 and as of December 31, 2000, there were 1,549,717, options exercisable at a weighted average exercise price of $7.03. Each option has a contractual life of ten years. Employee Stock Purchase Plan ("Purchase Plan") In May 1998, we reserved a total of 800,000 shares of common stock for future issuance under our Purchase Plan, plus annual increases equal to the lesser of (i) 350,000 shares (ii) 2% of the outstanding shares on such date or (iii) a lesser amount determined by the Board of Directors. Our Purchase Plan will enable eligible employees to purchase common stock at the lower of 85% of the fair market value of our common stock on the first or last day of each offering period. Each offering period is six months except for the first offering period which began on October 19, 1999 following the initial public offering and ended on February 14, 2000. The Purchase Plan will terminate in 2008. As of December 31, 2002, the number of authorized shares available for issuance under the Purchase Plan was 1,831,207 and we have remaining 1,600,513 shares that we can issue under the Purchase Plan. Deferred Stock Compensation In connection with the grant of stock options to employees prior to our initial public offering in 1999, we recorded deferred stock compensation of $5.4 million, representing the difference between the exercise price and deemed fair value of our common stock on the date these stock options were granted. Such amount is 60

PCTEL, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) FOR THE YEAR ENDED: DECEMBER 31, 2002 presented as a reduction of stockholders' equity and is amortized ratably over the vesting period of the applicable options through the second quarter of 2003. In connection with the grant of restricted stock to employees in 2001, we recorded deferred stock compensation of $1.8 million, representing the fair value of our common stock on the date the restricted stock was granted. Such amount is presented as a reduction of stockholders' equity and is amortized ratably over the vesting period of the applicable shares through the fourth quarter of 2003. In connection with the grant of restricted stock to employees in March 2002, we recorded deferred stock compensation of $374,000, representing the fair value of our common stock on the date the restricted stock was granted. Such amount is presented as a reduction of stockholders' equity and is amortized ratably over the vesting period of the applicable shares through March 2005. In connection with the grant of restricted stock to employees in December 2002, we recorded deferred stock compensation of $3.3 million representing the fair value of our common stock on the date the restricted stock was granted. Such amount is presented as a reduction of stockholders' equity and is amortized ratably over the vesting period of the applicable shares through October 2008. For the years ended December 31, 2002, 2001 and 2000, amortization of deferred stock compensation (in thousands) relates to the following functional categories:

Rescission of Stock Option Exercise In December 2000, an employee and the Company mutually agreed to rescind an option exercise to purchase 30,000 shares of common stock which occurred in January 2000. There was no effect on our financial position or results of operations for the year ended December 31, 2000 as a result of this rescission. WARRANTS In February 1998, in connection with the issuance of Series C preferred stock, we issued warrants to purchase 2,417 shares of common stock at $8.00 per share. In 1999, a portion of these warrants were exercised to purchase 1,354 shares of common stock. The remaining warrants were exercised in 2000. In December 1998, in connection with the notes payable arrangement to acquire Communications Systems Division ("CSD"), a division of General DataComm, Inc., we issued a warrant to purchase 200,000 shares of Series C preferred stock at $8.00 per share which was converted to a warrant to purchase common stock at the time of the IPO. This warrant was exercised in 2000 through a net exercise settlement. 10. STOCK REPURCHASES: In August 2002, the Board of Directors authorized the repurchase of up to 1,000,000 shares of our common stock. During the three months ended December 31, 2002, we repurchased 775,800 shares of our outstanding common stock for approximately $5.3 million. The Company completed the stock repurchase in February 2003. The repurchased shares are retired immediately after the repurchases. 61

PCTEL, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) FOR THE YEAR ENDED: DECEMBER 31, 2002 PCTEL extended its stock repurchase program and announced its intention to repurchase up to one million additional shares on the open market from time to time. The Company's repurchase activities will be at management's discretion based on market conditions and the price of the Company's common stock. As of March 2003, we repurchased 261,200 shares of our common stock for approximately $1.9 million. 11. LEASE COMMITMENTS: We entered into an operating lease for our facilities in Milpitas, California in September 1999. The lease expired in February 2003. In October 2002, we entered into an operating lease in Milpitas, California as the current Milpitas facilities will expire February 2003 and we did not intend to renew the expiring lease. The new lease expires in September, 2007. This lease expires September 2007. Additionally, we have facilities in Japan, Taiwan, Yugoslavia and France. In August 2002, we entered into an operating lease for our new headquarter facilities in Chicago, Illinois. The lease expires in August 2007. We have non-cancelable operating leases for office facilities through 2007 and operating leases for equipment through 2005. Our future minimum rental payments under these leases at December 31, 2002, are as follows (in thousands):

Our rent expense under operating leases for the years ended December 31, 2002, 2001 and 2000 was approximately $874,000, $1,166,000 and $1,422,000, respectively. 12. CONTINGENCIES: We record an accrual for estimated future royalty payments for relevant technology of others used in our product offerings in accordance with SFAS No. 5, "Accounting for Contingencies." The estimated royalties accrual reflects management's broader litigation and cost containment strategies, which may include alternatives such as entering into cross-licensing agreements, cash settlements and/or ongoing royalties based upon our judgment that such negotiated settlements would allow management to focus more time and financial resources on the ongoing business. We have accrued our estimate of the amount of royalties payable for royalty agreements already signed, agreements that are in negotiation and unasserted but probable claims of others using advice from third party technology advisors and historical settlements. Should the final license agreements result in royalty rates significantly greater than our current estimates, our business, operating results and financial condition could be materially and adversely affected. As of December 31, 2002 and 2001, we had accrued royalties of approximately $3.7 million and $12.3 million, respectively. Of these amounts, approximately $450,000 and $42,000 represent amounts accrued based upon signed royalty agreements as of December 31, 2002 and 2001, respectively. The remainder of accrued royalties represents management's best estimate within a range of possible settlements as of each date presented. While management is unable to estimate the maximum amount of the range of possible settlements, it is possible that actual settlements could exceed the amounts accrued as of each date presented. We have from time to time in the past received correspondence from third parties, and may receive communications from additional third parties in the future, asserting that our products infringe on their 62

PCTEL, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) FOR THE YEAR ENDED: DECEMBER 31, 2002 intellectual property rights, that our patents are unenforceable or that we have inappropriately licensed our intellectual property to third parties. We expect these claims to increase as our intellectual property portfolio becomes larger. These claims could affect our relationships with existing customers and may prevent potential future customers from purchasing our products or licensing our technology. Intellectual property claims against us, and any resulting lawsuit, may result in our incurring significant expenses and could subject us to significant liability for damages and invalidate what we currently believe are our proprietary rights. These lawsuits, regardless of their success, would likely be time-consuming and expensive to resolve and could divert management's time and attention. In addition, any claims of this kind, whether they are with or without merit, could cause product shipment delays or require us to enter into royalty or licensing agreements. In the event that we do not prevail in litigation, we could be prevented from selling our products or be required to enter into royalty or licensing agreements on terms which may not be acceptable to us. We could also be prevented from selling our products or be required to pay substantial monetary damages. Should we cross license our intellectual property in order to obtain licenses, we may no longer be able to offer a unique product. To date, we have not obtained any licenses from 3Com and the other companies whom we have received communication from. As of December 31, 2002, no material lawsuits relating to intellectual property were filed against us. Ronald H. Fraser v. PC-Tel, Inc., Wells Fargo Shareowner Services, Wells Fargo Bank Minnesota, N.A. On March 19, 2002, plaintiff Ronald H. Fraser filed a complaint in Santa Clara County (California) Superior Court for breach of contract and declaratory relief against us, and for breach of contract, conversion, negligence and declaratory relief against our transfer agent, Wells Fargo Bank Minnesota, N.A. The Complaint seeks compensatory damages allegedly suffered by Mr. Fraser as a result of the tax liability from failure to facilitate a transaction by Mr. Fraser during a secondary offering on April 14, 2000. In July 2002, we responded to the complaint, denying Mr. Fraser's claims and asserting numerous affirmative defenses. Wells Fargo and the Company have each filed cross-complaints against the other for indemnity. Discovery is underway. No trial date has been set. We believe that we have meritorious defenses and intend to vigorously defend the action. 13. INDUSTRY SEGMENT, CUSTOMER AND GEOGRAPHIC INFORMATION: We operate in one segment, that segment being solutions that enable connectivity. We market our products worldwide through our sales personnel, independent sales representatives and distributors. Our sales to customers outside of the United States, as a percent of total revenues, are as follows:

PCTEL, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) FOR THE YEAR ENDED: DECEMBER 31, 2002 Sales to our major customers representing greater than 10% of total revenues are as follows:

As of December 31, 2002, our long-lived assets were primarily located in the United States. Our long-lived assets by geographic region as of December 31, 2002 and 2001 are as follows:

14. RELATED PARTY TRANSACTIONS: For the year ended December 31, 2001, we paid a total of $210,000 to Dr. Martin H. Singer and John Schoen our executive officers, prior to their appointment, for consulting services. Dr. Martin H. Singer, an executive officer served as a member of our Board of Directors during the period in which consulting fees were paid to him. 15. 401(k) PLAN Our 401(k) plan covers all of our employees beginning the first of the month following the month of their employment. Under this plan, employees may elect to contribute up to 15% of their current compensation to the 401(k) plan up to the statutorily prescribed annual limit. We may make discretionary contributions to the 401(k). We made $227,441 in employer contributions to the 401(k) plan for the year ended December 31, 2002. We made $191,215 in employer contributions to the 401(k) plan for the year ended December 31, 2001. We made $224,969 in employer contributions to the 401(k) plan for the year ended December 31, 2000. 16. SUBSEQUENT EVENTS In February 2003, PCTEL extended its stock repurchase program and announced its intention to repurchase up to one million additional shares on the open market from time to time. The Company's repurchase activities will be at management's discretion based on market conditions and the price of the Company's common stock. As of March 2003, we repurchased 261,200 shares of our common stock for approximately $1.9 million. On March 5, 2003, we filed in the U.S. District Court for the Northern District of California a patent infringement lawsuit against 3Com Corporation. Our lawsuit against 3Com Corporation alleges infringement by 3Com Corporation of one of our patents and asks for a declaratory judgment that certain 3Com patents are invalid and not infringed. On March 4, 2003, 3Com filed in the U.S. District Court for the Northern District of Illinois a patent infringement lawsuit against us claiming that our HSP modem products infringe certain 3Com patents, and amended its complaint to ask for a declaratory judgment that one of our patents is invalid and not infringed. The patents that are the subject of 3Com's amended complaint and our complaint are the 64

PCTEL, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) FOR THE YEAR ENDED: DECEMBER 31, 2002 same patents. We believe that we have meritorious claims and defenses in our dispute with 3Com. However, because the action is still in its early stages, we are not able to predict the outcome at this time. On March 12, 2003, PCTEL, Inc, completed its asset acquisition of Dynamic Telecommunications, Inc., ("DTI"). DTI is a supplier of software-defined radio technology deployed in high-speed wireless scanning receivers, multi-protocol collection and analysis systems, interference measurement systems and radio frequency command and control software solutions. In connection with the asset acquisition, PCTEL, DTI, PCTEL Maryland, Inc., a wholly-owned subsidiary of PCTEL, and DTI Holdings, Inc., the sole shareholder of DTI, entered into an Asset Purchase Agreement dated as of March 12, 2003 (the "Purchase Agreement") under which PCTEL Maryland acquired substantially all of the assets of DTI, including intellectual property, receivables, property and equipment and other tangible and intangible assets used in DTI's business. PCTEL intends to use the acquired assets to continue to operate and grow the business of DTI and to expand its presence in the wireless access markets. In exchange for the acquired assets, PCTEL paid DTI $10 million in cash out of its working capital. In addition, DTI may be entitled to earn-out payments if PCTEL Maryland meets specified financial targets in fiscal years 2003 and 2004. 17. QUARTERLY DATA (UNAUDITED)

PCTEL, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) FOR THE YEAR ENDED: DECEMBER 31, 2002

ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Arthur Andersen LLP was previously our independent accountant. Representatives for Arthur Andersen LLP are not available to provide the consents required for the inclusion of their report on our consolidated financial statements for the years ended December 31, 2001 and 2000 included in this Form 10-K, and we have dispensed with the requirement to file their consent in reliance upon Rule 437a of the Securities Act of 1933. Because Arthur Andersen LLP has not consented to the inclusion of their report in this Form 10-K, investors will not be able to recover against Arthur Andersen LLP under Section 11 of the Securities Act of 1933 for any untrue statements of material fact contained in the consolidated financial statements audited by Arthur Andersen LLP that are incorporated by reference or any omissions to state a material fact required to be stated therein. Information regarding changes in accountants is incorporated by reference to the Current Reports on Forms 8-K filed on May 15, 2002 and May 21, 2002. For the two years prior to our engagement of PricewaterhouseCoopers LLP as our independent auditors, we did not consult with PricewaterhouseCoopers LLP regarding the application of accounting principles to a specified transaction, either completed or proposed, or the type of audit opinion that might be rendered on PCTEL's consolidated financial statements. Additionally, PricewaterhouseCoopers LLP did not audit our consolidated financial statements for the two most recent fiscal years ended December 31, 2001. PART III ITEM 10: DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information required by this item concerning our directors is incorporated by reference to the sections entitled "Proposal One -- Election of Directors" and "Section 16(a) Beneficial Ownership Reporting Compliance" contained in our Proxy Statement related to our 2002 Annual Meeting of Stockholders, to be filed with the Securities and Exchange Commission within 120 days of the end of our fiscal year pursuant to general instruction G(3) of Form 10-K (the "Proxy Statement"). Certain information required by this item concerning executive officers is set forth in Item 4A of this Report in the section captioned "Business -- Executive Officers of the Registrant". ITEM 11: EXECUTIVE COMPENSATION The information required by this item is incorporated by reference to the sections captioned "Executive Compensation and Other Matters" and "Report of the Compensation Committee of the Board of Directors" contained in our Proxy Statement. ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS Information concerning the security ownership of certain beneficial owners and management as well as equity compensation plans, is incorporated by reference to the information set forth in the sections entitled "Information Concerning Solicitation and Voting Security Ownership of Certain Beneficial Owners and Management" and "Equity Compensation Plan Information" contained in our Proxy Statement. ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Information concerning certain relationships is incorporated by reference to the section entitled "Transactions with Related Parties and Insiders" contained in our Proxy Statement. 67

ITEM 14: CONTROLS AND PROCEDURES (A) EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES. Within the 90 days prior to the filing of this Annual Report on Form 10-K (the "Evaluation Date"), we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-14(c) and 15d-14(c) under the Exchange Act). Based upon that evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that our disclosure controls and procedures are effective to ensure that material information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission rules and forms. It should be noted, however, that the design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions, regardless of how remote. (B) CHANGES IN INTERNAL CONTROLS. Subsequent to the Evaluation Date, there have been no significant changes in our internal controls or in other factors that could significantly affect these controls to the date of their last evaluation. ITEM 15: EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (A) (1) FINANCIAL STATEMENTS Refer to the financial statements filed as a part of this Report under "Item 8 -- Financial Statements and Supplementary Data". (2) FINANCIAL STATEMENT SCHEDULES The following financial statement schedule is filed as a part of this Report under "Schedule II" immediately preceding the signature page: Schedule II -- Valuation and Qualifying Accounts for the three fiscal years ended December 31, 2002. All other schedules called for by Form 10-K are omitted because they are inapplicable or the required information is shown in the financial statements, or notes thereto, included herein. (3) EXHIBITS (NUMBERED IN ACCORDANCE WITH ITEM 601 OF REGULATION S-K)

- --------------- * Filed herewith. + Management contract or compensatory plan or arrangement required to be filed as an exhibit pursuant to Item 15(c) of Form 10-K. (a) Incorporated by reference to the exhibit bearing the same number filed with the Registrant's Current Report on Form 8-K dated March 12, 2003. (b) Incorporated by reference to the exhibit bearing the same number filed with the Registrant's Registration Statement on Form S-1 (Registration Statement No. 333-84707). (c) Incorporated by reference to the exhibit bearing the same number filed with the Registrant's Annual Report on Form 10-K for fiscal year ended December 31, 2001. (d) Incorporated by reference to the exhibit bearing the same number filed with the Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 1999. (e) Incorporated by reference herein to the Registrant's Registration Statement of Form S-8 filed on October 3, 2001 (Registration Statement No.333-70886). (f) Incorporated by reference herein to the Registrant's Registration Statement of Form S-8 filed on December 14, 2001 (Registration Statement No.333-75204). (g) Incorporated by reference to the exhibit bearing the same number filed with the Registrant's Quarterly Report on Form 10-Q for quarter ended September 30, 2002. 69

(B) REPORTS ON FORM 8-K None. (C) EXHIBITS See Item 15(a)(3) above. (D) FINANCIAL STATEMENT SCHEDULES See Item 15(a)(2) above. 70

PCTEL, INC. SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS

SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated: PCTEL, Inc. A Delaware Corporation (Registrant) /s/ MARTIN H. SINGER -------------------------------------- Martin H. Singer Chairman of the Board and Chief Executive Officer Dated: March 31, 2003 KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Martin H. Singer and John Schoen, and each of them, his true and lawful attorneys-in-fact and agents, each with full power of substitution and re-substitution, to sign any and all amendments (including post-effective amendments) to this Annual Report on Form 10-K and to file the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorneys- in-fact and agents, or their substitute or substitutes, or any of them, shall do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

CERTIFICATIONS I, Martin H. Singer, certify that: 1. I have reviewed this annual report on Form 10-K of PCTEL, Inc.: 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. /s/ MARTIN H. SINGER -------------------------------------- Martin H. Singer Chief Executive Officer Date: March 31, 2003 74

I, John Schoen, certify that: 1. I have reviewed this annual report on Form 10-K of PCTEL, Inc.: 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. /s/ JOHN SCHOEN -------------------------------------- John Schoen Chief Operating Officer and Chief Financial Officer Date: March 31, 2003 75

EXHIBIT INDEX

EXHIBIT 2.2 PCTEL, INC. REGISTRATION RIGHTS AGREEMENT This Registration Rights Agreement ("Agreement") is entered into as of March 12, 2003, by and between PCTEL, Inc., a Delaware corporation ("Parent"), and Dynamic Telecommunications, Inc., a Maryland corporation ("Seller"). RECITALS A. Contemporaneously with the execution and delivery of this Agreement, Parent, PCTEL Maryland, Inc., a Delaware corporation and wholly-owned subsidiary of Parent, Seller and DTI Holdings, Inc., a Delaware corporation and parent corporation of Seller, are entering into an Asset Purchase Agreement, dated as of an even date herewith (the "Purchase Agreement"), pursuant to which Parent may issue the Earn-Out Shares (as defined in the Purchase Agreement). B. In connection with the Purchase Agreement, Parent and Seller are entering into this Agreement under which Parent is granting Seller certain resale registration rights with respect to the Earn-Out Shares. NOW, THEREFORE, in consideration of the promises, mutual covenants and terms hereof, the receipt and sufficiency of which is hereby acknowledged, the parties hereby agree as follows: AGREEMENT 1. Definitions. Any capitalized term not otherwise defined herein shall have the meanings ascribed to such term in the Purchase Agreement. As used in this Agreement: (a) "Issue Date" shall mean the date(s) on which the Earn-Out Shares become issuable to Seller as provided in Section 12.4 of the Purchase Agreement. The Purchase Agreement provides that there may be two (2) Issue Dates for the Earn-Out Shares. If there is more than one Issue Date, the registration obligations of Parent pursuant to Section 2 below shall pertain to the Earn-Out Shares issued at each Issue Date (in other words, Parent would be obligated to file two S-3 registration statements, one for the Earn-Out Shares issued at the first Issue Date and one for the Earn-Out Shares issued on the second Issue Date). (b) The terms "register," "registered" and "registration" refer to a registration effected by preparing and filing a registration statement in compliance with the Securities Act, and the declaration or ordering of the effectiveness of such registration statement. (c) "Registration Expenses" shall mean all expenses incurred in complying with Section 2 of this Agreement, including, without limitation, all registration, qualification and filing fees, printing expenses, escrow fees, fees and disbursements of counsel for Parent, blue sky fees and

expenses, and the expense of any special audits incident to or required by any such registration; provided, however, Registration Expenses shall not include any selling commissions, transfer taxes or fees and disbursements of Seller's counsel (which expenses shall be borne by Seller and not Parent). (d) "Registrable Securities" shall mean the Earn-Out Shares issued to Seller pursuant to the Purchase Agreement; provided, however, that the Earn-Out Shares shall cease to be Registrable Securities at such time as (i) they have been registered for resale pursuant to a prospectus included in an effective Registration Statement on Form S-3 and such securities shall have been disposed of in accordance with such registration statement and with Section 2 hereof or (ii) they are otherwise available for resale under Rule 144 of the Securities Act within a single 90-day period. 2. Seller Registration. (a) Parent shall use its best efforts to cause the Registrable Securities to be registered under the Securities Act so as to permit the resale thereof, and in connection therewith shall prepare and file with the SEC within 10 days following the Issue Date a registration statement on Form S-3 covering the Registrable Securities; provided, however, if Parent shall furnish to Seller a certificate signed by the an executive officer of Parent stating that, in the good faith judgment of the Board of Directors of Parent, it would be seriously detrimental to Parent or its stockholders for registration statements to be filed within such 10 day period, then Parent's obligation to use its best efforts to file a registration statement shall be deferred for a period not to exceed 90 days from the Issue Date. The offerings made pursuant to such registration shall not be underwritten. (b) Parent shall (i) prepare and file with the SEC the registration statement in accordance with Section 2 hereof with respect to the Registrable Securities and shall use its commercially reasonable best efforts to cause such registration statement to become effective as promptly as practicable after filing and to keep such registration statement effective until the sooner to occur of (A) the date on which all Registrable Securities included within such registration statement have been sold or (B) the expiration of 90 days after the day on which such registration statement has been declared effective; (ii) prepare and file with the SEC such amendments to such registration statement and amendments or supplements to the prospectus used in connection therewith as may be necessary to comply with the provisions of the Securities Act with respect to the sale or other disposition of all securities registered by such registration statement; (iii) furnish to Seller such number of copies of any prospectus (including any amended or supplemented prospectus) in conformity with the requirements of the Securities Act, and such other documents, as Seller may reasonably request in order to effect the offering and sale of the Registrable Securities to be offered and sold, but only while Parent shall be required under the provisions hereof to cause the registration statement to remain effective; (iv) use its best efforts to register or qualify the Registrable Securities covered by such registration statement under the securities or blue sky laws of such jurisdictions as Seller shall reasonably request (provided that Parent shall not be required in connection therewith or as a condition thereto to qualify to do business or to file a general consent to service of process in any such jurisdiction where it has not been qualified), and do any and all other acts or things which may be necessary or advisable to enable Seller to consummate the public sale or other disposition of such Registrable Securities in such jurisdictions; and (v) notify Seller, promptly after it shall receive notice thereof, of the date and time the registration statement and each post- -2-

effective amendment thereto has become effective or a supplement to any prospectus forming a part of such registration statement has been filed. 3. Suspension of Prospectus. Under any registration statement filed pursuant to Section 2 hereof, Parent may restrict the disposition of the Registrable Securities, and Seller will not be able to dispose of such Registrable Securities, if Parent shall have delivered a notice in writing to Seller stating that a delay in the disposition of such Registrable Securities is necessary because Parent, in its reasonable judgment, has determined that such sales would require public disclosure by Parent of material nonpublic information that is not included in such registration statement. In the event of the delivery of the notice described above by Parent, Parent shall use its best efforts to amend such registration statement and/or amend or supplement the related prospectus if necessary and to take all other actions necessary to allow the proposed sale to take place as promptly as possible, subject, however, to the right of Parent to delay further sales of Registrable Securities until the conditions or circumstances referred to in the notice have ceased to exist or have been disclosed. Such right to delay sales of Registrable Securities shall not exceed 90 days. Any such delay shall result in a corresponding extension of the period of time that Parent is required to maintain the effectiveness of the registration statement under Section 2. 4. Indemnification. (a) Parent will indemnify and hold harmless Seller, each of its officers and directors, and each person controlling Seller within the meaning of Section 15 of the Securities Act, with respect to which registration, qualification or compliance has been effected pursuant to this Agreement against all expenses, claims, losses, damages or liabilities (or actions in respect thereof), including any of the foregoing incurred in settlement of any litigation, commenced or threatened, arising out of or based on any untrue statement (or alleged untrue statement) of a material fact contained in any registration statement, prospectus, offering circular or other document, or any amendment or supplement thereto, incident to any such registration, qualification or compliance, or based on any omission (or alleged omission) to state therein a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances in which they were made, not misleading, or any violation by Parent of any rule or regulation promulgated under the Securities Act applicable to Parent or any state securities law applicable to Parent in connection with any such registration, qualification or compliance, and Parent will reimburse (on an as incurred basis), Seller, each of its officers and directors and each person controlling Seller, for any reasonable legal and other expenses incurred in connection with investigating, preparing or defending any such claim, loss, damage, liability or action; provided, however, that Parent will not be liable in any such case to the extent that any such claim, loss, damage, liability or expense arises out of or is based on any untrue statement or omission or alleged untrue statement or omission, made in reliance upon and in conformity with written information furnished to Parent by Seller; and provided, further, that Parent will not be liable to any such person or entity with respect to any such untrue statement or omission or alleged untrue statement or omission made in any preliminary prospectus that is corrected in the final prospectus filed with the SEC pursuant to Rule 424(b) promulgated under the Securities Act (or any amendment or supplement to such prospectus) if the person asserting any such loss, claim, damage or liability purchased securities but was not sent or given a copy of the prospectus (as amended or supplemented) at or prior to the written confirmation of the sale of such securities to such person in any case where such delivery of the prospectus (as amended or -3-

supplemented) is required by the Securities Act, unless such failure to deliver the prospectus (as amended or supplemented) was a result of Parent's failure to provide such prospectus (as amended or supplemented). (b) Seller shall indemnify Parent, each of its directors and officers and each person who controls Parent within the meaning of Section 15 of the Securities Act against all claims, losses, damages and liabilities (or actions in respect thereof) arising out of or based on any untrue statement (or alleged untrue statement) of a material fact contained in any such registration statement, prospectus, offering circular or other document, or any omission (or alleged omission) to state therein a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances in which they were made, not misleading, and will reimburse Parent and such directors, officers or control persons of Parent for any reasonable legal or other expenses incurred in connection with investigating or defending any such claim, loss, damage, liability or action, in each case to the extent, but only to the extent, that such untrue statement (or alleged untrue statement) or omission (or alleged omission) is made in such registration statement, prospectus, offering circular or other document in reliance upon and in conformity with written information furnished to Parent by Seller; provided, however, that the liability of Seller for indemnification under this Section 4(b) shall not exceed the proceeds from the offering received by Seller, prior to deducting any commissions, transfer taxes or other selling expenses incurred with respect to such sale. (c) Each party entitled to indemnification under this Section 4 (the "Indemnified Party") shall give notice to the party required to provide indemnification (the "Indemnifying Party") promptly after such Indemnified Party has actual knowledge of any claim as to which indemnity may be sought, and shall permit the Indemnifying Party to assume the defense of any such claim or any litigation resulting therefrom, provided that counsel for the Indemnifying Party, who shall conduct the defense of such claim or litigation, shall be approved by the Indemnified Party (whose approval shall not unreasonably be withheld), and the Indemnified Party may participate in such defense at such party's expense, and provided further that the failure of any Indemnified Party to give notice as provided herein shall not relieve the Indemnifying Party of its obligations under this Section 4 unless the failure to give such notice is materially prejudicial to an Indemnifying Party's ability to defend such action. No Indemnifying Party, in the defense of any such claim or litigation, shall, except with the consent of each Indemnified Party, consent to entry of any judgment or enter into any settlement which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such Indemnified Party of a release from all liability in respect to such claim or litigation. Any Indemnified Party shall reasonably cooperate with the Indemnifying Party in the defense of any claim or litigation brought against such Indemnified Party. (d) If the indemnification provided for in this Section 4 is for any reason not available to an Indemnified Party with respect to any loss, liability, claim, damage or expense referred to therein, then the Indemnifying Party, in lieu of indemnifying such Indemnified Party hereunder, shall contribute to the amount paid or payable by such Indemnified Party as a result of such loss, liability, claim, damage or expense in such proportion as is appropriate to reflect the relative fault of the Indemnifying Party on the one hand and of the Indemnified Party on the other in connection with the statements or omissions that resulted in such loss, liability, claim, damage or expense as will as any other relevant equitable considerations. The relative fault of the Indemnifying -4-

Party and of the Indemnified Party shall be determined by reference to, among other things, whether the untrue or the alleged untrue statement of a material fact or the omission to state a material fact relates to information supplied by the Indemnifying Party or by the Indemnified Party and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The liability of Seller under this Section 4(d) shall not exceed the proceeds from the offering received by Seller, prior to deduction of any commissions, transfer taxes or other selling expenses incurred with respect to such sale. 5. Information of Seller. Seller shall furnish to Parent such information regarding Seller, the manner in which Seller holds any securities of Parent and the distribution proposed by Seller as Parent may request in writing and as shall be required in connection with any registration, qualification or compliance referred to in this Agreement. 6. Repurchase of Earn-Out Shares; Termination of Registration Rights. In the event that a registration statement has not been declared effective by the SEC within 60 days of an applicable Issue Date (the "Termination Date"), unless otherwise mutually agreed by Parent and Seller, all obligations under this Agreement for Parent to register the Earn-Out Shares covered by such registration statement shall terminate. In such event, Seller shall have the right to require that Parent repurchase such Earn-Out Shares from Seller at the per share price equal to the fair market value of such shares on the Issue Date as determined pursuant to Section 12.4(b)(ii) of the Purchase Agreement (the "Repurchase Amount"). Seller shall request in writing that Parent repurchase such Earn-Out Shares and shall accompany such request by tendering the stock certificate(s) representing such Earn-Out Shares together with a duly executed stock power in the form attached hereto as Exhibit A (or, in the event that any such stock certificate is lost, stolen or destroyed, an affidavit of that fact by Seller in a form acceptable to Parent and a bond in such sum as Parent may reasonably require as indemnity against any claim that may be made against Parent with respect to the stock certificate alleged to have been lost, stolen or destroyed) within 30 days of the Termination Date. Within three business days of Parent's receipt of the stock certificate(s), Parent shall deliver the Repurchase Amount by wire transfer in accordance with written instructions delivered by Seller to Parent. If Seller does not tender the certificate(s) representing the applicable Earn-Out shares (or, the affidavit of lost, stolen or destroyed certificate and the related bond described above) within the above-referenced 30 day period, Parent shall have no further repurchase obligation with respect to such shares under this Section 6. 7. Miscellaneous. (a) Notices. All notices and other communications hereunder shall be in writing and shall be deemed given if upon receipt delivered personally or by commercial delivery service, or mailed by registered or certified mail (return receipt requested) or sent via facsimile (with acknowledgment of complete transmission) to the parties at the following addresses (or at such other address for a party as shall be specified by like notice): -5-

(i) if to Parent, to: PCTEL, Inc. 8725 West Higgins Road, Suite 400 Chicago, Illinois 60631 Attention: Martin H. Singer Telephone No.: (773) 243-3001 Facsimile No.: (773) 243-3050 with a copy (which shall not constitute notice) to: Wilson Sonsini Goodrich & Rosati, P.C. 650 Page Mill Road Palo Alto, California 94304 Attention: Douglas H. Collom Telephone No.: (650) 493-9300 Facsimile No.: (650) 845-5000 (ii) if to Seller, to: Dynamic Telecommunications, Inc. 12810 Wisteria Drive, Third Floor Germantown, Maryland 20874 Telephone No.: (301) 515-0036 Facsimile No.: (301) 515-0037 with a copy (which shall not constitute notice) to: Lerch, Early & Brewer, Chartered 3 Bethesda Metro Center, Suite 460 Bethesda, Maryland 20814-5367 Attention: Paul J. DiPiazza, Esq. Telephone No.: (301) 657-0172 Facsimile No.: (301) 986-0332 (b) No Assignment of Registration Rights. The rights to cause Parent to register Registrable Securities under Section 2 of this Agreement may not be assigned by Seller. (c) Expenses. All Registration Expenses incurred in connection with any registration pursuant to Section 2 shall be borne by Parent. (d) No Third Party Beneficiaries. Nothing in this Agreement, express or implied, is intended to confer upon any party, other than the parties to this Agreement, any rights or remedies hereunder. (e) Governing Law. This Agreement shall be governed by and construed under the laws of the State of Delaware without giving effect to the conflicts of laws principles thereof. -6-

(f) Severability. In the event that any provision of this Agreement or the application thereof, becomes or is declared by a court of competent jurisdiction to be illegal, void or unenforceable, the remainder of this Agreement will continue in full force and effect and the application of such provision to other persons or circumstances will be interpreted so as reasonably to effect the intent of the parties hereto. The parties further agree to replace such void or unenforceable provision of this Agreement with a valid and enforceable provision that will achieve, to the extent possible, the economic, business and other purposes of such void or unenforceable provision. (g) Amendment. Except as is otherwise required by applicable law, this Agreement may be amended by the parties hereto at any time by execution of an instrument in writing signed by Parent and Seller. (h) Entire Agreement. This Agreement constitutes the full and entire understanding among the parties regarding the subject matter herein. (i) Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. -7-

IN WITNESS WHEREOF, Parent and Seller have caused this Registration Rights Agreement to be signed as of the date first written above. "PARENT" PCTEL, INC. a Delaware corporation By: /s/ JOHN SCHOEN --------------------------------------- John Schoen, Chief Financial Officer "SELLER" DYNAMIC TELECOMMUNICATIONS, INC. a Maryland corporation By: /s/ PAUL A. KLINE --------------------------------------- Paul A. Kline, President

EXHIBIT A STOCK POWER AND ASSIGNMENT SEPARATE FROM CERTIFICATE FOR VALUE RECEIVED and pursuant to the repurchase of Earn-Out Shares in connection with Section 6 of the Registration Rights Agreement dated as of March 12, 2003, the undersigned hereby sells, assigns and transfers unto PCTEL, Inc. a Delaware corporation (the "Company"), ______________________ (______) shares of Common Stock of the Company, standing in the undersigned's name on the books of said corporation represented by certificate number _______ delivered herewith, and does hereby irrevocably constitute and appoint Wells Fargo Bank Minnesota, N.A. as attorney-in-fact, with full power of substitution, to transfer said stock on the books of said corporation. Dated: _____________, ______ ________________________________________ (Signature) ________________________________________ (Please Print Name) INSTRUCTION: PLEASE DO NOT FILL IN ANY BLANKS OTHER THAN THE SIGNATURE LINES.

Exhibit 10.36 LEASE BETWEEN THE PRUDENTIAL INSURANCE COMPANY OF AMERICA A NEW JERSEY CORPORATION AND ADAPTEC, INC. A CALIFORNIA CORPORATION FOR THE PREMISES LOCATED AT 631 SOUTH MILPITAS BOULEVARD MILPITAS, CALIFORNIA 95035 DATED: DECEMBER 20, 1996

BASIC LEASE INFORMATION DATE: December 20, 1996 LANDLORD: THE PRUDENTIAL INSURANCE COMPANY OF AMERICA, a New Jersey corporation TENANT: ADAPTEC, INC., a California corporation PREMISES: Building Address: 631 South Milpitas Boulevard Milpitas, CA USE: General office, assembly, warehouse, research and development not involving use of Hazardous Substances, except for small amounts customarily used and found in products used in reasonable office use (i.e. whiteout, kitchen cleaning products, etc.) TERM: One hundred twenty (120) months from Base Rent Commencement Date as defined in Section 4 ESTIMATED COMMENCEMENT DATE: April 1, 1997 BASE RENT: Months Base Rent (Months measured from Base Rent Commencement Date) 1-48 $16,445.52 per month 49-120 Annual CPI adjustments per Section 4 of the Lease ADVANCE RENT: $16,445.52 ESTIMATED EXPENSES: OPERATING: $722.88 per month REAL PROPERTY TAXES $1,175 per month 1897.88 TENANT'S PERCENTAGE SHARE: 30.5% of Building BROKERS: Tenant's Broker: CB Madison Advisory Group Landlord's Broker: Grubb & Ellis Commercial Real Estate CONTRACT MANAGER: Voit Management Company ADDRESS FOR NOTICES: LANDLORD: The Prudential Insurance Company of America 2029 Century Park East, Suite 2050 Los Angeles, CA 90067 CONTRACT MANAGER: Voit Management Company, L.P. 1111 Broadway, Suite 1510 Oakland, CA 94607 TENANT: Adaptec, Inc. 691 South Milpitas Boulevard Milpitas, CA 95035 Attn: Robert Kraiss EXHIBITS AND ADDENDUM: Exhibit A - Site Plan of Premises Exhibit B-1 - Commencement Date Memorandum Exhibit B-2 - Base Rent Commencement Date Memorandum Exhibit C - Rules and Regulations Exhibit D - Parking INITIALS: _____________ ______________ LANDLORD TENANT

THIS LEASE, which is effective as of the date set forth in the Basic Lease Information, is entered into by Landlord and Tenant, as set forth in the Basic Lease Information. Terms which are capitalized in this Lease and not expressly defined herein shall have the meanings set forth in the Basic Lease Information. 1. PREMISES. Landlord leases to Tenant, and Tenant leases from Landlord, the Premises described in the Basic Lease Information, together with the right in common to use the Common Areas of the Building and the Property (as shown in Exhibit A). The Common Areas shall mean the areas and facilities within the Building and the Property provided and designated by Landlord for the general use, convenience or benefit of Tenant and other tenants and occupants of the Building and/or the Property (e.g., loading and unloading areas; sidewalks; walkways; driveways; landscaped areas; common entrances and hallways; trash disposal facilities; and unreserved parking areas). 2. TERM. (a) Lease Term. The Term of this Lease shall commence on the later of April 1, 1997 or the date Landlord tenders legal and physical possession of the Premises to Tenant (the "Commencement Date") and, unless terminated on an earlier date in accordance with the terms of this Lease, shall expire on the date which is the date before the tenth anniversary of the Base Rent Commencement Date (the "Expiration Date"), as defined in Section 4 ("Term"). (b) Premises Not Delivered. If, for any reason, Landlord cannot deliver possession of the Premises to Tenant by Estimated Commencement Date (as set forth in the Basic Lease Information), (i) the Term shall not commence until the Commencement Date; (ii) the failure shall not affect the validity of this Lease, or the obligations of Tenant under this Lease; and (iii) Landlord shall not be subject to any liability. If the Commencement Date has not occurred on or before September 30, 1997, Tenant shall have the right as Tenant's exclusive remedy to terminate this Lease, which notice shall be delivered on or before October 15,1997. Upon such cancellation, Landlord shall refund any advance rent to Tenant and Landlord and Tenant shall have no further liability under this Lease. (c) Commencement Date Memorandum. When the Commencement Date is determined, the parties shall execute a Commencement Date Memorandum, in the form attached hereto as Exhibit B-1, setting forth the Commencement Date. (d) Early Entry. If Tenant is permitted to enter the Premises prior to the Commencement Date for the purposes of fixturing or any purpose other that occupancy permitted by Landlord, the entry shall be subject to all the terms and provisions of this Lease, except that the payment of Rent shall commence as of the Base Rent Commencement Date. 3. RENT. As used in this Lease, the term "Rent" shall include: (i) the Base Rent; (ii) Tenant's Percentage Share of the Operating Expenses paid or incurred by Landlord during the calendar year; and (iii) all other amounts which Tenant is obligated to pay under the terms of this Lease. All amounts of money payable by Tenant to Landlord shall be paid without prior notice or demand, deduction or offset. This Lease is intended to be a triple net lease, with all costs, expenses and charges (including the Operating Expenses) paid by Tenant, except as expressly prohibited herein. Tenant hereby acknowledges that late payment by Tenant to Landlord of Rent will cause Landlord to incur costs not contemplated by this Lease, the exact amount of which will be difficult to ascertain. Such costs include, but are not limited to, processing and accounting charges, and late charges, which may be imposed on Landlord by the terms of any trust deed covering the Premises. Accordingly, if any installment of Rent or any other sums due from Tenant shall not be received by Landlord when due, Tenant shall pay to Landlord a late charge equal to six percent (6%) of such overdue amount. The parties hereby agree that such late charge represents a fair and reasonable estimate of the costs Landlord will incur by reason of late payment by Tenant. Acceptance of such late charge by Landlord shall in no event constitute a waiver of Tenant's default with respect to such overdue amount, nor prevent Landlord from exercising any of the other rights and remedies granted hereunder. In addition, any amount which is not paid when due shall bear interest from the date due until the date paid at the rate ("Interest Rate") which is the lesser of the Wall Street Journal Prime Rate (or such other comparable rate reasonably designated by Landlord) plus four percent (4%) per annum or the maximum rate permitted by law. Notwithstanding the foregoing, with respect to the first two (2) failures to pay an amount payable to Landlord when due under this Lease during any twelve (12) month period, no late charge or interest shall be assessed until five (5) days after written notice has been delivered by Landlord to Tenant regarding such delinquent payment. After such second notice, no further notices shall be required with respect to interest and late charges during the remainder of such twelve (12) month period. 4. BASE RENT. (a) Tenant shall pay Base Rent to Contract Manager (or other entity designated by Landlord), in 1

advance, on the first day of each calendar month of the Term commencing as of the Base Rent Commencement Date, at Contract Manager's address for notices (as set forth in the Basic Lesse Information) or at such other address as Landlord may designate. The Base Rent shall be the amount set forth in the Basic Lease Information, as adjusted pursuant to subsections 4(b) and (c) below. As used herein, the term "Base Rent Commencement Date" shall mean the date which is the earlier of (i) one hundred thirty five (135) days after the Commencement Date, (ii) sixty (60) days after the date the applicable local governmental authority (e.g., the city in which the Building is located) approves the improvements which Tenant intends to construct within the Premises prior to commencing business operations which would permit Tenant to use and occupy the Premises, as evidenced by a final signed-off building permit or certificate of occupancy for such improvements; or (iii) sixty (60) days after the date that Tenant commences business operations on the Premises. Notwithstanding the foregoing, if Landlord has not completed Landlord's Work (as defined in Section 7 below) and Tenant is not reasonably able to commence business operations on the Premises as a result of such incomplete work, than the Base Rent Commencement Date shall not be deemed to have occurred until Landlord's Work is completed to the extent that the items to be corrected as part of Landlord's Work do not prevent the reasonable ability of Tenant to commence business operations on the Premises. In addition, if Tenant is unable to substantially complete the Initial Alterations (as defined in subsection 9(a) within the Premises during the one hundred thirty five (135) day period referenced in clause (i) above because the performance of Landlord's Work has delayed such construction (as reasonably determined by the Architect, as defined in subsection 9(a)(i) and reasonably approved by Landlord), then such one hundred thirty five (135) day period shall be extended one (1) day for each day of such delay. Landlord and Tenant shall reasonably cooperate in scheduling the construction of the initial Alterations and Landlord's Work to avoid such delays. When the Base Rent Commencement Date is determined, the parties shall execute a Base Rent Commencement Date Memorandum, in the form attached hereto as Exhibit B-2 setting forth the Base Rent Commencement Date and the expiration date ("Expiration Date") of this Lease. (b) CPI Adjustment Definitions. The following terms are used in this Section 4 as follows: (i) "Consumer Price Index" shall mean the Consumer Price Index (All Items) for All Urban Consumers for the locality in which the Building is located (1982-1984 equals 100) of the United States Department of Labor, Bureau of Labor Statistics. If such index is no longer published at any time, the Consumer Price Index shall mean a comparable index selected by Landlord. (ii) "CPI Adjustment Dates" means (a) the fifth anniversary of the Base Rent Commencement Date and each anniversary of the Base Rent Commencement Date thereafter (or, if the Base Rent Commencement Date is not the first day of a calendar month, each anniversary of the first day of the calendar month following the month in which the Base Rent Commencement Date occurs). (iii) "CPI Base Month" means the calendar month prior to the month in which the Base Rent Commencement Date occurs for, if the Base Rent Commencement Date is not the first day of a calendar month, the calendar month in which the Commencement Date occurs). (iv) " Minimum Increase Multiple" means 108.243% on the CPI Adjustment Date which occurs on the fifth anniversary of the Base Rent Commencement Date and 102% with respect to all other CPI Adjustment Dates. "Maximum Increase Multiple" means 121.551% on the CPI Adjustment Date which occurs on the fifth anniversary of the Base Rent Commencement Date and 105% with respect to all other CPI Adjustment Dates. (c) CPI Adjustment. Effective on each CPI Adjustment Date, the then current Base Rent shall be adjusted as follows: The Initial Base Rent hereunder shall first be multiplied by a fraction, the numerator of which is the Consumer Price Index for the calendar month prior to such CPI Adjustment Date and the denominator of which is the Consumer Price Index for the CPI Base Month. If the foregoing calculation results in an amount which is equal to or less than Minimum Increase Multiple of the then current Base Rent with respect to such CPI Adjustment Date, then the Base Rent shall be increased to an amount equal to Minimum Increase Multiple of the then current Base Rent. If the foregoing calculation would result in an amount which exceeds Minimum Increase Multiple of the then current Base Rent, such amount shall be the new Base Rent, provided however, such increase shall not result in an amount which exceeds Maximum Increase Multiple of the then current Base Rent. Landlord shall endeavor to provide Tenant with written notice of each such Base Rent adjustment prior to the applicable CPI Adjustment Date, or as soon thereafter as the necessary Consumer Price Index Information is reasonably available. In the event that Tenant receives notice of any such increase after Tenant has already made one or more of the Base Rent payments which is increased thereby, Tenant shall 2

pay Landlord, within five (5) business days thereafter, the incremental amount(s) necessary to supplement such Base Rent payments. 5. OPERATING EXPENSES. (a) Operating Expenses as Portion of Rent. Tenant shall pay as additional Rent Tenant's Percentage Share of the Operating Expenses paid or incurred by Landlord during the calendar year. Tenant acknowledges that certain Operating Expenses will be allocated to the Building and certain Operating Expenses will be allocated to the Property. Landlord's reasonable allocation of Operating Expenses to the Building and the Property shall be conclusive and binding on the parties. (b) Definition of Operating Expenses. The term "Operating Expenses" shall mean (i) all of Landlord's direct costs and expenses of operation, repair and maintenance of the Building, the Property and the Common Areas and supporting facilities, as determined by Landlord in accordance with generally accepted accounting principles or other recognized accounting principles, consistently applied; (ii) costs, or a portion thereof, properly allocable to the Building, Property or Common Areas of any capital improvements made to the Building, Property or Common Areas by Landlord which comprise labor-saving devices or other equipment intended to improve the operating efficiency of any system within the Building, Property or Common Areas (such as an energy management computer, system) to the extent of cost savings in Operating Expenses as a result of the device or equipment, as reasonably determined by Landlord; and (iii) costs properly allocable to the Building, Property or Common Areas of any capital improvements made to the Building, Property or Common Areas by Landlord that are required under any governmental law or regulation that was not applicable to the Building, Property and Common Areas at the time they were constructed, or that are reasonably required for the health and safety of tenants in the Property or Building, or that are reasonably required to replace capital items on the Property, the costs, or allocable portion thereof, to be amortized over the useful life of such improvement (as reasonably determined by Landlord) on a straight-line basis in accordance with generally accepted accounting principles, together with interest upon the unamortized balance at the Interest Rate or such higher rate as may have been paid by Landlord on funds borrowed for the purpose of constructing the capital improvements. The term "Operating Expenses" shall include the costs of all utilities (including surcharges) for the Common Areas; the cost of all insurance which Landlord or Landlord's lender deems necessary for the Property and Building; a reasonable management fee; dues imposed by any property owner's association ("Association"); and the Real Property Taxes (as defined in subsection 5(f)). If Landlord elects to self-insure or includes the Property under blanket insurance policies covering multiple properties, then the term "Operating Expenses" shall include the portion of the cost of such self-insurance or blanket insurance reasonably allocated by Landlord to this Property. If less than ninety percent (90%) of the rentable area of the Building is occupied, Operating Expenses shall be adjusted to equal Landlord's reasonable estimate of Operating Expenses as if ninety percent (90%) of the total rentable area of the Building were occupied. Operating Expenses may include a fee to Landlord for managing the Property, provided that the amount of any such fee shall not be unreasonable in comparison to management fees then being charged by landlords of comparable properties in the vicinity of the Property and shall not in any event for any calendar year exceed five percent (5%) of total Property revenues (including all rent and reimbursement for taxes and operating expenses) payable to Landlord during such year. (c) Exclusions from Operating Expenses. Notwithstanding anything to the contrary contained in this Lease, the term "Operating Expenses" shall not include (i) the cost of any additional or extraordinary services provided to any other tenant of the Property; (ii) costs to comply with violations of building code or other governmental violation existing as of the Commencement Date, provided that the condition of the Building shall not be deemed to violate any such code or requirement if it was constructed in compliance with such code or requirement and applicable law does not require modification of such condition as of the Commencement Date; (iii) costs paid directly by any tenant of the Property; (iv) principal and interest payments on loans; (v) real estate sales or leasing brokerage commissions or finders fees; (vi) salaries of off-site personnel employed by Landlord except for the charge (or pro rata share) of the manager of the Property and Building (employed to operate or repair the common area); (vii) personal property taxes paid by any tenant; (viii) depreciation on improvements or equipment and machinery; (ix) advertising or promotional expenses; (x) attorneys' fees incurred in connection with negotiation or enforcement of leases; (xi) costs or expenses incurred for loss or damage to the Property to the extent insured by applicable insurance maintained by Landlord, provided however any deductible may be included as a replacement capital improvement amortized in accordance with subsection (b); or (xii) capital improvements to the structural portion of the Building, structural roof system, footings, foundations and load bearing walls, except to the extent such improvement is required as a result of a change after the Commencement Date in governmental laws, rules and regulations applicable to the Building. 3

