10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

x Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

for the quarterly period ended September 26, 2010

¨ 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 0-19084

PMC-Sierra, Inc.

(Exact name of registrant as specified in its charter)

A Delaware Corporation - I.R.S. NO. 94-2925073

3975 Freedom Circle

Santa Clara, CA 95054

(408) 239-8000

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨

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

Large accelerated filer	x	Accelerated filer	¨
Non-accelerated filer	¨	Smaller reporting company	¨

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

Common shares outstanding at November 1, 2010 – 231,369,238

INDEX

		Page
PART I—FINANCIAL INFORMATION
Item 1.	Financial Statements (unaudited)
	-    Condensed Consolidated Statements of Operations		3
	-    Condensed Consolidated Balance Sheets		4
	-    Condensed Consolidated Statements of Cash Flows		5
	-    Condensed Consolidated Statements of Stockholders’ Equity		6
	-    Notes to the Condensed Consolidated Financial Statements		7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		25
Item 3.	Quantitative and Qualitative Disclosures About Market Risk		44
Item 4.	Controls and Procedures		47
PART II—OTHER INFORMATION
Item 1.	Legal Proceedings		48
Item 1A.	Risk Factors		49
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		63
Item 3.	Defaults Upon Senior Securities		63
Item 4.	[Reserved]		63
Item 5.	Other Information		63
Item 6.	Exhibits		63
Signatures			64

Part I—FINANCIAL INFORMATION

Item 1—Financial Statements (Unaudited)

PMC-Sierra, Inc.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except for per share amounts)

	Three Months Ended						Nine Months Ended
	September 26, 2010			September 27, 2009			September 26, 2010			September 27, 2009
Net revenues	$	162,335		$	130,876		$	475,830		$	356,642
Cost of revenues		53,813			44,432			152,882			120,648
Gross profit		108,522			86,444			322,948			235,994
Other costs and expenses:
Research and development		50,180			35,823			135,893			110,834
Selling, general and administrative		25,567			19,743			73,148			63,854
Amortization of purchased intangible assets		5,884			9,836			22,536			29,508
Restructuring costs and other charges		66			175			322			813
Income from operations		26,825			20,867			91,049			30,985
Other (expense) income:
Gain (loss) on investment securities		220			—			(79	)		—
Amortization of debt issue costs		(50	)		(50	)		(150	)		(150	)
Loss on subleased facilities		—			—			—			(538	)
Foreign exchange (loss) gain		(707	)		(1,094	)		(1,622	)		109
Interest income (expense), net		68			(487	)		(78	)		(2,139	)
Income before (provision for) recovery of income taxes		26,356			19,236			89,120			28,267
(Provision for) recovery of income taxes		(11,201	)		8,583			(16,872	)		3,484
Net income	$	15,155		$	27,819		$	72,248		$	31,751
Net income per common share - basic	$	0.07		$	0.12		$	0.31		$	0.14
Net income per common share - diluted	$	0.06		$	0.12		$	0.31		$	0.14
Shares used in per share calculation - basic		231,966			227,123			230,922			225,276
Shares used in per share calculation - diluted		234,292			231,863			234,290			228,172

See notes to the condensed consolidated financial statements.

- 3 -

PMC-Sierra, Inc.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except par value)

	September 26, 2010			December 27, 2009
ASSETS:
Current assets:
Cash and cash equivalents	$	131,075		$	192,841
Short-term investments		114,329			67,928
Accounts receivable, net of allowance for doubtful accounts of $1,888 (2009 - $1,259)		76,765			50,745
Inventories, net		36,122			31,531
Prepaid expenses and other current assets		17,729			14,476
Income taxes receivable		3,924			—
Deferred tax assets		9,605			3,052
Total current assets		389,549			360,573
Property and equipment, net		15,529			13,909
Investment securities		310,381			192,636
Goodwill		398,798			396,144
Intangible assets, net		104,201			110,458
Deferred tax assets		251			250
Prepaid expenses		24,497			26,187
Investments and other assets		12,738			10,175
Deposits for wafer fabrication capacity		5,145			5,145
	$	1,261,089		$	1,115,477
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Accounts payable	$	29,530		$	22,266
Accrued liabilities		61,714			52,996
Liability for unrecognized tax benefit		38,168			31,330
Income taxes payable		383			7,261
Deferred income taxes		232			681
Accrued restructuring costs		2,263			3,994
Deferred income		22,218			12,498
Total current liabilities		154,508			131,026
2.25% senior convertible notes due October 15, 2025, net		60,768			58,356
Long-term obligations		7,865			6,211
Deferred income taxes		27,102			22,695
Liability for unrecognized tax benefit		15,647			14,663
PMC special shares convertible into 1,447 (2009 - 1,570) shares of common stock		1,826			2,003
Stockholders’ equity:
Common stock, par value $.001: 900,000 shares authorized; 231,286 shares issued and outstanding (2009 - 227,655)		251			247
Additional paid in capital		1,560,300			1,521,476
Accumulated other comprehensive income		2,938			1,164
Accumulated deficit		(570,116	)		(642,364	)
Total stockholders’ equity		993,373			880,523
	$	1,261,089		$	1,115,477

See notes to the condensed consolidated financial statements.

- 4 -

PMC-Sierra, Inc.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

	Nine Months Ended
	September 26, 2010			September 27, 2009
Cash flows from operating activities:
Net income	$	72,248		$	31,751
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		35,645			42,437
Stock-based compensation		16,315			16,212
Unrealized foreign exchange loss, net		1,436			97
Net amortization (accretion) of investment premiums/discounts		4,511			(419	)
Accrued interest on investment securities		(701	)		—
Loss on disposal of investment securities		78			—
Asset impairment		4,882			—
Loss on subleased facilities		—			538
Changes in operating assets and liabilities:
Accounts receivable		(17,739	)		(8,070	)
Inventories		912			7,995
Prepaid expenses and other current assets		2,896			2,475
Accounts payable and accrued liabilities		5,648			4,562
Deferred income taxes and income taxes payable		(68	)		(6,624	)
Accrued restructuring costs		(1,739	)		(1,445	)
Deferred income		9,720			758
Net cash provided by operating activities		134,044			90,267
Cash flows from investing activities:
Acquisition of business		(34,250	)		—
Purchases of property and equipment		(6,847	)		(4,570	)
Purchase of intangible assets		(4,287	)		(1,398	)
Redemption of short-term investments		4,574			170,802
Disposals of investment securities		133,000			11,142
Purchases of investment securities		(303,192	)		(209,311	)
Net cash used in investing activities		(211,002	)		(33,335	)
Cash flows from financing activities:
Proceeds from issuance of common stock		15,133			24,311
Net cash provided by financing activities		15,133			24,311
Effect of exchange rate changes on cash and cash equivalents		59			1,962
Net (decrease) increase in cash and cash equivalents		(61,766	)		83,205
Cash and cash equivalents, beginning of period		192,841			97,839
Cash and cash equivalents, end of period	$	131,075		$	181,044

See notes to the condensed consolidated financial statements.

- 5 -

PMC-Sierra, Inc.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 26, 2010, AND SEPTEMBER 27, 2009

(in thousands)

	Shares of Common Stock		Common Stock		Additional Paid in Capital		Accumulated Other Comprehensive Income (net of tax)			Accumulated Deficit			Total Stockholders’ Equity
Balance at June 28, 2010		229,936	$	250	$	1,539,714	$	1,393		$	(585,271)		$	956,086
Net income		—		—		—		—			15,155			15,155
Other comprehensive income (loss):
Change in fair value of derivatives		—		—		—		393			—			393
Change in fair value of investment securities		—		—		—		1,152			—			1,152
Comprehensive income														16,700
Conversion of special shares into common shares		73		—		105		—			—			105
Issuance of common stock under stock benefit plans		1,277		1		7,178		—			—			7,179
Stock-based compensation expense		—		—		5,301		—			—			5,301
Benefit of stock option related loss carry-forwards		—		—		8,002		—			—			8,002
Balances at September 26, 2010		231,286	$	251	$	1,560,300	$	2,938		$	(570,116	)	$	993,373
Balance at June 29, 2009		223,559	$	243	$	1,491,286	$	902		$	(685,309	)	$	807,122
Net income		—		—		—		—			27,819			27,819
Other comprehensive income (loss):
Change in fair value of derivatives		—		—		—		363			—			363
Change in fair value of investment securities		—		—		—		514			—			514
Comprehensive income														28,696
Conversion of special shares into common shares		375		1		521		—			—			522
Issuance of common stock under stock benefit plans		3,051		3		15,291		—			—			15,294
Stock-based compensation expense		—		—		5,120		—			—			5,120
Balances at September 27, 2009		226,985	$	247	$	1,512,218	$	1,779		$	(657,490	)	$	856,754
Balances at December 28, 2009		227,655	$	247	$	1,521,476	$	1,164		$	(642,364	)	$	880,523
Net income		—		—		—		—			72,248			72,248
Other comprehensive income (loss):
Change in fair value of derivatives		—		—		—		362			—			362
Change in fair value of investment securities		—		—		—		1,412			—			1,412
Comprehensive income														74,022
Conversion of special shares into common shares		123		—		177		—			—			177
Issuance of common stock under stock benefit plans		3,508		4		14,330		—			—			14,334
Stock-based compensation expense		—		—		16,315		—			—			16,315
Benefit of stock option related loss carry-forwards		—		—		8,002		—			—			8,002
Balances at September 26, 2010		231,286	$	251	$	1,560,300	$	2,938		$	(570,116	)	$	993,373
Balances at December 29, 2008		221,335	$	241	$	1,471,476	$	(3,218	)	$	(689,241	)	$	779,258
Net income		—		—		—		—			31,751			31,751
Other comprehensive income (loss):
Change in fair value of derivatives		—		—		—		4,523			—			4,523
Change in fair value of investment securities		—		—		—		474			—			474
Comprehensive income														36,748
Conversion of special shares into common shares		396		1		539		—			—			540
Issuance of common stock under stock benefit plans		5,254		5		23,991		—			—			23,996
Stock-based compensation expense		—		—		16,212		—			—			16,212
Balances at September 27, 2009		226,985	$	247	$	1,512,218	$	1,779		$	(657,490	)	$	856,754

See notes to the condensed consolidated financial statements.

- 6 -

PMC-Sierra, Inc.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

NOTE 1. Summary of Significant Accounting Policies

Description of business. PMC-Sierra, Inc. (the “Company” or “PMC”) designs, develops, markets and supports semiconductor solutions for the Enterprise Infrastructure and Communications Infrastructure end market segments. The Company offers worldwide technical and sales support through a network of offices in North America, Europe and Asia.

Basis of presentation. The accompanying condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the United States Securities and Exchange Commission (the “SEC”) and United States Generally Accepted Accounting Principles (“GAAP”). Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to those rules or regulations. These interim condensed consolidated financial statements are unaudited, but reflect all adjustments that are, in the opinion of management, necessary to provide a fair statement of results for the interim periods presented. These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and accompanying notes in the Company’s Annual Report on Form 10-K for the year ended December 27, 2009. The results of operations for the interim periods are not necessarily indicative of results to be expected in future periods. Fiscal 2010 will consist of 52 weeks and will end on Sunday, December 26, 2010. Fiscal 2009 consisted of 52 weeks and ended on Sunday, December 27, 2009. The first three quarters of 2010 and 2009 consisted of 39 weeks each.

Estimates. The preparation of financial statements and related disclosures in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Estimates are used for, but not limited to, stock-based compensation, purchase accounting assumptions including those used to calculate the fair value of intangible assets and goodwill, the valuation of investments, allowance for doubtful accounts, inventory reserves, depreciation and amortization, asset impairments, sales returns, warranty costs, income taxes including uncertain tax positions, restructuring costs, assumptions used to measure the fair value of the debt component of our senior convertible notes, accounting for employee benefit plans, and contingencies. Actual results could differ from these estimates.

- 7 -

Inventories. Inventories are stated at the lower of cost (first-in, first-out) or market (estimated net realizable value). Inventories (net of reserves of $8.8 million and $6.8 million at September 26, 2010 and December 27, 2009, respectively) were as follows:

(in thousands)	September 26, 2010		December 27, 2009
Work-in-progress	$	15,406	$	14,452
Finished goods		20,716		17,079
	$	36,122	$	31,531

Derivatives and Hedging Activities. Fluctuating foreign exchange rates may negatively impact PMC’s operations and cash flows. The Company periodically hedges foreign currency forecasted transactions related to certain operating expenses. All derivatives are recorded in the condensed consolidated balance sheet at fair value. For a derivative designated as a fair value hedge, changes in the fair value of the derivative and of the hedged item attributable to the hedged risk are recognized in net income (loss). For a derivative designated as a cash flow hedge, the effective portions of changes in the fair value of the derivative are recorded in other comprehensive income (loss) and are recognized in net income (loss) when the hedged item affects net income (loss). Ineffective portions of changes in the fair value of cash flow hedges are recognized in net income (loss). If the derivative used in an economic hedging relationship is not designated in an accounting hedging relationship or if it becomes ineffective, changes in the fair value of the derivative are recognized in net income (loss). During the quarter ended September 26, 2010, all hedges were designated as cash flow hedges.

Impairment of long-lived assets. The Company reviews its long-lived assets, other than goodwill and other indefinite-lived assets, for impairment annually or whenever events or changes in circumstances indicate that the carrying value of such assets may not be recoverable. To determine recoverability, the Company compares the carrying value of the assets to the estimated future undiscounted cash flows. Measurement of an impairment loss for long-lived assets held for use is based on the fair value of the asset determined through discounted cash flows. Long-lived assets classified as held for sale are reported at the lower of carrying value and fair value less estimated selling costs. For assets to be disposed of other than by sale, an impairment loss is recognized when the carrying value is not recoverable and exceeds the fair value of the asset.

During the quarter ended September 26, 2010, the Company recognized an asset impairment of $4.9 million based on a determination made in the period that certain intangible assets were made redundant by assets acquired with our purchase of the Channel Storage business from Adaptec, Inc. The carrying value of these assets was no longer recoverable based on expected future cash flows associated with these assets. Accordingly, the carrying value was written down to zero. This impairment charge was included in the condensed consolidated statement of operations in research and development expenses.

- 8 -

Product warranties. The Company provides a limited warranty on most of its standard products and accrues for the estimated cost at the time of shipment. The Company estimates its warranty costs based on historical failure rates and related repair or replacement costs. The change in the Company’s accrued warranty obligations from December 27, 2009 to September 26, 2010, and for the same period in the prior year were as follows:

	Nine Months Ended
(in thousands)	September 26, 2010			September 27, 2009
Balance, beginning of the period	$	6,418		$	6,031
Accrual for new warranties issued		247			1,074
Reduction for payments and product replacements		(174	)		(642	)
Adjustments related to changes in estimate of warranty accrual		(198	)		(423	)
Balance, end of the period	$	6,293		$	6,040

The Company’s accrual for warranty obligations is included in accrued liabilities in the condensed consolidated balance sheet.

Other Indemnifications. From time to time, on a limited basis, the Company indemnifies its customers, as well as its suppliers, contractors, lessors, and others with whom it enters into contracts, against combinations of loss, expense, or liability arising from various triggering events related to the sale and use of its products, the use of their goods and services, the use of facilities, the state of assets that the Company sells and other matters covered by such contracts, normally up to a specified maximum amount. The Company evaluates estimated losses for such indemnifications. The Company has no history of significant indemnification claims for such obligations.

Stock-based compensation. GAAP requires the Company to measure the cost of services received in exchange for an award of equity instruments based on the grant-date fair value of the award. The cost of such award will be recognized over the period during which services are provided in exchange for the award, generally the vesting period.

During the three and nine months ended September 26, 2010, the Company recognized $5.3 million and $16.3 million in stock-based compensation expense, respectively. Where a tax deduction for stock-based compensation was available to the Company, a valuation allowance for the related deferred tax assets was recorded.

The Company uses the straight-line method over the requisite service period for attributing stock-based compensation expense. See Note 5. Stock-Based Compensation for further information on stock-based compensation.

- 9 -

Recent Accounting Pronouncements

Fair Value Accounting

On December 28, 2009, the Company adopted the FASB’s updated guidance related to fair value measurements and disclosures, ASU 2010-06, Improving Disclosures About Fair Value Measurements, which requires a reporting entity to disclose separately the amount of significant transfers in and out of Level 1 and Level 2 fair value measurements and to describe the reasons for the transfers. In addition, in the reconciliation of fair value measurements using significant unobservable inputs, or Level 3, a reporting entity should disclose separately information about purchases, sales, issuances, and settlements (that is, on a gross basis rather than one net number). The updated guidance also requires that an entity should provide fair value measurement disclosures for each class of assets and liabilities and disclosures about valuation techniques and inputs used to measure fair value for both recurring and non-recurring fair value measurements for Level 2 and Level 3 fair value measurements. The guidance is effective for interim and annual financial reporting periods beginning after December 15, 2009, except for disclosures about purchases, sales, issuances, and settlements in the roll forward activity in Level 3 fair value measurement, which are effective for fiscal years beginning after December 15, 2010 and for interim periods within those fiscal years. The Company has updated its disclosures to comply with the updated guidance including the early adoption of the requirement for disclosures about purchases, sales, issuances, and settlements in the roll forward activity in Level 3 fair value measurements.

Business Combinations and Non-controlling Interests

In December 2007, the FASB issued ASC Topic 805, the Business Combinations Topic. ASC Topic 805 changes the accounting for acquisitions that close beginning in 2009. More transactions and events qualify as business combinations and are accounted for at fair value under the new standard. ASC Topic 805 promotes greater use of fair values in financial reporting. Some of the changes introduce more volatility into earnings. ASC Topic 805 is effective for fiscal years beginning on or after December 15, 2008. The Company applied this standard for business combinations that occurred after January 1, 2009. There is no financial reporting impact as a result of adoption of this standard.

In April 2009, the FASB issued ASC Topic 805-20, the Accounting for Assets Acquired and Liabilities Assumed in a Business Combination that Arise from Contingencies Topic. This

- 10 -

updated guidance amended the accounting treatment for assets and liabilities arising from contingencies in a business combination and requires that pre-acquisition contingencies be recognized at fair value, if fair value can be reasonably estimated. If fair value cannot be readily determined, measurement should be based on best estimates in accordance with ASC Topic 405, the Accounting for Contingencies Topic. This guidance was effective January 1, 2009. There is no financial reporting impact as a result of adoption of this standard. The Company applied this standard for business combinations that occurred after January 1, 2009. This did not affect the acquisition of the Channel Storage business from Adaptec, Inc.

In December 2007, the FASB issued ASC Topic 810-10-65, a part of the Consolidation Topic, which changes the accounting and reporting for minority interests which are recharacterized as noncontrolling interests and classified as a component of equity. This is effective for fiscal years beginning on or after December 15, 2008. ASC Topic 810 requires retroactive adoption of the presentation and disclosure requirements for existing minority interests. There is no financial reporting impact as a result of adoption of this standard.

- 11 -

NOTE 2. Business Combinations

On June 8, 2010, the Company completed the acquisition of the Channel Storage business from Adaptec, Inc. (“Adaptec”) pursuant to the terms of the Asset Purchase Agreement dated May 8, 2010 and Amendment to Asset Purchase Agreement dated June 8, 2010 between PMC and Adaptec (together the “Purchase Agreement”). Under the terms of the Purchase Agreement, PMC purchased the Channel Storage business for $34.3 million in cash. The Channel Storage business includes Adaptec’s redundant array of independent disks (“RAID”) storage product line, a well-established global value added reseller customer base, board logistics capabilities, and leading solid-state drive (“SSD”) cache performance solutions.