(d) Estimates of Operating Expenses. Excluding all separately metered utility expenses for any other tenants in the Building, during December of each calendar year during the Term, or as soon thereafter as practicable, Landlord shall give Tenant written notice of Landlord's estimate of the amount of Operating Expenses which will be payable for the ensuing calendar year. On or before the first day of each month during the ensuing calendar year, Tenant shall pay to Landlord one-twelfth (1/12) of the estimated amount; provided, however, that if notice is not given in December, Tenant shall continue to pay on the basis of the then applicable Rent until the month after the notice is given. If at any time it appears to Landlord that the amount payable for the current calendar year will vary from Landlord's estimate by more than five percent (5%), Landlord may give notice to Tenant of Landlord's revised estimate for the year, and subsequent payments by Tenant for the year shall be based on the revised estimate; provided, however, that Landlord shall not give notice of a revised estimate for any year more frequently than once a calender quarter. (e) Annual Adjustment. Within one hundred twenty (120) days after the close of each calendar year of the Term, or as soon after the one hundred twenty (120) day period as practicable, Landlord shall deliver to Tenant a statement of the actual Operating Expenses for the prior calendar year. Such statement shall include a reasonable line-item breakdown of Operating Expenses. If, on the basis of the statement, Tenant owes an amount that is less than the estimated payments for the calendar year previously made by Tenant, Landlord shall apply the excess to the next payment of Operating Expenses due or refund such amount in cash with respect to the final lease year. If, on the basis of the statement, Tenant owes an amount that is more than the estimated payments for the calendar year previously made by the Tenant, Tenant shall pay the deficiency to Landlord within thirty (30) days after delivery of the statement. The statement of Operating Expenses shall be presumed correct and shall be deemed final and binding upon Tenant unless (i) Tenant in good faith objects in writing thereto within thirty (30) days after delivery of the statement to Tenant (which writing shall state, in reasonable detail, all of the reasonable detail, all of the reasons for the objection); and (ii) Tenant pays in full, within thirty (30) days after delivery or the statement to Tenant, any amount owed by Tenant with respect to the statement which is not in dispute. Tenant's failure to pay undisputed the amount shown on Landlord's statement within thirty (30) days after delivery thereof or Tenant's failure to pay in a timely manner the undisputed amount set forth on the revised estimate of Landlord's determination of Operating Expenses shall be deemed an irrevocable waiver of Tenant's right to contest and/or receive any credit or reimbursement for an overcharge of Operating Expenses shown on the Landlord's statement under which payment is required at that time. If Tenant objects to Landlord's allocation to this Property of the cost of self-insurance or blanket insurance, such allocation shall nonetheless be presumed correct and shall be deemed final and binding upon Tenant unless Tenant's timely written objection includes credible evidence that Landlord could have obtained substantially comparable insurance coverage for this Property alone at lower cost. (f) Tenant's Right to Audit Landlord's Records. Within ninety (90) days after timely giving Landlord its notice of its objection to Landlord's statement of actual Operating Expenses in accordance with subsection 5(e), (the "Landlord's Statement"), Tenant shall have the right to audit at Landlord's local offices, at Tenant's expense, Landlord's accounts and records relating to Operating Expenses and Real Property Taxes. Such audit shall be conducted by a certified public accountant approved by Landlord, which approval shall not be unreasonably withheld, and shall be completed within such ninety (90) day period. If such audit reveals that Landlord has overcharged Tenant, the amount overcharged shall be paid (or at Landlord's option credited toward amounts next payable by Tenant under this Lease) to Tenant within thirty (30) days after the audit is concluded. In addition, if, following such audit, the parties agree that Landlord's Statement of Operating Expenses exceeds the actual Operating Expenses which should have been charged to Tenant by more than ten percent (10%), the cost of such audit shall be paid by Landlord. (g) Definition of Real Property Taxes. The term "Real Property Taxes" shall mean any ordinary or extraordinary form of assessment or special assessment, license fee, rent tax, levy, penalty (if a result of Tenant's delinquency), or tax, other than net income, estate, succession, inheritance, transfer or franchise taxes, imposed by any authority having the direct or indirect power to tax, or by any city, county, state or federal government for any maintenance or improvement or other district or division thereof. The term shall include all transit charges, housing fund assessments, real estate taxes and all other taxes relating to the Premises, Building and/or Property, all other taxes which may be levied in lieu of real estate taxes, all assessments, assessment bonds, levies, fees and other governmental charges (including, but not limited to, charges for traffic facilities, improvements, child care, water services studies and improvements, and fire services studies and improvements) for amounts necessary to be expended because of governmental orders, whether general or special, ordinary or extraordinary, unforeseen as well as foreseen, or any kind and nature for public improvement, services, benefits or any other purposes which are assessed, levied, confirmed, imposed or become a lien upon the Premises, Building or Property or become payable during the Term. (h) Acknowledgment of Parties. It is acknowledged by Landlord and Tenant that Proposition 13 was 4

adopted by the voters of the State of California in the June, 1978 election, and that assessments, taxes, fees, levies and charges may be imposed by governmental agencies for such purposes as fire protection, street, sidewalk, road, utility construction and maintenance, refuse removal and for other governmental services which formerly may have been provided without charge to property owners or occupants. It is the intention of the parties that all new and increased assessments, taxes, fees, levies and charges due to Proposition 13 or any other cause are to be included within the definition of Real Property Taxes for purposes of this Lease. (i) Taxes on Tenant Improvements and Personal Property. Notwithstanding any other provision hereof, Tenant shall pay the full amount of any Real Property Taxes during the Term resulting from any and all alterations and tenant improvements of any kind whatsoever placed in, on or about the Premises for the benefit of, at the request of, or by Tenant. Tenant shall pay, prior to delinquency, all taxes assessed or levied against Tenant's personal property in, on or about the Premises. When possible, Tenant shall cause its personal property to be assessed and billed separately from the real or personal property of Landlord. Tenant shall not be responsible for payment of taxes to the extent assessed as a result of improvements installed by or for the benefit of another tenant which are in excess of Landlord's standard tenant improvements for the Property. 6. PRORATION OF RENT. If the Base Rent Commencement Date is not the first day of the month, or if the end of the Term is not the last day of the month, Base Rent shall be prorated on a monthly basis (based upon a thirty (30) day month) for the fractional month during the month which this Lease commences or terminates. The termination of this Lease shall not affect the obligations of Landlord and Tenant pursuant to subsection 5(e) which are to be performed after the termination. 7. LANDLORD'S WORK. (a) On or before March 1, 1997, Tenant shall prepare and deliver to Landlord a detailed report which itemizes (1) portions of the HVAC system, roof and roof membrane, Building structure, plumbing, electrical, systems and parking lot which are not in good operating condition, and (2) conditions in the Premises which were not constructed in compliance with or were not subsequently modified as was required under municipal, State of California or federal statutes, laws, rules, regulations, orders specifically applicable to the Premises (including without limitation all applicable fire and building codes) (collectively, "Laws"), including without limitation any laws requiring installation of a fire sprinkler system, seismic reinforcement and related alterations, removal of asbestos and compliance with the Americans with Disabilities Act and California Code of Regulations Title 24 (except that Tenant shall be responsible for all modifications to the interior of the Premises which may not comply with Laws related to persons with disabilities, including without limitation the Americans with Disabilities Act). Upon delivery of prior written notice to Landlord, Tenant shall have reasonable access to the Premises for the purpose of performing such inspections; provided that Tenant shall not disturb the use and occupancy of the Premises by Landlord's existing tenant. Tenant shall not make any boring or otherwise alter or modify the Premises without the prior written consent of Landlord. If Landlord grants such consent, Tenant shall return any such boring, modification or alteration to the condition which existed prior to such work. At Landlord's request, Tenant shall deliver to Landlord copies of all consultant's reports prepared by or on behalf of Tenant in its investigation of the physical condition of the Premises. Tenant shall indemnify, protect, defend and hold harmless Landlord and Landlord's employees agents and contractors from and against all claims, demands, losses, liabilities, costs, fees and expenses (including attorneys and consultants' fees) arising out of or related to such inspections by Tenant and or Tenant's agents employees or contractors, except that the foregoing shall not apply to matters which arise solely because they are identified in a report prepared by or on behalf of Tenant. (b) Within five (5) days after receipt of such report, Landlord shall either approve the items listed on such report or deliver written notice to Tenant of items which Landlord reasonably believes are not required to be repaired or corrected under clauses (1) and (2) above (the "Disputed Items"). Landlord shall only be obligated to perform such items as are properly included under clauses (1) and (2) above and may select any commercially reasonable method designed to cause the conditions identified by Tenant to be in good operating condition or in compliance with such laws as the case may be ("Landlord's Work"). If Landlord and Tenant cannot agree within five (5) days after the delivery of Landlord's notice on the conditions which require repair or correction, Landlord may elect to perform all such repairs and corrections but reserving the right to recover from Tenant amounts which Landlord expends on items which Landlord notifies Tenant are not required to be repaired or corrected under clauses (1) and (2) above. Disputed items shall be resolved by arbitration under the Commercial Real Estate Rules of the American Arbitration Association. Tenant shall reimburse Landlord for costs (plus interest at the Interest Rate from the date such cost is incurred) incurred by Landlord in correcting conditions identified by Tenant which are not properly included under clauses (1) 5

and (2) above. Landlord shall perform all Landlord's Work in a good and workmanlike manner in accordance with applicable Laws at Landlord's sole cost and expense without right of reimbursement from Tenant. Tenant shall allow Landlord to have access to the Premises at all times in order for Landlord to perform Landlord's Work and the parties shall mutually cooperate in scheduling contractors to perform such work. (c) Except as provided in subsection 7(a) above, Tenant shall accept the Premises and the Building in their as-is condition and Landlord shall have no obligation to improve or modify the Premises and/or the Building, except that Landlord shall use reasonable efforts to obtain and enforce a one year warranty of Landlord's Work from Landlord's contractor performing Landlord's Work. 8. USES OF PREMISES. (a) Tenant shall use the Premises solely for the use set forth in the Basic Lease Information, and Tenant shall not use the premises for any other purpose without obtaining the prior written consent of Landlord, which consent shall be given or withheld in the sole and absolute discretion of Landlord without any requirement of reasonableness in the exercise of that discretion. Tenant shall, at its own cost and expense, comply with all laws, rules, regulations, orders, permits, licenses and ordinances issued by any governmental authority which relate to the condition, use or occupancy of the Premises during the term of this Lease, provided however, Tenant shall not be required to comply with Laws which require capital improvements to the Premises which are not a result of Tenant's particular use (including employment practices) or alteration of the Premises. Tenant shall not use the Premises in any manner that will constitute waste, nuisance, or unreasonable annoyance (including, without limitation, the use of loudspeakers or sound or light apparatus that can be heard or seen outside the Premises) to other tenants in the Property. (b) "Hazardous Substance" shall mean the substances including within the definitions of the term "Hazardous Substance" under the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended, 42 U.S.C. Section 9601 et seq., and the California Carpenter-Presley-Tanner Hazardous Substance Account Act; California Health & Safety Code Section 25300 et seq., and regulations promulgated thereunder, as amended. "Hazardous Waste" shall mean (a) any waste listed as or meeting the identified characteristics of a "Hazardous Waste" under the Resource Conservation and Recovery Act of 1978, 42 U.S.C. Section 8901 et seq., and regulations promulgated pursuant thereto, collectively "RCRA", or (b) any waste meeting the identified characteristics of "Hazardous Waste" under California Hazardous Waste Control law, California Health and Safety Code Section 25100 et seq., and regulations promulgated pursuant thereto, collectively "CHWCL". "Hazardous Waste Facility" shall mean a hazardous waste facility as defined under CHWCL. (c) Tenant covenants that, at its sole cost and expense, it will comply with all applicable laws, rules, regulations, orders, permits, licenses and operating plans of any governmental authority with respect to the use, handling, generation, transportation, storage, treatment and/or disposal of hazardous substances or wastes, and Tenant will provide Landlord with copies of all permits, registrations or other similar documents that authorize Tenant to conduct any such activities in connection with its authorized use of the Premises. Additionally, Tenant agrees to comply with the Rules and Regulations attached hereto as Exhibit C, the requirements of the Board of Fire Underwriters or Landlord's insurance carrier, and to comply with covenants, conditions and restrictions ("CC&R's"), if any, applicable to the Property. (d) Tenant agrees that it shall not operate on the Premises any facility required to be permitted or licensed as a Hazardous Waste Facility or for which interim status as such is required. Nor shall Tenant store any Hazardous Wastes on the Premises for ninety (90) days or more. (e) Tenant agrees to comply with all applicable laws, rules, regulations, orders, and permits relating to underground storage, tanks (including any installation, monitoring, maintenance, closure and/or removal of such tanks) as such tanks are defined in California Health and Safety Code, Section 25281(u) including, without limitation, complying with California Health and Safety Code Sections 25280-25299.6 and the regulations promulgated thereunder. Tenant shall furnish to Landlord copies of all registrations and permits for all underground storage tanks. (f) If applicable, Tenant shall provide to Landlord in writing the following information and/or documentation at the Commencement Date and within sixty (60) days of any change in the required information and/or documentation: (1) A list of all hazardous substances and/or wastes that Tenant uses, handles, generates, transports, stores, treats or disposes in connection with its operations on the Premises. 6

(ii) Copies of all Material Safety Data Sheets ("MSDS's") required to be completed with respect to operations of Tenant at the Premises in accordance with Title 8, California Code of Regulations Section 5194 or 42 U.S.C. Section 11021, or any amendments thereto. In lieu of this requirement, Tenant may provide a Hazardous Materials Inventory Sheet that details the MSDS's. (iii) Copies of all hazardous waste manifests, as defined in Title 26, California Code of Regulations Section 22-66260.10, that Tenant is required to complete in all connections with its operations at the Premises. (iv) A copy of any Hazardous Materials Management Plans required with respect to Tenant's operations. (v) Copies of any Contingency Plans and Emergency Procedures required of Tenant due to its operations in accordance with Title 26, Section 22-66260.10, of the California Code of Regulations, and any amendments thereto. (vi) Copies of any biennial reports to be furnished to California Department of Health Services relating to hazardous substances or wastes. (vii) Copies of all industrial waste water discharge permits. (g) Tenant shall secure Landlord's prior written approval for any proposed receipt, storage, possession, use, transfer or disposal of "Radioactive Materials" or "Radiation", as such materials are defined in Title 26, California Code of Regulations Sections 17-30100 or possessing the characteristics of the materials so defined, which approval Landlord may withhold in its sole and absolute discretion. The Tenant in connection with any authorized receipt, storage, possession, use, transfer or disposal of radioactive materials or radiation shall: (i) Comply with all federal, state and local laws, rules, regulations, orders, licenses and permits; (ii) Furnish Landlord with a list of all radioactive materials or radiation received, stored, possessed, used, transferred or disposed; and (iii) Furnish Landlord with all licenses, registration materials, inspection reports, orders and permits in connection with the receipt, storage, possession, use, transfer or disposal or radioactive materials or radiation. (h) Tenant agrees to comply with any and all applicable laws, rules, regulations, and orders with respect to the release into the environment of any hazardous wastes or substances or radiation or radioactive materials. Tenant agrees to notify Landlord in writing of any unauthorized release into the environment within twenty-four (24) hours of the time at which Tenant becomes aware of such release. (i) Tenant shall indemnify, defend, and hold Landlord harmless from any and all claims, losses (including, but not limited to, loss of rental income and loss due to business interruption), damages, (including diminution in value or loss of rental value following expiration or earlier termination of the Term) liabilities, costs, legal fees, and expenses of any sort arising out of or relating to any unauthorized release into the environment of hazardous substances or wastes or radiation or radioactive materials by Tenant or any of Tenant's agents, contractors or invitees, or Tenant's failure to comply with Subparagraphs (a)-(h) of this section of the Lease. (j) Tenant agrees to cooperate with Landlord in furnishing Landlord with complete information regarding Tenant's receipt, handling, use, storage, transportation, generation, treatment and/or disposal of hazardous substances or wastes or radiation or radioactive materials. Upon request, Tenant agrees to grant Landlord reasonable access at reasonable times to the Premises to inspect Tenant's receipt, handling, use, storage, transportation, generation, treatment and/or disposal of hazardous substances wastes or radiation or radioactive materials without being deemed guilty of any disturbance of Tenant's use or possession and without being liable to Tenant in any manner. (k) Notwithstanding Landlord's rights of inspection and review under this paragraph, Landlord shall have no obligation or duty to so inspect or review, and no third party shall be entitled to rely on Landlord to conduct any sort of inspection or review by reason of the provisions of this paragraph. 7

(i) Landlord agrees that Tenant shall have no liability or responsibility whatsoever for any Hazardous Substances or Hazardous Waste on or about the Premises, the Common Areas or the Property except if brought onto the Property or caused or exacerbated by Tenant and/or Tenant's agents, contractors, licensees, invitees, employees or other persons in the Premises during the Term. (m) This Section 8 of the Lease shall survive termination of the Lease. 9. ALTERATIONS. (a) Initial Alterations. (i) Preliminary Plans. Preliminary plans and specifications for construction of the tenant improvements to be initially installed by Tenant in the Premises ("Initial Alterations") shall be prepared by a licensed architect as is proposed by Tenant and reasonably approved by Landlord (the "Architect"). The preliminary plans and specifications shall be submitted to Landlord for Landlord's approval which approval shall not be unreasonably withheld, conditioned or delayed, provided that Landlord may withhold such consent, in Landlord's sole discretion, if the construction contemplated by such preliminary plans will affect the structure, roof, or the exterior appearance of the Building, or will have an adverse affect on the utility systems of the Building. The preliminary plans and specifications approved as set forth above are referred to herein as the "Approved Preliminary Plans." (ii) Working Drawings. Promptly following approval of the Approved Preliminary Plans, Tenant shall instruct the Architect to produce, and submit to Landlord for review and approval, which approval shall not be unreasonably withheld, conditioned or delayed, working drawings and specifications. The working drawings and specifications which have been approved as provided herein are hereinafter referred to as the "Approved Working Drawings." (iii) Selection of Contractor. Tenant shall engage a general contractor as is proposed by Tenant and reasonably approved by Landlord (the "Contractor") to construct the Initial Alterations. (iv) Construction. Tenant shall cause construction of the Initial Alterations to be completed in a good and workmanlike manner and in compliance with all applicable laws, rules and regulations. Tenant shall provide access to Landlord at all reasonable times for the purpose of inspecting the construction of the Initial Alterations and shall cooperate with Landlord and Landlord's agents during such inspections and provide to Landlord and Landlord's agents such information as Landlord or Landlord's agents may reasonably request. Landlord shall not charge a plan review, construction management fee or any other fee in connection with the design and construction of the Initial Alterations. (v) Change Requests. No material changes to the Approved Working Drawings requested by Tenant shall be made without Landlord's prior approval which shall not be unreasonably withheld, condition or delayed. Any changes to the Approved Working Drawings shall be in writing and shall be signed by both Landlord and Tenant prior to the change being made. (vi) Plans and Specifications. Upon completion, Tenant shall deliver to Landlord a complete set of "as-built" plans and specifications for the Initial Alterations. (b) Additional Alterations. As used in this Section 9, the term "alteration" shall include the Initial Alterations and any subsequent alteration, addition or improvement. Tenant shall give Landlord not less than ten (10) days' notice of any alteration Tenant desires to make to the Premises. Except for the Initial Alterations, Tenant shall not make any alteration in, on or about the Premises without the prior written consent of Landlord unless the alteration does not affect the Building structure, the exterior appearance of the Building, the roof or the Building systems (e.g., electrical systems) and such alteration does not require a building permit and the cost of the alteration is not in excess of Fifteen Thousand Dollars ($15,000.00). Tenant shall comply with all rules, laws, ordinances and requirements applicable at the time Tenant makes any alteration and shall deliver to Landlord a complete set of "as built" plans and specifications for each alteration. Tenant shall be solely responsible for maintenance and repair of all alterations made by Tenant. (c) Liens. If, because of any act or omission of Tenant or anyone claiming by, through, or under Tenant, any mechanics' lien or other lien is filed against the Premises or against other property of Landlord (whether or not the lien is valid or enforceable), Tenant, at its own expense, shall cause it to be discharged 8

of record (by lien release bond or otherwise) within a reasonable time, not to exceed thirty (30) days, after the date of the filing. In addition, Tenant shall defend and indemnify Landlord and hold it harmless from any and all claims, losses, damages, judgments, settlements, cost and expenses, including attorneys' fees, resulting from the lien. (d) Ownership of Alterations. Any alteration made by Tenant shall become Landlord's property, at Landlord's election, upon the expiration or earlier termination of the Term. Except as provided in subsection 9(d), Landlord may require Tenant, at Tenant's sole expense and by the end of the Term, to remove any alterations (including the Initial Alterations) made by Tenant and to restore the Premises to its condition prior to the alteration. (e) Request Regarding Removal Obligation. At the time that Tenant requests Landlord's consent to any alteration (including the Initial Alterations), Tenant may request, and promptly following receipt of such request, Landlord shall notify Tenant if Landlord will require Tenant, at Tenant's sole expense, to remove any or all of the alteration by the end of the Term, and to restore the Premises to its condition prior to the alteration. Landlord will not require removal of the Initial Alterations to the extent such alterations are for general office use and will not require unusual expenses of demolition and removal, as reasonably determined by Landlord. 10. REPAIRS. (a) Tenant's Obligation. Except as provided in subsection 10(b), Tenant, at all times during the Term and at Tenant's sole cost and expense, shall keep the Premises and every part thereof in good condition and repair, ordinary wear and tear, damage thereto not caused by Tenant, by fire, earthquake, acts of God or the elements excepted. Tenant hereby waives all right to make repairs at the expense of Landlord or in lieu thereof to vacate the Premises as provided in California Civil Code Section 1942 or any other law, statute or ordinance now or hereafter in effect. Notwithstanding anything to the contrary contained in this Lease, Tenant shall not be responsible for repairing or restoring the Premises or any part thereof to the extent required as a result of the willful misconduct or active negligence of Landlord or its agents, representatives, employees or contractors. (b) Landlord's Obligations. Landlord, at Landlord's expense, without reimbursement from Tenant (other than the cost of a capital improvement required to be made during the Term as a result of a change in applicable Laws after the date hereof, as may be included in Operating Expenses under subsection 5(b), shall repair and maintain the structural portions of the roof (but not roof membrane or other non-structural elements of the roof) and structural portions of the Building except that Tenant shall pay to Landlord the cost of the maintenance and repairs to the extent required as a result of the act, neglect or fault of Tenant and/or Tenant's agents, contractors, employees or invitees. There shall be no abatement of Rent and no liability of Landlord by reason of any injury to or interference with Tenant's business arising from the making of any repairs, alterations or improvements in or to the fixtures, appurtenances and equipment therein. Landlord shall maintain the Common Areas subject to reimbursement of its expenses. 11. DAMAGE OR DESTRUCTION. (a) Landlord's Obligation to Rebuild. If the Premises are damaged or destroyed, Landlord promptly and diligently shall repair the Premises (subject to the limitations specified in this Section 11) unless Landlord has the option to terminate this Lease as provided herein, and Landlord elects to terminate. (b) Right to Terminate. Landlord and Tenant each shall have the option to terminate this Lease if the Premises or the Building is destroyed or damaged by fire or other casualty, regardless of whether the casualty is insured against under this Lease, if Landlord reasonably determines that Landlord's obligation to repair the Premises or the Building under this Section 11 cannot be completed within two hundred seventy (270) days after the casualty. If a party desires to exercise the right to terminate this Lease as a result of a casualty, the party shall exercise the right by giving the other party written notice of its election to terminate within thirty (30) days after Landlord delivers written notice of the estimated time to complete such repairs, in which event this Lease shall terminate fifteen (15) days after the date of the notice. If neither Landlord nor Tenant exercises the right to terminate this Lease, Landlord promptly shall commence the process of obtaining necessary permits and approvals, and shall commence repair of the Premises as soon as practicable and thereafter prosecute the repair diligently to completion, in which event this Lease shall continue in full force and effect. (c) Limited Obligation to Repair. Landlord's obligation, should Landlord elect or be obligated to repair or rebuild, shall be limited to the Building shell and other portions of the Premises to the extent actually 9

insured by Landlord under insurance policies carried by Landlord. Tenant, at its option and expense, shall replace or fully repair all trade fixtures, equipment and other improvements installed by Tenant and existing at the time of the damage or destruction. (d) Abatement of Rent. In the event of any damage or destruction to thirty percent (30%) or more of the square footage of the Premises which does not result in the termination of this Lease, both the Base Rent and Operating Expenses shall be temporarily abated proportionately to the degree the Premises are untenantable as a result of the damage or destruction, commencing from the date of the damage or destruction and continuing during the period required by Landlord to substantially complete its repair and restoration of the Premises. In the event of any damage or destruction to less than thirty percent (30%) of the square footage of the Premises, which does not result in the termination of this Lease, only the Base Rent shall be temporarily abated proportionately to the degree the Premises are untenantable as a result of the damage or destruction, commencing from the date of the damage or destruction and continuing during the period required by Landlord to substantially complete its repair and restoration of the Premises. Notwithstanding the foregoing, nothing herein shall preclude Landlord from being entitled to collect the full amount of any rent loss insurance proceeds. Tenant shall not be entitled to any compensation or damages from Landlord for loss of the use of the Premises, damage to Tenant's personal property or any inconvenience occasioned by any damage, repair or restoration. Tenant hereby waives the provisions of Section 1932, Subdivision 2, and Section 1933, Subdivision 4, of the California Civil Code, and the provisions of any similar law hereafter enacted. (e) Damage Near End of Term and Extensive Damage. In addition to the rights to termination under subsection 11(b), either Landlord or Tenant shall have the right to cancel and terminate this Lease as of the date of the occurrence of destruction or damage if the Premises or the Building is substantially destroyed or damaged (i.e., there is damage or destruction which Landlord determines would require more than six (6) months to repair) and made untenantable during the last twelve (12) months of the Term. Landlord or Tenant shall give notice of its election to terminate this Lease under this subsection 11(e) within thirty (30) days after Landlord determines that the damage or destruction would require more than six (6) months to repair. If neither Landlord nor Tenant elects to terminate this Lease, the repair of the damage shall be governed by subsection 11(a) or 11(b), as the case may be. For purposes of this Section, if Tenant has been granted an option to extend the Term and the period within which Tenant is entitled to exercise such option has not lapsed, then the damage or destruction shall not be deemed to have occurred during the last year of the Term if Tenant exercises its option to extend within twenty (20) days after the event of damage or destruction or the date Tenant is required to exercise such option under this Lease, whichever is earlier, in accordance with the requirements of this Lease. (f) Insurance Proceeds. If this Lease is terminated, Landlord may keep all the insurance proceeds resulting from the damage, except for those proceeds which specifically insured Tenant's personal property and trade fixtures. 12. EMINENT DOMAIN. If all or any part of the Premises is taken for public or quasi-public use by a governmental authority under the power of eminent domain or is conveyed to a governmental authority in lieu of such taking, and if the taking or conveyance causes the remaining part of the Premises to be untenantable and inadequate for use by Tenant for the purpose for which they were leased, then Tenant, at its option and by giving notice within fifteen (15) days after the taking, may terminate this Lease as of the date Tenant is required to surrender possession of the Premises. If a part of the Premises is taken or conveyed but the remaining part is tenantable and adequate for Tenant's use, then this Lease shall be terminated as to the part taken or conveyed as of the date Tenant surrenders possession; Landlord shall make such repairs, alterations and improvements as may be necessary to render the part not taken or conveyed tenantable; and the Rent shall be reduced in proportion to the part of the Premises taken or conveyed. All compensation awarded for the taking or conveyance shall be the property of Landlord without any deduction therefrom for any estate of Tenant, and Tenant hereby assigns to Landlord all its right, title and interest in and to the award. Tenant shall have the right, however, to recover from the governmental authority, but not from Landlord, such compensation as may be awarded to Tenant on account of the interruption of Tenant's business, moving and relocation expenses; and removal of Tenant's trade fixtures and personal property. 13. INDEMNITY AND INSURANCE. (a) Indemnity. Tenant shall be responsible for, shall insure against, and shall indemnify Landlord and hold Landlord harmless from, any and all claims, demands, losses, liabilities, cost, fees and expenses, including attorneys', experts' and consultants' fees in any way related to any loss, damage or injury to person or property occurring in, on or about the Premises, except to the extent it is determined that such loss or damage was caused by the negligence or willful misconduct of Landlord or Landlord's representatives, servants, employees or contractors, and Tenant hereby releases Landlord from any and 10

all liability for the same. Tenant's obligation to indemnify Landlord and its constituent parts hereunder shall include the duty to defend against any claims asserted by reason of any loss, damage or injury, and to pay any judgments, settlements, costs, fees and expenses, including attorneys' fees, incurred in connection therewith. (b) Insurance. At all times during the term of this Lease, Tenant shall carry, at its own expense, for the protection of Tenant, Landlord, and Landlord's management agents, as their interests may appear, one or more policies of comprehensive general public liability and property damage insurance, issued by one or more insurance companies acceptable to Landlord, with minimum coverages of One Million Dollars ($1,000,000.00) for injury to one person in any one accident, Three Million Dollars ($3,000,000.00) for injuries to more than one person in any one accident and Two Million Dollars ($2,000,000.00) in property damage per accident and insuring against any and all liability for which Tenant is responsible under this Lease. The insurance policy or policies shall name Landlord, Landlord's constituent parts and Landlord's management agents as additional insureds, and shall provide that the policy or policies may not be cancelled on less than thirty (30) days' prior written notice to Landlord. Tenant shall furnish Landlord with certificates evidencing the insurance. If Tenant fails to carry the insurance and furnish Landlord with copies of all the policies after a request to do so, Landlord shall have the right to obtain the insurance and collect the cost thereof from Tenant as additional Rent. (c) Landlord's Insurance. Landlord agrees to purchase and keep in force and effect commercial general liability insurance in an amount not less than One Million Dollars ($1,000,000.00) per occurrence and Three Million Dollars ($3,000,000.00) general aggregate, and All Risk property insurance with an agreed amount endorsement, and Boiler and Machinery insurance on the Building, with such deductibles as Landlord may in its discretion determine. Notwithstanding the foregoing, so long as the Landlord hereunder shall be The Prudential Insurance Company of America ("Prudential"), the blanket coverage maintained by Prudential under its insurance program for its portfolio of properties shall be deemed to be satisfactory under this clause. Landlord's insurance shall provide that it is specific and not contributory and the property insurance shall contain a clause pursuant to which the insurance carriers waive all rights of subrogation against Tenant with respect to losses payable under such policies. 14. ASSIGNMENT AND SUBLETTING. (a) Landlord's Consent. Tenant shall not assign, sublet or otherwise transfer all or any portion of Tenant's interest in this Lease (collectively, "sublet") without Landlord's prior written consent, which consent shall not be unreasonably withheld, conditioned or delayed. Consent by Landlord to one sublet shall not be deemed to be a consent to any subsequent sublet. Notwithstanding the foregoing, Tenant shall not, in any event, enter into any sublease for a term longer than twenty four (24) months nor, during the Term, shall the Premises be subject to any sublease or subleases for a period in the aggregate longer than thirty six (36) months (i.e. the Premises during the initial term shall not be subject to any subleases for at least seven (7) years of the ten (10) years of the Term). (b) Effect of Sublet. Each sublet to which Landlord has consented shall be by an instrument in writing, in a form satisfactory to Landlord as evidenced by Landlord's written approval. Each sublessee shall agree in writing, for the benefit of Landlord, to assume, to be bound by and to perform the terms, conditions and covenants of this Lease to be performed by Tenant. Tenant shall not be released from personal liability for the performance of each term, condition and covenant of this Lease, and Landlord shall have the right to proceed against Tenant without proceeding against the subtenant. (c) Information to be Furnished. If Tenant desires at any time to sublet the Premises, Tenant first shall notify Landlord of its desire to do so and shall submit in writing to Landlord: (i) the name of the proposed subtenant; (ii) the nature of the proposed subtenant's business to be carried on in the Premises; (iii) the terms and provisions of the proposed sublease and a copy of the proposed sublease form; and (iv) such financial information, including financial statements, as Landlord reasonably may request concerning the proposed subtenant. (d) Landlord's Election. At any time within twenty (20) days after Landlord's receipt of the information specified in subsection 14(c), Landlord, by written notice to Tenant, may elect either (i) to consent to the sublet by Tenant; or (ii) to refuse its consent to the sublet. If Landlord fails to elect either of the alternatives within the thirty (30) day period, its shall be deemed that Landlord has refused its consent to the sublet. If Landlord refuses its consent, Landlord shall deliver to Tenant a statement of the basis for its refusal. Any attempted sublet without Landlord's consent shall not be effective. (e) Payment Upon Sublet. If Landlord consents to the sublet, Tenant thereafter may enter into a valid 11

sublet of the Premises or portion thereof, upon the terms and conditions set forth in the information furnished by Tenant to Landlord pursuant to subsection 14(c), subject to the condition that fifty percent (50%) of any excess of the monies due to Tenant under the sublet ("subrent") over the Rent required to be paid by Tenant hereunder plus any commissions paid by Tenant in connection with such sublease shall be paid to Landlord. For purposes of such calculations, commissions paid by Tenant shall be amortized over the term of the sublease. Any subrent to be paid to Landlord pursuant hereto shall be payable to Landlord as and with the Base Rent payable to Landlord hereunder pursuant to the terms of Section 4. The term "subrent" as used herein shall include any consideration of any kind received, or to be received, by Tenant from the subtenant, if the sums are related to Tenant's interest in this Lease or in the Premises, including, without limitation, bonus money, and payments (in excess of fair market value thereof) for Tenant's assets, fixtures, inventory, accounts, goodwill, equipment, furniture, general intangibles and any capital stock or other equity ownership of Tenant. (f) Executed Counterparts. No sublet shall be valid nor shall any subtenant take possession of the Premises until an executed counterpart of the sublease has been delivered to Landlord and approved in writing. (g) Transfer to Purchaser. A transfer of this Lease to one or more purchasers of a majority interest in Tenant shall be deemed a sublet under this Lease. (h) Transfers to Affiliates. Notwithstanding anything to the contrary in this Lease, Tenant may assign this Lease or sublet the Premises, without Landlord's consent, to any corporation which controls, is controlled by or is under common control with Tenant, or to any corporation resulting from the merger or consolidation with Tenant, or to any person or entity which acquires all the assets of Tenant as a going concern of the business that is being conducted on the Premises, provided that the assignee assumes, in full, the obligations of Tenant under this Lease. (i) Costs. In the event Tenant shall assign or sublet the Premises or request the consent of Landlord to any assignment, subletting, hypothecation or other action requiring Landlord's consent hereunder, then Tenant shall pay a processing fee in the amount of $500 plus Landlord's reasonable attorneys' fees incurred in connection therewith. Landlord's charge for attorneys' fees in connection with a review of a proposed assignment or sublease shall not exceed $2000 so long as the sublease does not purport to amend any of the terms of this Lease or to obligate Landlord to perform any additional obligations under this Lease and Tenant does not request any modifications to Landlord's form consent to such assignment or sublease. 15. DEFAULT. (a) Tenant's Default. At the option of Landlord, a material breach of this Lease by Tenant shall exist if any of the following events (severally, "Event of Default"; collectively, "Events of Default") shall occur: (i) if Tenant shall have failed to pay Rent, including Tenant's Percentage Share of Operating Expenses, or any other sum required to be paid hereunder when due and such failure is not cured within five (5) days after written notice from Landlord (which notice may be in the form of a statutory notice to pay rent or quit); (ii) if Tenant shall have failed to perform any term, covenant or condition of this Lease except those requiring the payment of money, and Tenant shall have failed to cure the breach within fifteen (15) days after written notice from Landlord if the breach could reasonably be cured within the fifteen (15) day period; provided, however, if the failure could not reasonably be cured within the fifteen (15) day period, then Tenant shall not be in default unless it has failed to promptly commence and thereafter continue to make diligent and reasonable efforts to cure the failure as soon as practicable as reasonably determined by Landlord; (iii) if Tenant shall have assigned its assets for the benefit of its creditors; (iv) if the sequestration of, attachment of, or execution on, any material part of the property of Tenant or on any property essential to the conduct of Tenant's business shall have occurred, and Tenant shall have failed to obtain a return or release of the property within thirty (30) days thereafter, or prior to sale pursuant to any sequestration, attachment or levy, whichever is earlier; (v) if Tenant shall have abandoned the Premises and failed to pay Rent; (vi) if a court shall have made or entered any decree or order adjudging Tenant to be insolvent, or approving as properly filed a petition seeking reorganization of Tenant, or directing the winding up or liquidation of Tenant, and the decree or order shall have continued for a period of thirty (30) days; (vii) if Tenant shall make or suffer any transfer which constitutes a fraudulent or otherwise avoidable transfer under any provision of the federal Bankruptcy laws or any applicable state law; or (viii) if Tenant shall have failed to comply with the provisions of Section 23 or 25. An Event of Default shall constitute a default under this Lease. (b) Remedies Upon Tenant's Default. Upon an Event of Default, Landlord shall have the following remedies, in addition to all other rights and remedies provided by law, equity, statute or otherwise provided 12