The total purchase price has been allocated on a preliminary basis to the fair values of assets acquired and liabilities assumed. The preliminary purchase price allocation is as follows:

(in thousands)
Financial assets	$	8,281
Inventory and other		5,934
Property and equipment		894
Intangible assets (see below)		21,300
Goodwill		2,654
Financial liabilities		(4,813	)
Net assets acquired	$	34,250

Intangible assets acquired, and their respective estimated remaining useful lives, over which each asset will be amortized on a straight-line basis, are:

(in thousands)	Estimated fair value		Estimated average remaining useful life
Technology and patents	$	10,100		3 to 9 years
Customer/ Distributor relationships		7,500		2 to 6 years
Trademarks and other		3,700		6 years
Total intangible assets acquired	$	21,300

During the three and nine months ended September 26, 2010, the Company recognized $0.1 million in acquisition-related costs which were expensed and recognized as cost of revenues. During the three and nine months ended September 26, 2010, the Company recognized $0.8 million and $2.2 million, respectively, in acquisition-related expenses which were expensed and recognized as selling, general and administrative expenses.

NOTE 3. Derivative Instruments

PMC generates revenues in United States dollars but incurs a portion of its operating expenses in various foreign currencies, the primary of which is the Canadian dollar. To minimize the short-term impact of foreign currency fluctuations, the Company uses currency forward contracts.

As at September 26, 2010, the Company had 18 contracts outstanding to purchase Canadian dollars, all with maturities of less than 12 months, which qualified and were designated as cash flow hedges. As of September 26, 2010, the United States dollar notional amount of these contracts was $29.1 million and the contracts had a fair value gain of $0.8 million, which was recorded in other comprehensive income net of taxes of $0.2 million.

NOTE 4. Fair Value Measurements

ASC Topic 820, the Fair Value Measurements and Disclosures specifies a hierarchy of valuation techniques which requires an entity to maximize the use of observable inputs that may be used to measure fair value:

- 12 -

Level 1 – Quoted prices in active markets are available for identical assets and liabilities. The Company’s Level 1 assets include cash equivalents, short-term investments, and long-term investment securities, which are generally acquired or sold at par value and are actively traded.

Level 2 – Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. The Company’s Level 2 liabilities include forward currency contracts whose value is determined using an income approach based on the present value of the forward rate less the contract rate multiplied by the nominal amount. Level 2 observable inputs were used in estimating interest rates used to determine the fair value of the debt component of the Company’s senior convertible notes (see Note 8. Long-Term Debt).

Level 3 – Pricing inputs include significant inputs that are generally not observable in the marketplace. These inputs may be used with internally developed methodologies that result in management’s best estimate of fair value. At each balance sheet date, the Company performs an analysis of all applicable instruments and would include in Level 3 all of those whose fair value is based on significant unobservable inputs. The Company’s Level 3 assets include investments in money market funds classified in short-term investments (see Note 7. Investment Securities).

Financial assets measured at fair values on a recurring basis as of September 26, 2010 are summarized below:

	Fair value, September 26, 2010
(in thousands)	Level 1		Level 2		Level 3
Assets:
Corporate bonds and notes (1)	$	264,389	$	—	$	—
Money market funds (1)		106,591		—		18,668
United States (“US”) treasury and government agency notes (1)		94,771		—		—
Foreign government and agency notes (1)		27,999		—		—
US state and municipal securities (1)		18,883		—		—
Forward currency contracts (2)		—		814		—
Total assets	$	512,633	$	814	$	18,668

(1) Included in cash and cash equivalents, short-term investments, and long-term investment securities (see Note 7. Investment Securities).

(2) Included in prepaid expenses and other current assets.

The following table is a reconciliation of financial assets measured at fair value on a recurring basis classified as Level 3 for the third quarter of 2010:

(in thousands)	Level 3
Balance at December 27, 2009	$	23,242
Partial distribution from the Reserve Funds		(4,574	)
Balance at September 26, 2010	$	18,668

- 13 -

Certain liabilities have been measured at fair value on a non-recurring basis as follows:

(in thousands)	Fair value, September 26, 2010 Level 2
Liabilities:
2.25% senior convertible notes due October 15, 2025, net	$	60,768

In October 2005, the Company issued senior convertible notes with a face value of $225.0 million and bearing interest at a rate of 2.25% per annum. At the date of issuance, the Company’s borrowing rate for similar debt instruments without equity conversion features was estimated to be 8.0% per annum. This borrowing rate of 8.0% was estimated using assumptions that market participants would use in pricing the liability component, including market interest rates, credit standing, yield curves, and volatilities, all of which are defined as Level 2 observable inputs. The debt, which is recorded at a discount from its face value at issuance based on this 8.0% rate, is accreted to its face value over a period of seven years, which is the earliest date at which the holders of these Notes may redeem them. See Note 8. Long-Term Debt.

The carrying value of cash, accounts receivable, and accounts payable approximate fair value because of their short maturities.

NOTE 5. Stock-Based Compensation

The Company has two stock-based compensation programs, which are described below. None of the Company’s stock-based awards under these plans are classified as liabilities. The Company did not capitalize any stock-based compensation cost, and recorded compensation expense for the three and nine months ended September 26, 2010 and September 27, 2009, as follows:

	Three Months Ended				Nine Months Ended
(in thousands)	September 26, 2010		September 27, 2009		September 26, 2010		September 27, 2009
Cost of revenues	$	162	$	149	$	609	$	580
Research and development		2,283		2,173		6,628		6,566
Selling, general and administrative		2,856		2,798		9,078		9,066
Total	$	5,301	$	5,120	$	16,315	$	16,212

The Company received cash of $7.2 million and $15.1 million related to the issuance of stock-based awards during the three and nine months ended September 26, 2010, respectively. The Company received cash of $17.3 million and $24.3 million related to the issuance of stock-based awards during the three and nine months ended September 27, 2009, respectively.

Equity Award Plans

The Company issues its common stock under the provisions of the 2008 Equity Plan (the “2008 Plan”). Stock option awards are granted with an exercise price equal to the closing market price of the Company’s common stock at the grant date. The options generally expire within 10 years and vest over four years.

- 14 -

The 2008 Plan was approved by stockholders at the 2008 Annual Meeting. The 2008 Plan became effective on January 1, 2009 (the “Effective Date”). It is a successor to the 1994 Incentive Stock Plan (the “1994 Plan”) and the 2001 Stock Option Plan (the “2001 Plan”). Up to 30,000,000 shares of our common stock have been initially reserved for issuance under the 2008 Plan. The implementation of the 2008 Plan did not affect any options or restricted stock units outstanding under the 1994 Plan or the 2001 Plan on the Effective Date. To the extent that any of those options or restricted stock units subsequently terminate unexercised or prior to issuance of shares thereunder, the number of shares of common stock subject to those terminated options and restricted stock units will be added to the share reserve available for issuance under the 2008 Plan, up to an additional 15,000,000 shares. No additional shares may be issued under the 1994 Plan or the 2001 Plan. In 2006, the Company assumed the stock option plans and all outstanding stock options of Passave, Inc. as part of the merger consideration in that business combination.

Activity under the option plans during the nine months ended September 26, 2010 was as follows:

	Number of options			Weighted average exercise price per share		Weighted average remaining contractual term (years)		Aggregate intrinsic value at September 26, 2010
Outstanding, December 27, 2009		25,346,469		$	8.80
Granted		4,523,360		$	8.81
Exercised		(1,252,116	)	$	5.59
Forfeited and expired		(1,147,014	)	$	15.93
Outstanding, September 26, 2010		27,470,699		$	8.65		6.23	$	20,278,924
Exercisable, September 26, 2010		18,809,077		$	9.25		5.10	$	12,632,244

The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying options and the quoted price of the Company’s common stock for the options that were in-the-money at September 26, 2010. No adjustment was required with respect to fully vested options that expired during the nine months ended September 26, 2010. During the three and nine months ended September 26, 2010, adjustments of $0.6 million and $3.1 million, respectively, were recorded for pre-vesting forfeitures.

The fair value of the Company’s stock option awards granted to employees during the nine months ended September 26, 2010 was estimated using a lattice-binomial valuation model. The binomial model considers the contractual term of the option, the probability that the option will be exercised prior to the end of its contractual life, and the probability of termination or retirement of the option holder in computing the value of the option. The model requires the input of highly subjective assumptions including the expected stock price volatility and expected life.

The Company’s estimates of expected volatilities are based on a weighted historical and market-based implied volatility. The Company uses historical data to estimate option exercises and employee terminations within the valuation model; separate groups of employees that have similar historical exercise behavior are considered separately for valuation purposes. The expected term of options granted is derived from the output of the stock option valuation model and represents the period of time that granted options are expected to be outstanding. The risk-free rate for periods within the contractual life of the stock option is based on the U.S. Treasury yield curve in effect at the time of the grant.

- 15 -

The fair values of the Company’s stock option awards were calculated for expense recognition using an estimated forfeiture rate, assuming no expected dividends and using the following weighted average assumptions:

	Three Months Ended						Nine Months Ended
	September 26, 2010			September 27, 2009			September 26, 2010			September 27, 2009
Expected life (years)		3.9			3.8			4.4			4.5
Expected volatility		53	%		62	%		54	%		66	%
Risk-free interest rate		1.4	%		2.1	%		2.3	%		1.8	%

The weighted average grant-date fair value per stock option granted during the three and nine months ended September 26, 2010, was $2.89 and $3.79, respectively. The total intrinsic value of stock options exercised during the three and nine months ended September 26, 2010 was $1.1 million and $3.5 million, respectively.

As of September 26, 2010, there was $21.1 million of total unrecognized compensation costs related to unvested stock-based compensation arrangements granted under the plans, which is expected to be recognized over an average period of 2.8 years.

Restricted Stock Units

On February 1, 2007, the Company amended its stock award plans to allow for the issuance of Restricted Stock Units (“RSUs”) to employees and members of the Board of Directors. The first grant of RSUs occurred on May 25, 2007. The grants vest over varying terms, up to a maximum of four years from the date of grant.

A summary of RSU activity during the nine months ended September 26, 2010 is as follows:

	Restricted Stock Units			Weighted Average Remaining Contractual Term		Aggregate intrinsic value at September 26, 2010
Unvested shares at December 27, 2009		2,407,011			—		—
Awarded		1,217,908			—		—
Released		(688,646	)		—		—
Forfeited		(262,754	)		—		—
End of Period		2,673,519			1.76	$	19,971,934
Restricted Stock Units vested and expected to vest September 26, 2010		2,199,247			1.69	$	16,428,375

The intrinsic value of RSUs vested during the three months and nine months ended September 26, 2010 was $0.3 million and $5.6 million, respectively. As of September 26, 2010, total unrecognized compensation costs, adjusted for estimated forfeitures, related to unvested RSUs was $13.0 million, which is expected to be recognized over the next 2.8 years.

- 16 -

Employee Stock Purchase Plan

In 1991, the Company adopted an Employee Stock Purchase Plan (“ESPP”) under Section 423 of the Internal Revenue Code. The ESPP allows eligible participants to purchase shares of the Company’s common stock at six-month intervals through payroll deductions at a price of 85% of the lower of the fair market value at specific dates in those six-month intervals (calculated in the manner provided in the plan). Shares of the Company’s common stock are offered under the ESPP through a series of successive offering periods, generally with a maximum duration of 24 months. Under the ESPP, the number of shares authorized to be available for issuance under the plan is increased automatically on January 1 of each year until the expiration of the plan. The increase will be limited to the lesser of (i) 1% of the outstanding shares on January 1 of each year, (ii) 2,000,000 shares (after adjusting for stock dividends), or (iii) an amount to be determined by the Board of Directors.

During the first nine months of 2010, 1,669,300 shares were issued under the ESPP at a weighted average price of $4.87 per share. As of September 26, 2010, 8,798,638 shares were available for future issuance under the ESPP compared to 8,467,938 as at December 27, 2009.

The fair values of share purchases through the Company’s ESPP were calculated using the Black-Scholes option pricing model, applying an estimated forfeiture rate, assuming no expected dividends and using the following weighted average assumptions:

	Three Months Ended						Nine Months Ended
	September 26, 2010			September 27, 2009			September 26, 2010			September 27, 2009
Expected life (years)		0.5			1.3			0.6			1.3
Expected volatility		44	%		55	%		44	%		59	%
Risk-free interest rate		0.2	%		0.6	%		0.2	%		0.7	%

The weighted average grant-date fair value per ESPP award granted during the first nine months of 2010 was $2.34.

For the period ending September 26, 2010, total unrecognized compensation costs, adjusted for estimated forfeitures, related to non-vested ESPP awards was $1.4 million, which is expected to be recognized over the next 0.3 years.

- 17 -

NOTE 6. Restructuring and Other Costs

The activity related to excess facility accruals under the Company’s restructuring plans during the first nine months of 2010, by year of plan, were as follows:

(in thousands)	2007			2006			2005			2001			Total
Balance at December 27, 2009	$	526		$	94		$	2,344		$	1,030		$	3,994
Reversals and adjustments		(14	)		(19	)		(2	)		7			(28	)
New charges		—			—			235			116			351
Cash payments		(219	)		(43	)		(1,091	)		(701	)		(2,054	)
Balance at September 26, 2010	$	293		$	32		$	1,486		$	452		$	2,263

During the first nine months of 2010, the Company recorded an additional $0.4 million for excess facilities as original assumptions regarding possible sublease of exited facilities were not realized. The remaining balance relates only to excess facilities for the remaining plans, namely the 2007, 2006, 2005, and 2001 plans. Payments for excess facilities under these restructuring plans may extend to October 2011. Further details regarding these restructuring plans are available in the Company’s Annual Report on Form 10-K for the year ended December 27, 2009.

NOTE 7. Investment Securities

At September 26, 2010, the Company had investments of $531.3 million (December 27, 2009 - $423.6 million) comprised of corporate bonds and notes, money market funds, US treasury and government agency notes, including Federal Deposit Insurance Corporation (“FDIC”) - insured corporate notes, foreign government and agency notes, and US state and municipal securities.

The Company’s available for sale investments, by investment type, consists of the following as at September 26, 2010 and December 27, 2009:

- 18 -

	September 26, 2010
(in thousands)	Amortized Cost		Gross Unrealized Gains*		Gross Unrealized Losses *			Fair Value
Cash and cash equivalents:
Money market funds	$	106,572	$	19	$	—		$	106,591
Short-term investments:
Corporate bonds and notes		55,288		2,438		(3	)		57,723
US treasury and government agency notes		10,714		356		—			11,070
Money market funds		18,668		—		—			18,668
Foreign government and agency notes		9,260		255		—			9,515
US states and municipal securities		17,269		84		—			17,353
Total short-term investments		111,199		3,133		(3	)		114,329
Long-term investment securities:
Corporate bonds and notes		204,470		2,238		(42	)		206,666
US treasury and government agency notes		83,194		507		—			83,701
Foreign government and agency notes		18,236		248		—			18,484
US states and municipal securities		1,500		30		—			1,530
Total long-term investment securities		307,400		3,023		(42	)		310,381
Total	$	525,171	$	6,175	$	(45	)	$	531,301

* Gross unrealized gains include accrued interest on investments of $2.8 million. The remainder of the gross unrealized gains and losses are included in the condensed consolidated balance sheet as other comprehensive income.

	December 27, 2009
(in thousands)	Amortized Cost		Gross Unrealized Gains*		Gross Unrealized Losses *			Fair Value
Cash and cash equivalents:
Money market funds	$	163,068	$	16	$	—		$	163,084
Short-term investments:
Corporate bonds and notes		14,760		1,426		(4	)		16,182
US treasury and government agency notes		20,376		804		(1	)		21,179
Money market funds		23,242		—		—			23,242
US states and municipal securities		7,300		25		—			7,325
Total short-term investments		65,678		2,255		(5	)		67,928
Long-term investment securities:
Corporate bonds and notes		108,102		669		(306	)		108,465
US treasury and government agency notes		52,594		389		(53	)		52,930
Foreign government and agency notes		30,179		123		(82	)		30,220
US states and municipal securities		1,019		2		—			1,021
Total long-term investment securities		191,894		1,183		(441	)		192,636
Total	$	420,640	$	3,454	$	(446	)	$	423,648

* Gross unrealized gains include accrued interest on investments of $2.1 million. The remainder of the gross unrealized gains and losses is included in the condensed consolidated balance sheet as other comprehensive income.

- 19 -

As of September 26, 2010 and December 27, 2009, the fair value of certain of the Company’s available-for-sale securities was less than their cost basis. Management reviewed various factors in determining whether to recognize an impairment charge related to these unrealized losses, including the current financial and credit market environment, the financial condition, near-term prospects of the issuer of the investment security, the magnitude of the unrealized loss compared to the cost of the investment, length of time the investment has been in a loss position and the Company’s intent and ability to hold the investment for a period of time sufficient to allow for any anticipated recovery of market value. As of September 26, 2010, the Company determined that the unrealized losses are temporary in nature and recorded them as a component of accumulated other comprehensive income.

$18.7 million of the investments held at September 26, 2010 (December 27, 2009 - $23.2 million), currently classified as short-term investments, relate to shares of the Reserve International Liquidity Fund, Ltd. (the “International Fund”) and the Reserve Primary Fund (the “Primary Fund”, together the “Reserve Funds”) for which the Company has outstanding redemption orders. The Reserve Funds were AAA-rated money market funds that announced redemption delays and suspended trading in September 2008 during the severe disruption in financial markets. During the second quarter of 2010, the Reserve Funds completed the process of liquidating their portfolio of investments, which included securities of Lehman Brothers Holdings, Inc. (“Lehman Brothers”) that was downgraded and has filed for Chapter 11 bankruptcy protection. The Primary Fund has received a United States Security Exchange Commission order providing that the SEC will supervise the distribution of assets from the Primary Fund. The redemptions from the International Fund are subject to pending litigation that could cause further delay in any redemption of the Company’s investments.

The Company assessed the fair value of its money market funds, including by consideration of Level 2 and Level 3 inputs (see Note 4. Fair Value Measurements) for the Reserve Funds and their underlying securities. Based on this assessment, the Company recorded an impairment of the Reserve Funds of $11.8 million during the third quarter of 2008, incorporating the Reserve Funds’ valuation at zero for debt securities of Lehman Brothers held, and a net asset value of $0.97 per share communicated by the Primary Fund.

In 2008, the Company reclassified its investment in shares of the Reserve Funds from Level 1 to Level 3 of the fair value hierarchy due to the inherent subjectivity and significant judgment related to the fair value of the shares of the Reserve Funds and their underlying securities. Accordingly, the Company changed the valuation method from a market approach to an income approach. In addition, due to the status of the Reserve Funds, the Company reclassified a portion of these shares from cash and cash equivalents to short-term investments based on the maturity dates of the underlying securities in the Reserve Funds.

The Company reassessed the fair value of our investments in money market funds during the first nine months of 2010, and determined there were no further impairments.

Changes in market conditions and the method and timing of the liquidation process of the Reserve Funds could result in further adjustments to the fair value and classification of these investments, and these changes could be material.

- 20 -

NOTE 8. Long-Term Debt

On October 26, 2005, the Company issued $225.0 million aggregate principal amount of 2.25% senior convertible notes (the “Notes”) that are due on October 15, 2025.

The Notes rank equal in right of payment with the Company’s other unsecured senior indebtedness and mature on October 15, 2025 unless earlier redeemed by the Company at its option, or converted or put to the Company at the option of the holders. Interest is payable semi-annually in arrears on April 15 and October 15 of each year, commencing on April 15, 2006. The Company may redeem all or a portion of the Notes at par on or after October 20, 2012. The holders may require that the Company repurchase the Notes on October 15 of each of 2012, 2015 and 2020.

Holders may convert the Notes into the right to receive the conversion value (i) when the Company’s stock price exceeds 120% of the approximately $8.80 per share initial conversion price for a specified period, (ii) in certain change in control transactions, and (iii) when the trading price of the Notes does not exceed a minimum price level. For each $1,000 principal amount of Notes, the conversion value represents the amount equal to 113.6687 shares multiplied by the per share price of the Company’s common share at the time of conversion. If the conversion value exceeds $1,000 per $1,000 in principal of Notes, the Company will pay $1,000 in cash and may pay the amount exceeding $1,000 in cash, stock or a combination of cash and stock, at the Company’s election.

Under ASC Topic 470, the Debt Topic for the accounting of convertible debt instruments that may be settled in cash upon conversion (including partial settlements) cash settled convertible securities are separated into their debt and equity components. The value assigned to the debt component is the estimated fair value, as of the issuance date, of a similar debt instrument without the conversion feature, and the difference between the proceeds for the convertible debt and the amount reflected as debt, is recorded as equity. As a result, the debt component is recorded at a discount from its face value, reflecting its below market coupon interest rate. The debt is subsequently accreted to its face value over its expected term, with the accretion being reflected as additional interest expense in the condensed consolidated statement of operations.

In October 2005, the Company issued the Notes with a face value of $225.0 million and bearing interest at a rate of 2.25% per annum. At the date of issuance, the Company’s borrowing rate for similar debt instruments without any equity conversion features was estimated to be 8.0% per annum. The borrowing rate of 8.0% was estimated using assumptions that market participants would use in pricing the liability component, including market interest rates, credit standing, yield curves, and volatilities; all of which are defined as Level 2 observable inputs (see Note 4. Fair Value Measurements).

- 21 -

As at September 26, 2010, the carrying amount of the equity component is $35.2 million (December 27, 2009 - $35.2 million) and the carrying of the debt component is $60.8 million (December 27, 2009 - $58.4 million), which is the principal amount of $68.3 million (December 27, 2009 - $68.3 million) net of the unamortized discount of $7.5 million (December 27, 2009 - $9.9 million). The balance of deferred debt issue costs as at September 26, 2010 is $0.4 million (December 27, 2009 - $0.6 million).

The principal amount of the debt reflects the partial repurchase of the Notes in 2008. In the first and fourth quarter of 2008, the Company repurchased the principal amount of these Notes of $98.0 million and $58.7 million, respectively, for a total of $94.5 million and $43.8 million, respectively. The Company recorded gains related to the debt components on the first and fourth quarter of 2008 repurchases of $4.9 million and $10.0 million, respectively, and recorded gains related to the equity components on these repurchases of $5.4 million and $10.8 million, respectively, in the condensed consolidated balance sheet as additional paid in capital. The gains are net of expensed unamortized debt issue costs and transaction costs of $1.5 million and $0.7 million for the first and fourth quarter of 2008, respectively. To measure the fair value of the converted Notes as of the settlement dates in the first and fourth quarter of 2008, the Company calculated interest rates of 10% and 15%, respectively, using Level 2 observable inputs. These rates were applied to the converted Notes and coupon interest rate using the same present value technique used in the issuance date valuation.

NOTE 9. Income Taxes

The Company recorded a provision for income taxes of $11.2 million and $16.9 million for the three and nine months ended September 26, 2010 respectively, and a recovery of income taxes of $8.6 million and $3.5 million for the three and nine months ended September 27, 2009, respectively.

The Company’s effective tax rate was 42% and 19% for the three and nine months ended September 26, 2010, and (44)% and (12)%, for the three and nine months ended September 27, 2009, respectively. During the three and nine months ended September 26, 2010, the Company began utilizing available stock option related loss carry-forwards. As a result, the Company recognized $8.0 million benefit from these loss carry-forwards in stockholders’ equity, as opposed to offsetting the income tax provision for utilization of non-stock option related losses in 2009. The remaining differences relate primarily to foreign exchange translation of a foreign subsidiary.

The difference between our effective tax rates and the 35% federal statutory rate resulted primarily from foreign earnings taxed at rates lower than the federal statutory rate, permanent differences arising from stock based compensation, foreign exchange translation of a foreign subsidiary, investment tax credits earned, non-deductible intangible asset amortization, the effect of intercompany transactions, changes in valuation allowance, and changes in accruals related to the unrecognized tax benefit liabilities in the three and nine months ended September 26, 2010 and September 27, 2009, respectively.

The condensed consolidated financial statements for the nine months ended September 26, 2010 include the tax effects associated with the sale of certain assets between wholly-owned subsidiaries of the Company. GAAP requires the tax expense associated with gains on such inter-company transactions to be recognized over the estimated life of the related assets. Accordingly, the $24.5 million recorded as long-term prepaid expenses as at September 26, 2010 represents the remaining tax expense to be recognized over periods of up to six years, with corresponding amounts recorded as current and deferred income taxes payable and as liability for unrecognized tax benefits.

- 22 -

As at September 26, 2010, the Company’s liability for unrecognized tax benefits on a world-wide consolidated basis was $53.8 million. Recognition of an amount different from this estimate would affect the Company’s effective tax rate.

NOTE 10. Comprehensive Income

The components of comprehensive income, net of tax, are as follows:

	Three Months Ended				Nine Months Ended
(in thousands)	September 26, 2010		September 27, 2009		September 26, 2010		September 27, 2009
Net income	$	15,155	$	27,819	$	72,248	$	31,751
Other comprehensive (loss) income:
Change in fair value of derivatives		393		363		362		4,523
Change in fair value of investment securities		1,152		514		1,412		474
Total	$	16,700	$	28,696	$	74,022	$	36,748

NOTE 11. Net Income Per Share

The following table sets forth the computation of basic and diluted net income per share:

	Three Months Ended				Nine Months Ended
(in thousands, except per share amounts)	September 26, 2010		September 27, 2009		September 26, 2010		September 27, 2009
Numerator:
Net income	$	15,155	$	27,819	$	72,248	$	31,751
Denominator:
Basic weighted average common shares outstanding (1)		231,966		227,123		230,922		225,276
Dilutive effect of employee stock options and awards		2,326		4,740		3,368		2,896
Diluted weighted average common shares outstanding (1)		234,292		231,863		234,290		228,172
Basic net income per share	$	0.07	$	0.12	$	0.31	$	0.14
Diluted net income per share	$	0.06	$	0.12	$	0.31	$	0.14

(1) PMC-Sierra, Ltd. special shares are included in the calculation of basic and diluted weighted average common shares outstanding.

NOTE 12. Contingencies

Stockholder Derivative Lawsuits

On April 29, 2010, the United States District Court for the Northern District of California issued a Final Judgment and Order of Dismissal with Prejudice which approved the settlement and dismissal of the consolidated action In re PMC-Sierra, Inc. Derivative Litigation, Master File No. C-06-05330-RS. As a result of the settlement, the Meissner v. Bailey, et al., Santa Clara Superior Court Case No. 1-06-CV-071329 was also dismissed.

The plaintiffs in these actions had generally alleged that various current and former Company directors and/or officers breached their duty of loyalty and/or duty of care to the

- 23 -

Company and its stockholders in connection with improperly dating certain employee stock option grants and that these purported breaches of fiduciary duties caused harm to the Company. Under the approved settlement, the Company expressly denied any wrong doing but, in the interest of settlement, agreed to adopt certain corporate governance reforms and to maintain, for a period of three years, these and other reforms put in place while the litigation was pending. Under the approved settlement, plaintiffs’ counsel received $1.6 million in attorneys’ fees, half paid by the Company and the other half paid by the Company’s insurance carrier. The Company accrued costs of $800,000 in the second quarter of 2009 to reflect its share of the attorneys’ fees which were paid during the second quarter of 2010.

NOTE 13. Subsequent events

On October 21, 2010, the Company entered into a definitive agreement to acquire Wintegra Inc. (“Wintegra”), a privately-held company that is a provider of highly integrated network processors optimized for mobile backhaul for 3G and 4G wireless and wireline broadband networks. In connection with the acquisition, PMC expects to pay $240 million less cash on hand at the closing date, subject to certain adjustments. Further, up to an additional $60 million of cash consideration may be paid if certain growth and performance milestones are reached by end of 2011. A portion of the cash consideration payable to Wintegra’s stockholders will be placed into escrow pursuant to the terms of the acquisition agreement. The acquisition has been approved by both companies’ board of directors and is expected to close in the fourth quarter of 2010 subject to customary closing conditions and regulatory approvals.

- 24 -

Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This Quarterly Report contains forward-looking statements that involve risks and uncertainties. We use words such as “anticipates”, “believes”, “plans”, “expects”, “future”, “intends”, “may”, “should”, “estimates”, “predicts”, “potential”, “continue”, “becoming”, “transitioning” and similar expressions to identify such forward-looking statements. Our forward-looking statements include statements as to our business outlook, revenues, margins, expenses, tax provision, capital resources and liquidity sufficiency, sources of liquidity, capital expenditures, interest income and expenses, restructuring activities, cash commitments, purchase commitments, use of cash, our expectation regarding our amortization of purchased intangible assets, our expectations regarding our acquisition of the Channel Storage business from Adaptec, Inc. (“Adaptec”), our expectations regarding our pending acquisition of Wintegra Inc., including the timing of the closing of the transaction, and our expectation regarding distribution from certain investments. Such statements, particularly in the “Business Outlook” section, are based on our current expectations and could be affected by the uncertainties and risk factors described throughout this filing. (See also “Risk Factors” Part II, Item 1A. and our other filings with the Security Exchange Commission (“SEC”)). Our actual results may differ materially, and these forward-looking statements do not reflect the potential impact of any divestitures, mergers, acquisitions, or other business combinations that had not been completed as of the filing date of this Quarterly Report.

Investors are cautioned not to place undue reliance on these forward-looking statements, which reflect management’s analysis only as of the date of this Quarterly Report. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

OVERVIEW

Our current revenues are generated by a portfolio of more than 450 products, which we have designed and developed or acquired. Our diverse product portfolio services a number of key end market segments: (i) the Enterprise Infrastructure products which include our products and solutions that enable the high-speed interconnection of servers, switches, and storage devices that comprise these systems thus allowing large quantities of data to be stored, managed, and moved securely; as well as microprocessors for laser printers and enterprise equipment and (ii) the Communications Infrastructure products which include wired, wireless, and Passive Optical Networking (“PON”) devices used in access, aggregation, and transport equipment such as optical transport platforms, edge routers, multi-service switches, and wireless base stations and backhaul equipment that gather and process signals in different protocols, and transmit them to the next destinations.

We invest a substantial amount every year in the research and development of new semiconductor devices. We determine the amount to invest in each semiconductor development based on our assessment of the future market opportunities for those components, and the estimated return on investment. To compete globally, we must invest in technologies, products, and businesses that are both growing in demand and are cost competitive in the geographic markets that we serve. Going forward, we plan to continue to

- 25 -

focus on finding innovative solutions to our customers’ needs while maintaining our operational efficiencies.

On June 8, 2010, we completed the acquisition of the Channel Storage business from Adaptec, Inc. (“Adaptec”) pursuant to the terms of the Asset Purchase Agreement dated May 8, 2010 and Amendment to Asset Purchase Agreement dated June 8, 2010 between us and Adaptec (together the “Purchase Agreement”) for $34.3 million in cash. The Channel Storage business includes Adaptec’s redundant array of independent disks (“RAID”) storage product line, a well-established global value added reseller customer base, board logistics capabilities, and leading solid-state drive (“SSD”) cache performance solutions, and the Adaptec brand. We purchased the Channel Storage business from Adaptec because of its strategic and product fit with our existing enterprise storage products, and we expect the acquisition will accelerate our access to storage channel customers worldwide.

On October 21, 2010, we entered into a definitive agreement to acquire Wintegra Inc. (“Wintegra”), a privately-held company that is a provider of highly integrated network processors optimized for mobile backhaul for 3G and 4G wireless and wireline broadband networks. In connection with the acquisition, we expect to pay $240 million less cash on hand at the closing date, subject to certain adjustments. Further, up to an additional $60 million of cash consideration may be paid if certain growth and performance milestones are reached by end of 2011. A portion of the cash consideration payable to Wintegra’s stockholders will be placed into escrow pursuant to the terms of the acquisition agreement. The acquisition has been approved by both companies’ board of directors and is expected to close in the fourth quarter of 2010 subject to customary closing conditions and regulatory approvals.

- 26 -

Results of Operations

Third Quarter of 2010 and 2009

Net revenues

	Third Quarter				Change
($ millions)	2010		2009
Net revenues	$	162.3	$	130.9		24	%

Net revenues for the third quarter of 2010 were $162.3 million compared to $130.9 million for the same period in 2009, an increase of $31.4 million or 24%, primarily due to volume. On a year-over-year basis, net revenues generated from our Enterprise Infrastructure products increased by 45%. The Enterprise Infrastructure products include our storage and microprocessor-based system-on-chip (“SOC”) products. On a year-over-year basis, net revenues from our Communications Infrastructure products, which include wireline, wireless, and PON devices, increased by 1%.

The growth in net revenues from our Enterprise Infrastructure products was primarily due to improvements in net revenues from our enterprise storage products and microprocessor products. On a year-over-year basis, we experienced broad-based market recovery and a corresponding positive enterprise and corporate information technology spending environment. The increase in net revenues from our enterprise storage products was mainly driven by higher demand for our 8Gbps Fibre Channel products, and continued deployment of 3Gbps and 6Gbps SAS platforms. In addition, we shipped more of our 6Gbps Serial Attached SCS (“SAS”) RAID-on-Chip, which started production volumes in the second quarter of 2009.

We also had a full quarter of additional net revenues from Adaptec, Inc.’s Channel Storage business which we acquired during the second quarter of 2010.

Net revenues from our Communications Infrastructure products increased by 1%. We experienced some growth in the North American and European geographies, partially offset by a decline in net revenues year-over-year in Asia.

Sequentially, we experienced an increase in net revenues in the third quarter of 2010 from our Enterprise Infrastructure products, including our microprocessor and storage products, which include a full quarter of business following the purchase of the Adaptec Channel Storage business acquired during the second quarter of 2010. Partially offsetting this increase, we experienced a decline in our Wide Area Network (“WAN”) infrastructure products, as some customers worked down their inventory levels.

Gross profit

	Third Quarter						Change
($ millions)	2010			2009
Gross profit	$	108.5		$	86.4			26	%
Percentage of net revenues		67	%		66	%

- 27 -

Total gross profit increased $22.1 million in the third quarter of 2010 compared to the same period in 2009 and gross profit as a percentage of net revenues increased 1% to 67% in the third quarter of 2010 as compared to the same period in 2009.

On a year-over-year basis, we experienced a 1% increase in gross profit as a percentage of net revenues, primarily attributable to changes in product mix, applying fixed costs over higher sales volumes, partially offset by acquisition-related costs.

Sequentially, gross profit as a percentage of net revenues was 2% lower as compared to the prior quarter due to the full quarter of the Channel Storage business and related integration costs, including fair value adjustments to inventory, and product mix, including lower revenues from the WAN infrastructure market as some customers work down their inventories.

Other costs and expenses

	Third Quarter						Change
($ millions)	2010			2009
Research and development	$	50.2		$	35.8			40	%
Percentage of net revenues		31	%		27	%
Selling, general and administrative	$	25.6		$	19.7			30	%
Percentage of net revenues		16	%		15	%
Amortization of purchased intangible assets	$	5.9		$	9.8			(40	)%
Restructuring costs and other charges	$	0.1		$	0.2			(50	)%

Research and Development and Selling, General and Administrative Expenses

Our research and development (“R&D”) expenses increased by $14.4 million in the third quarter of 2010 as compared to the third quarter of 2009. During the quarter ended September 26, 2010, we recognized an asset impairment of $4.9 million based on a determination made in the period that certain intangible assets were made redundant by assets acquired with our purchase of the Channel Storage business from Adaptec, and accordingly, the carrying value was written down to zero. In addition, the year-over-year increase was primarily due to the combination of completion of planned hiring and other payroll related costs, higher tape-out related expenses, and the effect of foreign exchange on our foreign operations. Costs also increased due to the full quarter of activity from the Channel Storage business acquired from Adaptec during the second quarter of 2010.

Our selling, general and administrative, or SG&A, expenses increased by $5.9 million, or 30% in the third quarter of 2010 as compared to the third quarter of 2009, primarily as a result of the acquisition related integration costs, as well as a full quarter of activity relating to the Channel Storage business, the effect of foreign exchange on our foreign operations, completion of planned hiring and other payroll related costs.

- 28 -

Amortization of purchased intangible assets

Amortization expense for acquired intangible assets related to developed technology, customer relationships, trademarks and backlog decreased by $3.9 million in the third quarter of 2010 compared to the same period in 2009. The decrease was the result of intangibles related to the acquisition of Passave, Inc. becoming fully amortized early in the second quarter of 2010.

Amortization expense for the third quarter includes $1.2 million amortization related to the intangible assets identified in the preliminary purchase price allocation for our acquisition of the Channel Storage business from Adaptec.

Restructuring costs and other charges

The activity related to excess facility accruals under our restructuring plans during the third quarter of 2010, by year of plan, were as follows:

(in thousands)	2007			2006			2005			2001			Total
Balance at June 27, 2010	$	355		$	51		$	1,792		$	666		$	2,864
Reversals and adjustments		—			—			—			(1	)		(1	)
New charges		—			—			50			16			66
Cash payments		(62	)		(19	)		(356	)		(229	)		(666	)
Balance at September 26, 2010	$	293		$	32		$	1,486		$	452		$	2,263

The remaining balance relates only to excess facilities for the remaining plans, namely the 2007, 2006, 2005, and 2001 plans. Payments for excess facilities under these restructuring plans may extend to October 2011. Further details regarding these restructuring plans are available in our Annual Report on Form 10-K for the year ended December 27, 2009.

Other expense and Provision for income taxes

	Third Quarter						Change
($ in millions)	2010			2009
Gain on investment securities	$	0.2		$	—			100	%
Amortization of debt issue costs	$	(0.1	)	$	(0.1	)		—	%
Foreign exchange loss	$	(0.7	)	$	(1.1	)		36	%
Interest income (expense), net	$	0.1		$	(0.5	)		120	%
(Provision for) recovery of income taxes	$	(11.2	)	$	8.6			(230	)%

- 29 -

Gain on sale of investment securities

In the third quarter of 2010, we realized a gain on sale of investment securities of $0.2 million related to the disposition of investment securities.

Amortization of debt issue costs

In connection with our senior convertible notes, during the third quarter of 2010, as in the third quarter of 2009, we recorded amortization related to deferred debt issue costs of $0.1 million.

Foreign exchange loss

We have significant design presence outside the United States, especially in Canada. The majority of our operating expense exposures to changes in the value of the Canadian Dollar relative to the United States Dollar have been hedged in accordance with our general practice of hedging approximately three quarters in advance.

Our net foreign exchange loss was $0.7 million in the third quarter of 2010, which was primarily due to foreign exchange loss on the revaluation of our foreign denominated assets and liabilities. The foreign exchange loss was driven by the foreign exchange rate between the United States Dollar and these foreign currencies depreciating 1% during the third quarter of 2010 compared to depreciating 5% during the third quarter of 2009.