in this Lease, to which Landlord may resort cumulatively or in the alternative: (i) Landlord may continue this Lease in full force and effect, and this Lease shall continue in full force and effect as long as Landlord does not terminate Tenant's right to possession, and Landlord shall have the right to collect Rent when due. During the period Tenant is in default, Landlord may enter the Premises and relet it, or any part of it, to third parties for Tenant's account, provided that any Rent in excess of the Rent due hereunder shall be payable to Landlord. Tenant shall be liable immediately to Landlord for all costs Landlord incurs in reletting the Premises, including, without limitation, brokers' commissions, expenses of cleaning and redecorating the Premises required by the reletting and like costs. Reletting may be for a period shorter or longer than the remaining Term of this Lease. Tenant shall pay to Landlord the Rent and other sums due under this Lease on the dates the Rent is due, less the Rent and other sums Landlord receives from any reletting. No act by Landlord allowed by this subsection (i) shall terminate this Lease unless Landlord notifies Tenant in writing that Landlord elects to terminate this Lease. (ii) Landlord may terminate Tenant's right to possession of the Premises at any time by giving written notice to that effect. No act by Landlord other than giving written notice to Tenant shall terminate this Lease. Acts of maintenance, efforts to relet the Premises or the appointment of a receiver on Landlord's initiative to protect Landlord's interest under this Lease shall not constitute a termination of Tenant's right to possession. On termination, Landlord shall have the right to remove all personal property of Tenant and store it at Tenant's cost and to recover from Tenant as damages: (a) the worth at the time of award of unpaid Rent and other sums due and payable which had been earned at the time of termination; plus (b) the worth at the time of award of the amount by which the unpaid Rent and other sums due and payable which would have been payable after termination until the time of award exceeds the amount of the Rent loss that Tenant proves could have been reasonably avoided; plus (c) the worth at the time of award of the amount by which the unpaid Rent and other sums due and payable for the balance of the Term after the time of award exceeds the amount of the Rent loss that Tenant proves could be reasonably avoided; plus (d) any other amount necessary to compensate Landlord for all the detriment proximately caused by Tenant's failure to perform Tenant's obligations under this Lease, or which, in the ordinary course of things, would be likely to result therefrom, including, without limitation, any costs or expenses incurred by Landlord: (1) in retaking possession of the Premises, including reasonable attorneys' fees and costs therefor; (2) maintaining or preserving the Premises for reletting to a new tenant, including repairs or alterations to the Premises for the reletting; (3) leasing commissions; (4) any other costs necessary or appropriate to relet the Premises; and (5) at Landlord's election, such other amounts in addition to or in lieu of the foregoing as may be permitted from time to time by the laws of the State of California. The "worth at the time of award" of the amounts referred to in subsections (ii)(a) and (ii)(b) is computed by allowing interest at the Interest Rate, on the unpaid Rent and other sums due and payable from the termination date through the date of award. The "worth at the time of award" of the amount referred to in subsection (ii)(c) is computed by discounting the amount at the discount rate of the Federal Reserve Bank of San Francisco at the time of award, plus one percent (1%). Tenant waives redemption or relief from forfeiture under California Code of Civil Procedure Sections 1174 and 1179, or under any other present or future law, if Tenant is evicted or Landlord takes possession of the Premises by reason of any default of Tenant hereunder. (c) Landlord's Default. Landlord shall not be deemed to be in default in the performance of any obligation required to be performed by Landlord hereunder unless and until Landlord has failed to perform the obligation within fifteen (15) days after receipt of written notice by Tenant to Landlord specifying wherein Landlord has failed to perform the obligation; provided, however, that if the nature of Landlord's obligation is such that more than fifteen (15) days are required for its performance, then Landlord shall not be deemed to be in default if Landlord shall commence the performance within the fifteen (15) day period and thereafter shall diligently prosecute the same to completion. 16. LANDLORD'S RIGHT TO PERFORM TENANT'S COVENANTS. If Tenant shall at any time fail to make any payment or perform any other act on its part to be made or performed under this Lease and Tenant does not cure such failure within the applicable cure period provided herein (or such shorter period as Landlord may reasonably deem appropriate in the event of an emergency), Landlord may, but shall not be obligated to, make the payment or perform any other act to the extent Landlord may deem desirable and, in connection therewith, pay expenses and employ counsel. Any payment or performance by Landlord shall not waive or release Tenant from any obligations of Tenant under this Lease. All sums so paid by Landlord, and all penalties, interest and costs in connection therewith, shall be due and payable by Tenant on the next day after any payment by Landlord, together with interest thereon at the Interest Rate, from that date to the date of payment thereof by Tenant to Landlord, plus collection costs and 13

attorneys' fees. Landlord shall have the same rights and remedies for the nonpayment thereof as in the case of default in the payment of Rent. 17. [Intentionally Omitted] 18. SURRENDER OF PREMISES. By taking possession of the Premises, except as provided in Section 7, Tenant shall be deemed to have accepted the Premises and the Property in good condition and repair, subject to all applicable laws, codes and ordinances. On the expiration or early termination of this Lease, Tenant shall surrender the Premises to Landlord in its condition as of the Base Rent Commencement Date, normal wear and tear and damage due to casualty or condemnation excepted. The foregoing exception for damage to the Premises shall not apply to damage caused by Tenant and/or Tenant's agents, contractors, employees and invitees except to the extent the waiver of certain claims contained in Section 22 applies to such damage. Tenant shall remove from the Premises all of Tenant's personal property, trade fixtures and any alterations (including the Initial Alterations to the extent required to be removed under subsection 9(e)) required to be removed pursuant to Section 9. Tenant shall repair damage or perform any restoration work required by the removal. If Tenant fails to remove any personal property, trade fixtures or alterations after the end of the Term, Landlord may remove the property and store it at Tenant's expense, including interest at the Interest Rate. If the Premises are not so surrendered at the termination of this Lease, Tenant shall indemnify Landlord against all loss or liability resulting from delay by Tenant in so surrendering the Premises, including, without limitation, any claims made by any succeeding tenant, losses to Landlord due to lost opportunities to lease to succeeding tenants, and attorneys' fees and costs. 19. HOLDING OVER. If Tenant remains in possession of all or any part of the Premises after the expiration of the Term or the termination of this Lease, the tenancy shall be month-to-month only and shall not constitute a renewal or extension for any further term. In such event, Base Rent shall be increased in an amount equal to one hundred fifty percent (150%) of the Base Rent during the last month of the Term (including any extensions), and any other sums due under this Lease shall be payable in the amount, and at the times, specified in this Lease. The month-to-month tenancy shall be subject to every other term, condition, covenant and agreement contained in this Lease and Tenant shall vacate the Premises immediately upon Landlord's request. 20. ACCESS TO PREMISES. Tenant shall permit Landlord and its agents to enter the Premises at all reasonable times upon reasonable notice, except in the case of an emergency (in which event no notice shall be necessary), to inspect the Premises; to post Notices of Nonresponsibility and similar notices and to show the Premises to interested parties such as prospective mortgagors, purchasers and tenants; to make necessary alterations, additions, improvements or repairs either to the Premises, the Building or other premises within the Building; and to discharge Tenant's obligations hereunder when Tenant has failed to do so within a reasonable time after written notice from Landlord. The above rights are subject to reasonable security regulations of Tenant, and to the requirement that Landlord shall at all times act in a manner to cause the least possible interference with Tenant's operations. 21. SIGNS. The size, design, color, location and other physical aspects of any sign in or on the Building shall be subject to the CC&R's, if any, Rules and Landlord's approval (not unreasonably withheld) prior to installation, and to any appropriate municipal or other governmental approvals. The costs of any permitted sign, and the costs of its installation, maintenance and removal, shall be at Tenant's sole expense and shall be paid within ten (10) days of Tenant's receipt of a bill from Landlord for the costs. 22. WAIVER OF SUBROGATION. Anything in this Lease to the contrary notwithstanding, Landlord and Tenant each hereby waives and releases the other of and from any and all rights of recovery, claim, action or cause of action against the other, its subsidiaries, directors, agents, officers and employees, for any loss or damage that may occur in the Premises, the Building or the Property; to improvements to the Building or personal property (building contents) within the Building; or to any furniture, equipment, machinery, goods and supplies not covered by this Lease which Tenant may bring or obtain upon the Premises or any additional improvements which Tenant may construct on the Premises by reason of fire, the elements or any other cause which is required to be insured against under this Lease, regardless of cause or origin, including negligence of Landlord or Tenant and their agents, subsidiaries, directors, officers and employees, to the extent insured against under the terms of any insurance policies carried by Landlord or Tenant and in force at the time of any such damage, but only if the insurance in question permits such a partial release in connection with obtaining a waiver of subrogation from the insurer. Because this Section 22 will preclude the assignment of any claim mentioned in it by way of subrogation or otherwise to an insurance company or any other person, each party to this Lease agrees immediately to give to each insurance company written notice of the terms of the mutual waivers contained in this Section and to have the insurance policies properly endorsed, if necessary, to prevent the invalidation of the insurance coverages by reason of the mutual waivers contained in this Section. 14

23. Subordination. (a) Subordinate Nature. Except as provided in subsection 23(b), this Lease is subject and subordinate to all ground and underlying leases, mortgages and deeds of trust which now or may hereafter affect the Property, the Building or the Premises, to the CC&R's, if any, and to all renewals, modifications, consolidations, replacements and extensions thereof. Subject to subsection 23(c), within fifteen (15) days after Landlord's written request therefor, Tenant shall execute any and all documents required by Landlord, the lessor under any ground or underlying lease ("Lessor"), or the holder or holders of any mortgage or deed of trust ("Holder") to make this Lease subordinate to the lien of any lease, mortgage or deed of trust, as the case may be. (b) Possible Priority of Lease. If a Lessor or a Holder advises Landlord that it desires or requires this Lease to be prior and superior to a lease, mortgage or deed of trust, Landlord may notify Tenant. Within seven (7) days of Landlord's notice, Tenant shall execute, have acknowledged and deliver to Landlord any and all documents or instruments, in the form presented to Tenant, which Landlord, Lessor or Holder deems necessary or desirable to make this Lease prior and superior to the lease, mortgage or deed of trust. (c) Recognition or Attornment Agreement. If Landlord or Holder requests Tenant to execute a document subordinating this Lease, the document shall provide that, so long as Tenant is not in default, Lessor or Holder shall agree to enter into either a recognition or attornment agreement with Tenant, or a new lease with Tenant upon the same terms and conditions as to possession of the Premises, which shall provide that Tenant may continue to occupy the Premises so long as Tenant shall pay the Rent and observe and perform all the provisions of this Lease to be observed and performed by Tenant. 24. TRANSFER OF THE PROPERTY. Upon transfer of the Property and assignment of this Lease and assumption of this Lease by Landlord's successor, Landlord shall be entirely freed and relieved of all liability under any and all of its covenants and obligations contained in or derived from this Lease occurring after the consummation of the transfer and assignment, and from all liability for the Security Deposit. Subject to subsection 23(c), Tenant shall attorn to any entity purchasing or otherwise acquiring the Premises at any sale or other proceeding. 25. ESTOPPEL CERTIFICATES. Within fifteen (15) days following written request by Landlord, Tenant shall execute and deliver to Landlord an estoppel certificate, in the form prepared by Landlord. The certificate shall: (i) certify that this Lease is unmodified and in full force and effect or, if modified, state the nature of the modification and certify that this Lease, as so modified, is in full force effect, and the date to which the Rent and other charges are paid in advance, if any; (ii) acknowledge that there are not, to Tenant's knowledge, any uncured defaults on the part of Landlord hereunder, or if there are uncured defaults on the part of the Landlord, state the nature of the uncured defaults; and (iii) evidence the status of the Lease as may be reasonably required either by a lender making a loan to Landlord to be secured by deed of trust or mortgage covering the Premises or a purchaser of the Property from Landlord. 26. MORTGAGEE PROTECTION. In the event of any default on the part of Landlord, Tenant will give notice by registered or certified mail to any beneficiary of a deed of trust or mortgagee of a mortgage covering the Property (provided Tenant has received notice of the name and address of such person) and shall offer the beneficiary or mortgagee a reasonable opportunity to cure the default, including time to obtain possession of the Property or the Premises by power of sale or a judicial foreclosure, if such should prove necessary to effect a cure; provided, however, that the time to cure such default shall not exceed thirty (30) days after the expiration of the time period granted to Landlord to cure such default, or if additional time is requested, the beneficiary, mortgagor or ground lessor shall have the right to such extra time only upon giving Tenant reasonable assurances that such default will be cured. 27. ATTORNEYS' FEES. If either party shall bring any action or legal proceeding for damages for an alleged breach of any provision of this Lease, to recover rent or other sums due, to terminate the tenancy of the Premises or to enforce, protect or establish any term, condition or covenant of this Lease or right of either party, the prevailing party shall be entitled to recover, as a part of the action or proceedings, or in a separate action brought for that purpose, such attorneys' fees and court costs as may be fixed by the court or jury. The prevailing party shall be the party which secures a final judgement in its favor. 28. BROKERS. Each party warrants and represents to the other that it has had no dealings with any real estate broker or agent in connection with the negotiation of this Lease, except for any brokers(s) specified in the Basic Lease Information, and that it knows of no other real estate broker or agent who is or might be entitled to a commission in connection with this Lease. The representing party shall indemnify and hold harmless the other party from and against any and all liabilities or expenses arising out of claims made by any other broker or individual for commissions or fees resulting from a breach of the foregoing representation. 15

29. PARKING. Tenant shall have the right to park passenger vehicles in the parking stalls shown on attached Exhibit D for use by Tenant's employees, contractors, agents, licensees and invitees ("Tenant's Parkers") during the Term and any extension thereof. Tenant acknowledges that Kaiser Foundation Health Plan, Inc. ("Kaiser") has the right to use the other spaces designated on Exhibit D during the term of Kaiser's lease with Landlord. Landlord shall have no obligation to police such parking or otherwise to assure that only Tenant's Parkers are using the parking allocated to Tenant under this Section 29. Tenant agrees not to use in excess of the foregoing parking allocation and agrees to cooperate with Landlord and other tenants in the use of the parking facilities. Landlord shall not be liable to Tenant, nor shall this Lease be affected, if any parking is impaired by moratorium, initiative, referendum, law, ordinance, regulation or order passed, issued or made by any governmental or quasi-governmental body. The foregoing parking rights shall be furnished at no cost to Tenant, except for such costs as are properly included in Operating Expenses (i.e. parking lot maintenance and repairs, Real Estate Taxes, etc.). 30. UTILITIES AND SERVICES. Tenant shall be solely responsible for obtaining and paying for all utilities and services, including heating, air conditioning, ventilation (i.e., HVAC service contracts, janitorial and security) in connection with the Premises. Landlord shall not be liable for, and Tenant shall not be entitled to any abatement or reduction of Rent by reason of, no eviction of Tenant shall result from and, further, Tenant shall not be relieved from the performance of any covenant or agreement in this Lease because of, Landlord's failure to furnish or Tenant's failure to obtain any such utility or service any of the foregoing. 31. MODIFICATION FOR LENDER. If, in connection with obtaining institutional financing for the Premises or any portion thereof, Landlord's lender shall request reasonable modification to this Lease as a condition to such financing, Tenant shall not unreasonably withhold, delay or defer its consent thereto, provided such modifications do not materially affect Tenant's rights hereunder, are reasonable (in Tenant's sole discretion), do not increase the obligations of Tenant under this Lease, and do not materially or unreasonably interfere with Tenant's use, enjoyment or occupation of the Premises in accordance with this Lease. 32. ACCEPTANCE. Delivery of this Lease, duly executed by Tenant, constitutes an offer to lease the Premises as set forth herein, and under no circumstances shall such delivery be deemed to create an option or reservation to lease the Premises for the benefit of Tenant. This Lease shall become effective and binding only upon execution hereof by Landlord and delivery of a signed copy to Tenant. Upon acceptance of Tenant's offer to lease under the terms hereof and receipt by Landlord of the Rent for the first month of the Term and the Security Deposit in connection with Tenant's submission of the offer, Landlord shall be entitled to retain the sums and apply them to damages, costs and expenses incurred by Landlord if Tenant fails to occupy the Premises. If Landlord rejects the offer, the sums shall be returned to Tenant. 33. USE OF NAMES. Tenant shall not use the name of the Building or the name of the business park in which the Building is located in the name or title of its business or occupation without Landlord's prior written consent, which consent Landlord may withhold in its sole discretion. Landlord reserves the right to change the name of the Building without Tenant's consent and without any liability to Landlord. 34. RECORDING. Neither Landlord nor Tenant shall record this Lease, nor a short form memorandum of this Lease, without the prior written consent of the other. 35. QUITCLAIM. Upon any termination of this Lease pursuant to its terms, Tenant, at Landlord's request, shall execute, have acknowledged and deliver to Landlord a quitclaim deed of all Tenant's interest in the Premises, Building and Property created by this Lease. 36. NOTICES. Any notice or demand required or desired to be given under this Lease shall be in writing and shall be given by hand delivery, telecopy or the United States mail. Notices which are sent by telecopy shall be deemed to have been given upon receipt. Notices which are mailed shall be deemed to have been given when seventy-two (72) hours have elapsed after the notice was deposited in the United States mail, registered or certified, the postage prepaid, addressed to the party to be served. As of the date of execution of this Lease, the addresses of Landlord and Tenant are as specified in the Basic Lease Information. Either party may change its address by giving notice of the change in accordance with this Section. 37. LANDLORD'S EXCULPATION. In the event of default, breach or violation by Landlord (which term includes Landlord's partners, co-venturers and co-tenants, and officers, directors, employees, agents and representatives of Landlord and Landlord's partners, co-venturers and co-tenants) of any of Landlord's obligations under this Lease, Landlord's liability to Tenant shall be limited to its ownership interest in the Building and Property or the proceeds of a public sale of the ownership interest pursuant to the foreclosure of a judgment against Landlord. Landlord shall not be personally liable, or liable in any event, for any deficiency beyond its ownership interest in the Building and Property. 16

38. ADDITIONAL STRUCTURES. Any diminution or interference with light, air or view by any structure which may be erected on land adjacent to the Building shall in no way alter this Lease or impose any liability on Landlord. 39. OPTION TO EXTEND. (a) Notice of Exercise. Tenant shall have the right to extend the initial term hereof for two (2) additional and consecutive periods of five years each upon the same terms and conditions as stated herein, except for Base Rent and, further, that Landlord shall not be obligated to make alterations or modifications to the Building and/or Premises and the number of additional periods shall be reduced by one for each extension that is exercised. Each such extension is herein referred to as "Extended Term." Failure to timely exercise any extension option hereunder shall cause all subsequent options to immediately become null and void. Tenant must exercise its right, if at all, by written notification (the "Notice of Exercise") to Landlord not less than nine (9) months nor more than twelve (12) months prior to the expiration of the initial term hereof, or the then current Extended Term, if any. Tenant's rights under this Section 39 shall be null and void if Tenant is in default of any of the provisions of this Lease beyond the expiration of the time period granted to Tenant to cure such default either at the time Tenant gives Landlord its Notice of Exercise or as of the date of the scheduled commencement of the Extended Term. (b) Options are Personal. The options to extend granted herein are personal to the Adaptec, Inc. and to Adaptec's permitted affiliates as described in subsection 14(h) and notwithstanding anything to the contrary contained in the Lease, the rights contained in this Section 39 are not assignable or transferable by Adaptec, Inc. Landlord grants the rights contained herein to Tenant in consideration of Tenant's strict compliance with the provisions hereof, including, without limitation, the manner of exercise of this option. (c) Fair Market Rental. If Tenant exercises the right to extend the term then the Base Rent shall be adjusted to equal the Fair Market Rental for the Premises as of the date of the commencement of each such Extended Term, pursuant to the procedures hereinafter set forth. The term "Fair Market Rental" means the Base Rent chargeable for the Leased Premises based upon the following factors applicable to the Premises or any comparable premises: (i) Rental rates being charged for comparable premises in the same geographical location. (ii) The relative locations of the comparable premises. (iii) Improvements, or allowances provided for improvements, or to be provided. (iv) Rental adjustments, if any, or rental concessions. (v) Services and utilities provided or to be provided. (vi) Use limitations or restrictions. (vii) Any other relevant Lease terms or conditions. In no event, however, shall the Fair Market Rental be less than the Base Rent in effect immediately prior to the commencement date of the Extended Term in question. The Fair Market Rental evaluation may include provision for further rent adjustments during the Extended Term in question if such adjustments are commonly required in the market place for similar types of leases. (d) Determination of Fair Market Rental. Upon exercise of the right to extend the term, and included within the Notice of Exercise, Tenant shall notify Landlord of its opinion of Fair Market Rental as above defined for the Extended Term. If Landlord disagrees with Tenant's opinion of the Fair Market Rental, it shall so notify Tenant ("Landlord's Value Notice") within thirty (30) days after receipt of Tenant's Notice of Exercise. If the parties are unable to resolve their differences within ten (10) days thereafter, either party may apply for Arbitration as provided below. If neither party applies for Arbitration within ten (10) days after receipt by Tenant of Landlord's Value Notice, Tenant shall be bound to the Fair Market Rental stated in Landlord's Value Notice. Should either party elect to arbitrate, and if the arbitration is not concluded before the commencement of the Extended Term, Tenant shall pay Base Rent to Landlord in an amount equal to the Base Rent payable immediately prior to the commencement of the Extended Term, until the Fair Market Rental is determined in accordance with the arbitration provisions hereof ("Arbitration"). If the Fair Market Rental as determined by Arbitration differs from the Base Rent payable immediately prior to the commencement of the Extended Term, then any adjustment required to correct the amount previously paid by Tenant shall be made by payment by the appropriate party within thirty (30) days after the determination of Fair Market Rental by Arbitration has been concluded, as provided herein. Tenant shall be obligated to make payment during the entire Extended Term of the Base Rent determined in accordance with the Arbitration 17

procedures hereunder. (e) Arbitration. In the event either party seeks Arbitration of Fair Market Rental under the provisions hereof for the Extended Term, the other party shall be bound to submit the matter for determination by Arbitration. The Arbitration shall be conducted and determined in the County where the Leased Premises are located. (f) Demand for Arbitration. A party demanding Arbitration hereunder shall make its demand in writing ("Demand Notice") within ten (10) days after service of Landlord's Value Notice. A copy of the Demand Notice shall be sent to the American Arbitration Association ("AAA"), San Francisco office, requesting that a qualified Arbitrator be appointed in accordance with the Commercial Real Estate Rules of AAA. The Arbitrator shall be a real estate broker with at least seven (7) years' experience leasing properties in the same county for the general type of use to which the Premises are devoted under the terms of this Lease. The Arbitrator shall be a person who would be qualified to serve as an expert witness and to give opinion testimony addressed to the issue in a court of competent jurisdiction. Such a party is hereinafter referred to as the "Arbitrator." The parties may, however, before sending the Demand Notice to AAA, mutually agree upon an Arbitrator of their own choice, in which event such appointment shall nullify the necessity of appointment of an Arbitrator by AAA. (g) Decision of the Arbitrator. The Arbitrator so selected shall, within ninety (90) days after his appointment, state in writing his determination as to whether Landlord's valuation, or Tenant's valuation of Fair Market Rental, most closely approximates his own. The Arbitrator may not state his own opinion of Fair Market Rental, but is strictly limited to the selection of Landlord's Fair Market Rental evaluation as stated in Landlord's Value Notice or Tenant's Fair Market Rental evaluation as stated in the Notice of Exercise. The Arbitrator shall have the right to consult experts and competent authorities with factual information or evidence pertaining to a determination of Fair Market Rental, but any such consultation shall be made in the presence of both parties with full right to cross examine. The Arbitrator shall have no right to propose a middle ground or any modification of either of the proposed valuations, and shall have no power to modify the provisions of this Lease. The valuation so chosen as most closely approximating that of the Arbitrator shall constitute the decision of the Arbitrator and shall be final and binding upon the parties, absent fraud or gross error. The Arbitrator shall render a decision and award in writing, with counterpart copies to each party and judgment thereon may be entered in any court of competent jurisdiction. (h) Successor Arbitrator; Fees and Expenses. In the event of failure, refusal, or inability of the Arbitrator to act in a timely manner, a successor shall be appointed in the same manner referenced above. The fees and expenses of the Arbitrator and the administrative hearing fee, if any, shall be divided equally between the parties. Each party shall bear its own attorneys' fees and other expenses including fees for witnesses in presenting evidence to the Arbitrator. 40. GENERAL. (a) Captions. The captions and headings used in this Lease are for the purpose of convenience only and shall not be construed to limit or extend the meaning of any part of this Lease. (b) Time. Time is of the essence for the performance of each term, condition and covenant of this Lease. (c) Severability. If any provision of this Lease is held to be invalid, illegal or unenforceable, the invalidity, illegality, or unenforceability shall not affect any other provision of this Lease, but this Lease shall be construed as if the invalid, illegal or unenforceable provision had not been contained herein. (d) Choice of Law; Construction. This Lease shall be construed and enforced in accordance with the laws of the State of California. The language in all parts of this Lease shall in all cases be construed as a whole according to its fair meaning and not strictly for or against either Landlord or Tenant. (e) Gender; Singular, Plural. When the context of this Lease requires, the neuter gender includes the masculine, the feminine, a partnership or corporation or joint venture, and the singular includes the plural. (f) Binding Effect. The covenants and agreements contained in this Lease shall be binding on the parties hereto and on their respective successors and assigns (to the extent this Lease is assignable). (g) Waiver. The waiver of either party of any breach of any term, condition or covenant of this Lease shall not be deemed to be a waiver of the provision or any subsequent breach of the same or any other term, condition or covenant of this Lease. The subsequent acceptance of Rent hereunder by Landlord shall not be deemed to be a waiver of any preceding breach at the time of acceptance of the payment. No 18

covenant, term or condition of this Lease shall be deemed to have been waived by either party unless the waiver is in writing signed by such party. (h) Entire Agreement. This Lease is the entire agreement between the parties, and there are no agreements or representations between the parties except as expressed herein. Except as otherwise provided herein, no subsequent change or addition to this Lease shall be binding unless in writing and signed by the parties hereto. (i) Waiver of Jury. To the extent permitted by law, Tenant hereby waives any right it may have to a jury trial in the event of litigation between Tenant and Landlord pertaining to this Lease. (j) Counterparts. This Lease may be executed in counterparts, each of which shall be an original, but all counterparts shall constitute one (1) instrument. (k) Exhibits. The Basic Lease Information and all exhibits attached hereto are hereby incorporated herein and made an integral part hereof. (l) Addendum. The Addendum, if any, attached hereto is hereby incorporated herein and made an integral part hereof. [Remainder of page intentionally left blank] 19

IN WITNESS WHEREOF, the parties have executed this Lease effective as of the date first above written. "LANDLORD" THE PRUDENTIAL INSURANCE COMPANY OF AMERICA, a New Jersey corporation By: /s/ Gary L. Frazier ----------------------- Its: Vice President "TENANT" ADAPTEC, INC. a California corporation By: /s/ Robert W. Kraiss ----------------------- Its: Director of Corporate Facilities and Real Estate 12-20-96 20

Schematic of Town Center Business Park Exhibit A

EXHIBIT B-1 COMMENCEMENT DATE MEMORANDUM LANDLORD: THE PRUDENTIAL INSURANCE OF AMERICA, a New Jersey corporation TENANT: ADAPTEC, INC. a California corporation LEASE DATE: December 20, 1996 PREMISES: 831 South Milpitas Boulevard, Milpitas, California 95035 Pursuant to Section 2 of the above-referenced Lease, the Commencement Date hereby is established as _____________. TENANT: LANDLORD: ADAPTEC, INC. THE PRUDENTIAL INSURANCE OF AMERICA a California corporation a New Jersey corporation By By ------------------- ------------------- Name Name ------------------- ------------------- Title Title ------------------- -------------------

EXHIBIT B-2 BASE RENT COMMENCEMENT DATE MEMORANDUM LANDLORD: THE PRUDENTIAL INSURANCE OF AMERICA, a New Jersey corporation TENANT: ADAPTEC, INC. a California corporation LEASE DATE: December 20, 1996 PREMISES: 831 South Milpitas Boulevard, Milpitas, California 95035 Pursuant to Section 4 of the above-referenced Lease, the Base Rent Commencement Date hereby is established as Sept. 17, 1997, and the Expiration Date is hereby established as Sept. 16, 2007. TENANT: LANDLORD: ADAPTEC, INC. THE PRUDENTIAL INSURANCE OF AMERICA a California corporation a New Jersey corporation By /s/ Robert W. Kraiss By /s/ Gary L. Frazier ---------------------- ------------------- Name Robert W. Kraiss Name Gary L. Frazier ---------------------- ------------------- Title Director of Corporate Title Vice President Facilities and Real Estate ------------------- ----------------------

EXHIBIT C RULES AND REGULATIONS 1. No sign, placard, picture, advertisement, name or notice shall be installed or displayed on any part of the outside or inside of the Building without the prior written consent of Landlord. Landlord shall have the right to remove, at Tenant's expense and without notice, any sign installed or displayed in violation of this rule. 2. Except as consented to in writing by Landlord or in accordance with Building standard improvements, no draperies, curtains, blinds, shades, screens or other devices shall be hung at or used in connection with any window or exterior door or doors of the Premises. No awning shall be permitted on any part of the Premises. Tenant shall not place anything against or near glass partitions or doors or windows which may appear unsightly from outside the Premises. 3. Tenant shall not obstruct any sidewalks, halls, lobbies, passages, exits, entrances, elevators or stairways of the Building. No tenant and no employee or invitee of any tenant shall go upon the roof of the Building or make any roof or terrace penetrations. 4. If Tenant requires a burglar alarm, it shall first obtain, and comply with, Landlord's instructions for its installation. 5. Tenant shall not place a load upon any floor of the Premises which exceeds the maximum load per square foot which the floor was designed to carry and which is allowed by law. Tenant's business machines and mechanical equipment which cause noise or vibration which may be transmitted to the structure of the Building or to any space therein, and which is objectionable to Landlord or to any tenants in the Building, shall be placed and maintained by Tenant, at Tenant's expense, on vibration eliminators or other devices sufficient to eliminate noise or vibration. 6. Tenant shall not use or keep in the Premises any toxic or hazardous materials or any kerosene, gasoline or inflammable or combustible fluid or material other than those limited quantities necessary for the operation or maintenance of office equipment and as otherwise as may be permitted under the Lease. Tenant shall not use or permit to be used in the Premises any foul or noxious gas or substance, or permit or allow the Premises to be occupied or used in a manner offensive or objectionable to Landlord or other occupants of the Building by reason of noise, odors or vibrations. No animal, except seeing eye dogs when in the company of their masters, may be brought into or kept in the Building. 7. Tenant shall cooperate fully with Landlord to assure the most effective operation of the Building's heating and air-conditioning and to comply with any governmental energy-saving rules, laws or regulations. 8. Landlord reserves the right, exercisable without notice and without liability to Tenant, to change the name and street address of the Building. 9. Tenant shall close and lock the doors of its Premises, shut off all water faucets or other water apparatus and turn off all lights and other equipment which is not required to be continuously run. Tenant shall be responsible for any damage or injuries sustained by other tenants or occupants of the Building or Landlord for noncompliance with this Rule. 10. The toilet rooms, toilets, urinals, wash bowls and other apparatus shall not be used for any purpose other than that for which they were constructed, and no foreign substance of any kind whatsoever shall be placed therein. The expense of any breakage, stoppage or damage resulting from any violation of this rule shall be borne by the tenant who, or whose employees or invitees, shall have caused it. 11. Tenant shall not install any radio or television antenna, loudspeaker or other device on the roof or exterior walls of the Building. Tenant shall not interfere with radio or television broadcasting or reception from or in the Building or elsewhere. 12. Tenant shall not affix any floor covering to the floor of the Premises in any manner except as approved by Landlord. Tenant shall repair, or be responsible for the cost of repair of any damage resulting from noncompliance with this Rule. 13. Canvassing, soliciting and distributing handbills or any other written material and peddling in the Building are prohibited, and each tenant shall cooperate to prevent these activities. 1

14. Tenant shall store all its trash and garbage in a separate designated area. Tenant shall not place in any trash box or receptacle any material which cannot be disposed of in the ordinary and customary manner of trash and garbage disposal. All garbage and refuse disposal shall be made in accordance with directions issued from time to time by Landlord. 15. Use by Tenant of Underwriters' Laboratory approved equipment for brewing coffee, tea, hot chocolate and similar beverages and microwaving food shall be permitted, provided that the equipment and use in accordance with all applicable federal, state, county and city laws, codes, ordinances, rules and regulations. 16. Tenant shall not use the name of the Building in connection with or in promoting or advertising the business of Tenant, except as Tenant's address, without the written consent of Landlord. 17. Tenant shall comply with all safety, fire protection and evacuation procedures and regulations established by Landlord or any governmental agency. Tenant shall be responsible for any increased insurance premiums attributable to Tenant's unique and particular use of the Premises, Building or Property. 18. Tenant assumes any and all responsibility for protecting its Premises from theft and robbery, which responsibility includes keeping doors locked and other means of entry to the Premises closed. 19. Tenant shall not use the Premises, or suffer or permit anything to be done on, in or about the Premises, which may result in an increase to Landlord in the cost of insurance maintained by Landlord on the Building and Common Areas. 20. Tenant shall not park its vehicles in any parking areas designated by Landlord as areas for parking by visitors to the Building or other reserved parking spaces. Tenant shall not leave vehicles in the Building parking areas overnight, nor park any vehicles in the Building parking areas other than automobiles, motorcycles, motor driven or non-motor driven bicycles or four-wheeled trucks. Tenant, its agents, employees and invitees, shall not park any one (1) vehicle in more than one (1) parking space. 21. Landlord may waive any one or more of these Rules and Regulations for the benefit of Tenant or any other tenant, but no waiver by Landlord shall be construed as a waiver of the Rules and Regulations in favor of Tenant or any other tenant, nor prevent Landlord from thereafter enforcing the Rules and Regulations against any or all of the tenants of the Building. 22. These Rules and Regulations are in addition to, and shall not be construed to in any way modify or amend, in whole or in part, the terms, covenants, agreements and conditions of any lease of premises in the Building. 23. Landlord reserves the right to make other reasonable Rules and Regulations as, in its judgment, may from time to time be needed for safety and security, for care and cleanliness of the Building and for the preservation of good order therein. Tenant agrees to abide by all Rules and Regulations hereinabove stated and any additional rules and regulations which are adopted. 24. Tenant shall be responsible for the observance of all of the foregoing rules by Tenant's employees, agents, clients, customers, invitees, and guests. 2

Schematic of Tenant Parking

COMMENCEMENT DATE MEMORANDUM; ESTOPPEL LANDLORD: THE PRUDENTIAL INSURANCE COMPANY OF AMERICA, a New Jersey corporation TENANT: ADAPTEC, INC., a California corporation LEASE DATE: DECEMBER 20, 1996 PREMISES: 631 South Milpitas Blvd., Milpitas, CA 95035 Pursuant to Section 2 of the above referenced Lease, the Commencement Date hereby is established as May 6, 1997. Pursuant to Section 9(e) of the Lease, Landlord acknowledges and agrees that Tenant's Initial Alterations shall not be required to be removed by Tenant at the expiration or earlier termination of this Lease. Landlord and Tenant agree that the condition of the Premises includes the deficiencies listed below. Landlord agrees that Tenant shall be entitled to surrender the Premises in the same condition, subject to the corrective action described in subparagraph 2, below. 1. The light bulbs within the Premises are not of one type, i.e., they are a mixture of warm and cool bulbs. 2. Several floor tiles are missing in the room immediately adjacent to the break room (the "Adjacent Room"). Tenant will carpet over the Adjacent Room in connection with Tenant's Initial Alterations; however, the floor tiles used to level the floor will not be color matched to the floor tile currently in the Adjacent Room. 3. The floor covering in the Premises is not new. 4. The walls of the Premises have been patched; however, they have not been freshly painted. TENANT: LANDLORD: ADAPTEC, INC., THE PRUDENTIAL INSURANCE COMPANY OF a California corporation AMERICA, a New Jersey corporation By: /s/ Robert W. Kraiss By: /s/ Gary L. Frazier -------------------------------- -------------------------------- Robert W. Kraiss Its: Director of Facilities Its: Vice President & Real Estate ------------------------------- Date: 6-3-97 Date: 6-13-97 ----------------- ------------------------------

FIRST AMENDMENT TO LEASE THIS FIRST AMENDMENT TO LEASE (the "Amendment"), dated for reference purposes only as of this 11 day of June, 1998, is made by and between THE PRUDENTIAL INSURANCE COMPANY OF AMERICA, a New Jersey corporation ("Landlord"), and ADAPTEC, INC., a California corporation ("Tenant"). RECITALS A. Landlord and Tenant are the parties to that certain lease, dated December 20, 1996 (the "Adaptec Lease"), whereby Landlord has leased to Tenant a portion of that certain real property, commonly known as 631 South Milpitas Boulevard, Milpitas, California ("the Property"). B. Landlord agreed that Tenant would have the exclusive right to use those parking spaces on the Property designated on Exhibit D to the Adaptec Lease. C. Landlord and Tenant now desire to amend the Adaptec Lease to redesignate the number and location of exclusive parking spaces on the Property which Adaptec is entitled to use. NOW, THEREFORE, in consideration of the foregoing Recitals and the parties' mutual agreement to be bound hereby, it is agreed as follows: 1. Defined Terms. Capitalized terms used herein shall have the same meanings provided in the Adaptec Lease unless otherwise stated. 2. Substitution of Parking Diagram. Exhibit D to the Adaptec Lease, the parking diagram, is hereby held for naught and shall be of no further force or effect, and the parking diagram attached hereto as Exhibit D is hereby substituted in lieu therefor. Henceforth, all references in the Adaptec Lease to "Exhibit D" shall be deemed to mean the parking diagram attached hereto as Exhibit D. 3. Amendment to Section 29 - Parking. Section 29 of the Adaptec Lease is hereby deleted and shall be of no further force or effect and the following is hereby substituted in lieu thereof (in the following quoted material, the terms "Property" and "Exhibit D" shall have the same meanings they have in this Amendment): "29. Parking. Tenant shall have the exclusive right to park fifty-eight (58) passenger vehicles on the Property in the parking stalls designated as "--Adaptec 1

Leased Spaces" on attached Exhibit D for exclusive use by Tenant's employees, contractors, agents, licensees, and invitees ("Tenant's Parkers") during the Term and any extension thereof. Tenant agrees not to use in excess of the foregoing parking allocation on the Property, and Tenant agrees that it has no right under this Lease to park on the adjacent property shown on Exhibit D. Handicapped spaces shall be available on a "first-come, first-served" basis. Tenant acknowledges that Kaiser Foundation Health Plan, Inc. ("Kaiser") has the exclusive right to use one hundred thirty-eight (138) other spaces within the Property designated as "X-Kaiser Leased Spaces" on Exhibit D. Landlord shall have no obligation to police such parking or otherwise assure that only Tenant's Parkers are using the parking allocated to Tenant under this Section 29. Landlord shall not be liable to Tenant, nor shall this Lease be affected, if any parking is impaired by moratorium, initiative, referendum, law, ordinance, regulation, or order passed, issued or made by any governmental or quasi-governmental body. The foregoing parking rights shall be furnished at no cost to Tenant, except for such costs as are properly included in Operating Expenses (i.e. parking lot maintenance and repairs, Real Estate Taxes, etc.)." 4. Rules and Regulations. The first sentence of paragraph 20 of the Rules and Regulations attached as Exhibit C to the Adaptec Lease is hereby deleted in its entirety. 5. Binding Effect. This Amendment shall be binding upon and shall inure to the benefit of the respective transferees, successors, and assigns of Landlord and Tenant. 6. Authority. Each of the individuals who has executed this Amendment on behalf of a party represents and warrants to the other party that he or she is duly authorized to execute this Amendment on behalf of Landlord or Tenant, as the case may be; that all corporate, partnership, or other action necessary for such party to execute and perform the terms of this Amendment has been duly taken by such party; and that no other signature and/or authorization is necessary for such party to enter into and perform the terms of this Amendment. 7. Integration. This Amendment is an integral part of the Adaptec Lease; however, in the case of an inconsistency or conflict between the terms of the Adaptec Lease and the terms of this Amendment, the terms of this Amendment shall control and supersede any such inconsistency or conflict. 2

8. Ratification. Landlord and Tenant hereby ratify and affirm that the Adaptec Lease is in full force and effect and unmodified, except as otherwise provided in this Amendment. IN WITNESS WHEREOF, Landlord and Tenant have entered into this Amendment as of the day and year first written above. LANDLORD: TENANT: THE PRUDENTIAL INSURANCE ADAPTEC, INC., a California COMPANY OF AMERICA, a New corporation Jersey corporation By: /s/ Robert W. Kraiss -------------------- By: /s/ Gary L. Frazier Its: ------------------- ------------------- Its Vice President Robert W. Kraiss Director of Corporate Facilities and Real Estate 3

EXHIBITS Exhibit D New parking diagram 4

RECORDING REQUESTED BY: The Prudential Insurance Company of America WHEN RECORDED RETURN TO: Cassidy, Cheatham, Shimko & Dawson 20 California Street, 5th Floor San Francisco, CA 94111 Attention: Marilyn K. Johnston - -------------------------------------------------------------------------------- AMENDMENT NO. 1 TO DECLARATION OF EASEMENT THIS AMENDMENT NO. 1 TO DECLARATION OF EASEMENT (the "Amendment"), dated for reference purposes only as of this 11 day of June, 1998, is made by and between THE PRUDENTIAL INSURANCE COMPANY OF AMERICA, a New Jersey corporation ("Prudential"), and ADAPTEC, INC., a California corporation ("Adaptec"). RECITALS A. Prudential is the fee owner of that certain real property located in the City of Milpitas, County of Santa Clara, State of California, commonly known as 611-631 South Milpitas Boulevard, and more particularly described on Exhibit A, attached hereto and incorporated herein ("Parcel 1"). B. Adaptec is the fee owner of that certain real property located in the City of Milpitas, County of Santa Clara, State of California, commonly known as 628 Gibraltar Court, and more particularly described on Exhibit B, attached hereto and incorporated herein ("Parcel 2"). C. Prudential and Kaiser Foundation Health Plan, Inc. ("Kaiswer") are the parties to that certain lease, dated July 16, 1990, as amended, pursuant to which Prudential leases to Kaiswer a portion of Parcel 1 (the "Kaiswer Lease"). D. Prudential, as Declarant and the then owner of both Parcel 1 and Parcel 2, entered into that certain Declaration of Easement, dated May 15, 1992 and recorded the same against both Parcels on May 14, 1992 as Instrument No. 11361897 of the Santa Clara County Official Records (the "Declaration of Easement"). The Declaration of Easement, among other things, granted the owner of Parcel 1 the exclusive right to use 37 parking spaces on Parcel 2 ("Easement G"), and granted the owner of Parcel 2 the exclusive right to use 14 parking spaces on Parcel 1 ("Easement 1