Interest income (expense), net

Net interest income increased by $0.6 million in the third quarter of 2010 compared to the third quarter of 2009 due mainly to an increase in both cash balances and investment yields.

Provision for income taxes

We recorded a provision for income taxes of $11.2 million and a recovery of income tax of $8.6 million for the three months ended September 26, 2010 and September 27, 2009, respectively. Our effective tax rate was 42% and (44)% for the three months ended September 26, 2010 and September 27, 2009, respectively. During the three months ended September 26, 2010, we began utilizing available stock option related loss carry-forwards. As a result, we recognized an $8.0 million benefit from these loss carry-forwards in stockholders’ equity, as opposed to offsetting the income tax provision for utilization of non-stock option related losses in 2009. The remaining difference relates primarily to foreign exchange translation of a foreign subsidiary.

The difference between our effective tax rates and the 35% federal statutory rate resulted primarily from foreign earnings taxed at rates lower than the federal statutory rate, permanent differences arising from stock based compensation, foreign translation of a foreign subsidiary, investment tax credits earned, non-deductible intangible asset amortization, the effect of intercompany transactions, changes in valuation allowance, and changes in accruals related to the unrecognized tax benefit liabilities in the three months ended September 26, 2010 and September 27, 2009, respectively.

The condensed consolidated financial statements for the three and nine months ended September 26, 2010 and September 27, 2009 include the tax effects associated with the sale of certain assets between wholly-owned subsidiaries. GAAP requires the tax expense associated

- 30 -

with gains on such inter-company transactions to be recognized over the estimated life of the related assets. Accordingly, the $24.5 million recorded as long-term prepaid expenses as at September 26, 2010 represents the remaining tax expense to be recognized over periods of up to six years, with corresponding amounts recorded as current and deferred income taxes payable and as liability for unrecognized tax benefits.

First Nine Months of 2010 and 2009

Net revenues

	First Nine Months				Change
($ millions)	2010		2009
Net revenues	$	475.8	$	356.6		33	%

Net revenues for the first nine months of 2010 were $475.8 million compared to $356.6 million for the same period in 2009, an increase of $119.2 million or 33%, primarily due to volume. Net revenues generated from the Enterprise Infrastructure products increased by 45%. The Enterprise Infrastructure products include our storage and microprocessor-based SOC products increased by 72%. Net revenues generated from the Communications Infrastructure products, which include our wireline, wireless and PON devices, increased by 4%.

The growth in net revenues from our Enterprise Infrastructure products was primarily due to improvements in net revenues from our enterprise storage products and microprocessor products. We experienced broad-based market recovery and a corresponding positive enterprise and corporate information technology spending environment. The increase in net revenues from our enterprise storage products was mainly driven by higher demand for our 8Gbps Fibre Channel products, and continued deployment of 3Gbps and 6Gbps SAS platforms. In addition, we shipped more of our 6Gbps SAS RAID-on-Chip, which started production volumes in the second quarter of 2009.

We also had additional revenues from the Channel Storage business which was acquired during the second quarter of 2010.

Net revenues from our Communications Infrastructure products increased by 4%. On a year-over-year basis, we experienced growth in the North American and European geographies, partially offset by a decline in net revenues year-over-year in Asia.

Gross profit

	First Nine Months						Change
($ millions)	2010			2009
Gross profit	$	322.9		$	236.0			37	%
Percentage of net revenues		68	%		66	%

- 31 -

Total gross profit increased by $86.9 million in the first nine months of 2010 compared to the same period in 2009 while gross profit as a percentage of net revenues increased by 2% to 68% from 66% in the first nine months of 2010 as compared to the first nine months of 2009. We experienced an increase in gross profit as a percentage primarily due to product mix and applying fixed costs over higher sales volumes.

Other costs and expenses:

	First Nine Months						Change
($ millions)	2010			2009
Research and development	$	135.9		$	110.8			23	%
Percentage of net revenues		29	%		31	%
Selling, general and administrative	$	73.1		$	63.9			14	%
Percentage of net revenues		15	%		18	%
Amortization of purchased intangible assets	$	22.5		$	29.5			(24	)%
Restructuring costs and other charges	$	0.3		$	0.8			(63	)%

Research and development and selling, general and administrative expenses

Our research and development, or R&D expenses increased $25.1 million or 23% in the first nine months of 2010 compared to the first nine months of 2009. The year-over-year increase was primarily due to the combination of completion of planned hiring and other payroll related costs, higher tape-out related expenses, and the effect of foreign exchange on our foreign operations. Costs also increased due to the activity from the Channel Storage business acquired from Adaptec during the second quarter of 2010. In addition, during the quarter ended September 26, 2010, we recognized an asset impairment of $4.9 million based on a determination made in the period that certain intangible assets were made redundant by assets acquired with our purchase of the Channel Storage business from Adaptec, and accordingly, the carrying value was written down to zero.

Our selling, general and administrative, or SG&A, expenses increased by $9.2 million, or 14% in the first nine months of 2010 as compared to the first nine months of 2009, primarily as a result of the acquisition related integration costs, as well as the result of the activity from the Channel Storage business acquired from Adaptec during the second quarter of 2010, completion of planned hiring and other payroll related costs, and the effect of foreign exchange on our foreign operations.

Amortization of purchased intangible assets

Amortization expense for acquired intangible assets related to developed technology, customer relationships, trademarks and backlog decreased by $7.0 million in the first nine months

- 32 -

of 2010 compared to the same period in 2009. The decrease was the result of intangibles related to the acquisition of Passave, Inc. becoming fully amortized early in the second quarter of 2010.

Amortization expense for the first nine months of 2010 does include $1.5 million amortization related to the intangible assets identified in the preliminary purchase price allocation for our acquisition of the Channel Storage business from Adaptec.

Restructuring costs and other charges

The activity related to excess facility accruals under our restructuring plans during the first nine months of 2010, by year of plan, were as follows:

(in thousands)	2007			2006			2005			2001			Total
Balance at December 27, 2009	$	526		$	94		$	2,344		$	1,030		$	3,994
Reversals and adjustments		(14	)		(19	)		(2	)		7			(28	)
New charges		—			—			235			116			351
Cash payments		(219	)		(43	)		(1,091	)		(701	)		(2,054	)
Balance at September 26, 2010	$	293		$	32		$	1,486		$	452		$	2,263

During the first nine months of 2010, we made payments totaling $2.1 million for excess facilities costs incurred in connection with past restructuring plans. In addition, we recorded an additional $0.4 million for excess facilities as original assumptions regarding possible sublease on exited facilities were not realized.

Payments for excess facilities under these restructuring plans may extend to 2011.

Further details regarding each of the restructuring plans noted in the above table are available in our Annual Report on Form 10-K for the year ended December 27, 2009.

- 33 -

Other expense and Provision for income taxes

($ in millions)	First Nine Months
	2010			2009			Change
Loss on investment securities	$	(0.1	)	$	—			(100	)%
Amortization of debt issue costs	$	(0.2	)	$	(0.2	)		—	%
Loss on subleased facilities	$	—		$	(0.5	)		100	%
Foreign exchange (loss) gain	$	(1.6	)	$	0.1			(1,700	)%
Interest expense, net	$	(0.1	)	$	(2.1	)		95	%
(Provision for) recovery of income taxes	$	(16.9	)	$	3.5			(583	)%

Loss on investment securities

In the first nine months of 2010, we realized a loss on investment securities of $0.1 million related to the disposition of investment securities.

Amortization of debt issue costs

In connection with our senior convertible notes, during the first nine months of 2010, we recorded amortization related to deferred debt issue costs of $0.2 million, as in the first nine months of 2009.

Loss on subleased facilities

We recorded a $0.5 million loss on subleased facilities in the first nine months of 2009. No such amounts were incurred in the first nine months of 2010.

Foreign exchange (loss) gain

We have significant design presence outside the United States, especially in Canada. The majority of our operating expense exposures to changes in the value of the Canadian Dollar relative to the United States Dollar have been hedged in accordance with our general practice of hedging approximately three quarters in advance.

Our net foreign exchange loss was $1.6 million in the first nine months of 2010, which was primarily due to foreign exchange loss on the revaluation of our foreign denominated assets and liabilities. The foreign exchange loss was driven by the foreign exchange rate between the

- 34 -

United States Dollar and these foreign currencies depreciating 2% during the first nine months of 2010 compared to depreciating 11% during the first nine months of 2009.

Interest expense, net

Net interest expense decreased by $2.0 million in the first nine months of 2010 compared to the first nine months of 2009 due mainly to an increase in both cash balances and investment yields.

Provision for income taxes

We recorded a provision for income taxes of $16.9 million and a recovery of income taxes of $3.5 million for the first nine months of 2010 and 2009, respectively. Our effective tax rate was 19% and (12)% for the nine months ended September 26, 2010 and September 27, 2009, respectively. During the nine months ended September 26, 2010, we began utilizing available stock option related loss carry-forwards. As a result, we recognized $8.0 million benefit from these loss carry-forwards in stockholders’ equity, as opposed to offsetting the income tax provision for utilization of non-stock option related losses in 2009. The remaining difference relates primarily to foreign exchange translation of a foreign subsidiary.

The difference between our effective tax rates and the 35% federal statutory rate resulted primarily from foreign earnings taxed at rates lower than the federal statutory rate, permanent differences arising from stock based compensation, foreign exchange translation of a foreign subsidiary, investment tax credits earned, non-deductible intangible asset amortization, the effect of intercompany transactions, changes in valuation allowance, and changes in accruals related to the unrecognized tax benefit liabilities in the nine months ended September 26, 2010 and September 27, 2009, respectively.

The condensed consolidated financial statements for the first nine months of 2010 and fiscal 2009 include tax effects associated with the sale of certain assets between wholly-owned subsidiaries. GAAP requires the tax expense associated with gains on such inter-company transactions to be recognized over the estimated life of the related assets. Accordingly, the $24.5 million recorded as long-term prepaid expenses as at September 26, 2010 represents the remaining tax expense to be recognized over periods of up to six years, with corresponding amounts recorded as current and deferred income taxes payable and as liability for unrecognized tax benefits.

- 35 -

Critical Accounting Estimates

General

Management’s Discussion and Analysis of Financial Condition and Results of Operations is based upon our condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and assumptions that affect our reported assets, liabilities, revenue and expenses, and related disclosure of our contingent assets and liabilities. Our significant accounting policies are outlined in Note 1. Summary of Significant Accounting Policies to the consolidated financial statements in our Annual Report on Form 10-K for the year ended December 27, 2009, which also provides commentary on our most critical accounting estimates. The following estimates are of note:

Valuation of Goodwill and Intangible Assets

The purchase method of accounting for acquisitions requires estimates and assumptions to allocate the purchase price to the fair value of net tangible and intangible assets acquired, including in-process research and development (“IPR&D”). Prior to 2009, the amounts allocated to IPR&D were expensed immediately. The amounts allocated to, and the useful lives estimated for other intangible assets affect future amortization. There are a number of generally accepted valuation methods used to estimate fair value of intangible assets, and we use primarily a discounted cash flow method, which requires significant management judgment to forecast the future operating results and to estimate the discount factors used in the analysis. If assumptions and estimates used to allocate the purchase price prove to be inaccurate based on actual results, future asset impairment charges could be required.

The value of our intangible assets, including goodwill, could be impacted by future adverse changes such as: (i) any future declines in our operating results; (ii) a decline in the valuation of technology company stocks, including the valuation of our common stock; (iii) a further significant slowdown in the worldwide economy or the semiconductor industry; or (iv) any failure to meet the performance projections included in our forecasts of future operating results.

Goodwill and intangible assets determined to have indefinite lives are not amortized, but are subject to an annual impairment test in the fourth quarter or more frequently if we believe indicators of impairment exist. To determine any goodwill impairment, we perform a two-step process on an annual basis, or more frequently if necessary, 1) to determine whether the fair value of the relevant reporting unit exceeds carrying value and 2) to measure the amount of an impairment loss, if any. We review our intangible assets for impairment whenever events or changes in circumstances indicate that their carrying value may not be recoverable. Measurement of an impairment loss is based on the fair value of the asset compared to carrying value. In the process of our annual impairment review, we primarily use the income approach methodology of valuation that includes the discounted cash flow method to determine the fair value of our intangible assets. Significant management judgment is required in the forecasts of future operating results and discount rates used in the discounted cash flow method of valuation. It is possible, however, that the plans may change and estimates used may prove to be inaccurate. If our actual results, or the plans and estimates used in future impairment

- 36 -

analyses, are lower than the original estimates used to assess the recoverability of these assets, we could incur additional impairment charges.

There were no indications of impairment to goodwill or intangible assets during the first nine months of 2010. Changes in the estimated fair values of these assets in the future could result in significant impairment charges or changes to our expected amortization.

Stock-Based Compensation

Since January 1, 2006, we have recognized compensation expense for all share-based payment awards. Under ASC Topic 718, Compensation – Stock Compensation, we measure the fair value of awards of equity instruments and recognize the cost, net of an estimated forfeiture rate, on a straight-line basis over the period during which services are provided in exchange for the award, generally the vesting period.

Calculating the fair value of stock-based compensation awards requires the input of highly subjective assumptions, including the expected life of the awards and expected volatility of our stock price. Expected volatility is a statistical measure of the amount by which a stock price is expected to fluctuate during a period. Our estimates of expected volatilities are based on a weighted historical and market-based implied volatility. In order to determine the expected life of the awards, we use historical data to estimate option exercises and employee terminations; separate groups of employees that have similar historical exercise behavior, such as directors or executives, are considered separately for valuation purposes. The expected forfeiture rate applied in calculating stock-based compensation cost is estimated using historical data.

The assumptions used in calculating the fair value of stock-based awards involve estimates that require management judgment. If factors change and we use different assumptions, our stock-based compensation expense could change significantly in the future. In addition, if our actual forfeiture rate is different from our estimate, our stock-based compensation expense could change significantly in the future.

Restructuring Charges - Facilities

In calculating the cost to dispose of our excess facilities, we had to estimate the amount to be paid in lease termination payments, the future lease and operating costs to be paid until the lease is terminated, and the amount, if any, of sublease revenues for each location. This required us to estimate the timing and costs of each lease to be terminated, the amount of operating costs for the affected facilities, and the timing and rate at which we might be able to sublease or complete negotiations of a lease termination agreement for each site. To form our estimates for these costs we performed an assessment of the affected facilities and considered the current market conditions for each site.

We believe our estimates of the obligations for the closing of sites remain sufficient to cover anticipated settlement costs. However, our assumptions on either the lease termination payments or operating costs until the termination, or the amounts and timing of offsetting

- 37 -

sublease revenues may turn out to be incorrect and our actual cost may be materially different from our estimates. If our actual costs exceed our estimates, we would incur additional expenses in future periods.

Income Taxes

In estimating our annual effective tax rate we review our forecasted net income for the year by geographic area and apply the appropriate tax rates. We also consider the income tax credits and net operating losses, if any, available in each tax jurisdiction.

Our operations are conducted in a number of countries with complex tax legislation and regulations pertaining to our activities. We have recorded income tax liabilities based on our estimates and interpretations of those regulations for the countries in which we operate. However, our estimates are subject to review and assessment by the tax authorities and the courts of those countries. For example, our estimated tax provision rate decreased significantly during 2008 due to one of our foreign subsidiaries settling several ongoing tax matters for tax years 2000-2006. As a result, we recognized tax benefits of $124.1 million that was previously included in the liability for unrecognized tax benefits. The timing of any such review and final assessment of our liabilities by local authorities is substantially out of our control and is dependent on the actions by those authorities in the countries in which we operate. Any re-assessment of our tax liabilities by tax authorities may result in adjustments of the income taxes we pay or refunds that are due to us.

Investment in Cash Equivalents, Short-Term Investments and Long-Term Investment Securities

Our cash equivalents, short-term investments and long-term investment securities are comprised of corporate bonds and notes, money market funds, United States (“US”) treasury and government agency notes including Federal Deposit Insurance Corporation (“FDIC”) – insured corporate notes, foreign government and agency notes, and United States state and municipal securities with minimum ratings of P-1 or A3 by Moody’s, or A-1 or A- by Standard and Poor’s, or equivalent. At September 26, 2010, these securities had an estimated fair value of $531.3 million.

Beginning in the first quarter of fiscal 2008, the assessment of fair value is based on the provisions of ASC Topic 820, the Fair Value Measurements and Disclosure Topic. We determined the fair value of our investment securities, which include corporate bonds and notes, money market funds, US treasury and government agency notes including FDIC – insured corporate notes, foreign government and agency notes, and US state and municipal securities, using quoted prices from active markets, quoted prices for similar assets from third-party sources and by performing valuation analyses. In determining if and when a decline in market value below the carrying value of our investment securities is other-than-temporary, we evaluate on an ongoing basis the market conditions, trends of earnings, financial condition and other key measures for our investments. We assess impairment of our investment securities in accordance with GAAP.

- 38 -

During 2008, we assessed the fair value of certain of our investment securities by giving consideration to Level 2 and Level 3 inputs for the shares of the Reserve International Liquidity Fund, Ltd. and the Reserve Primary Fund (the “Primary Fund”) (together the “Reserve Funds”) and their underlying securities. Based on this assessment, we recorded an impairment of the Reserve Funds of $11.8 million during the third quarter of 2008, incorporating the Reserve Funds’ valuation at zero for debt securities of Lehman Brothers held, and a net asset value of $0.97 per share communicated by the Reserve Funds’ Primary Fund. We reassessed the fair value of our investments in money market funds during the first nine months of 2010, and we determined there were no further impairments.

In the second quarter of 2009, we reclassified our investment in shares of the Reserve Funds from Level 1 to Level 3 of the fair value hierarchy due to the inherent subjectivity and significant judgment related to the fair value of the shares of the Reserve Funds and their underlying securities. Accordingly, we changed the valuation method from a market approach to an income approach.

In addition, due to the continuing redemption delays associated with the liquidation proceedings of the Reserve Funds, we reclassified all of these shares from cash and cash equivalents to short-term investments (see Liquidity & Capital Resources).

Changes in market conditions and the method and timing of the liquidation process of the Reserve Funds could result in further adjustments to the fair value and classification of these investments, and these changes could be material.

Business Outlook

We expect our revenues for the fourth quarter of 2010 to be approximately $147.7 million to $155.8 million.

We anticipate our fourth quarter 2010 gross margin percentage to be 68.5% plus or minus 50 basis points, including approximately $0.2 million of stock-based compensation expense. As in past quarters this could vary depending on the volume of products sold, since many of our costs are fixed. Margins may also vary depending on the mix of products sold.

We expect our fourth quarter 2010 research and development, and selling, general and administrative expenses, to be approximately $71.5 million to $73.5 million, including stock-based compensation expense of approximately $4.5 million to $5.5 million.

We expect that we will continue to incur significant amortization of purchased intangible assets related to our acquisitions in the fourth quarter of 2010.