H") (collectively, the "Parking Easements"). The Parking Easements are shown on Exhibit C to the Declaration of Easement (the "Parking Easement Map"). The Parking Easements were to continue until twenty-four (24) months after Kaiser or another medical user had the legal right to occupy the building on Parcel 1. E. Prudential has discovered that the granting language of Sections 1(b) and 1(c) of the Declaration of Easement conflicts with, and is the reverse of, the designation of the Parking Easements on the Parking Easement Map. That is, the designation "Easement G" on the Parking Easement Map should be "Easement H", and the designation "Easement H" on the Parking Easement Map should be "Easement G" in order to conform to those references in Sections 1(b) and 1(c) of the Declaration of Easement. F. Prudential and Adaptec now desire to amend the Declaration of Easement to replace Easement G and Easement H and grant new parking easements in their stead, provide for the encroachment of parking stalls and related curbing on certain easements created by the Declaration of Easement, and create new easements for the benefit of Parcel 2. NOW, THEREFORE, in consideration of the foregoing Recitals and the parties' mutual agreement to be bound hereby, it is agreed as follows: 1. Defined Terms. Capitalized terms used herein shall have the same meanings provided in the Declaration of Easement unless otherwise stated. 2. Substitution of Parking Easement Map. Exhibit C to the Declaration of Easement, the Parking Easement Map, is hereby held for naught and shall be of no further force or effect, and the parking easement map attached hereto as Exhibit C is hereby substituted in lieu therefor. Henceforth, all references in the Declaration of Easement to "Exhibit C" or to the "Parking Easement Map" shall be deemed to mean and refer to the parking easement map attached hereto as Exhibit C. 3. Grant of Encroachment Easement Over Easement "A". Notwithstanding the provisions of Section 2(b) of the Declaration of Easement to the contrary, Prudential hereby grants to Adaptec, its successors and assigns with respect to Parcel 2, for the benefit of Parcel 2, a perpetual, non-exclusive easement over a portion of Easement "A" for the encroachment of approximately 945 square feet of parking area (the "Encroachment Easement Over Easement "A"). The portion of Easement "A" burdened by the Encroachment Easement Over Easement "A" is shown on Exhibit D and legally described in Exhibit E, attached hereto and hereby incorporated herein. Prudential hereby accepts such encroachment 2

as it affects Easement "A"; provided, however, that the acceptance by Prudential of such encroachment shall not constitute a waiver of the rights of Prudential with respect to Easement "A", and Prudential, its successors and assigns with respect to Parcel 1, shall continue to be entitled to the benefits of Easement "A" as it benefits Parcel 1. The Encroachment Easement Over Easement "A" shall run with the land and bind the owner and all future owners of Easement "A" and benefit the owner and all future owners of Parcel 2. 4. Grant of Encroachment Easements Over Easement "B". Notwithstanding the provisions of Section 2(b) of the Declaration of Easement to the contrary, Adaptec hereby grants to Prudential, its successors and assigns, for the benefit of Parcel 1, a perpetual, non-exclusive easement over a portion of Easement "B" for the encroachment of approximately 662 square feet of parking area (the "Encroachment Easement No. 1 Over Easement "B"), and a perpetual, non-exclusive easement over a portion of Easement "B" for the encroachment of curbing at the southeast corner of Parcel 1 (the "Encroachment Easement No. 2 Over Easement "B"). The portion of Easement "B" burdened by the Encroachment Easement No. 1 Over Easement "B" is shown on Exhibit D and legally described in Exhibit F, attached hereto and hereby incorporated herein. The portion of Easement "B" burdened by the Encroachment Easement No. 2 Over Easement "B" is shown on Exhibit D. Adaptec hereby accepts such encroachments as they affect Easement "B"; provided, however, that neither the acceptance by Adaptec of such encroachments shall constitute a waiver of the rights of Adaptec with respect to Easement "B", and Adaptec, its successors and assigns with respect to Parcel 2 shall continue to be entitled to the benefits of Easement "B" as it benefits Parcel 2. The Encroachment Easements Nos. 1 and 2 Over Easement "B" shall run with the land and bind the owner and all future owners of Easement "B" and benefit the owner and all future owners of Parcel 1. 5. Grant of Parking Encroachment Easements. (a) Adaptec hereby grants to Prudential, its successors and assigns with respect to Parcel 2, for the benefit of Parcel 1, and subjects Parcel 2 to, a perpetual, exclusive easement over Parcel 2 for the encroachment of approximately 648 square feet of parking area along the common boundary of Parcel 1 and Parcel 2 (the "Parcel 2 Parking Encroachment Easement"). The portion of Parcel 2 burdened by the Parcel 2 Parking Encroachment Easement is shown on Exhibit G and legally described in Exhibit H, attached hereto and hereby incorporated herein (the "Parcel 2 Parking Encroachment Easement Area"). Adaptec reserves to itself, and its successors and assigns with respect to Parcel 2, for the benefit of Parcel 2, the right to use the Parcel 2 Parking Encroachment Easement Area for any purpose that does not 3

interfere with Prudential's (and its successors') right to maintain and exclusively use parking stalls within the Parcel 2 Parking Encroachment Easement Area. (b) Adaptec hereby grants to Prudential, its successors and assigns with respect to Parcel 2, for the benefit of Parcel 1, and subjects Parcel 2 to, a perpetual, exclusive easement over Parcel 2 for the encroachment of approximately 99 square feet of parking area along the southernmost portion of the common boundary of Parcel 1 and Parcel 2 (the "Additional Parcel 2 Parking Encroachment Easement"). The portion of Parcel 2 burdened by the Additional Parcel 2 Parking Encroachment Easement is shown on Exhibit G and legally described in Exhibit I, attached hereto and hereby incorporated herein (the "Additional Parcel 2 Parking Encroachment Easement Area"). Adaptec reserves to itself, and its successors and assigns with respect to Parcel 2, for the benefit of Parcel 2, the right to use the Additional Parcel 2 Parking Encroachment Easement Area for any purpose that does not interfere with Prudential's right to maintain and exclusively use a parking stall within the Additional Parcel 2 Parking Encroachment Easement Area. (c) The Parcel 2 Parking Encroachment Easement shall run with the land and bind the owner and all future owners of Parcel 2 and benefit the owner and all future owners of Parcel 1. The Parcel 2 Parking Encroachment Easement shall be considered an Easement, and the Parcel 2 Parking Encroachment Easement Area shall be considered an Easement Area, for all purposes of the Declaration of Easement, as amended hereby. (d) The Additional Parcel 2 Parking Encroachment Easement shall run with the land and bind the owner and all future owners of Parcel 2 and benefit the owner and all future owners of Parcel 1. The Additional Parcel 2 Parking Encroachment Easement shall be considered an Easement, and the Additional Parcel 2 Parking Encroachment Easement Area shall be considered an Easement Area, for all purposes of the Declaration of Easement, as amended hereby. 6. Amendment of Recitals C and D. (a) Recital C. The reference of "Easement 'E'" in Recital C of the Declaration of Easement is hereby deleted and replaced with "Easement 'F'". (b) Recital D. The last sentence of Recital D of the Declaration of Easement is hereby deleted and restated in its entirety as follows: The areas designated as Easement "A" through Easement "F" on the Map and Easement "G" and Easement "H" on the 4

Parking Easement Map are hereinafter individually referred to as an "Easement Area" and collectively referred to as the "Easement Areas". There is no Easement "D" shown on the Map. 7. Amendment of Section 1(b). Section 1(b) of the Declaration of Easement is hereby deleted and restated in its entirety as follows (as used in the following indented material "Adaptec" means Adaptec, Inc., a California corporation): b. Easements Benefitting Parcel 1. Adaptec hereby creates and grants for the benefit of Parcel 1 and each future owner of Parcel 1, and subjects Parcel 2 and each future owner of Parcel 2 to , the Easements over the portions of Parcel 2 indicated on the Map as Easement "A" (ingress and egress), Easement "E" (storm drainage), Easement "F" (storm drainage), and the Easement over the portion of Parcel 2 indicated on the Parking Easement Map as Easement "G" (parking). Such Easements are and shall remain non-exclusive Easements appurtenant to Parcel 1, except for Easement "F" which is for the joint benefit of Parcel 1 and Parcel 2, and Easement "G", which shall be an exclusive parking easement appurtenant to Parcel 1. easement "A" shall be used solely for the purpose of vehicular and pedestrian ingress and egress. Easements "E" and "F" shall be used solely for the purpose of transportation of water drainage through storm drain lines. To the extent permitted by law, Easement "G" shall be used solely for the purpose of parking standard passenger automobiles, carts, motorcycles, bicycles, delivery trucks and light pick-up trucks and no other motor vehicles. 8. Amendment of Section 1(c). Section 1(c) of the Declaration of Easement is hereby deleted and restated in its entirety as follows (as used in the following indented material "Declarant" means The Prudential Insurance Company of America, a New Jersey corporation, and "Exhibit D" means Exhibit D attached hereto): c. Easements Benefitting Parcel 2. Declarant hereby creates and grants for the benefit of Parcel 2 and each future owner of Parcel 2 to, and subjects Parcel 1, and each future owner of Parcel 1 to, the Easements over the portions of Parcel 1 indicated on the Map as Easement "B" (ingress and egress), Easement "C" (surface drainage and storm drain lines), Easement "F" (storm drainage) and the Easement over the portion of Parcel 1 indicated on the Parking Easement Map as Easement "H" (parking). Declarant hereby creates and grants for the 5

benefit of Parcel 2 and each future owner of Parcel 2 to, and subjects Parcel 1, and each future owner of Parcel 1 to, a perpetual, non-exclusive easement over the southeast corner of Parcel 1 for ingress and egress ("Easement B-1"). The portion of Parcel 1 burdened by Easement B-1 is shown on Exhibit D. Easement B-1 shall run with the land and bind the owner and all future owners of Parcel 1 and benefit the owner and all future owners of Parcel 2. Such Easements are and shall remain non-exclusive easements appurtenant to Parcel 2, except for Easement "F" which is for the joint benefit of Parcel 1 and Parcel 2, and Easement "H", which shall be an exclusive parking easement appurtenant to Parcel 2. Easement "B" and Easement B-1 shall be used solely for the purpose of vehicular and pedestrian ingress and egress. Easement "C" shall be used solely for the purpose of surface drainage and the transportation of water drainage through storm drain lines. Easement "F" shall be used solely for the purpose of transportation of water drainage through storm drain lines. To the extent permitted by law, Easement "H" shall be used solely for the purpose of parking standard passenger automobiles, carts, motorcycles, bicycles, delivery trucks and light pick-up trucks and no other motor vehicles. 9. Amendment of Section 1(d). Section 1(d) of the Declaration of Easement is hereby deleted and restated in its entirety as follows (as used in the following indented material "Declarant means the Prudential Insurance Company of America, a New Jersey corporation, and "Adaptec" means Adaptec, Inc., a California corporation): (d) Parking Easements. Notwithstanding the terms of this Declaration of Easement to the contrary, Declarant, with respect to Parcel 1, and Adaptec, with respect to Parcel 2, hereby declare that Parcel 1 shall only be burdened by Easement "H" and Parcel 2 shall only be burdened by Easement "G", and that Easement "G" and Easement "H" shall only continue to benefit, respectively, Parcel 1 and Parcel 2, until the date which is twenty-four (24) months after the expiration or prior termination of the lease between Kaiser Foundation Health Plan, Inc., as tenant, and Declarant, as landlord, dated July 16, 1990, as such lease may be amended, extended, and/or renewed (the "Kaiser Lease"). Notwithstanding the foregoing, if before the expiration of such twenty-four (24) month period, any other entity which provides medical services by doctors, nurses, pharmacists, opticians, or other medical personnel to individuals (a "Medical User") obtains the right to 6

occupy at least 36,000 square feet of the building located on Parcel 1 for a Medical Use pursuant to a leasehold or fee interest, then Easement "G" and Easement "H" shall continue in full force and effect until the date which is twenty-four (24) months after such Medical User ceases to have the right to occupy at least 36,000 square feet of the building located on Parcel 1 pursuant to a leasehold or fee interest. For purposes of this Declaration of Easement, "Medical Use" shall mean the provision of medical services by doctors, nurses, pharmacists, opticians, or other medical personnel to individuals. On the commencement of the applicable twenty-four (24) month period described above, the then owner of Parcel 1 shall, within thirty (30) days following the commencement of such twenty-four (24) month period, give the then owner of Parcel 2 written notice of such commencement. On the expiration of the applicable twenty-four (24) month period described above, Easement "G" and Easement "H" shall automatically terminate, and the then owner of Parcel 1 shall, within thirty (30) days following the expiration of such twenty-four (24) month period, give the then owner of Parcel 2 written notice of such termination, and the then owners of Parcel 1 and Parcel 2 shall execute, acknowledge, and record in the Official Records of Santa Clara County an amendment to this Declaration of Easement which confirms the termination of Easement "G" and Easement "H"; provided, however, that the failure by the owner of Parcel 1 to give such notices and/or to execute, acknowledge, or record such amendment shall not affect the termination of such Easements. 10. Amendment of Section 3(c). Section 3(c) of the Declaration of Easement is hereby deleted and restated in its entirety as follows (as used in the following indented material, "Declarant" means The Prudential Insurance Company of America, a New Jersey corporation): c. Repaving Work. Declarant shall, throughout the period of Declarant's ownership of Parcel 1, repair, resurface, and replace as necessary all pavement areas located on both Parcel 1 and Parcel 2 ("Pavement Areas") in the same manner and at the same intervals to insure that all Pavement Areas are of consistent grade and quality and are otherwise of the same quality as other first class business parks in the general geographical area as Parcel 1 and Parcel 2. The work of repairing, resurfacing, and/or replacing (as necessary) of the Pavement Areas is hereinafter referred to as the "Repaving Work". Declarant shall 7

notify the then owner of Parcel 2 at least ten (10) days prior to the commencement of any Repaving Work and shall only conduct Repaving Work on the weekends, in a time and manner reasonably acceptable to the owner of Parcel 2. Upon completion of Repaving Work, Declarant shall deliver to the owner of Parcel 2 written invoices which set forth in reasonable detail the actual and reasonable costs of Repaving Work. Within ten (10) days after receipt of such billing statements, the owner of Parcel 2 shall reimburse Declarant for 42.92% of such costs, which percentage corresponds to the total square footage of the Pavement Area located on Parcel 2 relative to the sum of the total square footage of the Pavement Area located on Parcel 1 and Parcel 2. If the owner of Parcel 2 fails to reimburse Declarant within such ten (10) day period, the owner of Parcel 2 shall also pay interest on such amount at the prime rate, as established from time to time by Wells Fargo Bank, N.A., (or its successor) plus two (2) percent, from the date due until paid. Upon conveyance of title of Parcel 1 from Declarant to a third party, Declarant's duty to maintain the Pavement Areas as described in this Section 3.c shall pass to the then owner of Parcel 2, and upon the assumption of the Repaving Work obligations by the then owner of Parcel 2, the then owner of Parcel 1 shall be required to reimburse the then owner of Parcel 2 for 57.08% of the costs of the Repaving Work under the terms and conditions provided above. 11. Additional Ingress and Egress Easements. (a) Prudential hereby grants to Adaptec, its successors and assigns with respect to Parcel 2, for the benefit of Parcel 2, and subjects Parcel 1 to, a non-exclusive easement over Parcel 1 for ingress and egress of pedestrians and vehicles (the "Driveway Easement"). The portion of Parcel 1 burdened by the Driveway Easement is shown on Exhibit J and legally described in Exhibit K, attached hereto and hereby incorporated herein. (b) Prudential hereby grants to Adaptec, its successors and assigns with respect to Parcel 2, for the benefit of Parcel 2, and subjects Parcel 1 to, non-exclusive easements over Parcel 1 for ingress and egress of pedestrians (individually, "Pedestrian Easement No. 1" and "Pedestrian Easement No. 2", and collectively, the "Pedestrian Easements"). The portion of Parcel 1 burdened by Pedestrian Easement No. 1 is shown on Exhibit J and legally described in Exhibit L, attached hereto and hereby incorporated herein. The portion of Parcel 1 burdened by Pedestrian Easement No. 2 is shown on Exhibit J and legally described in Exhibit M, attached hereto and hereby 8

incorporated herein. (c) The purpose of the Driveway Easement and the Pedestrian Easements is to provide access between Parcel 2 and the real property immediately north of and sharing a common boundary with the Driveway Easement and the Pedestrian Easements, which property to the north is legally described as Parcel "A" shown on Parcel Map filed for record in Book 542 of Maps, pages 50-51, Santa Clara County Official Records ("Parcel A"). The Driveway Easement and Pedestrian Easements shall continue in effect and shall benefit Parcel 2 and burden Parcel 1 only so long as the owner of the fee or leasehold interest in Parcel 2 is also the owner of the fee or leasehold interest in Parcel A, or any portion thereof. (d) The Driveway Easement and the Pedestrian Easements shall run with the land and bind the owner and all future owners of Parcel 1 and benefit the owner and all future owners of Parcel 2. The Driveway Easement and the Pedestrian Easements shall each be considered an Easement, and the land burdened by the Driveway Easement and the Pedestrian Easements shall be considered Easement Area, for all purposes of the Declaration of Easement, as amended hereby. 12. Binding Effect. This Amendment shall be binding upon and shall inure to the benefit of the parties hereto and their respective transferees, successors, and assigns and shall create covenants running with the land and binding upon all future owners of any interest therein. 13. Authority. Each of the individuals who has executed this Amendment on behalf of a party represents and warrants to the other party that he or she is duly authorized to execute this Amendment on behalf of Prudential or Adaptec, as the case may be; that all corporate, partnership, or other action necessary for such party to execute and perform the terms of this Amendment has been duly taken by such party; and that no other signature and/or authorization is necessary for such party to enter into and perform the terms of this Amendment. 14. Integration. This Amendment is an integral part of the Declaration of Easement; however, in the case of an inconsistency or conflict between the terms of the Declaration of Easement and the terms of this Amendment, the terms of this Amendment shall control and supersede any such inconsistency or conflict. 15. Ratification. Prudential and Adaptec hereby ratify and affirm that the Declaration of Easement is in full force and effect and unmodified, except as otherwise provided in this Amendment. 9

IN WITNESS WHEREOF, Prudential and Adaptec have entered into this Amendment as of the day and year first written above. PRUDENTIAL: ADAPTEC: THE PRUDENTIAL INSURANCE COMPANY OF ADAPTEC, INC., a California AMERICA, a New Jersey corporation corporation By: /s/ Gary L. Frazier By: /s/ Robert W. Kraiss -------------------------------- -------------------------------- Its Vice President Its: ------------------------------- Robert W. Kraiss Director of Corporate Facilities and Real Estate 10

EXHIBITS

Exhibit A Legal description of Parcel 1 Exhibit B Legal description of Parcel 2 Exhibit C New Parking Easement Map Exhibit D Plat showing Encroachment Easement Over Easement "A", Encroachment Easements Nos. 1 and 2 Over Easement "B", and Easement B-1 Exhibit E Legal description of portion of Parcel 2 burdened by Encroachment Easement Over Easement "A" Exhibit F Legal description of portion of Parcel 1 burdened by Encroachment Easement No. 1 Over Easement "B" Exhibit G Plat showing Parcel 2 Parking Encroachment Easement Area and Additional Parcel 2 Parking Encroachment Easement Area Exhibit H Legal description of Parcel 2 Parking Encroachment Easement Area Exhibit I Legal description of Additional Parcel 2 Parking Encroachment Easement Area Exhibit J Plat showing Driveway Easement, Pedestrian Easement Nos. 1 and 2 Exhibit K Legal description of portion of Parcel 1 burdened by Driveway Easement Exhibit L Legal description of portion of Parcel 1 burdened by Pedestrian Easement No. 1 Exhibit M Legal description of portion of Parcel 1 burdened by Pedestrian Easement No. 2

Page No. 10 EXHIBIT "A" REAL PROPERTY in the City of Milpitas, County of Santa Clara, State of California, described as follows: PARCEL ONE: Parcel 1, so designated and delineated on the Parcel Map recorded MAY 14, 1992 IN BOOK 636 OF MAPS, PAGES 44 AND 45, Santa Clara County Roads. EXCEPTING THEREFROM that interest therein reserved to Standard Realty and Development Company, a California corporation, its successors and assigns forever, by Deed recorded September 30, 1981 in Book G366, page 82, Official Records, described as all minerals, oil, gas and other hydrocarbon substances below a depth of 600 feet measured vertically from the contour of the surface of said real property; provided, however, Standard Realty and Development Company, a California corporation, its successors and assigns, shall not have the right for any purpose whatsoever to enter upon, into or through the surface of said real property or any part thereof between said surface and 500 feet below the surface. PARCEL TWO: Easements for (1) ingress and egress, shown as Easement "A" on said Parcel Map; for (2) storm drainage, shown as Easement "E" on said Parcel Map; and for (3) storm drainage, shown as Easement "F" on said Parcel Map - as reserved for the benefit of Parcel 1 in the deed from The Prudential Insurance Company of America to Adaptec, Inc., recorded May 14, 1992 in Book M191, page 1706, Official Records. APN: 086-42-029 ARB: 086-30-X3

EXHIBIT B LEGAL DESCRIPTION: "SCHEDULE C" SP55185 All that real property situate in the City of Milpitas, County of Santa Clara, State of California, described as follows: TRACT I: PARCEL ONE: All of Parcel 2, as shown on that certain Parcel Map recorded May 14, 1992 in Book 636 of Maps at pages 44 and 45, Santa Clara County Records. EXCEPTING AND RESERVING THEREFROM to Grantor, by Deed recorded September 30, 1981 in Book G 366, Page 82, it's successors and assigns forever, all minerals, oil, gas and other hydrocarbon substances below a depth of 500 feet measured vertically from the contour of the surface of said real property; provided, however, Grantor, its successors and assigns, shall not have the right for any purpose whatsoever to enter upon, into or through the surface of said real property or any part thereof between said surface and 500 feet below the surface. ALSO RESERVING THEREFROM for the benefit of Parcel 1, the following easements as shown on the aforementioned Map: (a) an easement for ingress and egress, shown as Easement "A" on said Parcel Map. (b) an easement for storm drainage, shown as Easement "E" on said Parcel Map. (c) an easement for storm drainage, shown as Easement "F" on said Parcel Map. PARCEL TWO: An easement for ingress and egress, shown as Easement "B" on said Parcel Map. PARCEL THREE: An easement for surface drainage and storm drain lines, shown as Easement "C" on said Parcel Map. PARCEL FOUR: An easement for storm drainage, shown as Easement "F" on said Parcel Map.

Exhibit C Schematic of Perpendicular Parking Easement "G" and "H"

Exhibit D Schematic of Encroachment Easements Over Easement "A" and "B"

EXHIBIT E LEGAL DESCRIPTION ENCROACHMENT EASEMENT OVER EASEMENT "A" ACROSS A PORTION OF PARCEL 2 (636 MAPS 44 & 45) MILPITAS, SANTA CLARA COUNTY, CALIFORNIA All that certain real property situate in the City of Milpitas, County of Santa Clara, State of California, described as follows: Being a portion of Parcel 2, as shown upon that certain Parcel Map, filed May 14, 1992 in Book 636 of Maps at Pages 44 and 45, Records of Santa Clara County, more particularly described as follows: Beginning at the most easterly corner of said Parcel 2; Thence along the northeasterly line of said Parcel, North 23 degrees 59'43" West, 256.00 feet to the northwesterly line thereof; Thence along the said northwesterly line of said Parcel, South 66 degrees 00'11" West, 17.00 feet to the True Point of Beginning of this description, said point also being on the northeasterly line of Easement "A", as shown on said map; Thence leaving last said line, along the said northeasterly line of said Easement "A", also being parallel with and distant thereon 17.00 feet southwesterly, right angle measurement, from the northeasterly line of said Parcel, South 23 degrees 59'43" East, 180.00 feet; Thence South 66 degrees 00'17" West, 5.25 feet; Thence North 23 degrees 59'43" West, 180.00 feet to a point on the said northwesterly line of said Parcel; Thence along the said northwesterly line, North 66 degrees 00'11" East, 5.25 feet to the True Point of Beginning of this description. Containing an area of 945 square feet, more or less. Subject to limitations, if any, by covenants, conditions, restrictions, exceptions, reservations, easements, right of ways and other matters of record. Prepared by: Brian Kangas Foulk /s/ Davis Thresh [SEAL] - ----------------------------- LICENSED LAND SURVEYOR Davis Thresh, P.L.S. No. 6868 STATE OF CALIFORNIA License Expires 9-30-2000 DAVIS THRESH EXP. 9/30/00 Dated: 5-18-98 No. 6868 ----------------------- BKF No. 986007-52 JVK

EXHIBIT F LEGAL DESCRIPTION ENCROACHMENT EASEMENT OVER EASEMENT "B" ACROSS A PORTION OF PARCEL 1 (636 MAPS 44 & 45) MILPITAS, SANTA CLARA COUNTY, CALIFORNIA All that certain real property situate in the City of Milpitas, County of Santa Clara, State of California, described as follows: Being a portion of Parcel 1, as shown upon that certain Parcel Map, filed May 14, 1992 in Book 636 of Maps at Pages 44 and 45, Records of Santa Clara County, more particularly described as follows: Beginning at the most southerly corner of said Parcel 1; Thence along the southwesterly line of said Parcel, North 23 degrees 59'43" West, 256.00 feet to the southeasterly line thereof; Thence along the said southeasterly line of said Parcel, South 66 degrees 00'11" West, 17.00 feet to the True Point of Beginning of this description, said point also being on the northeasterly line of Easement "B", as shown on said map; Thence continuing along the said southeasterly line, South 66 degrees 00'11" West, 5.25 feet; Thence leaving last said line, parallel with and distant thereon 14.80 feet northeasterly, right angle measurement, from the southwesterly line of said Parcel, North 23 degrees 59'43" West, 126.00 feet; Thence North 66 degrees 00'17" East, 5.25 feet to the said northeasterly line of said Easement "B"; Thence along said line, South 23 degrees 59'43" East, 126.00 feet to the True Point of Beginning of this description. Containing an area of 662 square feet, more or less. Subject to limitations, if any, by covenants, conditions, restrictions, exceptions, reservations, easements, right of ways and other matters of record. Prepared by: Brian Kangas Foulk /s/ Davis Thresh [SEAL] - ----------------------------- LICENSED LAND SURVEYOR Davis Thresh, P.L.S. No. 6868 STATE OF CALIFORNIA License Expires 9-30-2000 DAVIS THRESH EXP. 9/30/00 Dated: 5-18-98 No. 6868 ----------------------- BKF No. 986007-52 JVK

Exhibit G Schematic of Parcel 2 Parking Encroachment Easements

EXHIBIT H LEGAL DESCRIPTION PARCEL 2 PARKING ENCROACHMENT EASEMENT AREA ACROSS A PORTION OF PARCEL 2 (636 MAPS 44 & 45) MILPITAS, SANTA CLARA COUNTY, CALIFORNIA All that certain real property situate in the City of Milpitas, County of Santa Clara, State of California, described as follows: Being a portion of Parcel 2, as shown upon that certain Parcel Map, filed May 14, 1992 in Book 636 of Maps at Pages 44 and 45, Records of Santa Clara County, more particularly described as follows: Beginning at the most easterly corner of said Parcel 2; Thence along the northeasterly line of said Parcel, North 23 degrees 59'43" West, 56.60 feet to the True Point of Beginning of this description. Thence leaving said northeasterly line, South 66 degrees 00'17" West, 3.25 feet; Thence North 23 degrees 59'43" West, 199.40 feet to a point on the northwesterly line of said Parcel; Thence along the said northwesterly line, North 66 degrees 00'11" East, 3.25 feet to the said northeasterly line of said Parcel; Thence along the said northeasterly line, South 23 degrees 59' 43" East, 199.40 feet to the True Point of Beginning of this description. Containing an area of 648 square feet, more or less. Subject to limitations, if any, by covenants, conditions, restrictions, exceptions, reservations, easements, right of ways and other matters of record. Prepared by: Brian Kangas Foulk /s/Davis Thresh - --------------- Davis Thresh, P.L.S. No. 6868 License Expires 9-30-2000 Dated: 5-18-98 BKF No. 986007-52 JVK [STATE OF CALIFORNIA LICENSED LAND SURVEYOR SEAL] DAVIS THRESH EXP. 9/30/00 No.6868

EXHIBIT I LEGAL DESCRIPTION ADDITIONAL PARCEL 2 PARKING ENCROACHMENT EASEMENT AREA ACROSS A PORTION OF PARCEL 2 (636 MAPS 44 & 45) MILPITAS, SANTA CLARA COUNTY, CALIFORNIA All that certain real property situate in the City of Milpitas, County of Santa Clara, State of California, described as follows: Being a portion of Parcel 2, as shown upon that certain Parcel Map, filed May 14, 1992 in Book 636 of Maps at Pages 44 and 45, Records of Santa Clara County, more particularly described as follows: Beginning at the most easterly corner of said Parcel 2; Thence along the southeasterly line of said Parcel, South 66 degrees 00'17" West, 4.30 feet; Thence leaving the said southeasterly line, North 23 degrees 59'43" West, 23.00 feet to a point on the southeasterly line of the 24 foot wide Easement "A", as shown on said map; Thence along the said southeasterly line, North 66 degrees 00'11" East, 4.30 feet to a point on the northeasterly line of said Parcel; Thence leaving said southeasterly line and along the said northeasterly line of said Parcel, South 23 degrees 59'43" East, 23.00 feet to the Point of Beginning of this description; Containing an area of 99 square feet, more or less. Subject to limitations, if any, by convenants, conditions, restrictions, exceptions, reservations, easements, right of ways and other matters of record. Prepared by: Brian Kangas Foulk /s/Davis Thresh - --------------- Davis Thresh, P.L.S. No. 6868 License Expires 9-30-2000 Dated: 5-18-98 BKF No. 986007-52 JVK [STATE OF CALIFORNIA LICENSED LAND SURVEYOR SEAL] DAVIS THRESH EXP. 9/30/00 No.6868

Exhibit J Schematic of Easement and Pedestrian ESMT. No. 1 & No. 2

CALIFORNIA ALL-PURPOSE ACKNOWLEDGMENT State of California County of Santa Clara On June 8, 1998 before me, Martha A. Stolle, Notary Public, Date Name and Title of Officer (e.g., "Jane Doe, Notary Public") personally appeared Robert W. Kraiss Name(s) of Signer(s) [X] personally known to me - OR - [ ] proved to me on the basis of satisfactory evidence to be the person whose name is subscribed to the within instrument and acknowledged to me that he executed the same in his authorized capacity, and that by his signature on the instrument the person, or the entity upon behalf of which the person acted, executed the instrument. WITNESS my hand and official seal. Martha A. Stolle Signature of Notary Public - ------------------------------------- [STATE OF CALIFORNIA NOTARY STAMP] MARTHA A. STOLLE Commission # 1168099 Notary Public - California Santa Clara County My Comm. Expires Jan 8, 2002 - ------------------------------------- - ----------------------------------OPTIONAL------------------------------------- Though the information below is not required by law, it may prove valuable to persons relying on the document and could prevent fraudulent removal and reattachment of this form to another document. DESCRIPTION OF ATTACHED DOCUMENT Title or Type of Document: ----------------------------------------------------- Document Date: Number of Pages: ------------------------------------- ------------ Signer(s) Other Than Named Above: ---------------------------------------------- CAPACITY(IES) CLAIMED BY SIGNER(S) Signer's Name: Signer's Name: ----------------------- ----------------------- [ ] Individual [ ] Individual [ ] Corporate Officer [ ] Corporate Officer Titles(s): Titles(s): ----------------------- ----------------------- [ ] Partner - [ ] Limited [ ] General [ ] Partner - [ ] Limited [ ] General [ ] Attorney-in-Fact [ ] Attorney-in-Fact [ ] Trustee [ ] Trustee [ ] Guardian or Conservator [ ] Guardian or Conservator [ ] Other: [ ] Other: --------------------------- --------------------------- --------------------------------- --------------------------------- Signer is Representing: Signer is Representing: - ------------------------------------- ------------------------------------- - ------------------------------------- ------------------------------------- RIGHT THUMBPRINT RIGHT THUMBPRINT OF SIGNER OF SIGNER Top of thumb here Top of thumb here

EXHIBIT K LEGAL DESCRIPTION DRIVEWAY EASEMENT ACROSS A PORTION OF PARCEL 1 (636 MAPS 44 & 45) MILPITAS, SANTA CLARA COUNTY, CALIFORNIA All that certain real property situate in the City of Milpitas, County of Santa Clara, State of California, described as follows: Being a portion of Parcel 1, as shown upon that certain Parcel Map, filed May 14, 1992 in Book 636 of Maps at Pages 44 and 45, Records of Santa Clara County, more particularly described as follows: Beginning at the most northerly corner of said Parcel 1; Thence along the northwesterly like of said Parcel, South 66 degrees 00'11" West, 354.55 feet to the True Point of Beginning of this description. Thence leaving the side northwesterly line, South 23 degrees 59'49" East, 20.00 feet to a point on the northwesterly line of the 24 foot wide Easement "B", as shown on said map; Thence along the said northwesterly line, South 66 degrees 00'11" West, 15.00 feet; Thence leaving said line, North 23 degrees 59'49" West, 20.00 feet to said northwesterly line of said Parcel; Thence along said line, North 66 degrees 00'11" East, 15.00 feet to the True Point of Beginning of this description. Containing an area of 300 square feet, more or less. Subject to limitations, if any, by covenants, conditions, restrictions, exceptions, reservations, easements, right of ways and other matters of record. Prepared by: Brian Kangas Foulk /s/ Davis Thresh - ---------------- Davis Thresh, P.L.S. No. 6868 License Expires 9-30-2000 Dated: 5-18-98 BFK No. 986007-52 JVK [STATE OF CALIFORNIA LICENSED LAND SURVEYOR SEAL] DAVIS THRESH EXP. 9/30/00 No. 6868

EXHIBIT L LEGAL DESCRIPTION PEDESTRIAN EASEMENT NO. 1 ACROSS A PORTION OF PARCEL 1 (636 MAPS 44 & 45) MILPITAS, SANTA CLARA COUNTY, CALIFORNIA All that certain real property situate in the City of Milpitas, County of Santa Clara, State of California, described as follows: Being a portion of Parcel 1, as shown upon that certain Parcel Map, filed May 14, 1992 in Book 636 of Maps at Pages 44 and 45, Records of Santa Clara County, more particularly described as follows: Beginning at the most northerly corner of said Parcel 1; Thence along the northwesterly line of said Parcel, South 66 degrees 00'11" West, 326.35 feet to the True Point of Beginning of this description. Thence leaving the said northwesterly line, South 23 degrees 59'49" East, 4.00 feet; Thence South 66 degrees 00'11" West, 2.85 feet; Thence South 23'59'49" East, 16.00 feet to a point on the northwesterly line of the 24 foot wide Easement "B", as shown on said map; Thence along the said northwesterly line, South 66'00'11" West, 7.55 feet; Thence leaving said line, North 23 degrees 59'49" West, 20.00 feet to said northwesterly line of said Parcel; Thence along said line, North 66 degrees 00'11" East, 10.40 feet to the True Point of Beginning of this description. Containing an area of 162 square feet, more or less. Subject to limitations, if any, by covenants, conditions, restrictions, exceptions, reservations, easements, right of ways and other matters of record. Prepared by: Brian Kangas Foulk /s/ Davis Thresh - ---------------- Davis Thresh, P.L.S. No. 6868 License Expires 9-30-2000 Dated: 5-18-98 BFK No. 986007-52 JVK [STATE OF CALIFORNIA LICENSED LAND SURVEYOR SEAL] DAVIS THRESH EXP. 9/30/00 No. 6868

EXHIBIT M LEGAL DESCRIPTION PEDESTRIAN EASEMENT NO. 2 ACROSS A PORTION OF PARCEL 1 (636 MAPS 44 & 45) MILPITAS, SANTA CLARA COUNTY, CALIFORNIA All that certain real property situate in the City of Milpitas, County of Santa Clara, State of California, described as follows: Being a portion of Parcel 1, as shown upon that certain Parcel Map, filed May 14, 1992 in Book 636 of Maps at Pages 44 and 45, Records of Santa Clara County, more particularly described as follows: Beginning at the most northerly corner of said Parcel 1; Thence along the northwesterly line of said Parcel, South 66 degree 00'11" West, 119.40 feet to the True Point of Beginning of this description. Thence leaving the said northwesterly line, South 23 degree 59'49" East, 20.00 feet to a point on the northwesterly line of the 24 foot wide Easement "B", as shown on said map; Thence along the said northwesterly line, South 66 degree 00'11" West, 7.30 feet; Thence leaving said line, North 23 degree 59'49" West, 20.00 feet to the said northwesterly line of said Parcel; Thence along said line, North 66 degree 00'11" East, 7.30 feet to the True Point of Beginning of this description. Containing an area of 146 square feet, more or less. Subject to limitations, if any, by covenants, conditions, restrictions, exceptions, reservations, easements, right of ways and other matters of record. Prepared by: Brian Kangas Foulk /s/Davis Thresh - --------------- Davis Thresh, P.L.S. No. 6868 License Expires 9-30-2000 Dated: 5-18-98 BKF No. 986007-52 JVK [STATE OF CALIFORNIA LICENSED LAND SURVEYOR SEAL] DAVIS THRESH EXP. 9/30/00 No.6868

This Document Attached To: AMENDMENT NO. 1 TO DECLARATION OF EASEMENT Date of Document: June 11, 1998 Number of Pages of document 24 Document Signed By: Gary L. Frazier STATE OF CALIFORNIA ) ) SS. COUNT OF LOS ANGELES ) On this 11th day of June, 1998, before me Terry Morris, the undersigned Notary Public, personally appeared Gary L. Frazier, personally known to me (or proved to me on the basis of satisfactory evidence) to be the person whose name is subscribed to the within instrument and acknowledged to me that he executed the same in his authorized capacity, and that by his signature on the instrument the person, or the entity upon behalf of which the person acted, executed the instrument. WITNESS my hand and official seal. /s/ Terry Morris ---------------- Notary Public [SEAL OF CALIFORNIA] TERRY MORRIS COMM. # 1048275 Notary Public - California LOS ANGELES COUNTY My Comm. Expires DEC 26, 1998

CAFETERIA LICENSE AGREEMENT THIS CAFETERIA LICENSE AGREEMENT (this "Agreement") is dated November 5th, 2002 by and between ADAPTEC, INC. ("Adaptec") and PCTEL, INC. ("PCTEL") with reference to the following facts and circumstances: A. Adaptec owns that certain complex consisting of multiple buildings, together with related driveways, parking areas, and related fixtures and improvements located at 463/471, 461, 691, and 801 South Milpitas Blvd., 628/638/658 and 698 Gibraltar Court, and 500 Yosemite Drive, Milpitas California (the "Complex"). The Complex consists of seven (7) buildings designated on Exhibit A hereto. B. Adaptec, as Sublessor, and PCTEL, as Sublessee, are parties to that certain Sublease Agreement dated November 5th, 2002 (the "Sublease") with respect to certain Premises located in Building 8 at 631 South Milpitas Boulevard, Milpitas, California. C. The Complex includes certain amenities for Adaptec's employees including a cafeteria (the "Cafeteria") located between Buildings 4 and 7 and a fitness center located in Building 6, both designated on Exhibit B, attached hereto. D. PCTEL desires to obtain from Adaptec, and Adaptec desires to grant to PCTEL and its employees (including independent contractors) a license to use the Cafeteria. NOW, THEREFORE, in consideration of the mutual covenants contained herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Adaptec and PCTEL hereby agree as follows: 1. License. Adaptec grants to PCTEL a non-exclusive, revocable license (the "License") to use the Cafeteria. Such use of the Cafeteria shall be on a first-come, first-served basis, and PCTEL and its employees shall have no priority or preference in the use of the Cafeteria. Use of the Cafeteria shall be subject to payment by PCTEL's employees of the applicable charges for the food and other items purchased therein. Adaptec makes no representations or warranties of any kind whatsoever regarding the Cafeteria or the Complex, and Adaptec shall incur no loss, cost, liability or damage in connection with PCTEL's use of the Cafeteria. 2. Term. The term of the License shall commence as of the date by which the "Premises" under the Sublease are delivered to PCTEL pursuant to the Sublease and shall automatically expire and terminate concurrently with the expiration or earlier termination of the Sublease or earlier vacation of the Premises under the Sublease by PCTEL. This License may be revocable in whole or in part by Adaptec at any time and for any reason or for no reason whatsoever. In addition, the License shall be revocable in whole or in part by Adaptec effective ten (10) days after Adaptec's giving notice to PCTEL that PCTEL or its employees have failed to comply with any term or condition of this Agreement. Adaptec may also prohibit any PCTEL employee from using the Cafeteria if such employee violates any term or condition set forth in Section 3 of this Agreement. 3. PCTEL Covenants. PCTEL shall, and shall cause its employees to, (i) operate under the License in a clean, safe and sanitary manner and shall not damage any property in the Cafeteria or commit, permit or suffer to exist any waste or nuisance at the Complex, (ii) minimize any interference with Adaptec's and other parties' use of the Cafeteria, (iii) permit only PCTEL and its authorized employees (including independent contractors) to use the Cafeteria, (iv) enter the Cafeteria only through the S. Milpitas Boulevard entrance, and (v) comply with the rules and regulations now or hereafter established by Adaptec from time to time regarding the use of the Cafeteria. PCTEL's rights under this License are conditioned on (a) the execution by PCTEL and its employees of agreements that release Adaptec and its employees, agents and other representatives from all loss or damage to the employees' property and bodily injury or death, including, without limitation, the agreement attached hereto as Exhibit C, (b) the compliance by PCTEL's employees with building security and Cafeteria use rules and policies established by Adaptec from time to time, (c) the use of the Cafeteria by PCTEL and its employees only during certain designated hours, (d) PCTEL maintaining the insurance set forth in 1

Paragraph 4 below, and (e) such other matters as Adaptec reasonably may determine. PCTEL and its employees shall not enter any areas in Buildings 4 or 7 outside of the Cafeteria. 4. Insurance. PCTEL shall maintain a policy of commercial general liability insurance satisfying the requirements of Article 10 of the Sublease against any and all claims for personal injury, death, property damage, or other liabilities related to the License or PCTEL's or its employees' use of the Cafeteria. Certificates evidencing such insurance shall be furnished to Adaptec in accordance with Article 10 of the Sublease. All of the provisions of Article 10 of the Sublease, including, without limitation, all of the covenants and requirements contained therein, shall apply to the insurance hereunder. 5. Release and Indemnity. PCTEL and its employees shall use the Cafeteria under the License at PCTEL's and its employees' sole and entire risk, and PCTEL shall be solely responsible for the health and safety of all employees of PCTEL that use the Cafeteria. Accordingly, PCTEL hereby releases, acquits and forever discharges Adaptec and Adaptec's directors, partners, members, shareholders, officers and employees (collectively, the "Adaptec Parties"), from and against any and all losses, costs, claims, liabilities and damages arising from or relating in any manner to the License or PCTEL's or its employees' use of the Cafeteria. The foregoing release shall not apply for the benefit of an employee to the extent of such employee's gross negligence or willful misconduct, but shall in all events apply with respect to all other Adaptec Parties without regard to the negligence or willful misconduct of any Adaptec employee. In addition, PCTEL shall indemnify, defend (with counsel reasonably satisfactory to Adaptec) and hold harmless Adaptec and all other Adaptec Parties from and against all losses, costs, claims, liabilities and damages (including attorneys' fees and expenses) arising from or relating in any manner to the License or PCTEL's or its employees' use of the Cafeteria, except to the extent of the gross negligence or willful misconduct of an Adaptec Party. PCTEL acknowledges and intends that all released and indemnified parties shall be third party beneficiaries to PCTEL 's covenants under this paragraph and that all such parties shall have the right to enforce such covenants as provided herein. 6. Assignment. The License is personal to PCTEL and may not be assigned, nor may any right or interest of PCTEL under this Agreement be assigned, whether voluntarily or by operation of law. Subject to the foregoing, this Agreement shall be binding upon and inure to benefit of the parties thereto and their respective successors and assigns. Notwithstanding the foregoing, Adaptec agrees to reasonably cooperate with any assignee or sublessee of PCTEL (pursuant to the terms of Article 15 of the Sublease) and to enter into a Cafeteria License Agreement with such party subject to terms substantially similar to those contained herein. 7. Miscellaneous. This Agreement constitutes the entire agreement between Adaptec and PCTEL regarding the subject matter hereof and supersedes all prior representations, warranties, covenants and agreements relating thereto. This Agreement may not be modified, nor may any provision hereof be waived, orally, but only by a writing duly executed by Adaptec and PCTEL. If either party brings any action or legal proceeding with respect to this Agreement, the prevailing party in such action shall be entitled to recover its reasonable attorneys' fees and expenses. All representations, warranties, covenants and indemnities of PCTEL in this Agreement shall survive the expiration or sooner termination of the License and the Agreement. PCTEL shall, at any time and from time to time, execute such additional documents (including, without limitation, estoppel certificates and waivers for the benefit of the Adaptec Parties) and take such additional actions as any Adaptec Party may reasonably require to carry out the purposes of this Agreement. The validity, construction, performance, effect and enforcement of this Agreement shall be governed in all respects by the laws of the State of California. The language and all parts of this Agreement shall in all cases be construed as a whole according to their fair meaning and not strictly for or against either Adaptec or PCTEL. All captions used in this Agreement are for convenience of reference only and shall not be considered in construing any provision hereof. If any provision of this Agreement shall be illegal, invalid or unenforceable in any respect, the legality, validity and enforceability of the remaining provisions hereof shall not in any way be affected or impaired thereby. This Agreement may be executed in one or more counterparts, each of which shall be an original, but all of which, taken together, shall constitute one and the same Agreement. 2

IN WITNESS WHEREOF, Adaptec and PCTEL have executed this Agreement as of the day and year first above written. ADAPTEC, INC. By: /s/ Robert W. Kraiss ------------------------------------- Name: Robert W. Kraiss --------------------------------- Title: Director of Corporate Facilities and Real Estate --------------------------------- PCTEL, INC. By: /s/ John W. Schoen ------------------------------------- Name: John W. Schoen --------------------------------- Title: PCTEL COO/CFO --------------------------------- 3

SUBLEASE AGREEMENT DATED: November 5, 2002 ARTICLE 1: FUNDAMENTAL SUBLEASE PROVISIONS. 1.1 PARTIES: Sublessor: Adaptec, Inc., a Delaware corporation Sublessee: PCTEL, Inc., a Delaware corporation Master Lessor: Limar Realty Corp. #7, a California corporation, successor in interest to The Prudential Insurance Company of America as owner of the Premises 1.2 MASTER LEASE: (Article 3): Sublessor, as tenant, is leasing from Master Lessor, as landlord, approximately 18,072 square feet of leasable area located at: 631 South Milpitas Boulevard in the City of Milpitas, State of California (the "PREMISES") on the terms and subject to the conditions of that certain lease agreement dated as of December 20, 1996, as amended by the First Amendment to Lease dated June 11, 1998 (collectively, the "MASTER LEASE"). A copy of the Master Lease is attached hereto as EXHIBIT A. 1.3 SUBLEASE PREMISES: (Article 2): The Sublease Premises constitutes One Hundred Percent (100%) of the Premises, and contains approximately 18,072 square feet of leasable area (the "SUBLEASE PREMISES"). The Sublease Premises is further described on the drawings attached to the Master Lease. 1.4 SUBLEASE TERM: (Article 4): Approximately Fifty-six and one-half (56-1/2) calendar months, beginning on the Commencement Date and ending on the Termination Date described below, unless commenced later or terminated earlier pursuant to the terms of this Sublease. 1.5 COMMENCEMENT DATE: (Article 4.1): January 1, 2003. 1.6 TERMINATION DATE: (Article 4.1): September 16, 2007 1.7 RENTAL COMMENCEMENT DATE: (Article 5.2): March 1, 2003 1.8 MINIMUM MONTHLY RENT: (Article 5.2): Lease Year 1 $1.03/rsf/month $18,614.16/month Lease Year 2 $1.07/rsf/month $19,337.04/month Lease Year 3 $1.11/rsf/month $20,059.92/month Lease Year 4 $1.15/rsf/month $20,782.80/month Lease Year 5 $1.19/rsf/month $21,505.68/month As used herein, the term "LEASE YEAR" shall mean each 12-month period during the Sublease Term, beginning on the Commencement Date and expiring on the last day of the Sublease Term. The phrase "LEASE YEAR" shall also mean any period of time that is not a 12-month period during the Sublease Term that begins at the end of a Lease Year and ends on the last day of the Sublease Term. The first Lease Year shall include the "Fit Up Period" described in Article 5.5, although Minimum Monthly Rent shall not be payable until the Rental Commencement Date as defined above. 1

1.9 ADDITIONAL RENT: (Article 5.3): Operating Expenses under Master Lease $0.24/rsf/month $4,337.28/month Janitorial and Trash Removal $0.12/rsf/month $2,168.64/month Sublease Premises Maintenance and Repair $0.08/rsf/month $1,445.76/month Security System and Maintenance $0.01/rsf/month $ 180.72/month 1.10 PREPAID RENT: (Article 5.6): $18,614.00 1.11 SECURITY DEPOSIT: (Article 6): Not applicable. 1.12 PERMITTED USE: (Article 7): general office, research and development, marketing and other related legal uses, all in strict compliance with the terms of the Master Lease. 1.13 ADDRESSES FOR NOTICES: (Article 11): Master Lessor: Limar Realty Corp. #7 1730 So. El Camino Real, Suite 400 San Mateo, CA 94402 Fax: (650) 525-1738 Sublessor: Adaptec, Inc. 691 South Milpitas Boulevard, MS 20 Milpitas, CA 95035 Attn: Robert W. Kraiss Fax: (408) 957-6600 With a copy to: Silicon Valley Law Group 152 North Third Street, Suite 900 San Jose, CA 95112 Attn: Lucy Lofrumento Sublessee: PCTEL, Inc. Prior to the Commencement Date: 1331 California Circle Milpitas, CA 95035 Attn: John W. Schoen Fax: (773) 243-3050 Following the Commencement Date: 631 South Milpitas Boulevard Milpitas, CA 95035 Attn: John W. Schoen Fax: (408) _______________ 2

With a copy to: Much Shelist 200 North LaSalle Street, Suite 2100 Chicago, IL 60601 Attn: Joel S. Polisky Fax: (312) 621-1750 With notices after February 1, 2003 to: 191 North Wacker Drive, Suite 1800 Chicago, Illinois 60606 1.14 SUBLESSOR'S BROKER: (Article 25.4): CPS, a Commercial Real Estate Company, Inc. 1.15 SUBLESSEE'S BROKER: (Article 25.4): Cornish & Carey Commercial and Hudson Jones 1.16 EXHIBITS AND ADDENDA: The following exhibits and any addenda are annexed to this Sublease: Exhibit A - Master Lease Exhibit B - Sublessee Improvement Plan Exhibit C - Commencement Date Memorandum Exhibit D - Final Furniture Plan Exhibit E - Information Services Agreement Exhibit F - Rules & Regulations Each reference in this Sublease Agreement ("SUBLEASE") to any provision in Article 1 shall be construed to incorporate all of the terms of each such provision. In the event of any conflict between this Article 1 and the balance of the Sublease, the balance of the Sublease shall control. ARTICLE 2: SUBLEASE PREMISES. 2.1 SUBLEASE. Sublessor hereby subleases to Sublessee and Sublessee hereby subleases from Sublessor for the Sublease Term (hereinafter defined), at the Rent (hereinafter defined) and upon the terms and conditions hereinafter set forth, the Sublease Premises, and all common areas related thereto. Sublessee acknowledges that the leasable area of the Sublease Premises as specified in Article 1 is an estimate and that Sublessor does not warrant the exact leasable area of the Sublease Premises. By taking possession of the Sublease Premises, Sublessee accepts the leasable area of the Sublease Premises as that specified in Article 1. 2.2 CONDITION OF THE SUBLEASE PREMISES. Sublessor shall deliver the Sublease Premises to Sublessee (a) with all carpets, walls and ceilings in good repair, (b) in broom-clean condition, and (c) with the roof, electrical, HVAC, plumbing and other building systems (collectively, the "BUILDING SYSTEMS") in good repair; and Sublessee thereupon shall accept possession of the Sublease Premises in its "As Is" condition. If during the Sublease Term the Building Systems are found not to be in good repair, then, to the extent repairs of such Building Systems are the responsibility of Sublessor under the terms of the Master Lease and are not otherwise necessitated by the act, neglect or fault of Sublessee, or its agents, employees, invitees, visitors or contractors, Sublessor shall cause the same to be corrected at its own expense promptly after receiving written notice from Sublessee to do so. 2.3 IMPROVEMENTS TO THE SUBLEASE PREMISES. 2.3.1 CONSTRUCTION OF SUBLESSEE IMPROVEMENTS. Sublessor agrees to complete certain interior improvements to the Sublease Premises (collectively, the "SUBLESSEE IMPROVEMENTS"), which are more particularly described and depicted on EXHIBIT B attached hereto (the "SUBLESSEE IMPROVEMENT PLAN"). Sublessor shall have no 3

obligation to make any improvement or alteration to the Sublease Premises except as specifically and expressly agreed to in writing by Sublessor, and all other improvements or alterations required by Sublessee for Sublessee's use and occupancy of the Premises shall be Sublessee's sole responsibility at Sublessee's sole cost, in accordance with Article 2.6 and other applicable provisions of this Sublease and the Master Lease. Sublessor shall complete the Sublessee Improvements in compliance with the terms of the Master Lease, in a good workmanlike manner, and in compliance with all laws, rules, regulations, permit requirements, codes and ordinances. To the extent that the costs for the Sublessee Improvements exceed One Hundred Thirty Seven Thousand Five Hundred Sixty Four Dollars ($137,564.00), Sublessee shall be responsible for such excess costs, which shall be payable by Sublessee to Sublessor as Additional Rent within ten (10) days following submission to Sublessee of an invoice. 2.3.2 CHANGE ORDER PROCESS. No material changes, modifications or alterations to the Sublessee Improvement Plan shall be made by either party without the prior written consent of the other, which consent shall not be unreasonably withheld, conditioned or delayed. All requests for change orders shall be made and agreed to in writing, and shall specify the added (or reduced) costs and time required for completion. All approved changes shall be made in the form of a change order ("CHANGE ORDER") setting forth the increased costs, if any, caused by the change and specifying any anticipated delay relating to that Change Order, if any. Any delay as a result of a Change Order requested by Sublessee shall not delay the date of Substantial Completion (as defined below), i.e., in case of any such delay the date of Substantial Completion shall be the date that the Sublessee Improvements would have been completed in accordance with the original Sublessee Improvement Plan without regard to the delay caused by such Change Order. Sublessee shall reimburse Sublessor for any increased costs within ten (10) days of Sublessee's receipt of the invoice from Sublessor for those increased costs. 2.3.3 COMPLETION OF SUBLESSEE IMPROVEMENTS. Sublessor shall notify Sublessee in writing when the Sublessee Improvements are Substantially Completed. "SUBSTANTIAL COMPLETION" as used in this Sublease shall mean the date that the Sublessee Improvements have been completed in accordance with all material aspects of the Sublessee Improvement Plan, except that in the case of any delay resulting from (i) a Change Order requested by Sublessee or (ii) interference with the construction work caused by Sublessee or its contractors, the date of Substantial Completion shall be the date that the Sublessee Improvements would have been completed but for such delay. In any event, Substantial Completion shall be deemed to have occurred notwithstanding Sublessor's obligation to complete any "punch list" items (described below) that do not materially diminish the usefulness of the Sublease Premises for the Permitted Use (as described in Article 1). If Sublessee disagrees with Sublessor's determination of the date of Substantial Completion, the parties shall meet and confer in good faith to try to resolve their differences. Within five (5) business days after Sublessor notifies Sublessee that the Sublessee Improvements are Substantially Complete, Sublessee and Sublessor shall perform a walk-through of the Sublease Premises and within ten (10) days following the date of such walk-through Sublessee shall deliver to Sublessor a statement describing all non-latent defects, errors and/or omissions observed in the Sublessee Improvements (the "PUNCH LIST"). The Punch List shall constitute the conclusive determination by Sublessee of the existence of any non-latent defects, errors and/or omissions within the Sublease Premises, and Sublessee's failure to sign and deliver such Punch List to Sublessor within said ten (10) day period shall constitute a conclusive determination by Sublessee that no such defects, errors or omissions exist. Upon receipt of the Punch List, Sublessor shall date and sign a copy of it as to items Sublessor agrees are appropriately listed, and shall return the signed copy to Sublessee. Sublessor shall, within thirty (30) days after receipt of the Punch List, correct the agreed-upon items. If Sublessee disagrees with Sublessor's determination of the appropriate Punch List items, the parties shall meet and confer in good faith to try to resolve their differences. 2.4 PERSONAL PROPERTY. Except as provided in Articles 19 and 20, Sublessee acknowledges that the Sublease Premises shall not include any of the fixtures, equipment, cabling, furniture, or other personal property belonging to 4

Sublessor, unless the parties have specifically agreed to the same in writing. 2.5 COMPLIANCE WITH LAWS. 2.5.1 SUBLESSOR'S OBLIGATIONS. Sublessor represents and warrants that to Sublessor's Knowledge (as defined in Article 25.5 below), the Sublease Premises as they exist on the date of this Sublease do not violate any ordinance, rule, code, or regulation of any governmental agency, including the Americans with Disabilities Act and Title 24 requirements ("ADA") and Sublessor has not received any notice of such violation. Sublessor agrees to cure (or cause to be cured) such violations existing as of the date of this Sublease (to the extent such cure is the responsibility of Sublessor under the terms of the Master Lease) or to request Master Lessor to cure such violations (if applicable) that interfere with Sublessee's ability to use and occupy the Sublease Premises for the Permitted Use. 2.5.2 SUBLESSEE'S OBLIGATIONS. Sublessee shall, at Sublessee's sole cost and expense, be responsible for bringing the Sublease Premises into compliance with any statutes, rules, regulations, ordinances (whether presently existing or hereinafter enacted), or insurance regulations, including but not limited to compliance with ADA requirements (collectively, "APPLICABLE LAWS") to the extent that compliance with such Applicable Laws is "triggered" by (i) Sublessee's specific and unique use or occupancy of the Sublease Premises; or (ii) construction work in, or alterations to, the Sublease Premises (other than the Sublessee Improvements), or (iii) Sublessee's application for a building permit or any other governmental approval (other than for the Sublessee Improvements). 2.6 ALTERATIONS TO PREMISES. Sublessee shall not make any alterations, additions, or improvements (collectively, "Alterations") to the Sublease Premises without the prior written consent of Sublessor, unless (i) the Alteration does not affect the Building structure, the exterior appearance of the Building, or the Building Systems, (ii) such Alteration does not require a building permit, (iii) the costs of the Alteration do not exceed Fifteen Thousand Dollars ($15,000), and (iv) Sublessee complies with the other requirements of Section 9(b) of the Master Lease relative to such Alteration. ARTICLE 3: TERMS OF THE MASTER LEASE. 3.1 SUBLEASE SUBORDINATE. This Sublease is subordinate and subject to all of the terms and conditions of the Master Lease. 3.1.1 If the Master Lease terminates for any reason whatsoever, this Sublease shall terminate concurrently, and the parties hereto shall be relieved of any liability thereafter accruing under this Sublease, except for the liabilities of the parties which by the terms of this Sublease survive the expiration or earlier termination of this Sublease. Notwithstanding the foregoing, Sublessee agrees that in the event that Sublessor shall default in its obligations under the Master Lease, then Master Lessor, at its option and without being obligated to do so, may require Sublessee to attorn to Master Lessor, provided that as a condition to such attornment, Master Lessor shall agree to undertake the obligations of Sublessor under this Sublease from the time of the exercise of said option to termination of this Sublease. 3.1.2 Sublessor covenants that during the Sublease Term, it shall not assign or attempt to assign its interests and obligations under either the Master Lease or this Sublease, without notifying Sublessee at least five (5) days in advance of such action (unless such advance notice is precluded by applicable securities or other laws, in which event notice will be given within five (5) days after it is lawfully permitted). 3.1.3 Sublessor covenants that during the Sublease Term, it shall not make or agree to any amendments or modifications to the Master Lease, without first obtaining Sublessee's written consent thereto, which consent shall not be unreasonably withheld, delayed or conditioned. 3.1.4 Upon execution of this Sublease, Sublessor will send Master Lessor a letter requesting (a) that Master Lessor 5

send to Sublessee any notice of default by Sublessor under the Master Lease, at the same time Master Lessor sends such notice to Sublessor; and (b) that Master Lessor permit Sublessee the opportunity to cure or cause to be cured any such default in the same manner as Sublessor would be permitted to do so under the Master Lease, prior to Master Lessor's exercising any of its remedies under the Master Lease. However, acceptance by Master Lessor of the requests in such letter shall not be a condition precedent to the effectiveness of this Sublease or affect any of the parties' respective rights and remedies as more specifically set forth herein. 3.1.5 Sublessor hereby certifies to Sublessee that to the best of Sublessor's Knowledge (as defined in Section 25.5 below), the following statements are true: (a) The Master Lease attached as Exhibit A hereto constitutes the entire agreement between Master Lessor and Sublessor, and there are no amendments, supplements or modifications thereto or thereof or any other agreements between Master Lessor and Sublessor with respect to the Sublease Premises which otherwise amend, modify, rescind, revoke or change in any manner whatsoever the Master Lease; (b) The Master Lease is in full force and effect in accordance with its terms, Sublessor is not in default under any of the terms of the Master Lease, and there exists no event which with the passage of time or the giving of notice or both would constitute a default under the Master Lease; (c) Except for Sublessor, there are no parties in possession or occupancy of the Sublease Premises or any part thereof, nor are there any parties who have any possessory rights with respect to the Sublease Premises or any part thereof; and (d) There is no existing or pending or threatened condemnation of any part of the Sublease Premises. 3.2 SUBLESSEE'S OBLIGATIONS. To the extent applicable to the Sublease Premises and Sublessee's use of the common areas, Sublessee hereby expressly assumes and agrees to perform and discharge, as and when required by the Master Lease, all debts, duties and obligations to be paid, performed or discharged by Sublessor under the terms, covenants and conditions of the Master Lease from and after the Commencement Date, except as specifically set forth in this Sublease. Sublessee shall not commit or suffer at any time any act or omission that would violate any provision of the Master Lease. 3.3 SUBLESSOR'S OBLIGATIONS. Notwithstanding anything to the contrary contained in this Sublease, Sublessor shall keep and maintain the Sublease Premises (including appurtenances) to the extent required of the "TENANT" by Section 10 of the Master Lease. The fee for such service shall be paid by Sublessee in compliance with the terms of Article 5 of this Sublease; provided, however, if a required repair is the result of the act, neglect or fault of Sublessee or Sublessee's agents, employees, contractors or invitees, then Sublessee shall be liable for the entire cost of such repair. Sublessee shall permit Sublessor and its agents and contractors to enter the Sublease Premises at all reasonable times upon reasonable notice to make necessary improvements or repairs required under this Sublease. Sublessor shall have no obligation to perform under this paragraph until a reasonable time after receipt of notice from Sublessee of such need, which notice shall be provided by calling Sublessor's Maintenance Service Line at (408) 957-7110, Monday through Friday (excluding holidays) between the hours of 8:00AM-12:00PM and 1:00PM-5:00 PM, with emergency response available 24 hours a day via communication through the on-site security personnel. Required labor and materials shall be consistent with those provided to Sublessor's employees in response to a maintenance request. In no event shall any payments owed by Sublessee under this Sublease be abated on account of Sublessor's failure to make repairs under this Paragraph. Sublessee hereby waives all statutory rights to make repairs for or at the expense of Sublessor. So long as Sublessee complies with all of its obligations under this Sublease and cures any failure to comply within the applicable cure periods, Sublessor shall not commit any act or omission during the Sublease Term that would lead to the termination of the Master Lease by Master Lessor. Notwithstanding the foregoing, if Sublessee fails to 6

comply with any of its obligations under this Sublease (including without limitation the obligations assumed by Sublessee under the Master Lease), and does not cure such failure within the applicable cure period (or if no cure period is specified in either this Sublease or the Master Lease, then within five (5) days after receiving written notice of such failure), then Sublessor shall have no obligation to Sublessee to maintain the Master Lease for Sublessee's benefit. 3.4 MASTER LESSOR'S OBLIGATIONS. Sublessor shall not be responsible to Sublessee for furnishing any service, maintenance or repairs to the Sublease Premises that are the obligation of the Master Lessor under the Master Lease, it being understood that Sublessee shall look solely to Master Lessor for performance of any such service, maintenance or repairs. However, if Master Lessor shall fail to perform its obligations under the Master Lease, Sublessor, upon receipt of written notice from Sublessee, shall use commercially reasonable efforts to attempt to enforce the obligations of Master Lessor under the Master Lease; provided, however, that Sublessor shall not be required to incur any costs or expenses in connection therewith unless Sublessee agrees to reimburse Sublessor for any such costs and expenses as Additional Rent hereunder. 3.5 SUBLESSOR'S RIGHTS AND REMEDIES. In addition to all the rights and remedies provided to Sublessor at law, in equity, or under the terms of this Sublease, (a) in the event of any breach by Sublessee of any of its obligations under this Sublease, Sublessor shall have all of the rights and remedies with respect to such breach which are available to Master Lessor in the event of any breach under the Master Lease; and (b) as a further remedy, if Sublessee fails to perform any act on its part to be performed pursuant to the requirements of the Master Lease or as otherwise required by this Sublease, within any applicable grace periods provided herein, then Sublessor may, but shall not be obligated to, fulfill such obligations of Sublessee, including entering the Sublease Premises to perform any such act, and all costs and expenses incurred by Sublessor in doing so shall be deemed Additional Rent payable by Sublessee to Sublessor upon demand. 3.6 SUBLESSEE'S RIGHT TO CURE. If Master Lessor notifies Sublessor of any default by Sublessor under the Master Lease, Sublessor shall deliver a copy of such notice to Sublessee within 24 hours' after Sublessor's receipt thereof, as required by Section 11.2. At the time of delivery of such notice, Sublessor shall advise Sublessee in writing as to whether Sublessor plans to cure such default, or whether Sublessor disputes such default. 3.6.1 If Sublessor does not dispute such default, then Sublessor shall promptly cure the default and provide proof of such cure to Sublessee at least two (2) business days prior to the expiration of the applicable cure period in the Master Lease. If Sublessor fails to cure such default within such time period, then subject to Master Lessor's agreement (if so required under the Master Lease), Sublessee shall have the right and opportunity to cure such default in place of Sublessor. 3.6.2 If Sublessor disputes such default, then Sublessee shall not have the right to cure the default unless Master Lessor shall have provided a statutory notice to cure the default or "quit" in which event Sublessee shall have the right to make any payments or otherwise cure the default to the extent necessary to avoid a forfeiture of the Master Lease. 3.6.3 In the event that Sublessee cures such default by Sublessor in accordance with the foregoing provisions, and Sublessee is not then in default under this Sublease (after the expiration of any applicable cure periods), then Sublessee shall have the right to offset the amount paid to cure such default and other related costs, including reasonable attorneys' fees, against any amounts owed by Sublessee under this Sublease. ARTICLE 4: SUBLEASE TERM. 4.1 COMMENCEMENT AND TERMINATION DATES. The term of this Sublease ("SUBLEASE TERM") shall be for the period of time commencing on the commencement date described in Article 1 (the "COMMENCEMENT DATE") and ending on the termination date described in Article 1 or on such earlier date of termination as provided herein (the "TERMINATION DATE"). Within 10 days following the Commencement Date, Sublessor shall prepare, sign and deliver 7

to Sublessee a certificate substantially in the form of EXHIBIT C, and within 10 days following the receipt thereof Sublessee will execute and deliver it to Sublessor. If Sublessee disagrees with any of Sublessor's statements in such certificate, the parties shall meet and confer in good faith to try to resolve their differences. 4.2 DELAY IN COMMENCEMENT. If for any reason possession of the Sublease Premises has not been delivered to Sublessee by January 1, 2003, or any other date, Sublessor shall not be liable to Sublessee or any other person or entity for any loss or damage resulting therefrom. However, if the Sublessee Improvements have not been Substantially Completed by February 1, 2003, due to no fault of Sublessee, then the Commencement Date and the Rental Commencement Date shall be delayed by one day for each day of such delay, but the Termination Date shall not be extended. Further, if Sublessor is unable to deliver possession of the Sublease Premises to Sublessee by February 21, 2003, then Sublessee may terminate this Sublease by giving written notice to Sublessor within ten (10) days after that date, and the parties shall have no further liability thereafter accruing under this Sublease. 4.3 EARLY OCCUPANCY. Sublessor shall permit Sublessee to occupy the Sublease Premises following the Commencement Date in order to fit up the Sublease Premises for Sublessee's use subject to the following conditions: (i) Sublessee's fit up work shall not interfere with or hinder Sublessor's completion of the Sublessee Improvements; (ii) such occupancy shall be subject to all of the provisions of this Sublease (including, without limitation, Articles 10 and 14) and the Master Lease, including the payment of Operating Expenses as required under Article 5.3(1), but excluding the payment of Minimum Monthly Rent and other Additional Rent items. Early occupancy of the Sublease Premises shall not advance the Termination Date. Sublessee shall, prior to entering the Sublease Premises, deliver to Sublessor certificates of insurance evidencing the policies required of Sublessee under this Sublease. 4.4 ONE-TIME RIGHT TO TERMINATE. Sublessor grants Sublessee a one-time right to terminate the Sublease ("TERMINATION RIGHT"), which termination, if exercised, shall be effective as of the first day of the thirty-seventh (37th) month of the Sublease Term. Sublessee shall exercise the Termination Right, if at all, by giving Sublessor six months prior written notice (i.e., no later than the first day of the 31st month of the Sublease Term), with a concurrent payment of three (3) months Minimum Monthly Rent based on the amount due for the 37th month of the Sublease Term (i.e., a total of $62,348.40) and the unamortized cost of the Sublessee Improvements and the Brokerage Commission as of the date of such notice. Sublessor shall designate the amount of the unamortized cost of the Sublessee Improvements and the Brokerage Commission in EXHIBIT C. All contracts and rights with respect to Sublessor provided services shall terminate as of the effective termination date at no additional cost to Sublessee. ARTICLE 5: RENT AND ADDITIONAL EXPENSES. 5.1 PAYMENT OF RENT. All monies payable by Sublessee under this Sublease shall constitute "RENT." All Rent shall be paid in lawful money of the United States, without any deduction, offset (unless otherwise expressly provided in this Sublease) or demand, to Sublessor at the address of Sublessor specified in Article 1 or such other place as Sublessor may designate in writing. No payment by Sublessee of a lesser amount than the Rent herein stipulated shall be deemed to be other than on account of the earliest stipulated Rent, nor shall any endorsement or statement on any check or any letter accompanying any check or payment of Rent be deemed an accord and satisfaction, and Sublessor may accept such check or payment without prejudice to its right to recover the balance of such Rent or to pursue any other remedy. Rent for any partial calendar months at the beginning or end of the Sublease Term or by early occupancy of the Sublease Premises shall be prorated based on a thirty (30) day month. In the event of nonpayment by Sublessee of any of the following items of "Rent," Sublessor shall have all the rights and remedies with respect thereto as Sublessor has for nonpayment of Minimum Monthly Rent. 5.2 MINIMUM MONTHLY RENT. Sublessee shall pay to Sublessor the sum set forth in Article 1 hereof as Minimum Monthly Rent, in advance, on the first day of each calendar month throughout the Sublease Term, commencing on the Rental Commencement Date. 8

5.3 ADDITIONAL RENT. In addition to Minimum Monthly Rent, Sublessee shall pay to Sublessor, in advance, on the first day of each calendar month for the Sublease Term, the following sums (collectively, "ADDITIONAL RENT"): (1) Commencing on the Commencement Date, the sum set forth in Article 1.9 for Operating Expenses, which amount represents an estimate of the real property taxes, insurance, common area utilities, common area maintenance and repair, and other charges attributable to and/or accruing against the Sublease Premises under the Master Lease. (2) Commencing on the Rental Commencement Date, the sum set forth in Article 1.9 for Sublease Premises Maintenance and Repair, which services are described in Section 3.3 of this Sublease. (3) Commencing on the Rental Commencement Date, the sum set forth in Article 1.9 for Janitorial and Trash Removal, which services shall include janitorial service and trash removal five (5) days per week (excluding holidays) and all supplies pertaining to such services. (4) Commencing on the Rental Commencement Date, the sum set forth in Article 1.9 for Security System and Maintenance, which services shall include a cardkey system for the Sublease Premises, updates, all maintenance and badges; provided, however, in addition to such amount, Sublessee shall pay to Sublessor $10 for each security badge issued or replaced. The Additional Rent items described in subparagraphs (1) through (4) above shall be fixed for the Sublease Term and pro-rated for any partial month based on a thirty (30) day month. 5.4 INFORMATION SERVICES. Commencing on the Rental Commencement Date, Sublessee shall pay Sublessor the sums required under the terms and conditions of the Information Services Agreement, as set forth in Article 20. 5.5 UTILITIES. Commencing on the earlier of (i) the date of commencement of the Fit Up Period or (ii) thirty (30) days after the Commencement Date, Sublessee shall be responsible for the cost of all utilities serving the Sublease Premises, which payments shall be made directly to the providers of such services. For purposes of this Sublease, the term "FIT UP PERIOD" shall mean the period of time from the first date that Sublessee occupies the Sublease Premises until the Rent Commencement Date. 5.6 PREPAID RENT. Concurrently with Sublessee's execution and delivery of this Sublease to Sublessor, Sublessee shall deposit with Sublessor a check payable in the sum specified in Article 1 as Prepaid Rent, which shall be applied to the installments of Minimum Monthly Rent first coming due under this Sublease, or returned to Sublessee pursuant to Section 25.6 if this Sublease is terminated due to failure to obtain Master Lessor's consent to this Sublease. Sublessor shall have the right to negotiate such check upon Sublessor's execution and delivery of this Sublease to Sublessee. 5.7 MISCELLANEOUS CHARGES. Sublessee shall pay to Sublessor, within five (5) days after written demand therefor, any and all non-recurring, special or other miscellaneous charges and expenses that Sublessor may incur under the Master Lease by reason of Sublessee's occupancy, defaults or activities (which charges and expenses are not covered by the other fees described above), such as late charges for late payment of rent, fines for violation of laws, work orders, repairs caused by Sublessee's negligence, and so forth. 5.8 LATE CHARGE. If Sublessee fails to pay any Rent within five (5) days after such payment becomes due hereunder, then Sublessee shall pay Sublessor a late charge equal to six percent (6%) of such delinquent amount as liquidated damages for Sublessee's failure to make timely payment; provided, however, that Sublessor shall waive such charge one time only during the First Lease Year. Any notice given by Sublessor pursuant to any statute governing unlawful detainer actions shall be deemed to be concurrent with, and not in addition to, the notice required herein. This provision for a late charge shall not be deemed to grant Sublessee a grace period or extension of time for performance. If any Rent remains delinquent for a period in excess of thirty (30) days then, in addition to such late charge, Sublessee 9

shall pay to Sublessor interest on the delinquent amount from the date such amount became due until paid, at the rate of ten percent (10%) per annum or the maximum rate permitted by law. 5.9 LEGAL EXPENSES. Sublessee shall pay to Sublessor, as part of Rent, all costs and expenses (including without limitation attorneys' fees and legal expenses), that may accrue in the event of Sublessee's failure to pay any of the items described above, and all damages, reasonable costs and expenses that Sublessor may incur by reason of default of Sublessee or failure on Sublessee's part to comply with the terms of this Sublease. ARTICLE 6: SECURITY DEPOSIT. [Intentionally Omitted.] ARTICLE 7: USE. 7.1 USE OF THE SUBLEASE PREMISES. Sublessee shall use the Sublease Premises solely for the purpose specified in Article 1 (the "PERMITTED USE") in strict conformance with the applicable requirements of the Master Lease, and for no other purpose whatsoever. 7.2 NO VIOLATION OF APPLICABLE LAWS. To Sublessor's Knowledge, the Permitted Use does not violate any Applicable Laws in effect as of the date hereof. 7.3 SUITABILITY. Sublessee acknowledges that, except as explicitly stated in this Sublease, neither Sublessor nor any agent of Sublessor has made any representation or warranty with respect to the Sublease Premises, the permitted uses that can be made of the Sublease Premises under existing laws, or the suitability of the Sublease Premises for the conduct of Sublessee's business, nor has Sublessor agreed to undertake any modification, alteration or improvement to the Sublease Premises. 7.3 HAZARDOUS MATERIALS. 7.3.1 DEFINITIONS. As used herein, the term "HAZARDOUS MATERIAL" shall mean any hazardous or toxic substance, material or waste which is or becomes regulated by any state, federal, or local government authority, including without limitation all of those materials and substances designated as hazardous or toxic by the Environmental Protection Agency, the Department of Labor, the Department of Transportation, the Department of Agriculture, the Department of Health Services or the Food and Drug Agency. Without limiting the generality of the foregoing, the term "HAZARDOUS MATERIAL" shall include (i) any substance, product, waste or other material of any nature whatsoever which may give rise to liability under any statutory or common law theory based on negligence, trespass, intentional tort, nuisance or strict liability or under any reported decisions of a state or federal court; (ii) gasoline, diesel fuel, or other petroleum hydrocarbons; (iii) polychlorinated biphenyls; (iv) asbestos containing materials; (v) urea formaldehyde foam insulation; and (vi) radon gas. As used herein, the term "HAZARDOUS MATERIAL LAW" shall mean any applicable statute, law, ordinance, or regulation of any governmental body or agency which regulates the use, storage, generation, discharge, treatment, transportation, release, or disposal of any Hazardous Material. 7.3.2 USE RESTRICTION. Except for small quantities of household cleaners and office supplies typically used in connection with professional offices, Sublessee shall not cause or permit any Hazardous Material to be used, stored, generated, discharged, treated, transported to or from, released or disposed of in, on, over, through, or about the Sublease Premises, or any other land or improvements in the vicinity of the Sublease Premises, without the prior written consent of Master Lessor and Sublessor, which consent may be withheld in the sole and absolute discretion of Master Lessor and/or Sublessor. Without limiting the generality of the foregoing, (a) any use, storage, generation, discharge, treatment, transportation, release, or disposal of Hazardous Material by Sublessee shall strictly comply with all applicable Hazardous Material Laws, and (b) if the presence of Hazardous Material on the Sublease Premises caused or permitted by Sublessee or its agents, employees, invitees, visitors or contractors results in contamination of the Sublease Premises or any soil, air, ground or surface waters under, through, over, on, in or about the Sublease Premises, Sublessee, at its expense, shall promptly take all actions necessary to return the Sublease Premises to the condition 10

existing prior to the existence of such Hazardous Material. 7.3.3 SUBLESSOR'S REPRESENTATION RELATING TO HAZARDOUS MATERIALS. Sublessor represents that to Sublessor's Knowledge as of the Commencement Date (i) the Sublease Premises are in compliance with Hazardous Materials Laws; (ii) the handling, transportation, storage, treatment, disposal, release and use of Hazardous Materials by Sublessor on or about the Sublease Premises (including soil, ground water or surface water thereof) prior to the Commencement Date, has been in compliance with all Hazardous Material Laws; and (iii) no action, proceeding or claim is pending or threatened regarding the Sublease Premises concerning any Hazardous Material or pursuant to any environmental law. Sublessor agrees to cure (or cause to be cured) any violations of Hazardous Materials Laws existing prior to the Commencement Date (to the extent such cure is the responsibility of Sublessor under the terms of the Master Lease) or to request Master Lessor to cure such violations (if applicable). 7.3.4 EXEMPTION OF SUBLESSEE. Sublessee shall not be responsible for the clean-up or remediation of, and shall not be required to indemnify Sublessor against, any claims, losses, liabilities or expenses resulting from any, Hazardous Materials existing at the Sublease Premises prior to the Commencement Date, except to the extent that Sublessee or Sublessee's agents, employees, invitees, visitors or contractors have (a) increased the severity of such contamination (other than by use of the Sublease Premises in accordance with the terms of this Sublease) or (b) contributed to such contamination, either by their conduct or by Sublessee's failure to perform its obligations under this Article 7. Any costs pertaining to the removal of Hazardous Materials placed on or about the Sublease Premises prior to the Commencement Date shall be excluded from Operating Costs that would otherwise be payable by Sublessee pursuant to Article 5. ARTICLE 8: SURRENDER. 8.1 CONDITION OF THE SUBLEASE PREMISES. Upon the expiration or earlier termination of this Sublease, Sublessee shall surrender the Sublease Premises broom clean and in good condition and repair, excepting only ordinary wear and tear and damage by fire, earthquake, act of God or the elements. Sublessee shall repair any damage to the Sublease Premises, or the building of which the Sublease Premises are a part, caused by or related to the removal of any articles of personal property, business or trade fixtures, machinery, equipment, cabinetwork, signs, furniture, movable partitions or permanent improvements or additions which Sublessor allows or requires Sublessee to remove, including, without limitation, repairing the floor and patching and/or painting the walls where required by Sublessor to the reasonable satisfaction of Sublessor and/or Master Lessor, all at Sublessee's sole cost and expense. Sublessee shall indemnify Sublessor against any loss or liability resulting from delay by Sublessee in so surrendering the Sublease Premises, including, without limitation, any claims made by the Master Lessor and/or any succeeding tenant founded on such delay. Such indemnity obligation shall survive the expiration or earlier termination of this Sublease. 8.2 SUBLESSOR'S RIGHT TO ACCESS. In the ten (10) days prior to the expiration of this Sublease, or such longer time as is reasonably necessary for Sublessor to fulfill its surrender obligations under the Master Lease, Sublessor shall have the right, upon at least twenty-four (24) hours prior notice, to enter the Sublease Premises to remove personal property belonging to Sublessor, if any (including without limitation any business or trade fixtures, machinery, equipment, cabinetwork, signs, furniture, and movable partitions owned by Sublessor and located within the Sublease Premises) and to remove any improvements or additions, if any, that Sublessor is required to remove prior to surrender of the Premises pursuant to the Master Lease (not including those items to be removed by Sublessee pursuant to Article 8.1 of this Sublease). Any work performed by Sublessor pursuant to the terms of the preceding sentence shall be done in a reasonable manner to minimize the amount of inconvenience and interference to Sublessee's use and occupancy of the Sublease Premises; provided, however, Sublessor shall not be liable to Sublessee for any such inconvenience or interference caused by Sublessor's exercise of its rights pursuant to this provision. ARTICLE 9: CONSENT. Whenever the consent or approval of Master Lessor is required pursuant to the terms of the Master Lease, for the purposes of this Sublease, Sublessee, in each such instance, shall be required to obtain the written consent or approval of both Master Lessor and Sublessor pursuant to the terms of the Master Lease. If Master Lessor 11

refuses to grant its consent or approval, Sublessor may withhold its consent or approval and Sublessee agrees that such action by Sublessor shall be deemed reasonable. ARTICLE 10: INSURANCE. All insurance policies required to be carried by Sublessor under the Master Lease shall be maintained by Sublessee pursuant to the terms of the Master Lease, and shall name Sublessor and Master Lessor (and such other lenders, persons, firms, or corporations as are designated by Sublessor or Master Lessor) as additional insureds by endorsement. All policies shall be written as primary policies with respect to the interests of Master Lessor and Sublessor and such other additional insureds and shall provide that any insurance carried by Master Lessor or Sublessor or such other additional insureds is excess and not contributing insurance with respect to the insurance required hereunder. All policies shall also contain "cross liability" or "severability of interest" provisions and shall insure the performance of the indemnity set forth in Article 14 of this Sublease. Sublessee shall provide Master Lessor and Sublessor with copies or certificates of all policies, including in each instance an endorsement providing that such insurance shall not be cancelled or amended except after thirty (30) days prior written notice to Master Lessor and Sublessor. All deductibles, if any, under any such insurance policies shall be subject to the prior reasonable approval of Sublessor, and all certificates delivered to Master Lessor and Sublessor shall specify the limits of the policy and all deductibles thereunder. ARTICLE 11: NOTICES. 11.1 NOTICE REQUIREMENTS. All notices, demands, consents, and approvals which may or are required to be given by either party to the other under this Sublease shall be in writing and may be given by (i) personal delivery, (ii) overnight courier such as Federal Express, (iii) facsimile transmission, or (iv) United States registered or certified mail addressed as shown in Article 1. Any notice or demand so given shall be deemed to be delivered or made on (i) the date personal service is effected, (ii) the next business day if sent by overnight courier, (iii) the same day as given if sent by facsimile transmission which is received by 5:00 p.m. Pacific time with a copy deposited in the United States mail, postage prepaid, or (iv) the third business day after the same is deposited in the United States Mail as registered or certified and addressed as above provided with postage thereon fully prepaid. Either party hereto may change its address at any time by giving written notice of such change to the other party in the manner provided herein at least ten (10) calendar days prior to the date such change is desired to be effective. 11.2 NOTICES FROM MASTER LESSOR. Each party shall provide to the other party a copy of any notice or demand received from or delivered to Master Lessor within twenty four (24) hours of receiving or delivering such notice or demand. ARTICLE 12: DAMAGE, DESTRUCTION, CONDEMNATION. To the extent that the Master Lease gives Sublessor any rights following the occurrence of any damage, destruction or condemnation to terminate the Master Lease, to repair or restore the Sublease Premises, to contribute toward such repair or restoration costs to avoid termination, to obtain and utilize insurance or condemnation proceeds to repair or restore the Sublease Premises, or any similar rights, such rights shall be reserved to and exercisable solely by Sublessor, in its sole and absolute discretion, and not by Sublessee. The exercise of any such right by Sublessor shall under no circumstances constitute a default or breach under this Sublease or subject Sublessor to any liability therefor. ARTICLE 13: INSPECTION OF THE SUBLEASE PREMISES. Sublessee shall permit Sublessor and its agents to enter the Sublease Premises at any reasonable time for the purpose of inspecting the same or posting a notice of non-responsibility for Alterations or repairs, provided that Sublessor provides at least twenty-four (24) hours prior notice (except in the case of emergency). ARTICLE 14: INDEMNITY; EXEMPTION OF SUBLESSOR FROM LIABILITY. 14.1 SUBLESSEE INDEMNITY. Sublessee shall indemnify, defend (with counsel reasonably satisfactory to Sublessor), protect and hold harmless Sublessor and its agents, employees, contractors, stockholders, officers, directors, successors 12

and assigns from and against any and all claims, demands, actions, suits, proceedings, liabilities, obligations, losses, damages, judgments, costs, penalties, fines, and expenses (including, but not limited to, attorneys', consultants' and expert witness fees) (collectively, "COSTS") arising out of, resulting from, or related to (i) any injury or death to any person or injury or damage to property caused by, arising out of, or involving (A) Sublessee's use of the Sublease Premises, the conduct of Sublessee's business therein, or any activity, work or thing done, permitted or suffered by Sublessee in or about the Sublease Premises or the common areas, (B) a breach by Sublessee in the performance in a timely manner of any obligation of Sublessee to be performed under this Sublease, or (C) the negligence or intentional acts of Sublessee or Sublessee's agents, contractors, employees, subtenants, licensees, or invitees, and/or (ii) the storage, use, generation, discharge, treatment, transportation, release or disposal of Hazardous Material by Sublessee or its agents, employees, invitees, visitors or contractors in, on, over, through, from, about, or beneath the Sublease Premises or any nearby premises. This indemnity shall survive the expiration or earlier termination of this Sublease. 14.2 SUBLESSOR INDEMNITY. Sublessor shall indemnify, defend (with counsel reasonably satisfactory to Sublessee), protect and hold harmless Sublessee and its agents, employees, contractors, stockholders, officers, directors, successors and assigns from and against any and all Costs arising out of, resulting from, or related to: (i) any injury or death to any person or injury or damage to property caused by, arising out of, or involving: (A) the negligence or willful misconduct of Sublessor or Sublessor's agents, contractors, employees, subtenants, licensees, or invitees, or (B) a breach by Sublessor in the performance in a timely manner of any obligation of Sublessor to be performed under this Sublease, or (C) any breach of any representation or warranty of Sublessor made under this Sublease, or (D) any breach under the Master Lease by Sublessor, or (ii) the existence of any Hazardous Material at the Sublease Premises prior to the Commencement Date to the extent that such Costs are the obligation of Sublessor under terms of the Master Lease and are not otherwise the obligation of Sublessee under the terms of Section 7 of this Sublease, or (iii) the storage, use, generation, discharge, treatment, transportation, release or disposal of Hazardous Material by Sublessor or its agents, employees, invitees, visitors or contractors in, on, over, through, from, about, or beneath the Sublease Premises or any nearby premises. This indemnity shall survive the expiration or earlier termination of this Sublease. 14.3 SUBLESSEE WAIVER. Sublessee, as a material part of the consideration to Sublessor, hereby assumes all risk of damage to property or injury to persons in, upon or about the Sublease Premises arising from any cause and Sublessee hereby waives all claims in respect thereof against Sublessor, except in connection with damage or injury caused solely by the gross negligence or willful misconduct of Sublessor or its authorized agents; provided, however, that in no event shall Sublessor be liable for any loss of profits or any special, indirect, incidental, consequential or punitive damages, however caused and on any theory of liability. This waiver shall survive the expiration or earlier termination of this Sublease. 14.4 MUTUAL WAIVER OF SUBROGATION. Each party (the "FIRST PARTY") hereby releases the other party (the "SECOND PARTY"), and its partners, officers, directors, agents, employees, and servants, from any and all claims, demands, loss, expense, or injury to the Sublease Premises or to the furnishings, fixtures, equipment, inventory, or other property in, about, or upon the Sublease Premises, which is caused by or results from perils, events, or happenings which are the subject of fire or other casualty insurance carried by the First Party at the time of such loss or which would have been in force had the First Party carried the insurance required hereunder or by the Master Lease (collectively, the "EFFECTIVE COVERAGE") irrespective of any negligence on the part of the Second Party that may have contributed to or caused such loss; subject to the following limitations: (i) the Second Party shall not be released from any liability to the extent that such damages are not covered by the insurance recovery under the Effective Coverage or are the result of willful acts by the Second Party, and (ii) the Second Party shall be responsible for reimbursing the First Party for any deductible owed as a result of such damages up to One Hundred Thousand Dollars ($100,000). Each party shall use commercially reasonable efforts to obtain, if needed, appropriate endorsements to its policies of insurance with respect to the foregoing releases; provided, however, that failure to obtain such endorsements shall not affect the releases hereinabove given. ARTICLE 15: ASSIGNMENT AND SUBLETTING. Sublessee shall not voluntarily or by operation of law assign this Sublease or enter into license or concession agreement, sublet all or any part of the Sublease Premises, or otherwise transfer, mortgage, pledge, hypothecate or encumber all or any part of Sublessee's interest in this Sublease or in the 13