Liquidity & Capital Resources

Our principal sources of liquidity are cash from operations, short-term investments and long-term investment securities. We employ these sources of liquidity to support ongoing business activities, acquire or invest in critical or complementary technologies, purchase capital

- 39 -

equipment, repurchase our senior convertible notes, and finance working capital. The combination of cash, cash equivalents, short-term investments, and long-term investment securities at September 26, 2010 and December 27, 2009 totaled $555.8 million and $453.4 million, respectively, which are composed of the following:

	September 26, 2010
(in thousands)	Amortized Cost		Gross Unrealized Gains*		Gross Unrealized Losses *			Fair Value
Cash and cash equivalents:
Cash	$	24,484	$	—	$	—		$	24,484
Money market funds		106,572		19		—			106,591
Total cash and cash equivalents		131,056		19		—			131,075
Short-term investments:
Corporate bonds and notes		55,288		2,438		(3	)		57,723
US treasury and government agency notes		10,714		356		—			11,070
Money market funds		18,668		—		—			18,668
Foreign government and agency notes		9,260		255		—			9,515
US states and municipal securities		17,269		84		—			17,353
Total short-term investments		111,199		3,133		(3	)		114,329
Long-term investment securities:
Corporate bonds and notes		204,470		2,238		(42	)		206,666
US treasury and government agency notes		83,194		507		—			83,701
Foreign government and agency notes		18,236		248		—			18,484
US states and municipal securities		1,500		30		—			1,530
Total long-term investment securities		307,400		3,023		(42	)		310,381
Total	$	549,655	$	6,175	$	(45	)	$	555,785

* Gross unrealized gains include accrued interest on investments of $2.8 million. The remainder of the gross unrealized gains and losses is included in the condensed consolidated balance sheet as other comprehensive income.

- 40 -

	December 27, 2009
(in thousands)	Amortized Cost		Gross Unrealized Gains*		Gross Unrealized Losses *			Fair Value
Cash and cash equivalents:
Cash	$	29,757	$	—	$	—			29,757
Money market funds		163,068		16		—			163,084
Total cash and cash equivalents		192,825		16		—			192,841
Short-term investments:
Corporate bonds and notes		14,760		1,426		(4	)		16,182
US treasury and government agency notes		20,376		804		(1	)		21,179
Money market funds		23,242		—		—			23,242
US states and municipal securities		7,300		25		—			7,325
Total short-term investments		65,678		2,255		(5	)		67,928
Long-term investment securities:
Corporate bonds and notes		108,102		669		(306	)		108,465
US treasury and government agency notes		52,594		389		(53	)		52,930
Foreign government and agency notes		30,179		123		(82	)		30,220
US states and municipal securities		1,019		2		—			1,021
Total long-term investment securities		191,894		1,183		(441	)		192,636
Total	$	450,397	$	3,454	$	(446	)	$	453,405

* Gross unrealized gains include accrued interest on investments of $2.1 million. The remainder of the gross unrealized gains and losses is included in the condensed consolidated balance sheet as other comprehensive income.

As of September 26, 2010 and December 27, 2009, we had $60.8 million and $58.4 million of senior convertible notes outstanding, respectively, recorded on our condensed consolidated balance sheets. The face value of the senior convertible notes as at both September 26, 2010 and December 27, 2009 was $68.3 million. We continue to expect that our cash from operations, short-term investments and long-term investment securities, including distributions from the Reserve Funds, to be our primary sources of liquidity.

As of September 26, 2010 and December 27, 2009, we had $18.7 million and $23.2 million, respectively, of our short-term investments in shares of the Reserve Funds for which we have outstanding redemption orders recorded on our condensed consolidated balance sheets. The Reserve Funds were AAA-rated money market funds that announced redemption delays and suspended trading in September 2008 during the severe disruption in financial markets. The Reserve Funds are in the process of liquidating their portfolio of investments, which included securities of Lehman Brothers Holdings, Inc. that was downgraded and has filed for Chapter 11 bankruptcy protection.

Changes in market conditions and the method and timing of the liquidation process of the Reserve Funds could result in further adjustments to the fair value and classification of these investments, and these changes could be material.

See Critical Accounting Estimates – Investment in Cash Equivalents, Short-Term Investments and Long-Term Investment Securities for additional information.

- 41 -

Operating Activities

During the first nine months of 2010, we generated net positive operating cash flows of $134.0 million, which was $43.7 million higher than the $90.3 million generated during the first nine months of 2009. The positive cash flow from operations in both periods was primarily from net income, net of addbacks of non-cash expenses. Net revenues and net income in the first nine months of 2010 were substantially higher than the same period last year, and were the key drivers of the increase in operating cash flows year over year. Comparatively, in the first nine months of 2010, the increase in accounts receivables based on revenue growth and increased days sales outstanding, and the increase in deferred income in the amount of $9.7 million were the most significant working capital changes off-setting net income to arrive at operating cash flows. The fluctuations in our working capital accounts are attributable to timing of transactions rather than particular events or trends.

Investing Activities

We used net cash of $211.0 million for investing activities in the first nine months of 2010, which included $303.2 million for the purchase of investment securities, $34.3 million to purchase the Channel Storage business of Adaptec, and $11.1 million for the purchase of property, equipment and intellectual property, offset by the receipt of $133.0 million proceeds from the disposal of investment securities and $4.6 million in partial distributions received from the Reserve Funds.

Net cash provided by investing activities was $33.3 million in the first nine months of 2009, which included $170.8 million in partial distributions from the Reserve Funds, and $11.1 million in proceeds from the disposal of investment securities, offset by $209.3 million for the purchase of investment securities, and $6.0 million for the purchase of property and equipment and intellectual property.

Financing Activities

In the first nine months of 2010, we generated $15.1 million from the issuance of common shares under our employee stock option plans. In the first nine months of 2009, we generated $24.3 million from the issuance of common shares under our employee stock option plans.

- 42 -

As of September 26, 2010, we had cash commitments made up of the following:

(in thousands)	Total		2010		2011		2012		2013		2014		After 2014
Contractual Obligations
Operating Lease Obligations:
Minimum Rental Payments	$	35,838	$	2,540	$	7,428	$	4,671	$	4,317	$	3,825	$	13,057
Estimated Operating Cost Payments		13,392		1,037		3,267		1,784		1,557		1,441		4,306
Long Term Debt:
Principal Repayment		68,340		—		—		—		—		—		68,340
Interest Payments		23,067		—		1,538		1,538		1,538		1,538		16,915
Purchase and other Obligations		19,518		5,596		7,721		6,201
	$	160,155	$	9,173	$	19,954	$	14,194	$	7,412	$	6,804	$	102,618

In addition to the amounts shown in the table above, we have recorded a $53.8 million liability for unrecognized tax benefits as of September 26, 2010 and we are uncertain as to if or when such amounts may be realized.

Purchase obligations as noted in the above table are comprised of commitments to purchase design tools and software for use in product development. Excluded from these purchase obligations are commitments for inventory or other expenses entered into in the normal course of business. We estimate these other commitments to be approximately $25.9 million at October 24, 2010 for inventory and other expenses that will be received within 90 days and that will require settlement 30 days thereafter.

On August 23, 2010, we signed an office lease agreement to relocate our corporate headquarters to Sunnyvale, California. The additional commitment of $18.5 million relating to this lease is included in the table above as operating lease obligations.

Also, in addition to the amounts shown in the table above, we expect to use approximately $5.5 million of cash in the remainder of 2010 for property and equipment and purchases of intellectual property.

On October 21, 2010, we entered into a definitive agreement to acquire Wintegra Inc. for cash consideration of $240 million less cash on hand at the closing date, subject to certain adjustments. Additional cash consideration of up to $60 million may be paid if certain growth and performance milestones are reached by the end of 2011. This transaction is expected to close in the fourth quarter of 2010 subject to customary closing conditions and regulatory approvals.

Based on our current operating prospects, we believe that existing sources of liquidity will satisfy our projected operating, working capital, investing, capital expenditure, and remaining restructuring requirements through the next twelve months.

- 43 -

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The following discussion regarding our risk management activities contains “forward-looking statements” that involve risks and uncertainties. Actual results may differ materially from those projected in the forward-looking statements.

Cash Equivalents, Short-Term Investments and Long-Term Investment Securities:

We regularly maintain a portfolio of short- and long-term investments comprised of various types of money market funds, United States treasury and government agency notes including FDIC-insured corporate notes, United States state and municipal securities, foreign government and agency notes, and corporate bonds and notes. Our investments are made in accordance with an investment policy approved by our Board of Directors. Our investment policy sets guidelines for diversification and maturities that intend to preserve principal, while meeting liquidity needs. Maturities of these instruments are 36 months or less. To minimize credit risk, we diversify our investments and select minimum ratings of P-1 or A3 by Moody’s, or A-1 or A- by Standard and Poor’s, or equivalent. We classify these securities as available-for-sale and they are carried at fair market value. Our corporate policies prevent us from holding material amounts of asset-backed commercial paper.

Investments in instruments with both fixed and floating rates carry a degree of interest rate risk. Fixed rate securities may have their fair market value adversely impacted because of a rise in interest rates, while floating 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 because of changes in interest rates, or we may suffer losses in principal if we were to sell securities that have declined in market value because of changes in interest rates.

We do not attempt to reduce or eliminate our exposure to interest rate risk through the use of derivative financial instruments.

Based on a sensitivity analysis performed on the financial instruments held at September 26, 2010, the impact to the fair value of our investment portfolio by a shift in the yield curve of plus, or minus, 50, 100, or 150 basis points would result in a decline, or increase, in portfolio value of approximately $3.2 million, $6.4 million, and $9.6 million, respectively.

Senior Convertible Notes:

At September 26, 2010, $68.3 million in face value of our 2.25% senior convertible notes were outstanding. Because we pay fixed interest coupons on our senior convertible notes, market interest rate fluctuations do not impact our debt interest payments. However, the fair value of our senior convertible notes will fluctuate as a result of changes in the price of our common stock, changes in market interest rates, and changes in our credit worthiness.

- 44 -

Our 2.25% senior convertible notes are not listed on any securities exchange or included in any automated quotation system, but are registered for resale under the Securities Act of 1933. The notes rank equal in right of payment with our other unsecured senior indebtedness and mature on October 15, 2025 unless earlier redeemed by us at our option, or converted or put to us at the option of the holders. Interest is payable semi-annually in arrears on April 15 and October 15 of each year, commencing on April 15, 2006. We may redeem all or a portion of the notes at par on and after October 20, 2012. We redeemed $156.7 million of the principal of these notes in 2008 at a cost of $138.3 million, including transaction fees and accrued interest. The holders may require that we repurchase the notes on October 15, 2012, 2015 and 2020 respectively.

Holders may convert the notes into the right to receive the conversion value (i) when our stock price exceeds 120% of the approximately $8.80 per share initial conversion price for a specified period, (ii) in certain change in control transactions, and (iii) when the trading price of the notes does not exceed a minimum price level. For each $1,000 principal amount of Notes, the conversion value represents the amount equal to 113.6687 shares multiplied by the per share price of our common stock at the time of conversion. If the conversion value exceeds $1,000 per $1,000 in principal of notes, we will pay $1,000 in cash and may pay the amount exceeding $1,000 in cash, stock or a combination of cash and stock, at our election.

Foreign Currency:

Our sales and corresponding receivables are denominated primarily in United States dollars. We generate a significant portion of our revenues from sales to customers located outside the United States including Canada, Europe, the Middle East and Asia. We are subject to risks typical of an international business including, but not limited to, differing economic conditions, changes in political climate, differing tax structures, other regulations and restrictions and foreign exchange rate volatility. Accordingly, our future results could be materially and adversely affected by changes in these or other factors.

- 45 -

Through our operations in Canada and elsewhere outside of the United States, we incur research and development, sales, customer support and administrative expenses in foreign currencies. We are exposed, in the normal course of business, to foreign currency risks on these expenditures, particularly in Canada. In our effort to manage such risks, we have adopted a foreign currency risk management policy intended to reduce the effects of potential short-term fluctuations on our operating results stemming from our exposure to these risks. As part of this risk management, we enter into foreign exchange forward contracts on behalf of our Canadian subsidiary. These forward contracts offset the impact of exchange rate fluctuations on forecasted cash flows or firm commitments. We limit the forward contracts operational period to 12 months or less and we do not enter into foreign exchange forward contracts for trading purposes. Because we do not engage in foreign exchange risk management techniques beyond these periods, our cost structure is subject to long-term changes in foreign exchange rates. In the event that one of the counterparties to our foreign currency forward contracts failed to complete the terms of their contracts, we would purchase Canadian dollars at the spot rate as of the date the funds were required. If the counterparties to our foreign currency forward contracts that matured in the fiscal quarter ended September 26, 2010, had not fulfilled their contractual obligations and we were required to purchase Canadian dollars at the spot rate, our operating income for the first nine months of 2010 would have increased by $0.8 million.

At September 26, 2010, we had 18 contracts outstanding to purchase Canadian dollars, all with maturities of less than 12 months that qualified and were designated as cash flow hedges. The U.S. dollar notional amount of these contracts was $29.1 million and the contracts had a fair value of $0.8 million.

We attempt to limit our exposure to foreign exchange rate fluctuations from our foreign currency net asset or liability positions. In the first nine months of 2010, we recorded a $1.3 million foreign exchange loss on the revaluation of our net tax liabilities in a foreign jurisdiction. The revaluation of our foreign income tax liabilities was required because of fluctuations in the value of the United States dollar against other currencies. Our operating income would be materially impacted by a shift in the foreign exchange rates between United States and foreign currencies that are material to our business. For example, a five percent shift in the foreign exchange rates between United States dollar and Canadian dollar would impact our pre-tax income by approximately $2.8 million.

Other Investments:

Our other investments include strategic investments in privately held companies that are carried on our balance sheet at cost, net of write-downs for non-temporary declines in market value. We expect to make additional investments like these in the future. These investments are inherently risky, as they typically are comprised of investments in companies and partnerships that are still in the start-up or development stages. The market for the technologies or products that they have under development is typically in the early stages, and may never materialize. We could lose our entire investment in these companies and partnerships or may incur an additional expense if we determine that the value of these assets has been impaired. We may record an impairment charge to our operating results should we determine that these funds have incurred a non-temporary decline in value.

- 46 -

Item 4. CONTROLS AND PROCEDURES

Evaluation of disclosure controls and procedures

Our management evaluated, with the participation of our chief executive officer and our chief financial officer, our disclosure controls and procedures as of the end of the period covered by this quarterly report. Based on this evaluation, our chief executive officer and our chief financial officer concluded that our disclosure controls and procedures are effective to ensure that information we are required to disclose in reports that we file or submit under the Securities Exchange Act of 1934 is accumulated and communicated to management, including our chief executive officer and our chief financial officer, as appropriate, to allow timely decisions regarding required disclosure, and is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission rules and forms.

Changes in internal control over financial reporting

There was no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15(d)-15(f) under the Exchange Act) that occurred during the first nine months of 2010 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

- 47 -

Part II—OTHER INFORMATION

Item 1. Legal Proceedings

Stockholder Derivative Lawsuits

On April 29, 2010, the United States District Court for the Northern District of California issued a Final Judgment and Order of Dismissal with Prejudice which approved the settlement and dismissal of the consolidated action In re PMC-Sierra, Inc. Derivative Litigation, Master File No. C-06-05330-RS. As a result of the settlement, the Meissner v. Bailey, et al., Santa Clara Superior Court Case No. 1-06-CV-071329 was also dismissed.

The plaintiffs in these actions had generally alleged that various current and former Company directors and/or officers breached their duty of loyalty and/or duty of care to the Company and its stockholders in connection with improperly dating certain employee stock option grants and that these purported breaches of fiduciary duties caused harm to the Company. Under the approved settlement, the Company expressly denied any wrong doing but, in the interest of settlement, agreed to adopt certain corporate governance reforms and to maintain, for a period of three years, these and other reforms put in place while the litigation was pending. Under the approved settlement, plaintiffs’ counsel received $1.6 million in attorneys’ fees, half paid by the Company and the other half paid by the Company’s insurance carrier. The Company accrued costs of $800,000 in the second quarter of 2009 to reflect its share of the attorneys’ fees, which were paid during the second quarter of 2010.

- 48 -

Item 1A. RISK FACTORS.

Our company is subject to a number of risks – some are normal to the fabless semiconductor industry, some are the same or similar to those disclosed in previous SEC filings, and some may be present in the future. You should carefully consider all of these risks and the other information in this report before investing in PMC. The fact that certain risks are endemic to the industry does not lessen the significance of the risk.

As a result of the following risks, our business, financial condition, operating results and/or liquidity could be materially adversely affected. This could cause the trading price of our securities to decline, and you may lose part or all of your investment.

Our global growth is subject to a number of economic risks.

Over the past two years, financial markets in the United States, Europe and Asia experienced extreme disruption, including among other things, extreme volatility in security prices, severely diminished liquidity and credit availability, rating downgrades of certain investments and declining valuations of others. Governments took unprecedented actions intended to address extreme market conditions that include severely restricted credit and declines in real estate values. We have experienced delays in redemptions of our money market funds and we have recognized an $11.8 million loss on investment securities on our shares of the Reserve International Liquidity Fund, Ltd. and the Reserve Primary Fund during 2008. As of September 26, 2010, the original underlying securities held by the Reserve Funds had matured, and with the exception of Lehman Brothers’ securities, the balances were held by the Reserve Funds in the form of overnight agency notes. Changes in market conditions and the method and timing of the liquidation process of the Reserve Funds could result in further adjustments to the fair value and classification of these investments (classified as short-term investments as at September 26, 2010), and these changes could be material.

Currently, these conditions have not impaired our liquidity for operational purposes. There can be no assurance that there will not be a further deterioration in financial markets and confidence in major economies, which may impair our liquidity in the future. The tightening of credit in financial markets adversely affects the ability of customers and suppliers to obtain financing for significant purchases and operations and could result in a decrease in or cancellation of orders for our products and services. Our global business is also adversely affected by decreases in the general level of economic activity, such as decreases in business and consumer spending, and in the financial strength of our customers and suppliers. We are unable to predict the likely duration and severity of the disruptions in financial markets and adverse economic conditions in the U.S. and other countries.

Finally, our ability to access the capital markets may be severely restricted at a time when we would like, or need, to access such capital markets, which could have an impact on our flexibility to pursue additional expansion opportunities and maintain our desired level of revenue growth in the future.

- 49 -

We are subject to rapid changes in demand for our products due to:

• variations in our turns business;

• short order lead time;

• customer inventory levels;

• production schedules; and

• fluctuations in demand.

As a result of this uncertainty in the demand for our products, our past operating results may not be indicative of our future operating results.

Our revenues and profits may fluctuate because of factors that are beyond our control. As a result, we may fail to meet the expectations of security analysts and investors, which could cause our stock price to decline.

Our ability to project revenues is limited because a significant portion of our quarterly revenues may be derived from orders placed and shipped in the same quarter, which we call our “turns business.” Our turns business varies widely from quarter to quarter. Our customers may delay product orders and reduce delivery lead-time expectations, which may reduce our ability to project revenues beyond the current quarter. While we regularly evaluate end users’ and contract manufacturers’ inventory levels of our products to assess the impact of their inventories on our projected turns business, we do not have complete information on their inventories. This could cause our projections of a quarter’s turns business to be inaccurate, leading to lower revenues than projected.

We may fail to meet our forecasts if our customers cancel or delay the purchase of our products or if we are unable to meet their demand.

We rely on customer forecasts in order to estimate the appropriate levels of inventory to build and to project our future revenues. Many of our customers have numerous product lines, numerous component requirements for each product, sizeable and complex supplier structures, and typically engage contract manufacturers for additional manufacturing capacity. This complex supply chain creates several variables that make it complicated to accurately forecast our customers’ demand and accurately monitor their inventory levels of our products. If customer forecasts are not accurate, we may build too much inventory, potentially leaving us with excess and obsolete inventory, which would reduce our profit margins and adversely affect our operating results. Conversely, we may build too little inventory to meet customer demand causing us to miss revenue-generating opportunities. The cancellation or deferral of product orders, the return of previously sold products or overproduction due to the failure of anticipated orders to materialize, could result in our holding excess or obsolete inventory, which could in turn result in write-downs of inventory. This difficulty may be compounded when we sell to OEMs indirectly through distributors and other resellers or contract manufacturers, or both, as our forecasts of demand are then based on estimates provided by multiple parties.