Sublease Premises or any part thereof, without the prior written consent of Master Lessor (pursuant to the terms of the Master Lease) and Sublessor (which consent shall not be unreasonably withheld or delayed). Any attempt to do so without such consent being first had and obtained shall be wholly void and shall constitute a default by Sublessee under this Sublease. Sublessee hereby irrevocably assigns to Sublessor all Rent and other sums or consideration in any form, from any subletting or assignment, and agrees that Sublessor, as assignee and as attorney-in-fact for Sublessee, or a receiver for Sublessee appointed upon Sublessor's application, may collect such Rent and other sums and apply the same against amounts owing to Sublessor in the event of Sublessee's default; provided, however, that until the occurrence of any act of default by Sublessee or Sublessee's subtenant, Sublessee shall have the right to collect such sums, provided that all sums in excess of the Minimum Monthly Rent set forth herein which any subtenant covenants to pay shall belong solely and exclusively to Sublessor. Notwithstanding any assignment or subletting, Sublessee shall not be relieved of its obligations hereunder, and a consent to one assignment or subletting shall not constitute a consent to any other assignment or subletting or a waiver of the provisions of this section. ARTICLE 16: DELIVERY OF DOCUMENTS. Sublessee shall execute and deliver any document or other instrument required by Master Lessor or Sublessor pursuant to the Master Lease within ten (10) days following receipt of a written request from Master Lessor or Sublessor. Failure to comply with this provision shall constitute a default by Sublessee under this Sublease. ARTICLE 17: HOLDING OVER. 17.1 WITHOUT CONSENT. Any holding over by Sublessee after the Termination Date, without the prior written consent of Master Lessor and Sublessor, shall not constitute a renewal or extension of this Sublease or give Sublessee any rights in or to the Sublease Premises. In the event of any such non-permissive holding over, Sublessor and Master Lessor may seek any and all remedies available to Sublessor and/or Master Lessor at law or in equity, and Sublessee shall pay Sublessor upon demand, (i) and amount equal to One Hundred Seventy-Five Percent (175%) of the most recent applicable Base Rent payable under the Master Lease, computed on a daily basis for each day of the holdover period, plus (ii) all other amounts due and payable under the Sublease, plus (iii) all other amounts that Sublessor may become liable for under the Master Lease, plus (iv) any and all other damages, costs, expenses, and fees incurred or suffered by Sublessor as a result of such holdover by Sublessee. 17.2 WITH CONSENT. Any holding over by Sublessee after the Termination Date, with the prior written consent of Master Lessor and Sublessor, shall be construed as a month-to-month tenancy on the same terms and conditions as specified in this Sublease, except that the Minimum Monthly Rent during such tenancy shall be increased to an amount equal to One Hundred Fifty Percent (150%) of the most recent applicable Minimum Monthly Rent payable under the Master Lease. ARTICLE 18: OPTIONS. Any right of Sublessor to extend or renew the term of the Master Lease or to expand the Premises (if any), shall be reserved to and exercisable solely by Sublessor, in its sole discretion, and not by Sublessee. Sublessor agrees to exercise such rights to extend or renew the Master Lease only to the extent necessary to fulfill its obligations under this Sublease. Sublessee, in its sole discretion, shall have the right to negotiate an extended term with the Master Lessor. ARTICLE 19: FURNITURE. For the Sublease Term and subject to the terms of Article 14, Sublessee shall be entitled to use the furniture currently located at the Sublease Premises, which is shown on the Final Furniture Plan attached as EXHIBIT D (the "FURNITURE"). In the event that Sublessee requires additional furniture, fixtures or equipment, Sublessee shall acquire such furniture, fixtures or equipment at its sole cost and expense. Sublessee agrees to take possession of the Furniture "AS IS", without relying on any representation or warranty by Sublessor as to the condition of the Furniture. Sublessee further acknowledges that neither Sublessor nor its agents have made any representations or warranties, express or implied, as to the suitability or fitness of the Furniture for the conduct of Sublessee's business or for any other purpose. Sublessee agrees, at its sole cost and expense, to 1) insure the Furniture (or provide Sublessor with evidence of adequate self-insurance); and, 2) maintain the Furniture in the same condition 14

and repair, allowing for reasonable wear and tear. In the event that the Furniture is damaged during the Sublease Term, Sublessor shall be under no obligation to service, maintain, repair or replace the damaged Furniture. Any installations, replacements, and substitutions of parts or accessories with respect to any of the Furniture shall be paid for by Sublessee and shall constitute accessions and shall become part of the Furniture and shall be the property of Sublessor. The Furniture shall remain at all times the property of Sublessor, and shall be used by Sublessee during the Sublease Term free of charge. Upon the expiration or earlier termination of this Sublease, Sublessee shall return the Furniture in the same configuration, condition and repair as the Furniture was delivered to Sublessee, excepting only ordinary wear and tear; provided, however, that the configuration may be changed if Sublessor agrees to such change in writing, in Sublessor's sole discretion. The Furniture will be delivered to Sublessee in the configuration shown on the Final Furniture Plan, except that if Sublessee notifies Sublessor of changes needed to such configuration prior to the commencement of Sublessee's reconfiguration by Sublessor's contractor, and such needed changes do not increase the estimated cost of such reconfiguration, Sublessor shall endeavor to incorporate the requested changes into the Final Furniture Plan which shall then be modified/confirmed with the Commencement Date Memorandum. ARTICLE 20: INFORMATION SERVICES. Subject to the terms and conditions of the Information Services Agreement (attached hereto as EXHIBIT E and incorporated herein by this reference), Sublessor shall provide to Sublessee telephone infrastructure and support. The cost of such service shall be payable by Sublessee to Sublessor as Additional Rent in accordance with Article 5. ARTICLE 21: ADDITIONAL SERVICES. 21.1 AMENITY AGREEMENTS. Sublessee and its employees shall have the right to use the fitness center and cafeteria pursuant to the terms and conditions of a separate license agreement. 21.2 OTHER AMENITIES. As an accommodation to Sublessee, Sublessee and its employees shall be entitled to utilize oil change facilities, ATM machines, dry cleaning services, film developing, and any other services specifically identified by Sublessor as being available to Sublessee, subject to such terms and conditions as Sublessor may establish from time to time, and further subject to Sublessor's right, at Sublessor's sole discretion, to cancel any of such services or modify the terms and conditions thereof at any time. ARTICLE 22: SIGNAGE. Subject to Section 21 of the Master Lease and to the prior approval of Sublessor (which approval shall not be unreasonably withheld or delayed), Master Lessor and all applicable governmental agencies, Sublessee shall have the right to place a sign on the building and the monument near the front entrance and on any directory signs for the complex of which the Sublease Premises is a part. ARTICLE 23: PARKING. Subject to the terms of the Master Lease and such reasonable rules and regulations that may be promulgated by Master Lessor and/or Sublessor from time to time, Sublessee shall have the non-exclusive right in common with other tenants and occupants to use, free of a monthly fee during the Sublease Term, fifty-four (54) parking spaces. ARTICLE 24: ARBITRATION. 24.1 PROCEDURE. If a dispute under this Sublease (other than a dispute relating to Sublessee's nonpayment of Rent) is in an amount less than Twenty Thousand Dollars ($20,000.00) and is not resolved by the parties within any applicable grace period or time to cure provided in this Sublease, either party may give notice to the other of its desire to arbitrate the dispute, in which event the dispute shall be settled by binding arbitration by the American Arbitration Association in accord with its then-prevailing rules. The arbitration hearing shall be held in the County of Santa Clara, California. Judgment upon the arbitration award may be entered in any court having jurisdiction. The arbitrators shall have no power to change the Sublease provisions. Both parties shall continue performing their 15

Sublease obligations pending the award in the arbitration proceeding. The arbitrators shall award the prevailing party reasonable expenses and costs, including reasonable attorneys' fees, plus interest on the amount due at the Interest Rate. This agreement to arbitrate shall not apply to any action for unlawful detainer (eviction) that Sublessor may bring under applicable California law. 24.2 PAYMENT. The losing party shall pay to the prevailing party the amount of the final arbitration award. If payment is not made within ten (10) business days after the date of the arbitration award, then, in addition to any remedies under the law: (a) If Sublessor is the prevailing party, it shall have the same remedies as it has in the event of a breach under the Sublease; (b) If Sublessee is the prevailing party, it may deduct any remaining unpaid award from its monthly payment of Minimum Monthly Rent, Additional Rent, or other charges otherwise due Sublessor. ARTICLE 25: GENERAL PROVISIONS. 25.1 SEVERABILITY. If any term or provision of this Sublease shall, to any extent, be determined by a court of competent jurisdiction to be invalid or unenforceable, the remainder of this Sublease shall not be affected thereby, and each term and provision of this Sublease shall be valid and enforceable to the fullest extent permitted by law. 25.2 ATTORNEYS' FEES; COSTS OF SUIT. If Sublessee or Sublessor shall bring any action or proceeding for any relief against the other, declaratory or otherwise, arising out of this Sublease, including any suit by Sublessor for the recovery of Rent or possession of the Sublease Premises, the prevailing party shall be entitled to recover its reasonable attorneys' fees and costs. 25.3 WAIVER. No covenant, term or condition or the breach thereof shall be deemed waived, except by written consent of the party against whom the waiver is claimed, and any waiver of the breach of any covenant, term or condition shall not be deemed to be a waiver of any other covenant, term or condition or any subsequent failure to perform the same or any other such term, covenant or condition. Acceptance by Sublessor of any performance by Sublessee after the time the same shall have become due shall not constitute a waiver by Sublessor of the breach or default of any covenant, term or condition unless otherwise expressly agreed to by Sublessor in writing. 25.4 BROKERAGE COMMISSIONS. The parties represent and warrant to each other that they have dealt with no brokers, finders, agents or other person in connection with the transaction contemplated hereby to whom a brokerage or other commission or fee may be payable, except for the brokers named in Article 1, whose fees shall be paid pursuant to a separate agreement. Each party shall indemnify, defend and hold the other harmless from any claims arising from any breach by the indemnifying party of the representation and warranty set forth in this Article 25.4. Pursuant to separate written agreements, Sublessor shall be responsible for the payment of a commission to Sublessor's broker in connection with this Sublease, and Sublessor's broker shall be responsible for any commission or fee payable to Sublessee's broker. Neither Sublessor nor Sublessee shall have any responsibility for payment of a commission to Sublessee's broker. 25.5 SUBLESSOR'S KNOWLEDGE. As used in this Sublease, the term "SUBLESSOR'S KNOWLEDGE" or words of similar import shall mean the actual current knowledge of Robert W. Kraiss and/or Catherine Eckerman, without the duty of further investigation or inquiry with respect to the matter to which such actual knowledge pertains; provided, however, in no event shall this Sublease give rise to any personal obligation, liability or duty on the part of Robert W. Kraiss and/or Catherine Eckerman, or any other trustee, officer, director, agent, representative or employee of Sublessor. Neither Robert W. Kraiss nor Catherine Eckerman shall be charged with constructive or inquiry notice or knowledge, or imputed knowledge of any agents, contractors, or employees. 25.6 BINDING EFFECT. Preparation of this Sublease by Sublessor or Sublessor's agent and submission of the same to Sublessee shall not be deemed an offer to lease. This Sublease shall become binding upon Sublessor and Sublessee only when fully executed by Sublessor and Sublessee. Sublessor and Sublessee acknowledge and agree that this Sublease is expressly conditioned upon obtaining the consent of Master Lessor hereto following such full execution by Sublessor 16

and Sublessee. In the event such consent is not so obtained within thirty-one (31) days following the date of this Sublease, then this Sublease shall, upon written notice by either party to the other, terminate and be without further force or effect, and in such event Sublessor shall promptly return to Sublessee the advance rent and Security Deposit paid by Sublessee to Sublessor pursuant to Article 5.6 above. 25.7 ENTIRE AGREEMENT. This instrument, along with any exhibits and addenda hereto, constitutes the entire agreement between Sublessor and Sublessee relative to the Sublease Premises. This Sublease may be altered, amended or revoked only by an instrument in writing signed by both Sublessor and Sublessee. There are no oral agreements or representations between the parties affecting this Sublease, and this Sublease supersedes and cancels any and all previous negotiations, arrangements, brochures, agreements, representations and understandings, if any, between the parties hereto. 25.8 COVENANT OF QUIET ENJOYMENT. Sublessor covenants with Sublessee that, so long as Sublessor has not terminated this Sublease due to Sublessee's default, Sublessee shall be entitled to possession of the Sublease Premises for the Sublease Term, in accordance with and subject to the terms of this Sublease. 25.9 EXECUTION. This Sublease may be executed in one or more counterparts, each of which shall be considered an original counterpart, and all of which together shall constitute one and the same instrument. Each person executing this Sublease represents that the execution of this Sublease has been duly authorized by the party on whose behalf the person is executing this Sublease. 25.10 RULES AND REGULATIONS. Sublessee shall comply with the Rules and Regulations attached to this Sublease as EXHIBIT F, and such amendments, changes, or supplements thereto that may be promulgated by Sublessor from time to time. Sublessor: Sublessee: ADAPTEC, INC., PCTEL, INC., a Delaware corporation a Delaware corporation By: /s/ Robert W. Kraiss By: /s/ John W. Schoen -------------------------------- -------------------------- Name: Robert W. Kraiss Name: John W. Schoen -------------------------------- -------------------------- Title: Director of Corporate Facilities Title: COO/CFO and Real Estate By: -------------------------- Name: -------------------------- Title: Secretary or Treasurer (circle one) 17

EXHIBIT A COPY OF MASTER LEASE [TO BE ATTACHED]

EXHIBIT B SUBLESSEE IMPROVEMENT PLAN [TO BE ATTACHED]

EXHIBIT C COMMENCEMENT DATE MEMORANDUM Sublessor: ADAPTEC, INC., a Delaware corporation Sublessee: PCTEL, INC., a Delaware corporation Sublease Premises: 631 South Milpitas Boulevard, Milpitas, California For the Sublease dated November 5, 2002, the undersigned hereby certifies: I. That the undersigned Sublessee occupies the above-described Sublease Premises consisting of approximately 18,072 square feet. II. That the initial Sublease term commenced on January 24, 2003, and will terminate on September 16, 2007. III. That Sublessee's obligation to pay monthly Minimum Monthly Rent in the amount of $18,614.16 commenced or will commence on March 1, 2003. IV. That a security deposit of $ 0 been paid by Sublessee to Sublessor. V. That all Sublessee Improvements to be completed by Sublessor are complete and have been accepted by Sublessee. VI. That in the event that Sublessee exercises its Termination Right under Article 4.4 of the Sublease, as of the required notice date, the unamortized cost of the Sublessee Improvements shall be $$46,696.04 (18.5 months @ $2,524.11/month) and the unamortized Brokerage Commission shall be $27,546.13 (18.5 months @ $1,488.98). VII. That the Final Furniture Plan has/has not been amended and attached pursuant to paragraph 20 of the Sublease. Sublessor: Sublessee: ADAPTEC, INC., PCTEL, INC., a Delaware corporation a Delaware corporation By: /s/ Robert W. Kraiss By: /s/ John W. Schoen ------------------------------- ------------------------------- Name: Robert W. Kraiss Name: John W. Schoen Title: Director of Corporate Facilities Title: Chief Operating Officer and and Real Estate Chief Financial Officer Date: February 3, 2003 Date: March 10, 2003 ------------------------------- -------------------------------

EXHIBIT D FINAL FURNITURE PLAN [TO BE ATTACHED]

EXHIBIT E INFORMATION SERVICES AGREEMENT [TO BE ATTACHED]

EXHIBIT F RULES AND REGULATIONS 1. No sign, placard, picture, advertisement, name or notice shall be inscribed, displayed, or printed or affixed on or to any part of the outside or inside common area of the Building without the written consent of Landlord first had and obtained and Landlord shall have the right to remove any such sign, placard, picture, advertisement, name or notice without notice to and at the expense of Tenant. All approved signs or lettering on doors shall be printed, painted, affixed or inscribed at the expense of Tenant by a person approved of by Landlord. Tenant shall not place anything or allow anything to be placed near the glass of any window, door, partition or wall which may appear unsightly from outside the Premises, provided, however, that Landlord may furnish and install a Building standard window covering at all exterior windows. Tenant shall not without prior written consent of Landlord cause or otherwise sunscreen any window. 2. The sidewalks, halls, passages, exits, entrances, elevators and stairways shall not be obstructed by any of the tenants or used by them for any purpose other than for ingress and egress from their respective premises. 3. Tenant shall not alter any lock or install any new or additional locks outside tenant suite or any bolts on any doors or windows of the Premises. 4. The toilet rooms, urinals, wash bowls and other apparatus shall not be used for any purpose other than that for which they were constructed and no foreign substance of any kind whatsoever shall be thrown therein and the expense of any breakage, stoppage or damage resulting from the violation of this rule shall be borne by Tenant who, or whose employees or invitees shall have caused it. 5. Tenant shall not disturb, solicit, or canvass any occupant of the Building and shall cooperate to prevent the same. 6. Landlord shall have the right to control and operate the public portions of the Building, and the public facilities, and heating and air conditioning, as well as facilities furnished for the common use of the tenants, in such manner as it deems best for the benefit of the tenants generally. 7. Landlord shall clean the Premises as provided in the Lease, and except with the written consent of Landlord, no person or persons other than those approved by Landlord will be permitted to enter the Building for such purposes. Tenant shall not cause unnecessary labor by reason of Tenant's carelessness and indifference in the preservation of good order and cleanliness. All cardboard boxes must be "broken down", and all styrofoam chips must be bagged or otherwise contained so as not to constitute a nuisance. Landlord shall have no responsibility whatsoever for the theft of or damage to any property of Tenant or its employees resulting from any acts or omissions of janitorial personnel, and Tenant hereby waives any and all claims against Landlord therefor. 8. Landlord shall not be responsible to Tenant or to any other person for the violation of these or other rules and regulations by any other tenant or other person. Tenant shall be deemed to have read these Rules and Regulations and to have agreed to abide by them as a condition precedent, waivable only by Landlord, to Tenant's occupancy of the Premises. 9. Business machines and mechanical equipment belonging to Tenant which cause noise or vibration that may be transmitted to the structure of the Building, to such a degree as to be reasonably objectionable to Landlord or other tenants, shall be placed and maintained by Tenant, at Tenant's expense, on vibration eliminators or in noise-dampening housing or other devices sufficient to eliminate

noise or vibration. 10. All goods, including material used to store goods, delivered to the Premises of Tenant shall be immediately moved into the Premises and shall not be left in parking or receiving areas overnight. 11. Except to the extent (if any) that trash removal is provided by Landlord as part of Common Area maintenance services, Tenant is responsible for the storage and removal of all trash and refuse. All such trash and refuse shall be contained in suitable receptacles at locations approved by Landlord. 12. Tenant shall not store or permit the storage or placement of goods or merchandise in or around the common areas surrounding the Premises. No displays or sales of merchandise shall be allowed in the parking lots or other common areas. 13. Tenant shall not permit any animals, including but not limited to, any household pets, to be brought or kept in or about the Premises, the Building, the Complex or any of the Common Areas, except for seeing-eye animals. 14. Tenant shall not obstruct sidewalks, entrances, passages, corridors, vestibules, halls, or stairways in and about the Complex which are used in common with other tenants, and which are not a part of the Premises of Tenant. Tenant shall not place objects against glass partitions or doors or windows which would be unsightly from the Building corridors or from the exterior of the Complex and will promptly remove any such objects upon notice from Landlord. 15. Tenant shall not waste electricity, water or air conditioning furnished by Landlord, if any, and shall cooperate fully with Landlord to insure the most effective operation of the Project's heating and air conditioning systems consistent with Tenant's business operations as permitted by the Lease. 16. Tenant assumes full responsibility for protecting its space from theft, robbery and pilferage, which includes keeping doors locked and other means of entry to the Premises closed and secured after normal business hours. 17. The Premises shall not be used for cooking (as opposed to heating of food), lodging, sleeping or for any immoral or illegal purpose. 18. Tenant shall observe faithfully and comply strictly with the foregoing rules and regulations and such other and further appropriately reasonable rules and regulations as Landlord or Landlord's agent may from time to time adopt; provided, however, that in the event of any inconsistency or conflict between the rules and regulations and provisions of the Lease, the latter shall control. Reasonable notice of any additional rules and regulations shall be given in such manner as Landlord may reasonably elect. 19. No electric circuits for any purpose shall be brought into the Premises without Landlord's written permission specifying the manner in which same may be done. Tenant shall not overload any utilities serving the Premises. 20. Wherever in these Rules and Regulations the word "Tenant" occurs, it is understood and agreed that it shall mean Tenant's associates, employees, contractors, agents, subtenants, and licensees. Wherever the word "Landlord" occurs, it is understood and agreed that it shall mean Landlord's assigns, employees, contractors, and agents. 21. Tenant shall, when using the common parking facilities in and around the Complex, observe and obey all signs regarding fire lanes and no parking zones, and when parking shall always park between the designated lines. Landlord reserves the right to tow away, at the expense of the owner, any vehicle which is improperly parked or parked in a no parking zone. All vehicles shall be parked at the sole risk of the owner, and Landlord assumes no responsibility for any damage to or loss of vehicles.

22. In case of invasion, mob, riot, public excitement, or other commotion, Landlord reserves the right to prevent access to the Complex during the continuance of the same by closing the doors or otherwise, for the safety of the tenants or the protection of the Project and the property therein. Landlord shall in no case be liable for damages for any error or other action taken with regard to the admission to or exclusion from the Complex of any person.

INFORMATION SERVICES AGREEMENT This Information Services Agreement ("AGREEMENT") is made pursuant to and is incorporated into that certain Sublease Agreement ("SUBLEASE") dated November 5, 2002 ("SUBLEASE"), by and between Adaptec, Inc., as "SUBLESSOR", and PCTEL, Inc., as "SUBLESSEE", for certain Premises containing approximately 18,072 leasable square feet located at 631 So. Milpitas Blvd., Milpitas, California. Any terms used in this Agreement that are not otherwise defined shall have the same meaning as in the Sublease. The provisions of this Agreement shall supersede any inconsistent or conflicting provisions of the Sublease. In consideration of the mutual covenants contained in this Agreement and in the Sublease, Sublessor and Sublessee hereby agree as follows: 1. TELEPHONE SERVICES. Sublessor shall provide Sublessee with telephone services as noted herein through the Sublease Term. Telephone Services shall be defined as the Initial Installation (hereinafter defined), and ongoing maintenance, troubleshooting and system repair for up to 100 Direct in Dial ("DID") lines. a. Equipment Sublessee shall provide all desktop/wall mounted telephone units to be installed within the Premises (the "Telephone Units") and Sublessor shall install such Telephone Units within the Sublease Premises, provided, however, that such Telephone Units are compatible with Sublessor's existing infrastructure and phone switch and no upgrades/modifications are required to Sublessor's infrastructure and/or phone switch to ensure functionality of the Telephone Units. Sublessee shall confirm the functionality of the Telephone Units prior to the Initial Installation by Sublessor and place each of the Telephone Units in the cube/office where it should be installed. Sublessee shall be responsible for contracting for, ordering and paying any and all costs associated with the provision of DSL, T1, ISDN and 1MB connectivity to the DEMARC which is located in the common electrical room within the building the Sublease Premises are located in. Access to the DEMARC shall be requested through and escorted by Sublessor's Telecom Staff. Sublessee shall be responsible for any and all ongoing maintenance and support (and charges for same) of these services. b. Initial Installation. The Initial Installation shall be deemed to include: 1) connecting each phone unit to the jack within the cubicle/office; 2) building the set within Sublessor's phone switch; 3) creating each voice mail box in Sublessor's voice mail system; 4) installation of 13 analog lines on existing B ports (within the engineering pod of cubes); and, 5) testing and troubleshooting throughout. The specifics required to complete the Initial Installation (i.e. name, and location of each employee), must be submitted by Sublessee, no later than three (3) weeks prior the date the Initial Installation is required to be complete. Initial Installation will be performed by Sublessor's Telecom Staff at no charge to Sublessee and is not considered part of the Sublessee Improvements as defined in the Sublease; provided, however, that if through no fault of Sublessee the Initial Installation work is not completed within ten (10) Business Days following the Substantial Completion of the Sublessee Improvements, and as a result thereof Sublessee is delayed in commencing business operations within the Sublease Premises, then the Commencement Date and Rent Commencement Date will be delayed by one day for each day of such delay, but the Termination Date shall not be extended. Any delay due to Sublessee's failure to timely provide the required information to complete the Initial Installation shall not affect the Commencement Date or Rent Commencement Date of the Sublease. INFORMATION SERVICES AGREEMENT - PAGE 1

c. Telephone Lines. Each telephone line will come with one (1) DID number, and one (1) voice mailbox. Each voice mailbox will have a 25-message capacity that can be retained for thirty (30) days. Analog lines (i.e. modems, faxes) will not have voice mail capabilities. d. Calling Services and Charges. Calling Services provided by Sublessor shall include; 1) local calls at no charge to Sublessee; 2) long distance calls billed at six cents ($.06) per minute for calls within the continental United States; 3) international calls billed at Sublessor's contract rate; 4) port usage, phone switch connectivity, voicemail and Call Data Reporting ("CDR"), all of which shall be billed at four ($4.00) dollars per port, per month. Upon Sublessee's written request, accompanied by an executed Non-Disclosure Agreement in a form acceptable to Sublessor, Sublessor shall provide a contract rate sheet reflecting Sublessor's then current contract rates for international long distance. e. Moves, Adds or Changes. Any Moves, Adds or Changes ("MAC") must be requested by Sublessee in writing or e-mail. Sublessee will be charged for required parts, if any, at Sublessor's cost. Sublessee may, upon Sublessor's prior written approval, use an outside Telco contractor for work within the Premises. Access to Sublessor's Telecommunications room (which houses the master telco system for the campus) will not be permitted. Any telecom issues affecting the Sublease Premises that are caused by Sublessee or Sublessee's contractor and require Sublessor's Telecom Staff assistance will be chargeable at the rates specified in paragraph 3 of this Agreement. If outside services are needed (new cables, etc.) the repair/install time will be negotiated between the Sublessee and Sublessor's IS Telecom staff. If for any reason the Sublease is terminated prior to the expiration of the Sublease Term, including, but not limited to Sublessee's election to exercise its One-Time Right To Terminate pursuant to paragraph 4.4 of the Sublease, Sublessee shall prior to vacating the Sublease Premises, return the connectivity within the telecom room of the Sublease Premises to its original condition, at its sole cost and expense. 2. TECHNICAL SUPPORT. a. Support. Upon Sublessee's request, Sublessor shall provide Sublessee with telecom support between the hours of 7:00 a.m. and 5:00 p.m. Pacific Time on Business Days. Sublessee may request telecom support via E-Mail at adaptec telecom@adaptec.com. Sublessor's IS Telecom staff will respond within one Business Day to define a resolution to the problem. If outside services are required (new cables, contractor/service provider support, etc.), then at Sublessee's request, prior to contracting for the services, Sublessor shall provide Sublessee with an estimate from the vendor of the repair/install time charges and parts charges (and any other applicable terms per the vendor agreement), and obtain Sublessee's written consent thereto. Whether or not Sublessee elects to obtain an estimate prior to the work being done, Sublessor shall bill Sublessee only for Sublessor's actual costs and expenses incurred as a result of such outside services, without any surcharge by Sublessor. b. After-Hours Support. Sublessee may call Sublessor's security contractor at (408) 957-2521 or extension 2521 (internal) for emergency services required during non-business hours. Sublessor IS Telecom staff will endeavor to respond within four (4) hours of receipt of the call from Sublessor's security contractor. INFORMATION SERVICES AGREEMENT - PAGE 2

c. Costs. Technical Support shall be chargeable at the rates specified in paragraph 3 of this Agreement. 3. CHARGES/BILLING. a. Billing. All charges pertaining to this Agreement shall be paid by Sublessee to Sublessor as Additional Rent. Billing will be generated within 10 Business Days at the beginning of each month, which amount shall be paid by Sublessee to Sublessor with the next month's Rent coming due. b. Charges. Telephone Services (including but not limited to MACs) and Technical support charges shall be determined by the amount of time required for the work to be done. If Sublessee does not request Sublessor to complete the work within two (2) Business Days, the charge shall be $75.00 per hour, which charges will be billed in fifteen (15) minute increments. If Sublessee requests the work to be done on a rush basis (i.e. within two (2) Business Days), the charge shall be $100.00 per hour, with a minimum of one (1) hour charge and time in excess of one (1) hour charged in fifteen (15) minute increments. If Sublessor's work requires an outside vendor to be called, those charges shall be paid by Sublessee. Sublessor reserves the right to renegotiate long distance and other telecommunication services, contracts and/or change Telephone Services providers at its sole and absolute discretion and will notify Sublessee in writing of any contract changes that affect the billing rates for outside vendors referenced in this Agreement. 4. LIMITATION OF LIABILITY. a. No Representation or Warranty. Sublessor has made no representations or warranties regarding the condition or suitability of Sublessor's Telephone Lines or Services, and Sublessee accepts the same in their current condition. b. No Liability For Interruption of Services. The services described herein shall be provided by Sublessor in accordance with Sublessor's typical practices and standards in Sublessor's sole determination. In accepting Sublessor's agreement to provide such services, Sublessee expressly acknowledges that there is a possibility of error or malfunction in any or all of the same, and agrees that Sublessee is fully assuming all risks associated with Sublessee's use or dependence on such services, and Sublessee hereby waives all claims in respect thereof, except for the gross negligence or intentional misconduct of Sublessor or its agents, contractors or employees. c. Limitation Regarding Consequential Damages. Notwithstanding any provision in the Sublease to the contrary, neither party shall be liable to the other nor to any other person, firm or entity for incidental, indirect, special, consequential, punitive or reliance damages of any nature whatsoever regardless of the foreseeability thereof (including, but not limited to, any claim from any client, customer, third party or patron for loss of services, lost profits or lost revenues) arising under or in connection with the this Agreement, or arising out of any act or omission by either Sublessor or Sublessee, or their respective employees, consultants, servants or agents whether based on breach of contract, breach of warranty, negligence or any other theory of liability. 5. BUSINESS DAYS. As used herein, Business Days shall be defined as those days that Sublessor's Milpitas campus employees are required to work. Sublessee acknowledges that INFORMATION SERVICES AGREEMENT - PAGE 3

Sublessor may elect to "shut-down" its operations for the entire company on days that are not typically observed holiday days, such as during the weeks of July 4th and Thanksgiving. Sublessor will make every reasonable effort to notify Sublessee in advance of any "extended closures of operations" and to accommodate any and all requests for service made by Sublessee. Requests that occur on non Business Days should follow the process for emergency and after-hours requests and will be responded to accordingly. IN WITNESS WHEREOF, the parties have executed this Agreement on the respective dates set forth below. (Sublessor) By: -------------------------------- Title: -------------------------------- Date Signed: -------------------------------- (Sublessee) By: -------------------------------- Title: -------------------------------- Date Signed: -------------------------------- INFORMATION SERVICES AGREEMENT - PAGE 4

EXHIBIT 10.37 PCTEL, INC. EXECUTIVE DEFERRED COMPENSATION PLAN EFFECTIVE AS OF JANUARY 20, 2003

TABLE OF CONTENTS ARTICLE 1 DEFINITIONS............................................................ 1 ARTICLE 2 ELIGIBILITY AND PARTICIPATION.......................................... 5 ARTICLE 3 CONTRIBUTIONS TO DEFERRAL ACCOUNTS.................................... 6 ARTICLE 4 ACCOUNTS AND ALLOCATION OF FUNDS...................................... 6 ARTICLE 5 ENTITLEMENT TO BENEFITS............................................... 8 ARTICLE 6 DISTRIBUTION OF BENEFITS.............................................. 13 ARTICLE 7 BENEFICIARIES; PARTICIPANT DATA....................................... 14 ARTICLE 8 PLAN ADMINISTRATION................................................... 14 ARTICLE 9 AMENDMENT OR TERMINATION.............................................. 18 ARTICLE 10 MISCELLANEOUS........................................................ 18 EXHIBIT A PARTICIPANT ENROLLMENT AND ELECTION FORM EXHIBIT B DEEMED DEEMED INVESTMENT ELECTIONS EXHIBIT C DESIGNATION OF BENEFICIARY EXHIBIT D DEATH BENEFIT i

PCTEL, INC. EXECUTIVE DEFERRED COMPENSATION PLAN THIS PLAN is adopted as of the 20th day of January, 2003, by PCTEL, Inc., a Delaware corporation (the "Corporation"), as follows: RECITALS WHEREAS, the Corporation wishes to establish the PCTEL, Inc. "Executive Deferred Compensation Plan" (the "Plan") to provide additional retirement benefits and income tax deferral opportunities for a select group of management or highly compensated employees; and WHEREAS, the Corporation intends that the Plan shall at all times be administered and interpreted in such a manner as to constitute an unfunded nonqualified deferred compensation plan for a select group of management or highly compensated employees and to qualify for all available exemptions from the provisions of ERISA; NOW, THEREFORE, the Corporation hereby adopts the following Executive Deferred Compensation Plan. ARTICLE 1 DEFINITIONS DEFINITION OF TERMS. Certain words and phrases are defined when first used in later sections of this Plan. Whenever any words are used in the masculine, they shall be construed as though they were in the feminine in all cases where they would so apply; and whenever any words are used in the singular or in the plural, they shall be construed as though they were used in the plural or the singular, as the case may be, in all cases where they would so apply. In addition, the following words and phrases when used, unless the context clearly requires otherwise, shall have the following respective meanings: 1.1. ACCOUNTS. A Participant's Deferral Account. 1.2. AFFILIATE. Any corporation, partnership, joint venture, association, or similar organization or entity, which is a member of a controlled group of companies which includes, or which is under common control with, the Corporation under Section 414 of the Code. 1.3. BASE SALARY. The annual compensation (excluding bonuses, commissions, overtime, incentive payments, non-monetary awards, directors fees and other fees, stock options and grants, and car allowances) paid to a Participant for services rendered to the Corporation, before reduction for compensation deferred pursuant to all qualified, non-qualified and Code Section 125 plans of the Corporation. 1.4. BENEFICIARY. The Beneficiary(ies) designated by a Participant under Article 7, or, if the Participant has not designated a Beneficiary under Article 7, the person or persons entitled to receive distributions of benefits under Article 5.

1.5. CALENDAR YEAR. January 1 to December 31. 1.6. CAUSE. For purposes of this Plan "Cause" shall mean any of the following acts or circumstances: (i) willful destruction by the Participant of property of the Corporation or an Affiliate having a material value to the Corporation or such Affiliate; (ii) fraud, embezzlement, theft, or comparable dishonest activity committed by the Participant (excluding acts involving a de minimis dollar value and not related to the Corporation or an Affiliate); (iii) the Participant's conviction of or entering a plea of guilty or nolo contendere to any crime constituting a felony or any misdemeanor involving fraud, dishonesty or moral turpitude (excluding acts involving a de minimis dollar value and not related to the Corporation or an Affiliate); (iv) the Participant's breach, neglect, refusal, or failure to materially discharge the Participant's duties (other than due to physical or mental illness) commensurate with the Participant's title and function or the Participant's failure to comply with the lawful directions of the Board or the Chief Executive Officer of the Corporation, or of the Board of Directors or the Chief Executive Officer of the Affiliate that employs the Participant, in any such case that is not cured within fifteen (15) days after the Participant has received written notice thereof from such Board of Directors or Chief Executive Officer; (v) any willful misconduct by the Participant which may cause substantial economic or reputational injury to the Corporation, including, but not limited to, sexual harassment, or (vi) a willful and knowing material misrepresentation to the Board or the Chief Executive Officer of the Corporation or to the Board of Directors or the Chief Executive Officer of the Affiliate that employs the Participant. 1.7. CHANGE IN CONTROL shall mean the occurrence of any of the following: (i) Any "Person" or "Group", as such terms are defined in Section 13(d) of the Securities Exchange Act of 1934 (the "Exchange Act") and the rules and regulations promulgated thereunder, excluding any excluded stockholder, who is or becomes the "Beneficial Owner" (within the meaning of Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Corporation, or of any entity resulting from a merger or consolidation involving the Corporation, representing more than thirty percent (30%) of the combined voting power of the then outstanding securities of the Corporation or such entity. (ii) A change in the composition of the Board occurring within any two year period commencing with the Effective Date, as a result of which fewer than a majority of the directors are Incumbent Directors. "Incumbent Directors" shall mean directors who either (A) are directors of the Corporation as of the Effective Date, or (B) are elected, or nominated for election, to the Board with the affirmative votes of at least a majority of those directors whose election or nomination was not in connection with any transaction described in subsections (i) or (iii) hereof, or in connection with an actual or threatened proxy contest relating to the election of directors to the Corporation. (iii) The consummation of (x) a merger, consolidation or reorganization to which the Corporation is a party, whether or not the Corporation is the 2

Person surviving or resulting therefrom, or (y) a sale, assignment, lease, conveyance or other disposition of all or substantially all of the assets of the Corporation, in one transaction or a series of related transactions, to any Person other than the Corporation, where any such transaction or series of related transactions as is referred to in clause (x) or clause (y) above in this subparagraph (iii) (singly or collectively, a "Transaction") does not otherwise result in a "Change in Control" pursuant to subparagraph (i) of this definition of "Change in Control"; provided, however, that no such Transaction shall constitute a "Change in Control" under this subparagraph (iii) if the Persons who were the stockholders of the Corporation immediately before the consummation of such Transaction are the Beneficial Owners, immediately following the consummation of such Transaction, of thirty percent (30%) or more of the combined voting power of the then outstanding voting securities of the Person surviving or resulting from any merger, consolidation or reorganization referred to in clause (x) above in this subparagraph (iii) or the Person to whom the assets of the Corporation are sold, assigned, leased, conveyed or disposed of in any transaction or series of related transactions referred in clause (y) above in this subparagraph (iii), in substantially the same proportions in which such Beneficial Owners held voting stock in the Corporation immediately before such Transaction. 1.8. CODE. The Internal Revenue Code of 1986, as amended from time to time. 1.9. COMPENSATION. The Base Salary, bonus and/or commissions earned and/or received by a Participant during a Calendar Year. 1.10. DEFERRAL ACCOUNT. The account maintained on the books by the Plan Administrator for the Participant including (i) the Participant Annual Deferral; (ii) contributions made by the Corporation, and (iii) deemed investment earnings, gains and losses credited to the Participant; provided, however, that the existence of such book entries and the Deferral Account shall not create, and shall not be deemed to create, a trust of any kind, or a fiduciary relationship between the Corporation and the Participant, his or her designated beneficiaries, or other beneficiaries under this Plan. 1.11. DEFERRAL PERIOD. The period after which payment of the Deferral Account is to be made or begun to be made. 1.12. DISABILITY. Disability shall mean a Participant's eligibility to receive benefits under the Corporation's group long-term disability plan, or, if the Corporation ceases to maintain a long-term disability plan, the total and permanent incapacity of the Participant, due to physical impairment or legally established mental incompetence, to perform the usual duties of his employment with the Corporation. 1.13. EFFECTIVE DATE. January 20, 2003. 1.14. ELECTION OF DEFERRAL. A written notice filed by the Participant with the Plan Administrator of the Corporation in substantially the form attached hereto as Exhibit A, 3

and referred herein as the "ELECTION FORM," specifying the amount (if any) of Compensation to be deferred. 1.15. ELIGIBLE EMPLOYEE. Any employee of the Corporation or an Affiliate who is selected to participate in the Plan in accordance with the provisions of Section 2.1 hereof, and one of a select group of management or highly compensated employees. 1.16. ERISA. The Employee Retirement Income Security Act of 1974, as amended from time to time. 1.17. GOOD REASON means the occurrence, on or after the occurrence of a Change in Control, or any of the following: (a) The Corporation or any of its Affiliates reduces the Participant's Base Salary, except in the context of a general salary reduction for all officers of up to ten per cent (10%). (b) The Corporation discontinues its bonus plan in which the Participant participates as in effect immediately before the Change in Control without immediately replacing such bonus plan with a comparable package that is the substantial economic equivalent of such bonus plan, or a successor to the Corporation fails or refuses to assume the obligations of the Corporation under such bonus plan as in effect immediately before the Change in Control or under a plan that is the substantial economic equivalent of such bonus plan. (c) Without the Participant's express written consent, the Corporation or any of its Affiliates requires the Participant to change the location of the Participant's job or office, so that the Participant will be based at a location more than 100 miles from the former location of the Participant's job or office. (d) Without the Participant's express written consent, the Corporation or any of its Affiliates reduces the Participant's responsibilities or directs the Participant to report to a person of lower rank or responsibilities than the person to whom the Participant reported before the Change in Control. 1.18. PARTICIPANT. An Eligible Employee designated as a participant by the Corporation who has completed and submitted an Election Form, substantially in the form of Exhibit A attached hereto. 1.19. PARTICIPANT ANNUAL DEFERRAL. The portion of a Participant's Compensation, which he or she elects to defer for the Calendar Year in question. 1.20. PLAN. This Plan, together with any and all amendments or supplements thereto. 1.21. PLAN ADMINISTRATOR. The Compensation Committee of the Board of Directors of PCTEL, Inc., or as otherwise designated by the Board of Directors. 4

1.22. PLAN RETIREMENT DATE. The date selected by a Participant, however, no earlier than the date he or she attains 55 years of age. 1.23. PLAN YEAR. The Calendar Year. 1.24. RETIREMENT. The termination of a Participant's employment with the Corporation and all Affiliates on or after the Participant has reached his or her Plan Retirement Date. 1.25. VALUATION DATE. The last day of each quarter during a Plan Year, or such other dates as the Plan Administrator may establish in its discretion. 1.26. YEAR OF PARTICIPATION. Twelve months of continuous employment with the Corporation measured from the Participant's date of entry into this Plan. ARTICLE 2 ELIGIBILITY AND PARTICIPATION 2.1 ELIGIBILITY. (a) An Eligible Employee shall become a Participant in the Plan following written notice from the Corporation to that effect, and submittal of a completed Participant Election Form, substantially in the form of Exhibit A attached hereto. The initial Election of Deferral must be filed on or before January 23, 2003 and shall be effective with the subsequent payroll. During its regularly scheduled meetings, the Plan Administrator shall be notified by the Corporation of any new Participants to the Plan. (b) Once an Eligible Employee becomes a Participant, he or she shall remain a Participant until his or her termination of employment with the Corporation or an Affiliate, and thereafter until all benefits to which he or she (or his or her Beneficiaries) is entitled under the Plan have been paid. 2.2 PARTICIPATION. (a) Each Participant Annual Deferral shall be effective for Compensation which would otherwise be paid in the Calendar Year to which the Election of Deferral applies, and shall be irrevocable during such Calendar Year. Any subsequent Election of Deferral, to be effective, must be filed at least 10 days prior to the beginning of the Calendar Year for which deferral is sought. Any employee who becomes an Eligible Employee and elects to participate and commence deferrals shall file an Election of Deferral and become a Participant within 30 days following his designation as an Eligible Employee. (b) AUTOMATIC ELECTION RENEWAL OF THE PARTICIPANT ANNUAL DEFERRAL. If a Participant fails to make a timely election to defer pursuant to the above, the Participant shall be deemed to have made the same election as is then currently in effect. 5

ARTICLE 3 CONTRIBUTIONS TO DEFERRAL ACCOUNTS 3.1 DEFERRAL ELECTION. (a) Commencing on the Effective Date, and continuing through the date on which the Participant's employment terminates because of his or her death, Retirement, Disability, or any other cause, each Participant shall be entitled to elect to defer into his or her Deferral Account, by filing with the Plan Administrator an Election of Deferral prior to the beginning of the Plan Year, a portion of the Compensation that the Participant would be entitled to receive from the Corporation during the Plan Year. Such deferrals shall be accomplished by payroll deduction, where applicable. (b) In the Election of Deferral, the Participant shall specify the amount to be deferred, which such specification may be separate for the Base Salary, bonus, commissions, and may be expressed as a percentage, where applicable, or as a fixed dollar amount. However, the total amount of the deferrals made by each Participant in any Calendar Year shall not exceed fifty percent (50%) of the Participant's Base Salary and 100% of the Participant's bonus and commissions. With respect to the Participant Annual Deferral, a Participant must defer a minimum of $1,500.00 annually. The Plan Administrator and the Corporation shall disregard any deferral election to the extent such deferral election does not meet these percentage limitations. 3.2 CORPORATION MATCHING CONTRIBUTIONS. The Corporation intends to make matching contributions to the Plan as it may determine from time to time and may direct that such matching contributions be allocated among the Deferral Accounts of the Participants. The amount of the Corporation matching contribution for 2003 shall be 4% of the amount of Base Salary, bonus, and/or commissions deferred by the Participant for Calendar Year 2003. Thereafter, the amount (percent) of Corporation matching contribution will remain at 4% unless changed by the Board of Directors. ARTICLE 4 ACCOUNTS AND ALLOCATION OF FUNDS 4.1. DEFERRAL ACCOUNT ALLOCATIONS. (a) Compensation which is deferred under Section 3.1 shall be credited to the Deferral Account on or about the date the Compensation would otherwise have been paid. (b) Corporation matching contributions shall be credited to the Participant's Deferral Account at such time as directed by the Plan Administrator. 6

(c) All amounts paid from a Deferral Account are assumed to be paid on the first day of the month. (d) Based on the Deemed Investment Elections (as that term is defined in Section 4.2 (a) below) of a Participant made under Section 4.2, the Participant's Deferral Account shall be credited with deemed investment earnings, gains, losses or changes in value effective at the end of each calendar quarter during the Plan Year, except as otherwise provided in this Plan. (e) The Plan Administrator may, at any time, change the timing or methods for crediting or debiting earnings, gains, losses, and changes in value of deemed investment options, deferrals of Compensation, corporation matching Contributions, and payments of benefits and withdrawals under this Plan; provided, however, that the times and methods for crediting or debiting such items in effect at any particular time shall be uniform among all Participants and Beneficiaries. 4.2 DEEMED INVESTMENT ELECTION AND DECLARED RATES. (a) Deemed investment elections may be made from any of the various deemed investment alternatives selected by a Participant ("Deemed Investment Elections") from among those made available by the Corporation from time to time, which are outlined in Exhibit B. (b) A Participant (or, in the event of the Participant's death, the Participant's Beneficiary) shall make Deemed Investment Elections for the Participant's Deferral Account by filing a form substantially in the form of Exhibit B (or another form acceptable to the Plan Administrator) with the Plan Administrator. A Participant may elect to have his or her Deferral Account deemed to be invested in up to ten (10) deemed investment alternatives, provided, however, that each deemed investment alternative must be applied to at least 10% of the total balance in his or her Deferral Account and must be in a whole percentage amount. Deemed Investment Elections shall remain in effect until changed and may be changed not more than once a month, such change to be effective on the 1st day of the succeeding month. (c) At the end of each calendar quarter (or such shorter period as the Plan Administrator may determine), the Corporation shall compute the total return for the quarter (or such shorter period) as to each Participant's Deemed Investment Elections. (d) From time to time, and at its sole discretion, the Corporation may change the deemed investment alternatives which it makes available to the Participant. However, notwithstanding the provisions of this Section 4.2, the Corporation may invest contributions in investments other than the investments selected by such Participant but the Participant's return will solely be based on the results of his or her Deemed Investment Elections. (e) The Corporation shall be under no obligation to purchase or maintain any life insurance policy, annuity contract, or any other asset, or in any manner provide 7

funding for its obligations under this Plan. Nothing contained in this Plan and no action taken pursuant to the provisions of this Plan shall create or be construed to create a trust of any kind, or a fiduciary relationship between the Corporation and the Participant, or his designated beneficiary(ies) or any other person. (f) If the Corporation chooses to obtain insurance on the life of a Participant in connection with its obligations under this Plan, the Participant hereby agrees to take such physical examinations and to truthfully and completely supply such information as may be required by the Corporation or the insurance company(ies) designated by the Corporation. If a Participant submits information to any such insurance company(ies) and if the Participant makes a material misrepresentation in an application for any insurance that may be used to insure any of the Corporation's obligations under this Plan, and if as a result of that material misrepresentation an insurance company is not required to pay all or any part of the benefit provided under that insurance, the Participant's right to a benefit under this Plan will be reduced by the amount of the benefit that is not paid by the insurance company because of such material misrepresentation. 4.3 DETERMINATION OF ACCOUNTS. A Participant's benefit as of each Valuation Date shall consist of the balance of deferrals of Compensation, Corporation matching contributions, and deemed investment earnings, gains, losses, and changes in value in his or her Deferral Account determined in accordance with this Section. ARTICLE 5 ENTITLEMENT TO BENEFITS 5.1 VESTING OF BENEFITS. The portion of a Participant's Deferral Account that is attributable to his or her Participant Annual Deferral and deemed investment earnings, gains, losses and changes in value credited thereon shall be immediately fully vested. The portion of the Participant's Deferral Account that is attributable to Corporation matching contributions and deemed investment earnings, gains, losses and changes in value credited thereon, shall vest based on the following table: Completed Years of Participation Percent Vested -------------------------------- -------------- Less than 1 0 1 but less than 2 33.3 2 but less than 3 66.6 3 or more 100.0 Notwithstanding the foregoing, but subject to Section 5.6(b), a Participant, or his or her Beneficiary in the case of a death benefit, shall become fully vested in the portion of his Deferral Account that is attributable to Corporation matching contributions and deemed investment earnings, gains, losses and changes in value credited thereon (if any), upon his Plan Retirement Date, death, or Disability. 8

5.2 RETIREMENT BENEFIT. (a) From and after the Retirement of the Participant, the Corporation shall thereafter pay to the Participant his or her Accounts. Such benefits shall be payable in the manner elected by the Participant as follows: 1. Lump Sum; or 2. Annual over 15 years; or 3. Lifetime of the Participant with 20 annual payments guaranteed Such election may be changed by the Participant by giving written notice to the Corporation not later than one year before Retirement, or promptly following a Disability. Such payments shall commence on or about the first day of the first month following the Participant's Retirement or Disability. The amount of each installment to be paid during the Calendar Year in which payment begins shall be equal to one-twelfth (1/12th) of (i) the total amount payable to the Participant as of his or her Plan Retirement Date, divided by (ii) the total number of installment payments to be made. Expected payments under the "Lifetime" option will be based on life expectancy under the 1980 CSO Mortality Table, but in no event less than 20 payments. (b) As of January 1 of each subsequent Calendar Year during the benefit payment period, the amount of each installment to be paid during such Calendar Year for elections 2 and 3 above, shall be recalculated and shall be equal to: (i) the remaining balance in the Participant's Accounts as of January 1; divided by (ii) the number of installment payments to be made in or after such subsequent Calendar Year. (c) The final installment payment for elections 2 and 3 above shall be equal to the remaining amount payable to the Participant. In no event shall the amount of any installment payment exceed the remaining amount payable to the Participant. (d) Notwithstanding the foregoing, the Corporation reserves the right to distribute a Participant's retirement benefit in one lump sum rather than in installments if the balance in the Participant's Accounts as of his Plan Retirement Date and/or as of January 1 of any subsequent Calendar Year during the benefit payment period, is less than $25,000.00. 5.3 FIXED PAYMENT DATE BENEFIT FOR IN-SERVICE DISTRIBUTION PRIOR TO RETIREMENT. (a) A Participant may select a fixed payment date for the payment of his or her vested Accounts. Payments made under this election will be payable in a lump sum. A Participant may extend a fixed payment date by written notice to the Plan Administrator, provided that the Participant gives such written notice at least one (1) year prior to the fixed payment date before such extension. Such fixed payment dates may not be accelerated. 9

(b) Any fixed payment date elected by a Participant as provided under Section 5.3(a) above must be no earlier than the January 1 of the third Calendar Year after the Calendar Year in which the election is made, or in which the Participant gives a written notice of extension. 5.4 DISABILITY RETIREMENT BENEFIT. The Participant shall be entitled to receive payments prior to his or her Plan Retirement Date if he or she is disabled. If the Participant's employment is terminated due to Disability, the benefit payable hereunder shall be the same amount as would have been payable as a Retirement Benefit under Section 5.2 above had the Participant attained his or her Plan Retirement Date on the date of the Disability. If the total amount of benefits payable is less than $25,000.00 the Plan Administrator will be required to pay the benefit in a lump sum rather than in installments. 5.5 DEATH BENEFITS. (a) DEATH BENEFIT PRIOR TO COMMENCEMENT OF BENEFITS. In the event of the Participant's death while in the employment of the Corporation or an Affiliate and prior to commencement of benefit payments, the Corporation shall pay a death benefit equal to the greater of either: (i) the Deferral Account as of the date of his or her death, or (ii) the amount, if any, the Corporation from time to time elects for such Participant in substantially the form attached hereto as Exhibit D. The death benefit payable under this Section shall be distributed to the Participant's Beneficiary in a lump sum on or about the first day of the fourth month following the Participant's death. The distribution shall be made in accordance with the last beneficiary designation received by the Plan Administrator from the Participant prior to his or her death. If no such designation has been received by the Corporation, such payments shall be made to the Participant's surviving legal spouse. If the Participant is not survived by a legal spouse, or if such spouse shall fail to so appoint, the said payments shall be made to the then living children of the Participant, if any, in equal shares. If there are no surviving children, the payments will be made to the estate of the later to die of the Participant and his or her legal spouse, if any. (b) DEATH BENEFITS AFTER COMMENCEMENT OF RETIREMENT BENEFITS. In the event of the Participant's death after the commencement of benefit payments, but prior to the completion of such payments due and owing hereunder, the Corporation shall continue to make such payments in installments over the remainder of the period specified in Sections 5.2 or 5.3 hereof that would have been applicable to the Participant had he or she survived. Such continuing payments shall be made to the Participant's designated Beneficiary in accordance with the last such designation received by the Corporation from the Participant prior to his death. If no such designation has been received by the Corporation, such payments shall be made to the Participant's surviving legal spouse. If such spouse dies before receiving all payments to which he or she is entitled hereunder, then the balance of the Deferral Account shall be paid to the spouse's estate. If the Participant is not survived by a legal spouse, then the said payments shall be made to the then living children of the Participant, if any, in equal shares. If there are no surviving children, the balance of the Accounts shall be paid to the estate of the Participant. 10

5.6 TERMINATION OF BENEFITS. (a) In the event of the Participant's termination of employment with the Corporation or an Affiliate for any reason other than for Cause, Disability, Retirement or death, the Corporation shall pay to the Participant a termination benefit based on the vested value of the Participant's Deferral Account. Such termination benefit shall be payable in a lump sum on or about the first day of the third month following the date of termination. (b) In the event the Participant's employment is terminated for Cause, no benefits of any kind will be due or payable under the terms of this Plan from amounts credited to the Participant's Deferral Account attributable to Corporation matching contributions, and any cumulative earnings, gains, and changes in value thereon, and all rights of the Participant, his or her designated Beneficiary, executors, or administrators, or any other person, to receive payments thereof shall be forfeited. In such event, Participant will be entitled to receive the value of the Participant's Annual Deferral(s), any cumulative earnings, gains, and changes in value thereof. If, after installment payments of benefits under this Plan have begun, the Plan Administrator determines that Cause existed before the Participant's Retirement or Disability, such installment payments shall be reduced by amounts credited to the Participant's Deferral Account attributable to Corporation matching contributions, and any cumulative earnings, gains, and changes in value thereon. 5.7 HARDSHIP DISTRIBUTION. (a) HARDSHIP WITHDRAWAL. In the event that the Plan Administrator, under written request of a Participant, determines, in its sole discretion, that a Participant has suffered an unforeseeable financial emergency, the Corporation shall pay to the Participant, as soon as practicable following such determination, an amount necessary to meet the emergency (the "Hardship Withdrawal"), but not exceeding the vested balance of such Participant's Deferral Account as of the date of such payment. For purposes of Section 5.7(a), an "unforeseeable financial emergency" shall mean an event that the Plan Administrator determines to give rise to an unexpected need for cash arising from an illness, casualty loss, sudden financial reversal or other such unforeseeable occurrence. Amounts of Hardship Withdrawal may not exceed the amount the Plan Administrator reasonably determines to be necessary to meet such emergency needs (including taxes incurred by reason of a taxable distribution). The amount of the deferral benefit otherwise payable under the Plan to such Participant shall be adjusted to reflect the early payment of the Hardship Withdrawal. (b) RULES ADOPTED BY PLAN ADMINISTRATOR. The Plan Administrator shall have the authority to adopt additional rules relating to Hardship Withdrawals. In administering these rules, the Plan Administrator shall act in accordance with the principle that the primary purpose of this Plan is to provide additional retirement income, not additional funds for current consumption. 11

(c) LIMIT ON NUMBER OF HARDSHIP WITHDRAWALS. No Participant may receive more than one Hardship Withdrawal in any Calendar Year. (d) PROHIBITION OF FURTHER DEFERRALS. A Participant who receives a Hardship Withdrawal and who is still employed by the Corporation or an Affiliate, shall be prohibited from making deferrals under Section 3.1 for the remainder of the Calendar Year in which the Hardship Withdrawal is made. 5.8 EFFECT OF CHANGE IN CONTROL. A Participant shall become fully vested in the portion of his Deferral Account that is attributable to Corporation matching contributions and deemed investment earnings, gains, losses and changes in value credited thereon, if, within one year after the occurrence of a Change in Control, his employment is involuntarily terminated by the Corporation or any of its Affiliates for any reason other than Cause or his death or Disability, or he voluntarily terminates his employment with the Corporation and any of its Affiliates for Good Reason. From and after the occurrence of a Change in Control, the Plan Administrator shall consist of a committee comprised of the individuals who were members of the Corporation's Board of Directors (or a subcommittee of such members as determined by the Board of Directors) 90 days before the occurrence of the Change in Control, with any vacancy in such committee occurring thereafter being filed with a person or persons selected by the other members of such committee. 5.9 TERMINATION BASED ON CORPORATE PERFORMANCE. If the amount of the Corporation's net worth, as reported on any of its quarterly filed financial statements, at any time declines below $ 50,000,000.00, this Plan shall terminate and each Participant shall receive a termination benefit as provided for under Section 5.6 (a) above. 5.10 ADVERSE ACTION ON PARTICIPANT OR PLAN. (a) Notwithstanding any other provision hereof, in the event there is a determination by the U.S. Internal Revenue Service ("IRS"), or in the event of a final determination by a court of competent jurisdiction, that amounts credited to Participants' Deferral Accounts hereunder are includable in the gross incomes of such Participants or their respective Beneficiaries, the Plan Administrator may, in its sole discretion, distribute the entire amount credited to the Participants' Deferral Accounts to the Participants or their respective Beneficiaries and cause the termination of future deferrals of Compensation by the Participants. (b) In the event that there is a determination by the U.S. Department of Labor, or a final determination of a court of competent jurisdiction, that the Plan is subject to Part 2, 3 or 4 of Title I of ERISA, the Plan Administrator may, in its sole discretion, distribute the entire amount credited to the Participants' Deferral Accounts to the Participants or their respective Beneficiaries and cause the termination of future deferrals of Compensation by the Participants. 5.11 BENEFITS NOT TRANSFERABLE. No Participant or Beneficiary under this Plan shall have any power or right to transfer, assign, anticipate, hypothecate or otherwise encumber all or any part of the amounts payable hereunder. No part of the amounts payable shall, prior to actual payment, be subject to seizure or sequestration for the payment of any debts, 12

judgments, alimony or separate maintenance owed by a Participant or any other person, nor be transferable by operation of law in the event of a Participant's or any other person's bankruptcy or insolvency, or dissolution of marriage. Any such attempted assignment shall be void. 5.12 NO TRUST CREATED. Nothing contained in this Plan, and no action taken pursuant to its provisions by any person shall create, or be construed to create, a trust of any kind, or a fiduciary relationship between the Corporation and any other person. 5.13 UNCLAIMED BENEFITS. In the case of a benefit payable on behalf of a Participant, if the Plan Administrator is unable to locate the Participant or Beneficiary to whom such benefit is payable, such Plan benefit may be forfeited to the Corporation upon the Plan Administrator's determination. Notwithstanding the foregoing, if, subsequent to any such forfeiture, the Participant or Beneficiary to whom such Plan benefit is payable makes a valid claim for such Plan benefit, such forfeited Plan benefit shall be paid by the Plan Administrator to the Participant or Beneficiary, without interest on the Accounts from the date it would have otherwise been paid. ARTICLE 6 DISTRIBUTION OF BENEFITS 6.1 BENEFITS PAYABLE ONLY FROM GENERAL CORPORATE ASSETS: UNSECURED GENERAL CREDITOR STATUS OF PARTICIPANT. (a) Payment to a Participant or any Beneficiary hereunder shall be made from assets which shall continue, for all purposes, to be part of the general, unrestricted assets of the Corporation; no person shall have any interest in any such asset by virtue of any provision of this Plan. The Corporation's obligation hereunder shall be an unfunded and unsecured promise to pay money in the future. To the extent that any person acquires a right to receive payments from the Corporation under the provisions hereof, such right shall be no greater than the right of any unsecured general creditor of the Corporation; no such person shall have or acquire any legal or equitable right, interest or claim in or to any property or assets of the Corporation. (b) In the event that the Corporation elects to purchase an insurance policy or policies insuring the life of a Participant, to allow the Corporation to recover or meet the cost of providing benefits in whole or in part, hereunder, no Participant or Beneficiary shall have any rights whatsoever therein or in said policy or the proceeds therefrom. The Corporation shall be the sole owner and beneficiary of any such insurance policy or property and shall possess and may exercise all incidents of ownership therein. 6.2 NO CONTRACT OF EMPLOYMENT. Nothing contained herein shall be construed to be a contract of employment for any term of years, or as conferring upon the Participant the right to continue to be employed by the Corporation in his or her present capacity or in any capacity. It is expressly understood that this Plan relates only to the payment of deferred Compensation for the Participant's services. 13

6.3 FACILITY OF PAYMENT. If a distribution is to be made to a minor, or to a person who is otherwise incompetent, then the Plan Administrator may, in its discretion, make such distribution (i) to the legal guardian, or if none, to a parent of a minor payee with whom the payee maintains his or her residence, or (ii) to the conservator or committee or, if none, to the person having custody of an incompetent payee. Any such distribution shall fully discharge the Plan Administrator, the Corporation and Plan from further liability on account thereof. 6.4 WITHHOLDING. Any and all payments to be made to a Participant or a Participant's Beneficiaries pursuant to this Plan shall be subject to all federal, state and local income and employment taxes and such taxes may be withheld accordingly by the Corporation from benefits under this Plan or from Base Salary, bonuses or other amounts due to the Participant, as determined by the Plan Administrator. ARTICLE 7 BENEFICIARIES; PARTICIPANT DATA 7.1 BENEFICIARY DESIGNATION. The Participant shall have the right, at any time, to submit in substantially the form attached hereto as Exhibit C, a written designation of primary and secondary Beneficiaries to whom payment under this Plan shall be made in the event of his or her death prior to complete distribution of the benefits payable hereunder. Each beneficiary designation shall become effective only when receipt thereof is acknowledged in writing by the Corporation. The Corporation shall have the right, in its sole discretion, to reject any beneficiary designation which is not in substantially the form attached hereto as Exhibit C. Any attempt to designate a Beneficiary, otherwise than as provided in this Section 7.1, shall be ineffective. 7.2 SPOUSE'S INTEREST. A Participant's beneficiary designation shall be deemed automatically revoked if the Participant names a spouse as Beneficiary and the marriage is later dissolved or the spouse dies. Without limiting the generality of the foregoing, the interest in the benefits hereunder of a spouse of a Participant who has predeceased the Participant or whose marriage with the Participant has been dissolved shall automatically pass to the Participant and shall not be transferable by such spouse in any manner, including but not limited to such spouse's will, nor shall such interest pass under the laws of intestate succession. ARTICLE 8 PLAN ADMINISTRATION 8.1 RESPONSIBILITY OF ADMINISTRATION OF THE PLAN. (a) The Plan Administrator shall be responsible for the management, operation and administration of the Plan. The Plan Administrator may employ others to render advice with regard to its responsibilities under this Plan. It may also allocate its responsibilities to others and may exercise any other powers necessary for the discharge of its duties. The Plan Administrator shall be entitled to rely conclusively upon all tables, valuations, certifications, opinions and reports 14

furnished by any actuary, accountant, controller, counsel or other person employed or engaged by the Plan Administrator with respect to the Plan. (b) The primary responsibility of the Plan Administrator is to administer the Plan for the benefit of the Participants and their respective Beneficiaries, subject to the specific terms of the Plan. The Plan Administrator shall administer the Plan in accordance with its terms and shall have the power to determine all questions arising in connection with the administration, interpretation, and application of the Plan. Any such determination shall be conclusive and binding upon all persons and their heirs, executors, beneficiaries, successors and assigns. The Plan Administrator shall have all powers necessary or appropriate to accomplish its duties under the Plan. The Plan Administrator shall also have the discretion and authority to make, amend, interpret, and enforce all appropriate rules and regulations for the administration of this Plan and decide or resolve any and all questions, including but not limited to, interpretations of this Plan and entitlement to or amount of benefits under this Plan, as may arise in connection with the Plan. 8.2 CLAIMS PROCEDURE. (a) CLAIM. A person who believes that he or she is being denied a benefit to which he or she is entitled under the Plan (hereinafter referred to as a "Claimant") may file a written request for such benefit with the Plan Administrator, setting forth his or her claim. The request must be addressed to the Plan Administrator at its then principal place of business. Notwithstanding anything to the contrary, pending a determination under this Section 8.2, the undisputed portion of a benefit due to Claimant shall be timely distributed pursuant to the terms of the Plan. (b) CLAIM DECISION. Upon receipt of a claim, the Plan Administrator shall advise the Claimant that a reply will be forthcoming within 45 days. The Plan Administrator may, however, extend the reply period for an additional 30 days for reasonable cause. If the claim is denied in whole or in part, the Plan Administrator shall adopt a written opinion, using language calculated to be understood by the Claimant, setting forth to the extent applicable: (i) The specific reasons for such denial; (ii) Specific reference to pertinent provisions of this Plan on which such denial is based; (iii) A description of any additional material or information necessary for the Claimant to perfect his or her claim and an explanation why such material or such information is necessary; (iv) Appropriate information as to the steps to be taken if the Claimant wishes to submit the claim for review, and (v) The time limits for requesting a review under subsection (c) hereof. (c) REQUEST FOR REVIEW. Within 60 days after receipt by the Claimant of the written opinion described above, the Claimant may request in writing that the Corporation 15

through its Board of Directors review the Plan Administrator's determination. Such request must be addressed to the Plan Administrator of the Corporation at its then principal place of business. The Claimant or his or her duly authorized representative may, but need not, review the pertinent documents and submit issues and comments in writing for consideration by the Corporation. If the Claimant does not request a review of the determination within such 60 day period, he or she shall be barred and estopped from challenging the determination. (d) REVIEW OF DECISION. Within 30 days after the Corporation's receipt of a request for review by a Claimant pursuant to 8.2 (c) above, the Corporation will review the Plan Administrator's determination. After considering all materials presented by the Claimant, the Corporation, through its Board of Directors, will render a written opinion, written in a manner calculated to be understood by the Claimant, setting forth the specific reasons for the decision and containing specific references to the pertinent provisions of this Plan on which the decision is based. If special circumstances require that the 30 day time period be extended, the Corporation will so notify the Claimant and will render the decision as soon as possible, but in no event later than 60 days after receipt of the request for review. 8.3 ARBITRATION. Any claim or controversy between the parties which the parties are unable to resolve themselves, and which is not resolved through the claims procedure set forth in Section 8.2, including any claim arising out of, connected with, or related to the interpretation, performance or breach of any provision of this Plan, and any claim or dispute as to whether a claim is subject to arbitration, shall be submitted to and resolved exclusively by expedited arbitration by a single arbitrator in accordance with the following procedures: (a) In the event of a claim or controversy subject to this arbitration provision, the complaining party shall promptly send written notice to the other party identifying the matter in dispute and the proposed remedy. Following such notice, the parties shall meet and attempt in good faith to resolve the matter. In the event the parties are unable to resolve the matter within 21 days, the parties shall meet and attempt in good faith to select a single arbitrator acceptable to both parties. If a single arbitrator is not selected by mutual consent within 10 business days following the expiration of the 21 day period, an arbitrator shall be selected from a list of nine persons each of whom shall be an attorney who is either engaged in the active practice of law or a recognized arbitrator and who, in either event, is experienced in serving as an arbitrator in disputes between employers and employees, which list shall be provided by the office of the American Arbitration Association ("AAA") or of the Federal Mediation and Conciliation Service. If, within three business days of the parties' receipt of such list, the parties are unable to agree upon an arbitrator from the list, then the parties shall each strike names alternatively from the list, with the first to strike being determined by the flip of a coin. After each party has had four strikes, the remaining name on the list shall be the arbitrator. If such person is unable to serve for any reason, the parties shall repeat this process until an arbitrator is selected. (b) Unless the parties agree otherwise, within 60 days of the selection of the arbitrator, a hearing shall be conducted before such arbitrator at a time and a place 16

agreed upon by the parties. In the event the parties are unable to agree upon the time or place of the arbitration, the time and place shall be designated by the arbitrator after consultation with the parties. Within 30 days of the conclusion of the arbitration hearing, the arbitrator shall issue an award, accompanied by a written decision explaining the basis for the arbitrator's award. The arbitrator's award may not include a provision for punitive damages. (c) In any arbitration hereunder, the Corporation shall pay all administrative fees of the arbitration, all fees of the arbitrator and each party's reasonable attorneys' fees, costs, and expenses. The arbitrator shall have no authority to add to or to modify the Plan, shall apply all applicable law, and shall have no lesser and no greater remedial authority than would a court of law resolving the same claim or controversy. The arbitrator shall, upon an appropriate motion, dismiss any claim without an evidentiary hearing if the party bringing the motion establishes that it would be entitled to summary judgment if the matter had been pursued in court litigation. The parties shall be entitled to reasonable discovery subject to the discretion of the arbitrator. (d) The decision of the arbitrator shall be final, binding, and non-appealable, and may be enforced as a final judgment in any court of competent jurisdiction. (e) This Section 8.3 shall extend to claims against any parent, subsidiary, or Affiliate of each party, and, when acting within such capacity, any officer, director, shareholder, Participant, Beneficiary, or agent of each party, or of any of the above, and shall apply as well to claims arising out of state and federal statutes and local ordinances as well as to claims arising under the common law or under this Plan. (f) Notwithstanding the foregoing, and unless otherwise agreed between the parties, either party may, in an appropriate manner, apply to a court for provisional relief, including a temporary restraining order or preliminary injunction, on the ground that the arbitration award to which the applicant may be entitled may be rendered ineffectual without provisional relief. (g) Any arbitration hereunder shall be conducted in accordance with the employee benefit plan claims rules and procedures of the AAA then in effect; provided, however, that, (i) all evidence presented to the arbitrator shall be in strict conformity with the legal rules of evidence, and (ii) in the event of any inconsistency between the employee benefit plan claims rules and procedures of the AAA and the terms of this Plan, the terms of this Plan shall prevail. (h) If any of the provisions of this Section 8.3 are determined to be unlawful or otherwise unenforceable, in whole or in part, such determination shall not affect the validity of the remainder of this Section 8.3, and this Section 8.3 shall be reformed to the extent necessary to carry out its provisions to the greatest extent possible and to insure that the resolution of all conflicts between the parties, including those arising out of statutory claims, shall be resolved by neutral, binding arbitration. If a court should find that the provisions of this Section 8.3 are not absolutely binding, then the parties intend any arbitration decision and 17

award to be fully admissible in evidence in any subsequent action, given great weight by any finder of fact, and treated as determinative to the maximum extent permitted by law. 8.4 NOTICE. Any notice, consent or demand required or permitted to be given under the provisions of this Plan shall be in writing and shall be signed by the party giving or making the same. If such notice, consent or demand is mailed, it shall be sent by United States certified mail, postage prepaid, return receipt requested, addressed to the addressee's last known address as shown on the records of the Corporation. The date of receipt, or the date of refusal by addressee upon presentation, shall be deemed the date of such notice, consent or demand. Any person may change the address to which notice is to be sent by giving written notice of the change of address in the manner aforesaid. ARTICLE 9 AMENDMENT OR TERMINATION 9.1 AMENDMENT OR TERMINATION. (a) This Plan may be amended or terminated by the Corporation at any time, without notice to or consent of any person, pursuant to resolutions adopted by its Board of Directors. Any such amendment or termination shall take effect as of the date specified therein and, to the extent permitted by law. However, no such amendment or termination shall reduce: (i) the amount then credited to a Participant's Deferral Account, or (ii) a Participant's vested percentage under Section 5.1. If the Plan is terminated, benefits will be distributed in one lump sum. (b) Any other provision of this Plan to the contrary notwithstanding, the Plan may be amended by the Corporation at any time, to the extent that, in the opinion of the Corporation, such amendment shall be necessary in order to ensure that the Plan will be characterized as a plan maintained for a select group of management or highly compensated employees, as described in sections 201(2), 301(a)(3) and 401(a)(1) of ERISA, or to conform the Plan to the requirements of any applicable law, including ERISA and the Code. No such amendment shall be considered prejudicial to any interest of a Participant or Beneficiary hereunder. ARTICLE 10 MISCELLANEOUS 10.1 ENTIRE AGREEMENT. The Plan and the executed Election Forms, Deemed Investment Election Form, and Beneficiary Designation Form, and other administrative forms shall constitute the total understanding between the Corporation and the Participant. No oral statement regarding the Plan may be relied upon by the Participant. In the event that there is a discrepancy between forms, this Plan will control. 18

10.2 INVALIDITY OF PROVISIONS. If any provision of this Plan shall, for any reason, be held to be invalid or unenforceable, the remaining provisions shall nevertheless be carried into effect. 10.3 GOVERNING LAW. The Plan and the rights and obligations of all persons hereunder shall be governed by and construed in accordance with the laws of the State of Illinois, other than its laws regarding choice of law, to the extent that such state law is not preempted by federal law. IN WITNESS WHEREOF, the Corporation has executed this Plan as of the day and year above first written. ATTEST: PCTEL, INC. By: /s/Martin H. Singer ------------------------------------- /s/ John W. Schoen, Secretary Title: Chief Executive Officer - ------------------ 19

PCTEL, INC. EXECUTIVE DEFERRED COMPENSATION PLAN PARTICIPATION AGREEMENT ELECTION FORM EXHIBIT A THIS PARTICIPATION AGREEMENT is entered into this ____day of ___________, 20___ between PCTEL, INC., hereinafter referred to as the "Corporation", and _______________________, hereinafter referred to as the "Participant". PART I. ELECTION TO DEFER (Please check all that apply) I understand and acknowledge that this Election of Deferral will be effective for the following Plan Year. If I wish to change my deferral election in subsequent Plan Year(s), I realize that I must deliver a new Election Form to the Plan Administrator of the Corporation at least 10 days prior to the beginning of the Plan Year for which the deferral is sought. If I fail to timely make an election, I shall be deemed to have made the same election as is then currently in effect. | | I WILL participate in the Corporation's Executive Deferred Compensation Plan for the forthcoming Plan Year and duly authorize the Corporation to make the appropriate deductions from my paycheck. | | I hereby elect to defer receipt of Base Salary, bonus and/or commissions for the forthcoming Plan Year as set forth below: | | ____% or $________ of my Base Salary to be withdrawn from my salary in equal amounts during the Plan Year (but not to exceed 50% of my Base Salary). | | ____% or $________ of my bonus and commissions which would have otherwise been paid during the Plan Year, to be withdrawn as applicable during the year. OR; | | I will NOT participate in the Corporation's Executive Deferred Compensation Plan for the forthcoming Plan Year. NOTE: THIS ELECTION IS IRREVOCABLE FOR THE FORTHCOMING PLAN YEAR.

PART II. DISTRIBUTION OF BENEFITS ELECTION (ARTICLE 5 OF THE PLAN): Please select A (and the choices under A) or B. | | A. RETIREMENT BENEFITS. I hereby elect to have my Retirement or Disability benefits distributed to me in the following manner: Distribution to be paid (check one): | | Lump Sum | | Annually over 15 years | | Lifetime of the Participant with 20 annual payments guaranteed NOTE: THIS ELECTION MAY BE CHANGED BY THE PARTICIPANT BY GIVING WRITTEN NOTICE TO THE CORPORATION NOT LATER THAN ONE YEAR BEFORE RETIREMENT, OR PROMPTLY FOLLOWING A DISABILITY. BY THE TERMS OF THE PLAN, THE RETIREMENT AGE IS AGE 55 OR LATER. | | B. FIXED PAYMENT DATE BENEFITS. This Section applies if you wish to elect an in-service distribution prior to retirement age. All distributions under this section are made in a lump sum. I hereby elect to have my fixed payment date benefits distributed to me at the following date: Date for fixed payments to commence (This date may be no earlier than the January 1 of the third Calendar Year after the Calendar Year in which this election is made. NOTE: THIS ELECTION MAY BE CHANGED TO EXTEND THE FIXED PAYMENT DATE TO A LATER DATE SO LONG AS (A) THE ELECTION TO SO EXTEND THE DATE IS AT LEAST ONE YEAR BEFORE THE ORIGINAL DATE, AND (B) THE EXTENDED DATE IS NO EARLIER THAN JANUARY 1 OF THE THIRD CALENDAR YEAR AFTER ISSUING THE ELECTION TO EXTEND. SUCH DATES MAY NOT BE ACCELERATED. PCTEL, INC. PARTICIPANT - ------------------------------ --------------------------------- Signature 2

PCTEL, INC. EXECUTIVE DEFERRED COMPENSATION PLAN ---DEEMED INVESTMENT ELECTIONS--- EXHIBIT B THIS ELECTION is submitted by ____________________ ("Participant") to PCTEL, Inc. this _____ day of ________, 20___. DEEMED INVESTMENT ELECTIONS: I elect to have my Deferral Account credited with a rate of return based on the following Deemed Investment Elections. These Deemed Investment Elections shall supersede any prior elections which I have made and shall continue until such time as I make a new Deemed Investment Election in accordance with the terms of the Plan. I acknowledge that Deemed Investment Elections may be changed by a Participant not more than once a month and each investment option must have at least a 10% allocation of the Participant's deferral. (I further acknowledge that materials and a prospectus have been made available to me containing detailed explanations of Deemed Investment options.) DEEMED INVESTMENT OPTIONS % DEEMED INVESTMENT OPTIONS % ------------------------- - ------------------------- - Money Market Fidelity VIP Mid Cap SC2 Mortgage Securities Index 400 Mid-Cap Bond Small Company Value Global Bond Capital Appreciation Asset Allocation Janus Aspen International Growth Fund CL2 Real Estate Securities International Stock Macro Cap Value Small Company Growth Fidelity VIP Equity-Income SC2 Franklin Small Cap Fund CL2 Value Stock Micro Cap Growth Templeton Asset Strategy Fund CL2 Janus Aspen Cap Appreciation - Srv Sh Index 500 CSWP Global Post Venture Cap Fidelity VIP Contrafund SC2 Templeton Developing Markets Fund CL2 Growth Guaranteed Principal Account PARTICIPANT ------------------------- Signature

PCTEL, INC. EXECUTIVE DEFERRED COMPENSATION PLAN DESIGNATION OF BENEFICIARY EXHIBIT C TO: PCTEL, INC. (hereinafter referred to as the "Corporation"), In accordance with the rights granted to me as a Participant in the PCTEL, Inc. Executive Deferred Compensation Plan, I hereby designate the following as primary and 1st contingent Beneficiary(ies) thereunder to receive payments in the event of my death: PRIMARY Beneficiary:_____________________ Relationship:_________________ 1ST CONTINGENT Beneficiary:______________ Relationship:_________________ I further reserve the privilege of changing the Beneficiary(ies) herein named at any time or times without the consent of any such Beneficiary(ies). This designation is made upon the following terms and conditions: 1. The word "Beneficiary" as used herein shall include the plural, Beneficiaries, wherever the Plan permits. 2. For purposes of this Beneficiary Designation, no person shall be deemed to have survived the Participant if that person dies within thirty (30) days of the Participant's death. 3. Beneficiary shall mean the Primary Beneficiary if such Primary Beneficiary survives the Participant by at least thirty (30) days, and shall mean the 1st Contingent Beneficiary if the Primary Beneficiary does not survive the Participant by at least thirty (30) days. 4. If the Primary Beneficiary shall be deceased on any annual payment date provided in said Plan, any and all remaining annual payments shall be payable to the 1st Contingent Beneficiary unless the executors or administrators of said deceased Beneficiary are named as Primary Beneficiary hereinabove. 5. If more than one Beneficiary is named within the same class (i.e., Primary or 1st Contingent), then annual payments shall be made equally to such Beneficiaries unless otherwise provided hereinabove. If any such Beneficiary dies while receiving annual payments under said Agreement, any and all remaining payments shall continue to be made to the surviving Beneficiaries of such class and to the legal heirs of the deceased Beneficiary, which legal heirs shall receive the amount which was being received by said deceased Beneficiary. If all of the Beneficiaries of a class shall die, any and all remaining payments shall be made to the next class of Beneficiaries, as provided under Paragraph 4 above. 6. If none of the Beneficiaries named hereinabove are living on any said annual payment date, any and all remaining payments shall be made to my executors or administrators, or upon their written request, to any person or persons so designated by them. 7. If any such annual payments shall be payable to any trust, the Corporation shall not be liable to see to the application by the Trustee of any payment hereunder at any time, and may rely upon the sole signature of the Trustee to any receipt, release or waiver, or to any transfer or other instrument to whomsoever made purporting to affect this nomination or any right hereunder. 8. A Participant's Beneficiary designation shall be deemed automatically revoked if the Participant names a spouse as Beneficiary and the marriage is later dissolved or the spouse dies. Without limiting the

generality of the foregoing, the interest in the benefits hereunder of a spouse of a Participant who has predeceased the Participant or whose marriage with the Participant has been dissolved shall automatically pass to the Participant and shall not be transferable by such spouse in any manner, including but not limited to such spouse's will, nor shall such interest pass under the laws of intestate succession. THIS DESIGNATION CANCELS AND SUPERSEDES ANY DESIGNATION OF BENEFICIARY HERETOFORE MADE BY ME WITH RESPECT TO SAID PLAN AND THE RIGHT TO RECEIVE PAYMENTS THEREUNDER. Dated: __________________________ Participant/Executive: ______________ I am the spouse of the Participant/Executive named above. I have read and understood the foregoing Designation of Beneficiary, and especially paragraph 8 thereof. I understand that the Plan does not permit the assignment of the Participant/Executive's benefits to me in the event of the dissolution of my marriage. I also understand that, even if I am named as a Beneficiary, my rights may be impaired in the event of the dissolution of my marriage or my death before the Participant/Executive. Dated: _____________________ _____________________________________ Spouse Acknowledgment of receipt this _____ day of ______________, 20__ By:____________________________ 2

PCTEL, INC. EXECUTIVE DEFERRED COMPENSATION PLAN DEATH BENEFIT EXHIBIT D Section 5.5(a) of the PCTEL, Inc. Executive Deferred Compensation Plan provides that the death benefit attributable to a Participant's Deferral Account shall equal the Participant's Deferral Account or the amount stated in this Exhibit D, whichever is greater. The death benefit for_________________________________________ (name of Participant) is $________________. This Exhibit D supersedes and replaces all prior Exhibit's D executed by PCTEL, Inc. with respect to the above named Participant. Dated this __________ day of __________________________, 20______. PCTEL, Inc. By:_____________________ Its:____________________

DEEMED INVESTMENT OPTION CHANGE FORM FOR THE PCTEL, INC. EXECUTIVE DEFERRED COMPENSATION PLAN FOR THE PERIOD BEGINNING ______________________ _____________________________ __________________________________ Participant's Name Social Security Number I hereby request that my existing account balances and future contributions be allocated as follows: (Minimum allocation is 10% - total must equal 100%). If no change is desired in your current account, do NOT complete Column A. Complete both, Columns A and B, if you want your existing balances and future contributions changed. COLUMN A COLUMN B -------- -------- Change Existing Future Payroll Account Balances Contributions Only DEEMED INVESTMENT OPTIONS Guaranteed Principal Account __________% __________% Money Market __________% __________% Mortgage Securities __________% __________% Bond __________% __________% Global Bond __________% __________% Asset Allocation __________% __________% Real Estate Securities __________% __________% Macro Cap Value __________% __________% Fidelity VIP Equity-Income SC2 __________% __________% Value Stock __________% __________% Templeton Asset Strategy Fund CL2 __________% __________% Index 500 __________% __________% Fidelity VIP Contrafund SC2 __________% __________% Growth __________% __________% Fidelity VIP Mid Cap SC2 __________% __________% Index 400 Mid-Cap __________% __________% Small Company Value __________% __________% Capital Appreciation __________% __________% Janus Aspen International Growth Fund CL2 __________% __________% International Stock __________% __________% Small Company Growth __________% __________% Franklin Small Cap Fund CL2 __________% __________% Micro Cap Growth __________% __________% Janus Aspen Cap Appreciation - Srv Sh __________% __________% CSWP Global Post Venture Cap __________% __________% Templeton Developing Markets Fund CL2 __________% __________% TOTAL MUST EQUAL 100% FOR EACH COLUMN USED 100% 100%

IMPORTANT: The Participant acknowledges that he/she has received information regarding each of the above Deemed Investment Options, including a copy of the prospectus. The Participant further acknowledges that the Plan Administrator has discretion as to whether his/her deferrals are actually invested in the funds selected above; the Corporation is not obligated to acquire or hold any of the investments selected above. AGREED AND ACCEPTED BY THE PARTICIPANT - ---------------------------------------------- ------------------- Signature of Participant Date AGREED AND ACCEPTED BY THE CORPORATION - ---------------------------------------------- ------------------- Signature of Corporation Officer Date 2

EXHIBIT 10.38 PCTEL, INC. EXECUTIVE DEFERRED STOCK PLAN EFFECTIVE AS OF JANUARY 20, 2003

TABLE OF CONTENTS ARTICLE 1 DEFINITIONS............................................................ 1 ARTICLE 2 ELIGIBILITY .......................................................... 3 ARTICLE 3 STOCK OPTION GAIN DEFERRALS........................................... 4 ARTICLE 4 RESTRICTED STOCK DEFERRALS............................................ 5 ARTICLE 5 ACCOUNTS AND ALLOCATION OF FUNDS...................................... 6 ARTICLE 6 ENTITLEMENT TO BENEFITS............................................... 7 ARTICLE 7 DISTRIBUTION OF BENEFITS.............................................. 9 ARTICLE 8 BENEFICIARIES; PARTICIPANT DATA....................................... 10 ARTICLE 9 PLAN ADMINISTRATION................................................... 11 ARTICLE 10 AMENDMENT OR TERMINATION............................................. 14 ARTICLE 11 MISCELLANEOUS........................................................ 15 EXHIBIT A PARTICIPANT AGREEMENT AND ELECTION FORM EXHIBIT B DESIGNATION OF BENEFICIARY i

PCTEL, INC. EXECUTIVE DEFERRED STOCK PLAN THIS PLAN is adopted as of the 20th day of January, 2003, by PCTEL, Inc., a Delaware corporation (the "Corporation"), as follows: RECITALS WHEREAS, the Corporation wishes to establish the PCTEL, Inc. "Executive Deferred Stock Plan" (the "Plan") to provide additional retirement benefits and income tax deferral opportunities for a select group of management or highly compensated employees; and WHEREAS, the Corporation intends that the Plan shall at all times be administered and interpreted in such a manner as to constitute an unfunded nonqualified deferred plan for a select group of management or highly compensated employees and to qualify for all available exemptions from the provisions of ERISA; NOW, THEREFORE, the Corporation hereby adopts the following Executive Deferred Stock Plan. ARTICLE 1 DEFINITIONS DEFINITION OF TERMS. Certain words and phrases are defined when first used in later sections of this Plan. Whenever any words are used in the masculine, they shall be construed as though they were in the feminine in all cases where they would so apply; and whenever any words are used in the singular or in the plural, they shall be construed as though they were used in the plural or the singular, as the case may be, in all cases where they would so apply. In addition, the following words and phrases when used, unless the context clearly requires otherwise, shall have the following respective meanings: 1.1. ACCOUNTS. A Participant's Gain Share Account and Restricted Stock Account. 1.2. AFFILIATE. Any corporation, partnership, joint venture, association, or similar organization or entity, which is a member of a controlled group of companies which includes, or which is under common control with, the Corporation under Section 414 of the Code. 1.3. BASE SALARY. The annual compensation (excluding bonuses, commissions, overtime, incentive payments, non-monetary awards, directors fees and other fees, stock options and grants, and car allowances) paid to a Participant for services rendered to the Corporation, before reduction for compensation deferred pursuant to all qualified, non-qualified and Code Section 125 plans of the Corporation. 1.4. BENEFICIARY. The Beneficiary(ies) designated by a Participant under Article 8, or, if the Participant has not designated a Beneficiary under 6. 1.5. CALENDAR YEAR. January 1 to December 31.