- 50 -

Our customers often shift buying patterns as they manage inventory levels, market different products, or change production schedules. This makes forecasting their production requirements difficult and can lead to an inventory surplus or shortage of certain components. In addition, our products vary in terms of the profit margins they generate. If our customers purchase a greater proportion of our lower margin parts in a particular period, it would adversely impact our results of operations.

Further, our distributors provide us with periodic reports of their backlog to end customers, sales to end customers and quantities of our products that they have on hand. If the data that is provided to us is inaccurate, it could lead to inaccurate forecasting of our revenues or errors in our reported revenues, gross profit and net income.

While backlog is our best estimate of our next quarter’s expectations of revenues, it is industry practice to allow customers to cancel, change or defer orders with limited advance notice prior to shipment. As such, backlog may be an unreliable indicator of future revenue levels. Because a significant portion of our operating expenses are fixed, even a small revenue shortfall can have a disproportionately negative effect on our operating results.

We rely on a few customers for a major portion of our sales, any one of which could materially impact our revenues should they change their ordering pattern. The loss of a key customer could materially impact our results of operations.

We depend on a limited number of customers for large portions of our revenues. During the rolling twelve month period ended September 26, 2010, we had one end customer that accounted for more than 10% of our net revenues, namely Hewlett-Packard Company. During the rolling twelve month period ended September 27, 2009, we had two end customers that accounted for more than 10% of our net revenues, namely Hewlett-Packard Company, and Huawei Technologies Co. Ltd. In the first nine months of 2010, our top ten customers accounted for more than 65% of our revenues. In the first nine months of 2009, our top ten customers accounted for more than 75% of our revenues. We do not have long-term volume purchase commitments from any of our major customers. We sell our products solely on the basis of purchase orders. Those customers could decide to cease purchasing products with little or no notice and without significant penalties. A number of factors could cause our customers to cancel or defer orders, including interruptions to their operations due to a downturn in their industries, delays in manufacturing their own product offerings into which our products are incorporated, and natural disasters. Accordingly, our future operating results will continue to depend on the success of our largest customers and on our ability to sell existing and new products to these customers in significant quantities.

The loss of a key customer, or a reduction in our sales to any major customer or our inability to attract new significant customers could materially and adversely affect our business, financial condition or results of operations.

- 51 -

If the demand for our customers’ products declines, demand for our products will be similarly affected and our revenues, gross margins and operating performance will be adversely affected.

Our customers are subject to their own business cycles, most of which are unpredictable in commencement, depth and duration. We cannot accurately predict the continued demand of our customers’ products and the demands of our customers for our products. In the past, networking customers have reduced capital spending without notice, adversely affecting our revenues. As a result of this uncertainty, our past operating results may not be indicative of our future operating results. It is possible that, in future periods, our results may be below the expectations of public market analysts and investors. This could cause the market price of our common stock to decline.

The loss of key personnel could delay us from designing new products.

To succeed, we must retain and hire technical personnel highly skilled at design and test functions needed to develop high-speed networking products. The competition for such employees is intense.

We do not have employment agreements in place with many of our key personnel. As employee incentives, we issue common stock options and restricted stock grants that are subject to time vesting, and, in the case of options, have exercise prices at the market value on the grant date. As our stock price varies substantially, the equity awards to employees are effective as retention incentives only if they have economic value.

Changes in the political and economic climate in the countries we do business may adversely affect our operating results.

We generate a substantial proportion of our revenues in Asia. We conduct an increasing portion of our research and development and manufacturing activities outside North America. We procure substantially all of our wafers from Taiwan and use assemblers and testers throughout Asia.

Given the depth of our sales and operations in Asia, we face risks that could negatively impact our results of operations, including economic sanctions imposed by the U.S. government, imposition of tariffs and other potential trade barriers or regulations, uncertain protection for intellectual property rights and generally longer receivable collection periods. In addition, fluctuations in foreign currency exchange rates could adversely affect the revenues, net income, earnings per share and cash flow of our operations in affected markets. Similarly, fluctuations in exchange rates may affect demand for our products in foreign markets or our cost competitiveness and may adversely affect our profitability.

Our results of operations are increasingly dependent on our sales in China, which on a bill-to basis, accounted for 32% of our revenues in the third quarter of 2010 compared to 36% in third quarter of 2009. Government agencies in China have broad discretion and authority over all aspects of the telecommunications and information technology industry in China; accordingly

- 52 -

their decisions may impact our ability to do business in China. Therefore, significant changes in China’s political and economic conditions and governmental policies could have a substantial negative impact on our business. While the growth of Fiber-To-The-Home technology in China has continued to be strong, a slowdown in that growth would have an adverse impact on our operating results.

In addition to selling our products in a number of countries, an increasing portion of our research and development and manufacturing is conducted outside North America, in particular, in India and China. The geographic diversity of our business operations could hinder our ability to coordinate design, manufacturing and sales activities. If we are unable to develop systems and communication processes to support our geographic diversity, we may suffer product development delays or strained customer relationships.

Our revenues may decline if we do not maintain a competitive portfolio of products.

We are experiencing significantly greater competition in the markets in which we participate. We are expanding into markets, such as the Enterprise Infrastructure and Communications Infrastructure markets, which have established incumbents with substantial financial and technological resources. We expect more intense competition than that which we have traditionally faced as some of these incumbents derive a majority of their earnings from these markets.

We typically face competition at the design stage, where customers evaluate alternative design approaches requiring integrated circuits. The markets for our products are intensely competitive and subject to rapid technological advancement in design tools, wafer manufacturing techniques, process tools and alternate networking technologies. We may not be able to develop new products at competitive pricing and performance levels. Even if we are able to do so, we may not complete a new product and introduce it to market in a timely manner. Our customers may substitute use of our products in their next generation equipment with those of current or future competitors, reducing our future revenues. With the shortening product life and design-in cycles in many of our customers’ products, our competitors may have more opportunities to supplant our products in next generation systems.

Our customers are increasingly price conscious, as semiconductors sourced from third party suppliers comprise a greater portion of the total materials cost in networking equipment. We continue to experience aggressive price competition from competitors that wish to enter into the markets in which we participate. These circumstances may make some of our products less competitive, and we may be forced to decrease our prices significantly to win a design. We may lose design opportunities or may experience overall declines in gross margins as a result of increased price competition.

Over the next few years, we expect additional competitors, some of which may also have greater financial and other resources, to enter these markets with new products. These companies, individually or collectively, could represent future competition for many design wins and subsequent product sales.

- 53 -

Design wins may not translate into near-term revenues and the timing of revenues from newly designed products is often uncertain.

From time to time, we announce new products and design wins for existing and new products. While some industry analysts may use design wins as a metric for future revenues, many design wins have not, and will not, generate any revenues for us, as customer projects are cancelled or unsuccessful in their end market. In the event a design win generates revenues, the amount of revenues will vary greatly from one design win to another. In addition, most revenue-generating design wins do not translate into near-term revenues. Most revenue-generating design wins take more than two years to generate meaningful revenues.

Since many of the products we develop do not reach full production sales volumes for a number of years, we may incorrectly anticipate market demand and develop products that achieve little or no market acceptance.

Our products generally take between 12 and 24 months from initial conceptualization to development of a viable prototype, and another three to 18 months to be designed into our customers’ equipment and sold in production quantities. We sell products whose characteristics include evolving industry standards, short product life spans and new manufacturing and design technologies. Our products often must be redesigned because manufacturing yields on prototypes are unacceptable or customers redefine their products to meet changing industry standards or customer specifications. As a result, we develop products many years before volume production and may inaccurately anticipate our customers’ needs. Redesigning our products is expensive and may delay production of our products. Our products may become obsolete during these delays, resulting in our inability to recoup our initial investments in product development.

We may be unsuccessful in transitioning the design of our new products to new manufacturing processes.

Many of our new products are designed to take advantage of new manufacturing processes offering smaller device geometries as they become available, since smaller geometries can provide a product with improved features such as lower power requirements, increased performance, more functionality and lower cost. We believe that the transition of our products to, and introduction of new products using, smaller device geometries is critical for us to remain competitive. We could experience difficulties in migrating to future smaller device geometries or manufacturing processes, which would result in the delay of the production of our products. Our products may become obsolete during these delays, or allow competitors’ parts to be chosen by customers during the design process.

- 54 -

The final determination of our income tax liability may be materially different from our income tax provision.

We are subject to income taxes in both the United States and international jurisdictions. Significant judgment is required in determining our worldwide provision for income taxes. In the ordinary course of our business, there are many transactions where the ultimate tax determination is uncertain. Additionally, our calculations of income taxes are based on our interpretations of applicable tax laws in the jurisdictions in which we file. Although we believe our tax estimates are reasonable, there is no assurance that the final determination of our income tax liability will not be materially different than what is reflected in our income tax provisions and accruals. Should additional taxes be assessed as a result of new legislation, an audit or litigation, if our effective tax rate should change as a result of changes in federal, international or state and local tax laws, or if we were to change the locations where we operate, there could be a material effect on our income tax provision and results of operations in the period or periods in which that determination is made, and potentially to future periods as well. During the second quarter of 2008, one of our foreign subsidiaries settled several ongoing tax matters for less than had been accrued as part of its liability for unrecognized tax benefits, resulting in the recognition of tax benefits of $124.1 million. As a result of this settlement, we agreed to pay $18.0 million in cash and utilize $31.6 million in investment tax credits.

The ultimate resolution of outstanding tax matters could be for amounts in excess of our reserves established. Such events could have a material adverse effect on our liquidity or cash flows in the quarter in which an adjustment is recorded or the tax payment is due.

If foreign exchange rates fluctuate significantly, our profitability may decline.

We are exposed to foreign currency rate fluctuations because a significant part of our development, test, and selling and administrative costs are incurred in foreign currencies. The U.S. dollar has fluctuated significantly compared to other foreign currencies and this trend may continue. To protect against reductions in value and the volatility of future cash flows caused by changes in foreign exchange rates, we enter into foreign currency forward contracts. The contracts reduce, but do not eliminate, the impact of foreign currency exchange rate movements. In addition, this foreign currency risk management policy may not be effective in addressing long-term fluctuations since our contracts do not extend beyond a 12-month maturity.

We regularly limit our exposure to foreign exchange rate fluctuations from our foreign net asset or liability positions. We recorded a net $1.3 million foreign exchange loss on the revaluation of our income tax liability, net of deferred tax assets, in the first nine months of 2010 because of the fluctuations in the U.S. dollar against certain foreign currencies. A five percent shift in the foreign exchange rates between the U.S. and Canadian dollar would cause an approximately $2.8 million impact to our pre-tax net income.

- 55 -

We are exposed to the credit risk of some of our customers.

Many of our customers employ contract manufacturers to produce their products and manage their inventories. Many of these contract manufacturers represent greater credit risk than our OEM customers, who do not guarantee our credit receivables related to their contract manufacturers.

In addition, a significant portion of our sales flow through our distribution channel, that generally represents a higher credit risk. Should these companies encounter financial difficulties, our revenues could decrease, and collection of our significant accounts receivables with these companies or other customers could be jeopardized.

Our estimated restructuring accruals may not be adequate.

In 2005, 2006 and 2007, we implemented restructuring plans to streamline production and reduce and reallocate operating costs. In 2001 and 2003, we implemented plans to restructure our operations in response to the decline in demand for our networking products. We reduced the workforce and consolidated or shut down excess facilities in an effort to bring our expenses into line with our revenue expectations.

While management uses all available information to estimate these restructuring costs, particularly facilities costs, our estimated accruals may prove to be inadequate. If our actual sublease revenues or the results of our exiting negotiations differ from our assumptions, we may have to record additional charges, which could materially affect our results of operations, financial position and cash flow.

Our business strategy contemplates acquisition of other products, technologies or businesses, which could adversely affect our operating performance.

Acquiring products, intellectual property, technologies and businesses from third parties is a core part of our business strategy. That strategy depends on the availability of suitable acquisition candidates at reasonable prices and our ability to resolve challenges associated with integrating acquired businesses into our existing business. These challenges include integration of product lines, sales forces, customer lists and manufacturing facilities, development of expertise outside our existing business, diversion of management time and resources, possible divestitures, inventory write-offs and other charges. We also may be forced to replace key personnel who may leave our company as a result of an acquisition. We cannot be certain that we will find suitable acquisition candidates or that we will be able to meet these challenges successfully. Acquisitions could also result in customer dissatisfaction, performance problems with the acquired company, investment, or technology, the assumption of contingent liabilities, or other unanticipated events or circumstances, any of which could harm our business. Consequently, we might not be successful in integrating any acquired businesses, products or technologies and may not achieve anticipated revenues and cost benefits.

An acquisition could absorb substantial cash resources, require us to incur or assume debt obligations, or issue additional equity. If we are not able to obtain financing, then we may

- 56 -

not be in a position to consummate acquisitions. If we issue equity securities in connection with an acquisition, we may dilute our common stock with securities that have an equal or a senior interest in our company.

From time to time, we license, or acquire, technology from third parties to incorporate into our products. Incorporating technology into our products may be more costly or more difficult than expected, or require additional management attention to achieve the desired functionality. The complexity of our products could result in unforeseen or undetected defects or bugs, which could adversely affect the market acceptance of new products and damage our reputation with current or prospective customers.

Our current product roadmap will, in part, be dependent on successful acquisition and integration of intellectual property cores developed by third parties. If we experience difficulties in obtaining or integrating intellectual property from these third parties, it could delay or prevent the development of our products in the future.

Although our customers, our suppliers and we rigorously test our products, our highly complex products may contain defects or bugs. We have in the past experienced, and may in the future experience defects and bugs in our products. If any of our products contain defects or bugs, or have reliability, quality or compatibility problems that are significant to our customers, our reputation may be damaged and customers may be reluctant to buy our products. This could materially and adversely affect our ability to retain existing customers or attract new customers. In addition, these defects or bugs could interrupt or delay sales to our customers.

We may have to invest significant capital and other resources to alleviate problems with our products. If any of these problems are not found until after we have commenced commercial production of a new product, we may be required to incur additional development costs and product recall, repair or replacement costs. These problems may also result in claims against us by our customers or others. In addition, these problems may divert our technical and other resources from other development efforts. Moreover, we would likely lose or experience a delay in, market acceptance of the affected product or products, and we could lose credibility with our current and prospective customers.

Industry consolidation may lead to increased competition and may harm our operating results.

There has been a trend toward industry consolidation in our markets for several years. We expect this trend to continue as companies attempt to improve the leverage of growing research and development costs, strengthen or hold their market positions in an evolving industry and as companies are acquired or are unable to continue operations. Companies that are strategic alliance partners in some areas of our business may acquire or form alliances with our competitors, thereby reducing their business with us. We believe that industry consolidation may result in stronger competitors that are better able to compete as sole-source vendors for customers. This could lead to more variability in our operating results and could have a material adverse effect on our business, operating results and financial condition.

- 57 -

Our business may be adversely affected if our customers or suppliers cannot obtain sufficient supplies of other components needed in their product offerings to meet their production projections and target quantities.

Some of our products are used by customers in conjunction with a number of other components, such as transceivers, microcontrollers and digital signal processors. If, for any reason, our customers experience a shortage of any component, their ability to produce the forecasted quantity of their product offerings may be affected adversely and our product sales would decline until the shortage is remedied. Such a situation could harm our operating results, cash flow and financial condition.

We rely on limited sources of wafer fabrication, the loss of which could delay and limit our product shipments.

We do not own or operate a wafer fabrication facility. In the first nine months of 2010, two outside wafer foundries supplied more than 95% of our semiconductor wafer requirements. Our wafer foundry suppliers also make products for other companies and some make products for themselves, thus we may not have access to adequate capacity or certain process technologies. We have less control over delivery schedules, manufacturing yields and costs than competitors with their own fabrication facilities. If the wafer foundries we use are unable or unwilling to manufacture our products in required volumes, or at specified times, we may have to identify and qualify acceptable additional or alternative foundries. This qualification process could take six months or longer. We may not find sufficient capacity quickly enough, if ever, at an acceptable cost, to satisfy our production requirements.

Some companies that supply our customers are similarly dependent on a limited number of suppliers to produce their products. These other companies’ products may be designed into the same networking equipment into which our products are designed. Our order levels could be reduced materially if these companies are unable to access sufficient production capacity to produce in volumes demanded by our customers because our customers may be forced to slow down or halt production on the equipment into which our products are designed.

We depend on third parties for the assembly and testing of our semiconductor products which could delay and limit our product shipments.

We depend on third parties in Asia for the assembly and testing of our semiconductor products. In addition, subcontractors in Asia assemble all of our semiconductor products into a variety of packages. Raw material shortages, political and social instability, assembly and testing house service disruptions, currency fluctuations, or other circumstances in the region could force us to seek additional or alternative sources of supply, assembly or testing. This could lead to supply constraints or product delivery delays that, in turn, may result in the loss of revenues. At times, capacity in the assembly industry has become scarce and lead times have lengthened. This may become more severe, which could in turn adversely affect our revenues. We have less control over delivery schedules, assembly processes, testing processes, quality assurances, raw material supplies and costs than competitors that do not outsource these tasks.

- 58 -

Due to the amount of time that it usually takes us to qualify assemblers and testers, we could experience significant delays in product shipments if we are required to find alternative assemblers or testers for our components. Any problems that we may encounter with the delivery, quality or cost of our products could damage our customer relationships and materially and adversely affect our results of operations. We are continuing to develop relationships with additional third-party subcontractors to assemble and test our products. However, even if we use these new subcontractors, we will continue to be subject to all of the risks described above.

Our business is vulnerable to interruption by earthquake, fire, power loss, telecommunications failure, terrorist activity and other events beyond our control.

We do not have sufficient business interruption insurance to compensate us for actual losses from interruption of our business that may occur, and any losses or damages incurred by us could have a material adverse effect on our business. We are vulnerable to a major earthquake and other calamities. We have operations in seismically active regions in British Columbia, Canada and California, and we rely on third-party wafer fabrication and testing facilities in seismically active regions in Asia. We have not undertaken a systematic analysis of the potential consequences to our business and financial results from a major earthquake in either region. We are unable to predict the effects of any such event, but the effects could be seriously harmful to our business.

Hostilities in the Middle East and India may have a significant impact on our Israeli and Indian subsidiaries’ ability to conduct their business.

We have research and development facilities located in Israel and India which employ approximately 170 and 70 people, respectively. A catastrophic event, such as a terrorist attack, that results in the destruction or disruption of any of our critical business or information technology systems in Israel or India could harm our ability to conduct normal business operations and our operating results.

On an on-going basis, some of our Israeli employees are periodically called into active military duty. In the event of severe hostilities breaking out, a significant number of our Israeli employees may be called into active military duty, resulting in delays in various aspects of production, including product development schedules.

From time to time, we become defendants in legal proceedings about which we are unable to assess our exposure and which could become significant liabilities upon judgment.

We become defendants in legal proceedings from time to time. Companies in our industry have been subject to claims related to patent infringement and product liability, as well as contract and personal claims. We may not be able to accurately assess the risk related to these suits and we may be unable to accurately assess our level of exposure. These

- 59 -

proceedings may result in material charges to our operating results in the future if our exposure is material and if our ability to assess our exposure becomes clearer.