1.6. CODE. The Internal Revenue Code of 1986, as amended from time to time. 1.7. COMMON STOCK. The common stock of PCTEL, Inc. 1.8. CONSIDERATION SHARES. The shares of Common Stock owned by a Participant for six months or longer. 1.9. DATE OF EXERCISE. The date on or after which Options designated in the Election Form will be exercised and the elected percentage of the gain derived therefrom will be deferred pursuant to Article 3 of this Plan; provided that such date shall be at least six months from the election date. 1.10. DEFERRAL PERIOD. The period after which distribution of the Gain Share Account and Restricted Stock Account are to be made. 1.11. DISABILITY. Disability shall mean a Participant's eligibility to receive benefits under the Corporation's group long-term disability plan, or, if the Corporation ceases to maintain a long-term disability plan, the total and permanent incapacity of the Participant, due to physical impairment or legally established mental incompetence, to perform the usual duties of his employment with the Corporation. 1.12. EFFECTIVE DATE. January 20, 2003. 1.13. ELECTION OF DEFERRAL. A written notice filed by the Participant with the Plan Administrator of the Corporation in substantially the form attached hereto as Exhibit A, and referred herein as the "ELECTION FORM," specifying the amount (if any) of Restricted Stock and/or Gain Shares to be deferred. 1.14. ELIGIBLE EMPLOYEE. Any employee of the Corporation or an Affiliate who is selected to participate in the Plan in accordance with the provisions of Section 2.1 hereof, and one of a select group of management or highly compensated employees, as defined by ERISA. 1.15. ERISA. The Employee Retirement Income Security Act of 1974, as amended from time to time. 1.16. FAIR MARKET VALUE. With respect to a share of Common Stock as of any date, (a) the closing sales price of Common Stock in the NASDAQ National Market System or on any such other exchange on which the Common Stock is traded on such date, or in the absence of sales on such date, the closing sales price on the immediately preceding date on which sales were reported, or (b) in the event there is no public market for the Common Stock on such date, the Fair Market Value as determined in good faith by the Board of Directors. 1.17. GAIN SHARES. The shares of Common Stock so determined under Section 3.5 as resulting from the exercise of any Option pursuant to Article 3. 1.18. GAIN SHARE ACCOUNT. The account maintained by the Plan Administrator for the Participant of the number of Phantom Share Units related to Gain Shares, adjusted for hypothetical gains, earnings, dividends, losses, distributions, withdrawals and other similar activities. 2

1.19. OPTION. A nonqualified stock option to purchase shares of Common Stock. 1.20. PARTICIPANT. An Eligible Employee designated as a participant by the Plan Administrator who has completed and submitted an Election Form, substantially in the form of Exhibit A attached hereto. 1.21. PHANTOM SHARE UNITS. Units of deemed investment in shares of Common Stock so determined under Sections 3.6 and 5.1(b). 1.22. PLAN. This Plan, together with any and all amendments or supplements thereto. 1.23. PLAN ADMINISTRATOR. The Compensation Committee of the Board of Directors of PCTEL, Inc., or as otherwise designated by the Board of Directors. 1.24. PLAN RETIREMENT DATE. The date selected by a Participant, however, no earlier than the date he or she attains 55 years of age. 1.25. PLAN YEAR. The Calendar Year. 1.26. RESTRICTED STOCK. The shares of Common Stock so determined under Section 4.4. 1.27. RESTRICTED STOCK ACCOUNT. The account maintained by the Plan Administrator for the Participant of the number of Phantom Share Units related to Restricted Stock shares, adjusted for hypothetical gains, earnings, dividends, losses, distributions, withdrawals and other similar activities. 1.28. RETIREMENT. The termination of a Participant's employment with the Corporation and all Affiliates on or after the Participant has reached his or her Plan Retirement Date. 1.29. VALUATION DATE. The last day of each quarter during a Plan Year, or such other dates as the Plan Administrator may establish in its discretion. 1.30. YEAR OF PARTICIPATION. Twelve months of continuous employment with the Corporation measured from the Participant's date of entry into this Plan. ARTICLE 2 ELIGIBILITY 2.1 ELIGIBILITY. (a) An Eligible Employee shall become a Participant in the Plan following written notice from the Corporation to that effect, and submittal of a completed Participant Election Form, substantially in the form of Exhibit A attached hereto. (b) Once an Eligible Employee becomes a Participant, he or she shall remain a Participant until his or her termination of employment with the Corporation or an Affiliate, and thereafter until all benefits to which he or she (or his or her Beneficiaries) is entitled under the Plan have been paid. 3

ARTICLE 3 STOCK OPTION GAIN DEFERRALS 3.1 GENERAL. Subject to provisions of this Article 3, Participants may elect to defer receipt and distribution of the gain related to the exercise of Options and resulting Gain Shares until the end of the Deferral Period by completing the appropriate portion of the Election Form and timely filing such form with the Plan Administrator. 3.2 TIMING OF FILING STOCK OPTION GAIN DEFERRAL ELECTION. The Election Form must be filed at least six months prior to the Date of Exercise and no later than the day before the first day of the six month period ending on the Option expiration date. An Option with respect to which an Election Form has been filed may not be exercised prior to the dates specified in the preceding sentence. 3.3 CONTENTS OF STOCK OPTION GAIN DEFERRAL ELECTION. Each stock option gain deferral election shall set forth: (i) the number of Options to be exercised in connection with the deferrals hereunder; (ii) the date of grant of the Options; (iii) the Deferral Period; and (iv) any other item determined to be appropriate by the Plan Administrator. A Participant may elect to defer gain in increments of 25%, 50%, 75% or 100% of the number of Gain Shares resulting from Options exercised on any one Date of Exercise. 3.4 MANNER OF EXERCISING OPTION SHARES. A Participant who desires to exercise an Option and to defer current receipt and distribution of the related Gain Shares must follow the procedures and requirements that are applicable to the Option pursuant to the PCTEL, Inc. 1997 Stock Plan (as amended and restated April 13, 1998) or, if applicable, the PCTEL, Inc. 2001 Nonstatutory Stock Option Plan, including the procedures and requirements relating to the exercise of an Option; provided, however, that in the case of a deferral of Gain Shares under this Plan, the Participant shall only be permitted to tender Consideration Shares to pay the entire exercise price for any such Option exercised. Notwithstanding the foregoing, the Plan Administrator may in its discretion accept the Participant's attestation that he or she owns the number of Consideration Shares necessary to effectuate the stock swap contemplated hereunder. 3.5 DETERMINATION OF GAIN SHARES. Upon exercise of an Option, the Gain Shares from which the Participant has elected to defer hereunder shall be determined as follows: (i) the aggregate exercise price for all exercised Option shares shall be determined; (ii) the number of Consideration Shares needed to pay the exercise price for such Option shares shall be determined; (iii) the difference between the number of exercised Option shares and the number of Consideration Shares shall be the number of Gain Shares resulting from such exercise. Any fractional Gain Share that results from the computations hereunder shall be rounded up to the nearest whole number. 3.6 CONVERSION OF GAIN SHARES TO PHANTOM SHARE UNITS. As of the Date of Exercise, Gain Shares shall be converted to Phantom Share Units by dividing the amount of the aggregate Fair Market Value of the Gain Shares as of the Date of Exercise by the Fair Market Value of one share of Common Stock as of the Date of Exercise. The resulting number of Phantom Share Units shall be credited to the Participant's Gain Share Account. 4

Any fractional Phantom Share Unit that results from the computations hereunder shall be rounded up to the nearest 1/100. 3.7 CHANGES TO THE STOCK OPTION GAIN DEFERRAL ELECTION. The Election Form relating to a particular stock option gain deferral may not be amended or revoked after the day on which it is filed with the Plan Administrator, except that the Deferral Period identified by the Participant in the Election Form may be extended if an amended Election Form is filed with the Plan Administrator at least one year before the Deferral Period (as in effect before such amendment) ends. 3.8 FAILURE TO PROPERLY EXERCISE. If a Participant makes a valid election under this Article 3 to defer Gain Shares and if the Option expires without a proper exercise of the Option by the Participant or if the Participant fails to properly tender or attest to the Consideration Shares by the last day of the Option term, the Participant shall forfeit any opportunity to exercise the Option and the Option shall be canceled as of the end of the last business day of the Option term, according to the terms of the PCTEL, Inc. 1997 Stock Plan (as amended and restated April 13, 1998) or, if applicable, the PCTEL, Inc. 2001 Nonstatutory Stock Option Plan. 3.9 DELIVERY OF GAIN SHARES. The Gain Shares shall be physically delivered to the person or entity designated by the Plan Administrator for safekeeping. ARTICLE 4 RESTRICTED STOCK DEFERRALS 4.1 GENERAL. Subject to provisions of this Article 4, Participants may elect to defer receipt of Restricted Stock until the end of the Deferral Period by completing the appropriate portion of the Election Form and filing such Election Form with the Plan Administrator. 4.2 TIMING OF FILING RESTRICTED STOCK DEFERRAL ELECTION. The Election Form must be filed at least six months prior to the vesting of such Restricted Stock grant, except for the first Plan Year in which case the deferral must be completed prior to the vesting date. 4.3 CONTENTS OF RESTRICTED STOCK DEFERRAL AGREEMENT. Each Restricted Stock deferral election shall set forth: (i) the number of shares to be deferred hereunder; (ii) the Deferral Period, which is not to be less than one year; and (iii) any other item determined to be appropriate by the Plan Administrator. 4.4 CONVERSION OF RESTRICTED STOCK TO PHANTOM SHARE UNITS. As of the date immediately prior to the date the applicable restriction period expired, the Restricted Stock shall be converted to Phantom Share Units by dividing the amount of the aggregate Fair Market Value of the Restricted Stock as of the date of vesting by the Fair Market Value of one share of Common Stock as of the date of deferral. The resulting number of Phantom Share Units shall be credited to the Participant's Restricted Stock Account. Any fractional Phantom Share Unit that results from the computations hereunder shall be rounded up to the nearest whole number. 4.5 CHANGES TO THE RESTRICTED STOCK DEFERRAL ELECTION. The Election Form relating to a particular Restricted Stock deferral may not be amended or revoked after the day on 5

which it is filed with the Plan Administrator, except that the Deferral Period identified by the Participant in the Election Form may be extended if an amended Election Form is filed with the Plan Administrator at least one year before the Deferral Period (as in effect before such amendment) ends. 4.6 DELIVERY OF RESTRICTED STOCK SHARES. The Restricted Stock Shares shall be physically delivered to the person or entity as designated by the Plan Administrator for safekeeping. ARTICLE 5 ACCOUNTS AND ALLOCATION OF FUNDS 5.1 INVESTMENT ELECTION AND DECLARED RATES. (a) Investment elections for Gain Share Accounts and Restricted Stock Accounts are deemed investments in shares of Common Stock. These deemed investment amounts shall be converted into Phantom Share Units based upon the Fair Market Value of the Common Stock as of the date(s) the amounts are to be credited to a Restricted Stock Account or Gain Shares Account. Dividends paid on Common Stock will be deemed to be immediately reinvested in Common Stock. When a distribution of all or a portion of the Gain Share Account or Restricted Stock Account that is invested hereunder is to be made, the balance in such Account shall be determined by multiplying the Fair Market Value of one share of Common Stock on the most recent Valuation Date preceding the date of such distribution by the number of Phantom Share Units to be distributed. The amount shall be distributed in the form of actual shares of Common Stock. In the event of a stock dividend, split-up or combination of the Common Stock, merger, consolidation, reorganization, recapitalization, or other change in the corporate structure or capitalization affecting the Common Stock, such that an adjustment is determined by the Plan Administrator to be appropriate in order to prevent dilution or enlargement of the benefits or potential benefits intended to be made available under this Plan, then the Plan Administrator may make appropriate adjustments to the number of deemed shares credited to the applicable Gain Share Account or Restricted Stock Account. The determination of the Plan Administrator as to such adjustments, if any, to be made shall be conclusive. Notwithstanding any other provision of this Plan, the Plan Administrator shall adopt such procedures as it may determine are necessary to ensure that with respect to any Participant who is actually or potentially subject to Section 16(b) of the Securities Exchange Act of 1934, as amended, the crediting of deemed shares to his or her Gain Share Account or Restricted Stock Account is not deemed to be a non-exempt purchase for purposes of such Section 16(b), including without limitation requiring that no shares of Common Stock or cash relating to such deemed shares may be distributed for six months after being credited to such Gain Share Account or Restricted Stock Account. (b) At the end of each calendar quarter (or such shorter period as the Plan Administrator may determine), the Corporation shall provide Participant with a report indicating the number of shares in the Participants' Gain Share and Restricted Stock Accounts. 6

5.2 DETERMINATION OF ACCOUNTS. A Participant's benefit as of each Valuation Date shall consist of the value of the Participant's Gain Share Account and Restricted Stock Account. ARTICLE 6 ENTITLEMENT TO BENEFITS 6.1 VESTING OF BENEFITS. A Participant shall be fully vested in his or her Gain Share Account and Restricted Stock Account. 6.2 RETIREMENT BENEFIT. After the Retirement of the Participant, the Corporation shall pay to the Participant his or her Accounts. Such benefits shall be payable in a single in-kind distribution of Common Stock. Such distribution shall commence on or about the first day of the first month following the Participant's Retirement or Disability. 6.3 FIXED PAYMENT DATE BENEFIT FOR IN-SERVICE DISTRIBUTION PRIOR TO RETIREMENT. (a) A Participant may select a fixed payment date for the payment of his or her Accounts. A payment made under this election will be payable in a single in-kind distribution of Common Stock. A Participant may extend a fixed payment date by written notice to the Plan Administrator, provided that the Participant gives such written notice at least one (1) year prior to the fixed payment date before such extension. Such fixed payment dates may not be accelerated. (b) Any fixed payment date elected by a Participant as provided under Section 6.3(a) above must be no earlier than the January 1 of the third Calendar Year after the Calendar Year in which the election is made, or in which the Participant gives a written notice of extension. 6.4 DISABILITY RETIREMENT BENEFIT. The Participant shall be entitled to receive payment prior to his or her Plan Retirement Date if he or she is disabled. If the Participant's employment is terminated due to Disability, the benefit payable hereunder shall be the same amount as would have been payable as a Retirement Benefit under Section 6.2 above had the Participant attained his or her Plan Retirement Date on the date of the Disability. 6.5 DEATH BENEFITS. In the event of the Participant's death while in the employment of the Corporation or an Affiliate and prior to distribution of his or her Accounts, the Corporation shall pay a death benefit equal to Gain Share Account and Restricted Stock Account. The death benefit payable under this Section shall be distributed to the Participant's Beneficiary in a lump sum on or about the first day of the third month following the Participant's death. The distribution shall be made in accordance with the last beneficiary designation received by the Plan Administrator from the Participant prior to his or her death. If no such designation has been received by the Corporation, such payments shall be made to the Participant's surviving legal spouse. If the Participant is not survived by a legal spouse, or if such spouse shall fail to so appoint, the said payments shall be made to the then living children of the Participant, if any, in equal shares. If there are no surviving children, the payments will be made to the estate of the later to die of the Participant and his or her legal spouse, if any. 7

6.6 TERMINATION OF BENEFITS. In the event of the Participant's termination of employment with the Corporation or an Affiliate for any reason, the Corporation shall pay to the Participant the value of the Participant's Accounts. Such termination benefit shall be payable on or about the first day of the third month following the date of termination with shares of Common Stock. 6.7 HARDSHIP DISTRIBUTION. (a) HARDSHIP WITHDRAWAL. In the event that the Plan Administrator, under written request of a Participant, determines, in its sole discretion, that a Participant has suffered an unforeseeable financial emergency, the Corporation shall distribute to the Participant, as soon as practicable following such determination, Common Stock necessary to meet the emergency (the "Hardship Withdrawal"), but not exceeding the balance of such Participant's Accounts as of the date of such payment. For purposes of Section 6.7(a), an "unforeseeable financial emergency" shall mean an event that the Plan Administrator determines to give rise to an unexpected need for cash arising from an illness, casualty loss, sudden financial reversal or other such unforeseeable occurrence. Amounts of Hardship Withdrawal may not exceed the amount the Plan Administrator reasonably determines to be necessary to meet such emergency needs (including taxes incurred by reason of a taxable distribution). The amount of the deferral benefit otherwise payable under the Plan to such Participant shall be adjusted to reflect the early payment of the Hardship Withdrawal. (b) RULES ADOPTED BY PLAN ADMINISTRATOR. The Plan Administrator shall have the authority to adopt additional rules relating to Hardship Withdrawals. In administering these rules, the Plan Administrator shall act in accordance with the principle that the primary purpose of this Plan is to provide additional retirement income, not additional funds for current consumption. (c) LIMIT ON NUMBER OF HARDSHIP WITHDRAWALS. No Participant may receive more than one Hardship Withdrawal in any Calendar Year. 6.8 TERMINATION BASED ON CORPORATE PERFORMANCE. If the amount of the Corporation's net worth, as reported on any of its quarterly filed financial statements, at any time declines below $ 50,000,000.00, this Plan shall terminate and each Participant shall receive a termination benefit as provided for under Section 6.6 above. 6.9 ADVERSE ACTION ON PARTICIPANT OR PLAN. (a) Notwithstanding any other provision hereof, in the event there is a determination by the U.S. Internal Revenue Service ("IRS"), or in the event of a final determination by a court of competent jurisdiction, that amounts credited to Participants' Accounts hereunder are includable in the gross incomes of such Participants or their respective Beneficiaries, the Plan Administrator may, in its sole discretion, distribute the entire amount credited to the Participants' Accounts to the Participants or their respective Beneficiaries and cause the termination of future deferrals by the Participants. 8

(b) In the event that there is a determination by the U.S. Department of Labor, or a final determination of a court of competent jurisdiction, that the Plan is subject to Part 2, 3 or 4 of Title I of ERISA, the Plan Administrator may, in its sole discretion, distribute the entire amount credited to the Participants' Accounts to the Participants or their respective Beneficiaries and cause the termination of future deferrals by the Participants. 6.10 BENEFITS NOT TRANSFERABLE. No Participant or Beneficiary under this Plan shall have any power or right to transfer, assign, anticipate, hypothecate or otherwise encumber all or any part of the amounts payable hereunder. No part of the amounts payable shall, prior to actual payment, be subject to seizure or sequestration for the payment of any debts, judgments, alimony or separate maintenance owed by a Participant or any other person, nor be transferable by operation of law in the event of a Participant's or any other person's bankruptcy or insolvency, or dissolution of marriage. Any such attempted assignment shall be void. 6.11 NO TRUST CREATED. Nothing contained in this Plan, and no action taken pursuant to its provisions by any person shall create, or be construed to create, a trust of any kind, or a fiduciary relationship between the Corporation and any other person. 6.12 UNCLAIMED BENEFITS. In the case of a benefit payable on behalf of a Participant, if the Plan Administrator is unable to locate the Participant or Beneficiary to whom such benefit is payable, such Plan benefit may be forfeited to the Corporation upon the Plan Administrator's determination. Notwithstanding the foregoing, if, subsequent to any such forfeiture, the Participant or Beneficiary to whom such Plan benefit is payable makes a valid claim for such Plan benefit, such forfeited Plan benefit shall be paid by the Plan Administrator to the Participant or Beneficiary, without interest on the Accounts from the date it would have otherwise been paid. ARTICLE 7 DISTRIBUTION OF BENEFITS 7.1 BENEFITS PAYABLE ONLY FROM GENERAL CORPORATE ASSETS: UNSECURED GENERAL CREDITOR STATUS OF PARTICIPANT. Payment to a Participant or any Beneficiary hereunder shall be made from assets which shall continue, for all purposes, to be part of the general, unrestricted assets of the Corporation; no person shall have any interest in any such asset by virtue of any provision of this Plan. The Corporation's obligation hereunder shall be an unfunded and unsecured promise to pay money in the future. To the extent that any person acquires a right to receive payments from the Corporation under the provisions hereof, such right shall be no greater than the right of any unsecured general creditor of the Corporation; no such person shall have or acquire any legal or equitable right, interest or claim in or to any property or assets of the Corporation. 7.2 NO CONTRACT OF EMPLOYMENT. Nothing contained herein shall be construed to be a contract of employment for any term of years, or as conferring upon the Participant the 9

right to continue to be employed by the Corporation in his or her present capacity or in any capacity 7.3 FACILITY OF PAYMENT. If a distribution is to be made to a minor, or to a person who is otherwise incompetent, then the Plan Administrator may, in its discretion, make such distribution (i) to the legal guardian, or if none, to a parent of a minor payee with whom the payee maintains his or her residence, or (ii) to the conservator or committee or, if none, to the person having custody of an incompetent payee. Any such distribution shall fully discharge the Plan Administrator, the Corporation and Plan from further liability on account thereof. 7.4 WITHHOLDING. Any and all payments to be made to a Participant or a Participant's Beneficiaries pursuant to this Plan shall be subject to all federal, state and local income and employment taxes and such taxes may be withheld accordingly by the Corporation from benefits under this Plan or from Base Salary, bonuses or other amounts due to the Participant, as determined by the Plan Administrator. The Corporation may, in its discretion, accept payment by the Participant or Beneficiary of the amount of any applicable taxes in lieu of deducting such amount from the Participant's Accounts, Base Salary, bonuses or other amounts due to the Participant. ARTICLE 8 BENEFICIARIES; PARTICIPANT DATA 8.1 BENEFICIARY DESIGNATION. The Participant shall have the right, at any time, to submit in substantially the form attached hereto as Exhibit B, a written designation of primary and secondary Beneficiaries to whom payment under this Plan shall be made in the event of his or her death prior to distribution of the Accounts. . Each beneficiary designation shall become effective only when receipt thereof is acknowledged in writing by the Corporation. The Corporation shall have the right, in its sole discretion, to reject any beneficiary designation which is not in substantially the form attached hereto as Exhibit B. Any attempt to designate a Beneficiary, otherwise than as provided in this Section 8.1, shall be ineffective. 8.2 SPOUSE'S INTEREST. A Participant's beneficiary designation shall be deemed automatically revoked if the Participant names a spouse as Beneficiary and the marriage is later dissolved or the spouse dies. Without limiting the generality of the foregoing, the interest in the benefits hereunder of a spouse of a Participant who has predeceased the Participant or whose marriage with the Participant has been dissolved shall automatically pass to the Participant and shall not be transferable by such spouse in any manner, including but not limited to such spouse's will, nor shall such interest pass under the laws of intestate succession. 10

ARTICLE 9 PLAN ADMINISTRATION 9.1 RESPONSIBILITY OF ADMINISTRATION OF THE PLAN. (a) The Plan Administrator shall be responsible for the management, operation and administration of the Plan. The Plan Administrator may employ others to render advice with regard to its responsibilities under this Plan. It may also allocate its responsibilities to others and may exercise any other powers necessary for the discharge of its duties. The Plan Administrator shall be entitled to rely conclusively upon all tables, valuations, certifications, opinions and reports furnished by any actuary, accountant, controller, counsel or other person employed or engaged by the Plan Administrator with respect to the Plan. (b) The primary responsibility of the Plan Administrator is to administer the Plan for the benefit of the Participants and their respective Beneficiaries, subject to the specific terms of the Plan. The Plan Administrator shall administer the Plan in accordance with its terms and shall have the power to determine all questions arising in connection with the administration, interpretation, and application of the Plan. Any such determination shall be conclusive and binding upon all persons and their heirs, executors, beneficiaries, successors and assigns. The Plan Administrator shall have all powers necessary or appropriate to accomplish its duties under the Plan. The Plan Administrator shall also have the discretion and authority to make, amend, interpret, and enforce all appropriate rules and regulations for the administration of this Plan and decide or resolve any and all questions, including but not limited to, interpretations of this Plan and entitlement to or amount of benefits under this Plan, as may arise in connection with the Plan. 9.2 CLAIMS PROCEDURE. (a) CLAIM. A person who believes that he or she is being denied a benefit to which he or she is entitled under the Plan (hereinafter referred to as a "Claimant") may file a written request for such benefit with the Plan Administrator, setting forth his or her claim. The request must be addressed to the Plan Administrator at its then principal place of business. Notwithstanding anything to the contrary, pending a determination under this Section 9.2, the undisputed portion of a benefit due to Claimant shall be timely distributed pursuant to the terms of the Plan. (b) CLAIM DECISION. Upon receipt of a claim, the Plan Administrator shall advise the Claimant that a reply will be forthcoming within 45 days. The Plan Administrator may, however, extend the reply period for an additional 30 days for reasonable cause. If the claim is denied in whole or in part, the Plan Administrator shall adopt a written opinion, using language calculated to be understood by the Claimant, setting forth to the extent applicable: (i) The specific reasons for such denial; (ii) Specific reference to pertinent provisions of this Plan on which such denial is based; 11

(i) A description of any additional material or information necessary for the Claimant to perfect his or her claim and an explanation why such material or such information is necessary; (ii) Appropriate information as to the steps to be taken if the Claimant wishes to submit the claim for review, and (iii) The time limits for requesting a review under subsection (c) hereof. (c) REQUEST FOR REVIEW. Within 60 days after receipt by the Claimant of the written opinion described above, the Claimant may request in writing that the Corporation through its Board of Directors review the Plan Administrator's determination. Such request must be addressed to the Plan Administrator of the Corporation at its then principal place of business. The Claimant or his or her duly authorized representative may, but need not, review the pertinent documents and submit issues and comments in writing for consideration by the Corporation. If the Claimant does not request a review of the determination within such 60-day period, he or she shall be barred and estopped from challenging the determination. (d) REVIEW OF DECISION. Within 30 days after the Corporation's receipt of a request for review by a Claimant pursuant to 9.2 (c) above, the Corporation will review the Plan Administrator's determination. After considering all materials presented by the Claimant, the Corporation, through its Board of Directors, will render a written opinion, written in a manner calculated to be understood by the Claimant, setting forth the specific reasons for the decision and containing specific references to the pertinent provisions of this Plan on which the decision is based. If special circumstances require that the 30 day time period be extended, the Corporation will so notify the Claimant and will render the decision as soon as possible, but in no event later than 60 days after receipt of the request for review. 9.3 ARBITRATION. Any claim or controversy between the parties which the parties are unable to resolve themselves, and which is not resolved through the claims procedure set forth in Section 9.2, including any claim arising out of, connected with, or related to the interpretation, performance or breach of any provision of this Plan, and any claim or dispute as to whether a claim is subject to arbitration, shall be submitted to and resolved exclusively by expedited arbitration by a single arbitrator in accordance with the following procedures: (a) In the event of a claim or controversy subject to this arbitration provision, the complaining party shall promptly send written notice to the other party identifying the matter in dispute and the proposed remedy. Following such notice, the parties shall meet and attempt in good faith to resolve the matter. In the event the parties are unable to resolve the matter within 21 days, the parties shall meet and attempt in good faith to select a single arbitrator acceptable to both parties. If a single arbitrator is not selected by mutual consent within 10 business days following the expiration of the 21 day period, an arbitrator shall be selected from a list of nine persons each of whom shall be an attorney who is either engaged in the active practice of law or a recognized arbitrator and who, in either event, is experienced in serving as an arbitrator in disputes between employers and employees, which 12

list shall be provided by the office of the American Arbitration Association ("AAA") or of the Federal Mediation and Conciliation Service. If, within three business days of the parties' receipt of such list, the parties are unable to agree upon an arbitrator from the list, then the parties shall each strike names alternatively from the list, with the first to strike being determined by the flip of a coin. After each party has had four strikes, the remaining name on the list shall be the arbitrator. If such person is unable to serve for any reason, the parties shall repeat this process until an arbitrator is selected. (b) Unless the parties agree otherwise, within 60 days of the selection of the arbitrator, a hearing shall be conducted before such arbitrator at a time and a place agreed upon by the parties. In the event the parties are unable to agree upon the time or place of the arbitration, the time and place shall be designated by the arbitrator after consultation with the parties. Within 30 days of the conclusion of the arbitration hearing, the arbitrator shall issue an award, accompanied by a written decision explaining the basis for the arbitrator's award. The arbitrator's award may not include a provision for punitive damages. (c) In any arbitration hereunder, the Corporation shall pay all administrative fees of the arbitration, all fees of the arbitrator and each party's reasonable attorneys' fees, costs, and expenses. The arbitrator shall have no authority to add to or to modify the Plan, shall apply all applicable law, and shall have no lesser and no greater remedial authority than would a court of law resolving the same claim or controversy. The arbitrator shall, upon an appropriate motion, dismiss any claim without an evidentiary hearing if the party bringing the motion establishes that it would be entitled to summary judgment if the matter had been pursued in court litigation. The parties shall be entitled to reasonable discovery subject to the discretion of the arbitrator. (d) The decision of the arbitrator shall be final, binding, and non-appealable, and may be enforced as a final judgment in any court of competent jurisdiction. (e) This Section 9.3 shall extend to claims against any parent, subsidiary, or Affiliate of each party, and, when acting within such capacity, any officer, director, shareholder, Participant, Beneficiary, or agent of each party, or of any of the above, and shall apply as well to claims arising out of state and federal statutes and local ordinances as well as to claims arising under the common law or under this Plan. (f) Notwithstanding the foregoing, and unless otherwise agreed between the parties, either party may, in an appropriate manner, apply to a court for provisional relief, including a temporary restraining order or preliminary injunction, on the ground that the arbitration award to which the applicant may be entitled may be rendered ineffectual without provisional relief. (g) Any arbitration hereunder shall be conducted in accordance with the employee benefit plan claims rules and procedures of the AAA then in effect; provided, however, that, (i) all evidence presented to the arbitrator shall be in strict conformity with the legal rules of evidence, and (ii) in the event of any 13

inconsistency between the employee benefit plan claims rules and procedures of the AAA and the terms of this Plan, the terms of this Plan shall prevail. (h) If any of the provisions of this Section 9.3 are determined to be unlawful or otherwise unenforceable, in whole or in part, such determination shall not affect the validity of the remainder of this Section 9.3, and this Section 9.3 shall be reformed to the extent necessary to carry out its provisions to the greatest extent possible and to insure that the resolution of all conflicts between the parties, including those arising out of statutory claims, shall be resolved by neutral, binding arbitration. If a court should find that the provisions of this Section 9.3 are not absolutely binding, then the parties intend any arbitration decision and award to be fully admissible in evidence in any subsequent action, given great weight by any finder of fact, and treated as determinative to the maximum extent permitted by law. 9.4 NOTICE. Any notice, consent or demand required or permitted to be given under the provisions of this Plan shall be in writing and shall be signed by the party giving or making the same. If such notice, consent or demand is mailed, it shall be sent by United States certified mail, postage prepaid, return receipt requested, addressed to the addressee's last known address as shown on the records of the Corporation. The date of receipt, or the date of refusal by addressee upon presentation, shall be deemed the date of such notice, consent or demand. Any person may change the address to which notice is to be sent by giving written notice of the change of address in the manner aforesaid. ARTICLE 10 AMENDMENT OR TERMINATION 10.1 AMENDMENT OR TERMINATION. (a) This Plan may be amended or terminated by the Corporation at any time, without notice to or consent of any person, pursuant to resolutions adopted by its Board of Directors. Any such amendment or termination shall take effect as of the date specified therein and, to the extent permitted by law. However, no such amendment or termination shall reduce the amount then credited to the Participant's Accounts. If the Plan is terminated, the Participant's Accounts will be distributed in a single in-kind distribution of Common Stock. (b) Any other provision of this Plan to the contrary notwithstanding, the Plan may be amended by the Corporation at any time, to the extent that, in the opinion of the Corporation, such amendment shall be necessary in order to ensure that the Plan will be characterized as a plan maintained for a select group of management or highly compensated employees, as described in sections 201(2), 301(a)(3) and 401(a)(1) of ERISA, or to conform the Plan to the requirements of any applicable law, including ERISA and the Code. No such amendment shall be considered prejudicial to any interest of a Participant or Beneficiary hereunder. 14

ARTICLE 11 MISCELLANEOUS 11.1 ENTIRE AGREEMENT. The Plan and the executed Election Form and Beneficiary Designation Form, and other administrative forms shall constitute the total understanding between the Corporation and the Participant. No oral statement regarding the Plan may be relied upon by the Participant. In the event that there is a discrepancy between forms, this Plan will control. 11.2 INVALIDITY OF PROVISIONS. If any provision of this Plan shall, for any reason, be held to be invalid or unenforceable, the remaining provisions shall nevertheless be carried into effect. 11.3 GOVERNING LAW. The Plan and the rights and obligations of all persons hereunder shall be governed by and construed in accordance with the laws of the State of Illinois, other than its laws regarding choice of law, to the extent that such state law is not preempted by federal law. IN WITNESS WHEREOF, the Corporation has executed this Plan as of the day and year above first written. ATTEST: PCTEL, INC. By: /s/ Martin H. Singer --------------------------------- /s/ John W. Schoen, Secretary Title: Chief Executive Officer - ------------------ 15

PCTEL, INC. EXECUTIVE DEFERRED STOCK PLAN PARTICIPATION AGREEMENT ELECTION FORM EXHIBIT A THIS PARTICIPATION AGREEMENT is entered into this ____day of ___________, 20___ between PCTEL, INC., hereinafter referred to as the "Corporation", and _______________________, hereinafter referred to as the "Participant". PART I STOCK OPTION GAIN DEFERRAL ELECTION | | I hereby elect to defer stock option gains. I understand that this election must be made at least 6 months prior to my Date of Exercise. a) Number of Options to be exercised is ___________________. b) Date of grant of the Option is ___________________. c) ________% of my stock option gains to be deferred (in increments of 25%). d) Date this election is being made: ___________________. e) The Deferral Period for my election begins on my Date of Exercise and ends on the date distribution commences pursuant to my election in Part III below. PART II. RESTRICTED STOCK DEFERRAL ELECTION | | I hereby make a Restricted Stock deferral election. I understand that this election must be made at least 6 months prior to the vesting of my Restricted Stock (except with respect to the first Plan Year, in which case this election must be made prior to the vesting date). a) Number of shares to be deferred ___________________. b) Date this election is being made ___________________. c) The Deferral Period for my election begins on the date my Restricted Stock deferral election is filed with the Plan Administrator and ends on the date distribution commences pursuant to my election in Part III below. PART III. DISTRIBUTION OF BENEFITS ELECTION (ARTICLE 6 OF THE PLAN): Please select A or B. | | A. RETIREMENT BENEFITS. I hereby elect to have my Retirement or Disability benefits distributed to me in a single in-kind distribution of Common Stock. NOTE: THIS ELECTION MAY BE CHANGED BY THE PARTICIPANT BY GIVING WRITTEN NOTICE TO THE CORPORATION NOT LATER THAN ONE YEAR BEFORE RETIREMENT, OR PROMPTLY FOLLOWING A DISABILITY. BY THE TERMS OF THE PLAN, THE RETIREMENT AGE IS AGE 55 OR LATER. 16

| | B. FIXED PAYMENT DATE BENEFITS. This Section applies if you wish to elect an in-service distribution prior to retirement age. All distributions under this section are made in a lump sum. I hereby elect to have my fixed payment date benefits distributed to me at the following date: Date for fixed payments to commence (This date may be no earlier than the January 1 of the third Calendar Year after the Calendar Year in which this election is made. NOTE: THIS ELECTION MAY BE CHANGED TO EXTEND THE FIXED PAYMENT DATE TO A LATER DATE SO LONG AS (A) THE ELECTION TO SO EXTEND THE DATE IS AT LEAST ONE YEAR BEFORE THE ORIGINAL DATE, AND (B) THE EXTENDED DATE IS NO EARLIER THAN JANUARY 1 OF THE THIRD CALENDAR YEAR AFTER ISSUING THE ELECTION TO EXTEND. SUCH DATES MAY NOT BE ACCELERATED. PCTEL, INC. PARTICIPANT - ------------------------ ----------------------------- <> <> 17

PCTEL, INC. EXECUTIVE DEFERRED STOCK PLAN DESIGNATION OF BENEFICIARY EXHIBIT B TO: PCTEL, INC. (hereinafter referred to as the "Corporation"), In accordance with the rights granted to me as a Participant in the PCTEL, Inc. Executive Deferred Stock Plan, I hereby designate the following as primary and 1st contingent Beneficiary(ies) thereunder to receive payments in the event of my death: PRIMARY Beneficiary: -------------------------- Relationship: ------------------- 1ST CONTINGENT Beneficiary: -------------------- Relationship: ------------------- I further reserve the privilege of changing the Beneficiary(ies) herein named at any time or times without the consent of any such Beneficiary(ies). This designation is made upon the following terms and conditions: 1. The word "Beneficiary" as used herein shall include the plural, Beneficiaries, wherever the Plan permits. 2. For purposes of this Beneficiary Designation, no person shall be deemed to have survived the Participant if that person dies within thirty (30) days of the Participant's death. 3. Beneficiary shall mean the Primary Beneficiary if such Primary Beneficiary survives the Participant by at least thirty (30) days, and shall mean the 1st Contingent Beneficiary if the Primary Beneficiary does not survive the Participant by at least thirty (30) days. 4. If the Primary Beneficiary shall be deceased on the date of distribution as provided in the Plan the distribution shall be payable to the 1st Contingent Beneficiary unless the executors or administrators of said deceased Beneficiary are named as Primary Beneficiary hereinabove. 5. If more than one Beneficiary is named within the same class (i.e., Primary or 1st Contingent), then distribution shall be made equally to such Beneficiaries unless otherwise provided hereinabove. If none of the Beneficiaries named hereinabove are living on the date distribution is to be made, distribution shall be made to my executors or administrators, or upon their written request, to any person or persons so designated by them. 6. If any distribution shall be payable to any trust, the Corporation shall not be liable to see to the application by the Trustee of any payment hereunder at any time, and may rely upon the sole signature of the Trustee to any receipt, release or waiver, or to any transfer or other instrument to whomsoever made purporting to affect this nomination or any right hereunder. 7. A Participant's Beneficiary designation shall be deemed automatically revoked if the Participant names a spouse as Beneficiary and the marriage is later dissolved or the spouse dies. Without limiting the generality of the foregoing, the interest in the benefits hereunder of a spouse of a Participant who has predeceased the Participant or whose marriage with the Participant has been dissolved shall automatically pass to the Participant and shall not be transferable by such spouse in any manner, including but not limited to such spouse's will, nor shall such interest pass under the laws of intestate succession.

THIS DESIGNATION CANCELS AND SUPERSEDES ANY DESIGNATION OF BENEFICIARY HERETOFORE MADE BY ME WITH RESPECT TO SAID PLAN AND THE RIGHT TO RECEIVE PAYMENTS THEREUNDER. Dated: __________________________ Executive: __________________________ I am the spouse of the Participant/Executive named above. I have read and understood the foregoing Designation of Beneficiary, and especially paragraph 8 thereof. I understand that the Plan does not permit the assignment of the Participant/Executive's benefits to me in the event of the dissolution of my marriage. I also understand that, even if I am named as a Beneficiary, my rights may be impaired in the event of the dissolution of my marriage or my death before the Participant/Executive. Dated: _____________________ _____________________________________ Spouse Acknowledgment of receipt this _____ day of ______________, 20__ By:____________________________ 2

EXHIBIT 21.1 LIST OF SUBSIDIARIES OF THE REGISTRANT 1. PC-TEL Japan, K.K. 2. Voyager Technologies, Inc. 3. BlueCom Technology Corp. 4. PCTEL Europe SARL 5. PCTEL Maryland, Inc.

EXHIBIT 23.1 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Registration Statements on Forms S-8 (File Nos. 333-34910, 333-61926, 333-70886, 333-75204, and 333-82120) of PCTEL, Inc. of our report dated February 10, 2003, except as to note 16, which is as of March 21, 2003, relating to the financial statements and financial statement schedule, which appears in this Form 10-K. PricewaterhouseCoopers LLP San Jose, California March 27, 2003

EXHIBIT 99.1 CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 I, Martin H. Singer, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Annual Report of PCTEL, Inc. on Form 10-K for the fiscal year ended December 31, 2002 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in such Annual Report on Form 10-K fairly presents in all material respects the financial condition and results of operations of PCTEL, Inc. By: /s/ Martin H. Singer ---------------------------------- DATE: MARCH 31, 2003 NAME: MARTIN H. SINGER Title: Chief Executive Officer I, John Schoen, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Annual Report of PCTEL, Inc. on Form 10-K for the fiscal year ended December 31, 2002 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in such Annual Report on Form 10-K fairly presents in all material respects the financial condition and results of operations of PCTEL, Inc. By: /s/ John Schoen ---------------------------------- DATE: MARCH 31, 2003 NAME: JOHN SCHOEN Title: Chief Operating Officer and Chief Financial Officer