If we cannot protect our proprietary technology, we may not be able to prevent competitors from copying or misappropriating our technology and selling similar products, which would harm our business.

To compete effectively, we must protect our intellectual property. We rely on a combination of patents, trademarks, copyrights, trade secret laws, confidentiality procedures and licensing arrangements to protect our intellectual property rights. We hold numerous patents and have a number of pending patent applications. However, our portfolio of patents includes some that expired in 2009 and are expiring in subsequent years, which could have a negative effect on our ability to prevent competitors from duplicating certain of our products.

We might not succeed in obtaining patents from any of our pending applications. Even if we are awarded patents, they may not provide any meaningful protection or commercial advantage to us, as they may not be of sufficient scope or strength, or may not be issued in all countries where our products can be sold. In addition, our competitors may be able to design around our patents.

To protect our product technology, documentation and other proprietary information, we enter into confidentiality agreements with our employees, customers, consultants and strategic partners. We require our employees to acknowledge their obligation to maintain confidentiality with respect to PMC’s products. Despite these efforts, we cannot guarantee that these parties will maintain the confidentiality of our proprietary information in the course of future employment or working with other business partners. We develop, manufacture and sell our products in Asia and other countries that may not protect our products or intellectual property rights to the same extent as the laws of the United States. This makes piracy of our technology and products more likely. Steps we take to protect our proprietary information may not be adequate to prevent theft of our technology. We may not be able to prevent our competitors from independently developing technologies that are similar to or better than ours.

Our products employ technology that may infringe on the intellectual property and the proprietary rights of third parties, which may expose us to litigation and prevent us from selling our products.

Vigorous protection and pursuit of intellectual property rights or positions characterize the semiconductor industry. This often results in expensive and lengthy litigation. We, and our customers or suppliers, may be accused of infringing patents or other intellectual property rights owned by third parties in the future. An adverse result in any litigation could force us to pay substantial damages, stop manufacturing, using and selling the infringing products, spend significant resources to develop non-infringing technology, discontinue using certain processes or obtain licenses to the infringing technology. In addition, we may not be able to develop non-infringing technology or find appropriate licenses on reasonable terms or at all.

- 60 -

Patent disputes in the semiconductor industry are often settled through cross-licensing arrangements. Our portfolio of patents may not have the breadth to enable us to settle an alleged patent infringement claim through a cross-licensing arrangement. We may therefore be more exposed to third party claims than some of our larger competitors and customers.

The majority of our customers are required to obtain licenses from and pay royalties to third parties for the sale of systems incorporating our semiconductor devices. Customers may also make claims against us with respect to infringement.

Furthermore, we may initiate claims or litigation against third parties for infringing our proprietary rights or to establish the validity of our proprietary rights. This could consume significant resources and divert the efforts of our technical and management personnel, regardless of the litigation’s outcome.

We have significant debt in the form of senior convertible notes.

We have $60.8 million carrying value ($68.3 million of face value) of our 2.25% senior convertible notes outstanding. Our debt could materially and adversely affect our ability to obtain financing for working capital, acquisitions or other purposes, and could make us vulnerable to industry downturns and competitive pressures. Our ability to meet our debt service obligations will be dependent upon our future performance, which will be subject to financial, business and other factors affecting our operations, many of which are beyond our control. On October 15, 2025, we are obliged to repay the full remaining principal amount of the notes that have not been converted into our common stock, but we are also subject to certain triggering events that may cause the notes to be repaid earlier.

Securities we issue to fund our operations could dilute your ownership.

We may decide to raise additional funds through public or private debt or equity financing. If we raise funds by issuing equity securities, the percentage ownership of current stockholders will be reduced and the new equity securities may have priority rights over your investment. We may not be able to obtain sufficient financing on terms that are favorable to you or us. We may delay, limit or eliminate some or all of our proposed operations if adequate funds are not available.

- 61 -

Our stock price has been and may continue to be volatile.

We expect that the price of our common stock will continue to fluctuate significantly, as it has in the past. In particular, fluctuations in our stock price and our price-to-earnings multiple may have made our stock attractive to momentum, hedge or day-trading investors who often shift funds into and out of stocks rapidly, exacerbating price fluctuations in either direction particularly when viewed on a quarterly basis.

Securities class action litigation has often been instituted against a company following periods of volatility and decline in the market price of their securities. If instituted against us, regardless of the outcome, such litigation could result in substantial costs and diversion of our management’s attention and resources and have a material adverse effect on our business, financial condition and operating results. In addition, we could incur substantial punitive and other damages relating to such litigation.

Provisions in Delaware law, our charter documents and our stockholder rights plan may delay or prevent another entity from acquiring us without the consent of our Board of Directors.

We adopted a stockholder rights plan in 2001, pursuant to which we declared a dividend of one share purchase right for each outstanding share of common stock. If certain events occur, including if an investor tenders for or acquires more than 15% of our outstanding common stock, stockholders (other than the acquirer) may exercise their rights and receive $650 worth of our common stock in exchange for $325 per right, or we may, at our option, issue one share of common stock in exchange for each right, or we may redeem the rights for $0.001 per right. The issuance of the rights could have the effect of delaying or preventing a change in control of us.

In addition, our Board of Directors has the right to issue preferred stock without stockholder approval, which could be used to dilute the stock ownership of a potential hostile acquirer. Delaware law imposes some restrictions on mergers and other business combinations between us and any holder of 15% or more of our outstanding common stock.

Although we believe these provisions of our charter documents, Delaware law and our stockholder rights plan will provide for an opportunity to receive a higher bid by requiring potential acquirers to negotiate with our Board of Directors, these provisions apply even if the offer may be considered beneficial by some stockholders.

- 62 -

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3. Defaults Upon Senior Securities

None.

Item 4. [Reserved]

Item 5. Other Information

None.

Item 6. Exhibits

Exhibit No.		Form		File No.		Filing Date		Exhibit No. as Filed		Filed with this 10-Q
2.1	Agreement and Plan of Merger by and among PMC-Sierra, Inc., Rosewood Acquisition Corp., Wintegra Inc. and Concord (k.t.) Venture Management Ltd., as Stockholders’ Agent, dated as of October 21, 2010.		8-K		0-19084		October 26, 2010		2.1
10.1	Office Lease										X
11.1	Calculation of net income per share – included in Note 11. Net Income Per Share of the financial statements included in Item I of Part I of this Quarterly Report.										X
31.1	Certification of Chief Executive Officer pursuant to Section 302 (a) of the Sarbanes-Oxley Act of 2002										X
31.2	Certification of Chief Financial Officer pursuant to Section 302 (a) of the Sarbanes-Oxley Act of 2002										X
32.1	Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Chief Executive Officer)										X
32.2	Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Chief Financial Officer)										X
101.INS	XBRL Instance Document										X
101.SCH	XBRL Taxonomy Extension Schema Document										X
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document										X
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document										X
101.LAB	XBRL Taxonomy Extension Label Linkbase Document										X
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document										X

- 63 -

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	PMC-SIERRA, INC.
	(Registrant)
Date: November 4, 2010	/s/    Michael W. Zellner
	Michael W. Zellner
	Vice President,
	Chief Financial Officer and
	Principal Accounting Officer

- 64 -

EX-10.1

Exhibit 10.1

OFFICE LEASE

BY AND BETWEEN

WCP BORDEAUX CENTRE LLC,

a Delaware limited liability company

as Landlord

and

PMC–SIERRA, INC.

a Delaware corporation

as Tenant

August 23, 2010

OFFICE LEASE

THIS OFFICE LEASE (this “Lease”), dated August 23, 2010 for reference purposes only, is made by and between WCP BORDEAUX CENTRE LLC, a Delaware limited liability company (“Landlord”) and PMC-SIERRA, INC., a Delaware corporation (“Tenant”), to be effective and binding upon the parties as of the date the last of the designated signatories to this Lease shall have executed this Lease (the “Effective Date of this Lease”).

ARTICLE 1

REFERENCE PROVISIONS

1.1 References. All references in this Lease to the following terms shall have the following meaning or refer to the respective information as below set forth:

Tenant’s Address for Notice
Prior to Commencement Date:	PMC-Sierra, Inc.
	3975 Freedom Circle, Suite 300
	Santa Clara, CA 95054
	Attn: General Counsel
	with a copy to:
	PMC-Sierra
	8555 Baxter Place
	Burnaby, BC, V5A 4V7, Canada
	Attn: Director, Worldwide Facilities
Tenant’s Address for Notice
After Commencement Date:	PMC-Sierra, Inc.
	1380 Bordeaux Drive
	Sunnyvale, California 94089
	Attn: General Counsel
	With a copy to:
	PMC-Sierra
	8555 Baxter Place
	Burnaby, BC, V5A 4V7, Canada
	Attn: Director, Worldwide Facilities
Landlord’s Address for Notices:	WCP Bordeaux Centre LLC
	c/o Wrightwood Capital
	2 North LaSalle Street, 9th Floor
	Chicago, Illinois 60602
	Attn: General Counsel
	With a copy to:
	WCP Bordeaux Centre LLC
	c/o Wrightwood Capital
	2 North LaSalle Street, 9th Floor
	Chicago, Illinois 60602
	Attn: Director of Portfolio Management
Commencement Date:	The later of (i) the date Landlord tenders possession of the Leased Premises to Tenant in the condition required under this Lease with the Improvement Work substantially completed or (ii) January 1, 2011.
Term of the Lease:	Approximately One Hundred Twenty (120) months
Expiration Date:	The last day of the calendar month that is One Hundred Twenty (120) full calendar months after the Commencement Date (including any partial month in the event the Commencement Date occurs on a day other than the first day of a calendar month), unless earlier terminated or extended in accordance with the terms of this Lease.
Option to Renew:	One option to renew, for a term of sixty (60) months.
Prepaid Rent:	$121,365.16, to be applied to the payment of Base Monthly Rent as set forth in Paragraph 3.6 of this Lease.
Security Deposit:	$148,591.66

2.

Tenant’s Broker:	Cornish and Carey Commercial
Property:	That certain real property situated in the City of Sunnyvale, County of Santa Clara, State of California, as presently improved with two (2) buildings, which real property is legally described on Exhibit “A” and is commonly known as Bordeaux Centre, including the Building and that certain other building commonly known as 1376 Bordeaux Drive, Sunnyvale, California (the “Adjacent Building”).
Building:	That certain building on the Property in which the Leased Premises are located commonly known as 1380 Bordeaux Drive, Sunnyvale, California (the “Building”), which Building is shown outlined on Exhibit “A” hereto.
Outside Areas:	The “Outside Areas” shall mean all areas of the Property which are located outside the Building and the Adjacent Building, such as pedestrian walkways, parking areas, landscaped area, open areas and enclosed trash disposal areas, but excluding the roof areas of the Building and the Adjacent Building.
Leased Premises:	All the interior space within the Building, including stairwells, connecting walkways, and atriums, consisting of approximately 61,921 rentable square feet and, for purposes of this Lease, agreed to contain said number of rentable square feet.
Tenant’s Expense Share:	The term “Tenant’s Expense Share” shall mean the percentage obtained by dividing the rentable square footage of the Leased Premises at the time of calculation by the rentable square footage of all buildings located on the Property at the time of calculation. Such percentage is currently 50%. In the event that any portion of the Property is sold by Landlord, or the rentable square footage of the Leased Premises or the Property is otherwise changed, Tenant’s Expense Share shall be recalculated to equal the percentage described in the first sentence of this paragraph.
Base Monthly Rent:	The term “Base Monthly Rent” shall mean the following:
	Period	Base Rent Per Month
	*Commencement Date - 48th Full Calendar Month	$121,365.16
	49th - 60th Full Calendar Months	$128,176.47
	61st - 72nd Full Calendar Months	$132,021.76
	73rd - 84th Full Calendar Months	$135,982.42
	85th - 96th Full Calendar Months	$140,061.89
	97th - 108th Full Calendar Months	$144,263.75
	109th Full Calendar Month - Expiration Date	$148,591.66
	*Subject to rent abatement as set forth in Section 3.1 of this Lease.
Permitted Use:	Executive and general office use (including, without limitation, server room) and prototype manufacturing consistent with semiconductor research and development (including, without limitation, semiconductor test lab).
Exhibits:	The term “Exhibits” shall mean the Exhibits of this Lease which are described as follows:
	Exhibit “A” – Legal Description of the Property and site plan delineating the Building in which the Leased Premises are located.
	Exhibit “B” – Work Letter
	Exhibit “C” – Form of Commencement Certificate
	Exhibit “D” – Form of SNDA

ARTICLE 2

LEASED PREMISES, TERM AND POSSESSION

2.1 Demise Of Leased Premises. Landlord hereby leases to Tenant and Tenant hereby leases from Landlord for Tenant’s own use in the conduct of Tenant’s business and not for purposes of speculating in real estate, for the Lease Term and upon the terms and subject to the conditions of this Lease, that certain interior space described in Article 1 as the Leased Premises. Tenant’s lease of the Leased Premises, together with the appurtenant right to use the Outside Areas as described in Paragraph 2.2 below, shall be conditioned upon and be subject to the continuing

3.

compliance by Tenant with (i) all the terms and conditions of this Lease, (ii) all Laws governing the use of the Leased Premises and the Property, (iii) all Private Restrictions, easements and other matters of public record respecting the use of the Leased Premises and the Property, and (iv) all reasonable rules and regulations from time to time established by Landlord.

2.2 Right To Use Outside Areas. As an appurtenant right to Tenant’s right to the use and occupancy of the Leased Premises, Tenant shall have the right to use the Outside Areas in conjunction with its use of the Leased Premises solely for the purposes for which they were designated and intended and for no other purposes whatsoever, conditioned upon and be subject to the continuing compliance by Tenant with (i) all the terms and conditions of this Lease, (ii) all Laws governing the use of the Outside Areas and the Property, (iii) all Private Restrictions, easements and other matters of public record respecting the use of the Outside Areas and Property, and (iv) all reasonable rules and regulations from time to time established by Landlord. Tenant’s right to so use the Outside Areas shall terminate concurrently with any termination of this Lease. Landlord reserves the right to install, use, maintain, repair, alter or relocate, expand and replace any of the Outside Areas and, subject to the requirements of Paragraph 4.5 (“Parking”), to designate from time to time certain portions of the Outside Areas as exclusively for the benefit of other tenants of the Property.

2.3 Commencement Date And Lease Term. Subject to Paragraph 2.4 below, the term of this Lease shall begin on the Commencement Date and end on the Expiration Date (as set forth in Article 1). The Lease Term shall be that period of time commencing on the Commencement Date and ending on the Expiration Date (the “Lease Term”). Once the Commencement Date is determined, Landlord shall deliver to Tenant a notice in the form as set forth in Exhibit C, attached hereto, as a confirmation only of the information set forth therein, which Tenant shall execute and return to Landlord within ten (10) business days of receipt thereof; provided, however, Tenant’s failure to execute and return such notice to Landlord within such time shall be conclusive upon Tenant that the information set forth in such notice is as specified therein.

2.4 Delivery Of Possession.

(a) Landlord shall deliver to Tenant possession of the Leased Premises at such time as the Improvement Work (as defined in Paragraph 2.5 below) is substantially completed pursuant to the Work Letter. If Landlord is unable to so deliver possession of the Leased Premises to Tenant with the Improvement Work substantially completed on or before January 1, 2011, Landlord shall not be in default under this Lease, nor shall this Lease be void, voidable or cancelable by Tenant until the lapse of two hundred eighty five (285) days from the date of this Lease plus one day for each day of Tenant Delay and one half of one day for each day of Force Majeure (excluding permit delays) (the “Delivery Grace Period”). If Landlord is unable to deliver possession of the Leased Premises to Tenant with the Improvement Work substantially completed within the Delivery Grace Period, then Tenant’s sole remedy, except as expressly set forth herein, shall be to terminate this Lease, and in no event shall Landlord be liable in damages to Tenant for such delay. Tenant may not terminate this Lease at any time after Substantial Completion (as defined in the attached Work Letter) of the Improvement Work. Notwithstanding the foregoing, in the event Landlord is unable to deliver possession of the Leased Premises to Tenant with the Improvement Work substantially completed for any reason on or before March 15, 2011 (as extended by one day for each day of Tenant Delay and one-half of one day for each day of Force Majeure (excluding permit delays), then the Abatement Period and the Abated Rent Amount as set forth in Section 3.1 below shall each be increased by one (1) additional day of Base Monthly Rent for each day that such delivery is delayed beyond March 15, 2011.

(b) Tenant shall have the right, for a period not to exceed sixty (60) days prior to the Commencement Date (the “Early Entry Period”), to enter the Leased Premises for purposes of planning, constructing and installing Tenant’s furnishings and equipment and wiring in the Leased Premises, provided that in connection with any such early entry (a) such early entry is in compliance with all construction contracts in effect with respect to the Improvement Work, (b) Landlord reasonably determines that such entry would not impede or interfere with Landlord’s construction of the Improvement Work or the schedule therefore, nor impede Landlord’s contractor’s use of elevators, loading docks or other areas necessary for the conduct of the Improvement Work, (c) Tenant delivers written evidence to Landlord that all insurance required to be carried by Tenant pursuant to the terms of this Lease is then in effect, and (d) Tenant’s entry shall be subject to such safety procedures and restrictions as Landlord’s contractor may reasonably impose. With respect to Tenant’s installation of wiring in the Leased Premises, Landlord shall coordinate with Tenant’s vendors regarding the same so that the same may be installed during the normal course of construction according to industry custom.

2.5 Performance Of Improvement Work; Acceptance Of Possession. Landlord shall, pursuant to the work letter attached hereto as Exhibit B (the “Work Letter”), perform the work and make the installations in the Leased Premises as set forth in the Work Letter (such work and installations hereinafter referred to as the “Improvement Work”). Without limiting the foregoing, Landlord agrees to deliver in good working order and in compliance with all Laws the roof surface and roof structure of the Building and the Leased Premises, including all existing plumbing, lighting, heating, ventilating and air conditioning systems within the Leased Premises and shall warrant such good working order for a period of one year from the date of Substantial Completion of the Improvement Work. If any dispute arises as to whether the Leased Premises are substantially completed and ready for Tenant’s occupancy, a certificate furnished by the Construction Manager (as defined in the Work Letter) certifying the date of substantial completion accompanied by a certificate of occupancy issued on or before such date of substantial completion shall be conclusive of that fact and date and binding upon Landlord and Tenant. It is agreed that by occupying, except during any Early Entry Period, the Leased Premises for beneficial use, Tenant formally accepts same and acknowledges that the Leased Premises are in the condition called for hereunder, subject to correction of normal punchlist items and patent defects specified by Tenant to Landlord in writing within thirty (30) days after Landlord notifies Tenant of substantial completion of the Improvement Work, and subject to correction of latent defects not visually discoverable by Tenant upon a walk through and which are identified in writing to Landlord within twelve (12) months following the Commencement Date.

4.

ARTICLE 3

RENT, LATE CHARGES AND SECURITY DEPOSITS

3.1 Base Monthly Rent. Commencing on the Commencement Date and continuing throughout the Lease Term, Tenant shall pay to Landlord, without prior demand therefor, in advance on the first day of each calendar month, the amount set forth as “Base Monthly Rent” in Article 1 (the “Base Monthly Rent”). During the period beginning on the Commencement Date and ending on the last day of the twelfth (12th) full calendar month following the Commencement Date (the “Abatement Period”), Tenant shall be entitled to a rent abatement credit in the amount of One Million Four Hundred Fifty Six Thousand Three Hundred Eighty One and 90/100 Dollars ($1,456,381.90) (the “Abated Rent Amount”) to be applied against Base Monthly Rent due hereunder beginning on the first day of first full calendar month immediately following the Commencement Date (or beginning on the Commencement Date if it is the first day of the month) and continuing until such rent abatement credit is exhausted. During the Abatement Period, Tenant shall remain responsible for the payment of all of its other monetary obligations under this Lease.

3.2 Additional Rent. Commencing on the Commencement Date and continuing throughout the Lease Term (and subject to final reconciliation after expiration or sooner termination of the Lease Term), in addition to the Base Monthly Rent, Tenant shall pay to Landlord as additional rent (the “Additional Rent”) the following amounts:

(a) An amount equal to all Property Operating Expenses (as defined in Article 13). Payment shall be made by whichever of the following methods (or combination of methods) is (are) from time to time designated by Landlord:

(i) Landlord may forward invoices or bills for such expenses to Tenant, and Tenant shall pay the same within thirty (30) days after receipt and in each case upon request, Tenant shall deliver satisfactory evidence of such payment to Landlord, and/or

(ii) Landlord may bill to Tenant, on a periodic basis not more frequently than monthly, the amount of such expenses (or group of expenses) as paid or incurred by Landlord, and Tenant shall pay to Landlord the amount of such expenses within thirty (30) days after receipt of a written bill therefor from Landlord, and/or

(iii) Landlord may deliver to Tenant Landlord’s reasonable estimate of any given expense (such as Landlord’s Insurance Costs or Real Property Taxes), or group of expenses, which it anticipates will be paid or incurred for the ensuing calendar or fiscal year, as Landlord may determine, and Tenant shall pay to Landlord an amount equal to the estimated amount of such expenses for such year in equal monthly installments during such year with the installments of Base Monthly Rent.

Landlord reserves the right to change from time to time the methods of billing Tenant for any given expense or group of expenses or the periodic basis on which such expenses are billed.

(b) Landlord’s share of the consideration received by Tenant upon certain assignments and sublettings as required by Article 7.

(c) Any legal fees and costs that Tenant is obligated to pay or reimburse to Landlord pursuant to Article 13; and

(d) Any other charges or reimbursements due Landlord from Tenant pursuant to the terms of this Lease.

Notwithstanding the foregoing, Landlord may elect by written notice to Tenant to have Tenant pay Real Property Taxes or any portion thereof directly to the applicable taxing authority, in which case Tenant shall make such payments within the later of ten (10) days before such Real Property Taxes become delinquent or thirty (30) days after receipt of the invoice or bill for the same.

3.3 Year-End Adjustments. If Landlord shall have elected to bill Tenant for the Property Operating Expenses (or any group of such expenses) on an estimated basis in accordance with the provisions of Paragraph 3.2(a)(iii) above, Landlord shall furnish to Tenant within four (4) months following the end of the applicable calendar or fiscal year, as the case may be, or as soon thereafter as is reasonably possible a statement setting forth (i) the amount of such expenses paid or incurred during the just ended calendar or fiscal year and Tenant’s Expense Share thereof, as appropriate, and (ii) the amount that Tenant has paid to Landlord for credit against such expenses for such period. Each statement sent to Tenant shall be conclusively binding upon Tenant unless Tenant (i) pays to Landlord when due the amount set forth in such statement, without prejudice to Tenant’s right to dispute such statement, and (ii) within one hundred twenty (120) days after such statement is sent, sends a notice to Landlord objecting to such statement and specifying the reasons therefor. If the parties are unable to resolve any dispute as to the correctness of such Statement within thirty (30) days following such notice of objection, either party may refer the issues raised to one of the nationally recognized public accounting firms mutually agreed upon by Landlord and Tenant, and the decision of such accountants shall be conclusively binding upon Landlord and Tenant. In connection therewith, Tenant and such accountants shall execute and deliver to Landlord a confidentiality agreement, in form and substance reasonably satisfactory to Landlord, whereby such parties agree not to disclose to any third party any of the information obtained in connection with such review. Tenant shall pay the fees and expenses relating to such procedure, unless such accountants determine that Landlord overstated Property Operating Expenses by more than five percent (5)%, in which case Landlord shall pay such fees and expenses. Tenant agrees that Tenant will not employ, in connection with any dispute under this Lease, any person or entity who is to be compensated, in whole or in part, on a contingency fee basis. Except as provided in this Paragraph 3.3, Tenant shall have no right whatsoever to dispute, by judicial proceeding or otherwise, the accuracy of any Statement. If Tenant shall have paid more than

5.

its obligation for such expenses for the stated period, Landlord shall, at its election, either (i) credit the amount of such overpayment toward the next ensuing payment or payments of Additional Rent that would otherwise be due or (ii) refund in cash to Tenant the amount of such overpayment. If such year-end statement shall show that Tenant did not pay its obligation for such expenses in full, then Tenant shall pay to Landlord the amount of such underpayment within thirty (30) days from Landlord’s billing of same to Tenant. Landlord shall make the final determination of Additional Rent for the calendar year in which this Lease terminates as soon as possible, but no later than 120 days, after the end of such calendar year. Tenant shall remain liable for payment of any amount due to Landlord in excess of the estimated Additional Rent previously paid by the Tenant, and, Landlord shall return to Tenant any overpayment within thirty (30) days after calculation thereof. Failure of Landlord to submit statements as called for herein or delay in submission thereof shall not be deemed a waiver of Tenant’s obligation to pay Additional Rent as herein provided. The provisions of this Paragraph shall survive the expiration or sooner termination of this Lease.

3.4 Late Charge, And Interest On Rent In Default. Tenant acknowledges that the late payment by Tenant of any monthly installment of Base Monthly Rent or any Additional Rent will cause Landlord to incur certain costs and expenses not contemplated under this Lease, the exact amounts of which are extremely difficult or impractical to fix. Such costs and expenses will include without limitation, administration and collection costs and processing and accounting expenses. Therefore, if any installment of Base Monthly Rent is not received by Landlord from Tenant within ten calendar days after the same becomes due, Tenant shall immediately pay to Landlord a late charge in an amount equal to five percent (5%) of the Delinquent Amount and if any Additional Rent is not received by Landlord within ten calendar days after same becomes due, Tenant shall immediately pay to Landlord a late charge in an amount equal to five percent (5%) of the Additional Rent not so paid. Landlord and Tenant agree that this late charge represents a reasonable estimate of such costs and expenses and is fair compensation to Landlord for the anticipated loss Landlord would suffer by reason of Tenant’s failure to make timely payment. In no event shall this provision for a late charge be deemed to grant to Tenant a grace period or extension of time within which to pay any rental installment or prevent Landlord from exercising any right or remedy available to Landlord upon Tenant’s failure to pay each rental installment due under this Lease when due, including the right to terminate this Lease. If any rent remains delinquent for a period in excess of 10 calendar days, then, in addition to such late charge, Tenant shall pay to Landlord interest on any rent that is not so paid from said tenth day at the lesser of 10% per annum or the then maximum rate of interest not prohibited or made usurious by Law until paid. Notwithstanding the foregoing, before assessing a late charge or later interest the first time in calendar year, Landlord shall provide Tenant written notice of the delinquency, and shall waive such late charge or interest if Tenant pays such delinquency within five (5) days thereafter.

Tenant’s Initials /s/    GSL

3.5 Payment Of Rent. Except as specifically provided otherwise in this Lease, all rent shall be paid in lawful money of the United States, without any abatement, reduction or offset for any reason whatsoever, to Landlord at such address as Landlord may designate from time to time. Tenant’s obligation to pay Base Monthly Rent and all Additional Rent shall be appropriately prorated at the commencement and expiration of the Lease Term. The failure by Tenant to pay any Additional Rent as required pursuant to this Lease when due shall be treated the same as a failure by Tenant to pay Base Monthly Rent when due, and Landlord shall have the same rights and remedies against Tenant as Landlord would have had Tenant failed to pay the Base Monthly Rent when due.

3.6 Prepaid Rent; First Partial Month. Tenant shall, upon execution of this Lease, pay to Landlord the amount set forth in Article 1 as “Prepaid Rent” as prepayment of rent for credit against the payment of Base Monthly Rent due hereunder as set forth in this Paragraph 3.6. If the Commencement Date occurs on a day other than the first day of the month, Base Monthly Rent for the calendar month in which the Commencement Date occurs shall be pro rated on a per diem basis, based on the number of days from and including the Commencement Date to and including the last day of the calendar month in which the Commencement Date occurs. The amount of the Prepaid Rent shall be first credited against Base Monthly Rent for such first partial month, if any and next to the Base Monthly Rent next due hereunder.

3.7 Security Deposit. Tenant has deposited with Landlord the amount set forth in Article 1 as the “Security Deposit” as security for the performance by Tenant of the terms of this Lease to be performed by Tenant, and not as prepayment of rent. Landlord may apply such portion or portions of the Security Deposit as are reasonably necessary for the following purposes: (i) to remedy any default by Tenant in the payment of Base Monthly Rent or Additional Rent or a late charge or interest on defaulted rent, or any other monetary payment obligation of Tenant under this Lease; (ii) to repair damage to the Leased Premises, the Building or the Outside Areas caused or permitted to occur by Tenant; (iii) to clean and restore and repair the Leased Premises, the Building or the Outside Areas following their surrender to Landlord if not surrendered in the condition required pursuant to the provisions of Article 2, and (iv) to remedy any other default of Tenant to the extent permitted by Law including, without limitation, paying in full on Tenant’s behalf any sums claimed by materialmen or contractors of Tenant to be owing to them by Tenant for work done or improvements made at Tenant’s request to the Leased Premises. In this regard, Tenant hereby waives any restriction on the uses to which the Security Deposit may be applied as contained in Section 1950.7(c) of the California Civil Code and/or any successor statute. Landlord shall not be deemed a trustee of the Security Deposit. Landlord may use the Security Deposit in Landlord’s ordinary business and shall not be required to segregate it from Landlord’s general accounts. Tenant shall not be entitled to any interest on the Security Deposit. If Landlord transfers the Building or the Property during the Lease Term, Landlord shall pay the Security Deposit to the subsequent owner in conformity with the provisions of Section 1950.7 of the California Civil Code and/or any successor statute, in which event the transferring landlord shall be released from all liability for the return of the Security Deposit. Tenant specifically grants to Landlord (and Tenant hereby waives the provisions of California Civil Code Section 1950.7 to the contrary) a period of ninety days following a surrender of the Leased Premises by Tenant to Landlord within which to inspect the Leased Premises, make required restoration and repairs, receive and verify workmen’s billings therefore, and prepare a final accounting with respect to the Security Deposit. In no event shall the Security Deposit or any portion thereof, be considered prepaid rent.

6.

ARTICLE 4

USE OF LEASED PREMISES AND OUTSIDE AREA

4.1 Permitted Use. Tenant shall be entitled to use the Leased Premises solely for the “Permitted Use” as set forth in Article 1 and for no other purpose whatsoever. Tenant shall have the right to use the Outside Areas in conjunction with its Permitted Use of the Leased Premises solely for the purposes for which they were designed and intended and for no other purposes whatsoever.

4.2 General Limitations On Use. Tenant shall not do or permit anything to be done in or about the Leased Premises, the Building, the Outside Areas or the Property which does or could (i) jeopardize the structural integrity of the Building or the Building Systems (ii) cause damage to any part of the Leased Premises, the Building, the Outside Areas or the Property. Tenant shall not operate any equipment within the Leased Premises which does or could (i) injure, vibrate or shake the Leased Premises or the Building, or (ii) jeopardize the operating integrity of, or damage, overload or impair the efficient operation of any Building Systems or other electrical, plumbing, heating, ventilating or air conditioning systems servicing the Outside Areas or the Property. Tenant shall not be liable under this Section 4.2 with respect to any of the foregoing arising in connection with the design and construction of the Tenant Improvements by Landlord. Except in compliance with Article 6, Tenant shall not install any equipment or antennas on or make any penetrations of the exterior walls or roof of the Building and shall not affix any equipment to or make any penetrations or cuts in the floor, ceiling, walls or roof of the Leased Premises. Tenant shall not place any loads upon the floors, walls, ceiling or roof systems which could endanger the structural integrity of the Building or damage its floors, foundations or supporting structural components. Tenant shall not place any explosive, flammable or harmful fluids or other waste materials in the drainage systems of the Leased Premises, the Building, the Outside Areas or the Property. Tenant shall not drain or discharge any fluids in the landscaped areas or across the paved areas of the Property. Tenant shall not use any of the Outside Areas for the storage of its materials, supplies, inventory or equipment and all such materials, supplies, inventory or equipment shall at all times be stored within the Leased Premises. Tenant shall not commit nor permit to be committed any waste in or about the Leased Premises, the Building, the Outside Areas or the Property.

4.3 Noise And Emissions. All noise generated by Tenant in its use of the Leased Premises shall be confined or muffled so that it does not interfere with the businesses of or annoy the occupants and/or users of adjacent properties or the general public. All dust, fumes, odors and other emissions generated by Tenant’s use of the Leased Premises shall be sufficiently dissipated in accordance with sound environmental practice and exhausted from the Leased Premises in such a manner so as not to interfere with the businesses of or annoy the occupants and/or users of adjacent properties or the general public, or cause any damage to the Leased Premises, the Building, the Outside Areas or the Property or any component part thereof or the property of adjacent property owners.

4.4 Trash Disposal. Tenant shall provide trash bins or other adequate garbage disposal facilities within the trash enclosure areas provided or permitted by Landlord outside the Leased Premises sufficient for the interim disposal of all of its trash, garbage and waste. All such trash, garbage and waste temporarily stored in such areas shall be stored in such a manner so that it is not visible from outside of such areas, and Tenant shall cause such trash, garbage and waste to be regularly removed from the Property in a clean, safe and neat condition free and clear of all trash, garbage, waste and/or boxes, pallets and containers containing same at all times.

4.5 Parking. Tenant shall have the right to use, at no additional rent, on a non-exclusive basis, up to 3.45 parking spaces in the Project Parking Facilities for each one thousand (1,000) rentable square feet of the Leased Premises. “Project Parking Facilities” shall mean and collectively refer to the surface parking lot located on the Property and any other parking facilities that may be constructed or installed at the Property. Tenant shall be responsible for the full amount of any taxes imposed by any governmental authority in connection with the use of the Project Parking Facilities by Tenant or its employees, officers, directors, agents, contractors or visitors. Tenant’s continued right to use the Project Parking Facilities is conditioned upon Tenant abiding by all rules and regulations which are reasonably prescribed from time to time for the orderly operation and use of the Project Parking Facilities, including any sticker or other identification system established by Landlord and Tenant’s cooperation in seeing that Tenant’s employees, officers, directors, agents, contractors and visitors also comply with such rules and regulations. Landlord specifically reserves the right to change the size, configuration, design, layout and all other aspects of the Project Parking Facilities at any time so long as the same does not permanently reduce the number of parking spaces allocated to Tenant or otherwise materially interfere with Tenant’s parking rights hereunder and Tenant acknowledges and agrees that Landlord may, without incurring any liability to Tenant and without any abatement of Rent under this Lease, from time to time, temporarily close-off or restrict access to the Project Parking Facilities for purposes of permitting or facilitating any such construction, alteration or improvements, provided, however, if 50% or more of the Project Parking Facilities is restricted, Landlord shall provide Tenant with alternative parking reasonably near the Property that satisfies the requirements under this Paragraph. Landlord may delegate its responsibilities hereunder to a parking operator in which case such parking operator shall have all the rights of control attributed hereby to the Landlord. The parking privileges granted to Tenant pursuant to this Section are provided to Tenant solely for use by Tenant’s own personnel and Tenant’s visitors and invitees and such rights may not be transferred, assigned, subleased or otherwise alienated by Tenant except in connection with an assignment of the Lease or a sublease of the Leased Premises. Tenant shall not use or suffer or permit the Project Parking Facilities to be used for any of the following purposes: automobile repairs, windshield replacements, car washing facilities, barbeques, parties, storage, or parking of recreational vehicles, trucks larger than standard passenger pickup trucks (other than in connection with the reasonable use of the loading dock area), trailers or inoperative vehicles.

4.6 Signs. (a) Subject to the provisions of subparagraph (b) below, (i) Tenant shall have the right to one (1) identification panel on the monument sign for the Property, and (ii) Tenant shall have the right to two (2) signs on the exterior of the Building in prominent locations on the exterior of the top floor of the Building not extending above the rooftop (such signs are referred to herein collectively as the “Initial Signage”). The Initial Signage shall be

7.

subject to prior approval by Landlord, which shall not be unreasonably withheld, and the City of Sunnyvale, compliance with all applicable Laws and the provisions of this Lease. In addition, the size, design, color, materials, fabrication, installations and all other aspects of the Initial Signage shall comply with all applicable Laws and shall be subject to Landlord’s prior written approval, which shall not be unreasonably withheld. The fabrication and installation of the monument sign shall be performed by Landlord at Tenant’s expense and the fabrication and installation of the exterior building sign shall be performed by Tenant at Tenant’s expense. Tenant shall, at Tenant’s expense, maintain the Initial Signage in first-class condition; provided, however, if Tenant’s failure to maintain the same continues for ten (10) days after Landlord provides Tenant written notice of such failure, Landlord may elect to maintain the Initial Signage at Tenant’s sole cost and expense. Landlord may remove the Initial Signage at Tenant’s sole cost and expense by the end of the Lease Term or, if earlier, at such time as Tenant no longer has the right to maintain the Initial Signage pursuant to subparagraph (b) below or applicable Law, and Landlord may in connection with such removal restore the monument sign and façade of the Building at the sign location to like new condition at Tenant’s expense.

(b) the signage rights set forth in subparagraph (a) are personal to PMC-Sierra, Inc. and any Permitted Transferee (and not any other assignee, sublessee or transferee of such entity), and such rights may be exercised and shall be maintained only provided and on condition that, and for so long as, PMC-Sierra, Inc. has not assigned or sublet more than 50% of the Leased Premises (except to a Permitted Transferee):

(c) Except with respect to the Initial Signage, Tenant shall not place or install on or within any portion of the Leased Premises, the exterior of the Building, the Outside Areas or the Property any sign, advertisement, banner, placard, or picture which is visible from the exterior of the Leased Premises. Tenant shall not place or install on or within any portion of the Leased Premises, the exterior of the Building, the Outside Areas or the Property any business identification sign which is visible from the exterior of the Leased Premises until Landlord shall have approved in writing and in its sole discretion the location, size, content, design, method of attachment and material to be used in the making of such sign. Any sign, once approved by Landlord, shall be fabricated, installed and maintained at Tenant’s sole cost and expense and only in strict compliance with Landlord’s approval, using a contractor approved by Landlord to install same. Tenant shall maintain all signs in first-class condition, or, upon Tenant’s request, Landlord will maintain any signs at Tenant’s sole cost and expense. Landlord may remove any signs, advertisements, banners, placards or pictures so placed by Tenant on or within the Leased Premises, the exterior of the Building, the Outside Areas or the Property, which have not been approved in writing by Landlord and charge to Tenant the cost of such removal, together with any costs incurred by Landlord to repair any damage caused thereby, including any cost incurred to restore the surface (upon which such sign was so affixed) to its original condition. Tenant shall, at Tenant’s sole cost and expense, remove all of Tenant’s signs, repair any damage caused thereby, and restore the surface upon which the sign was affixed to its original condition, all to Landlord’s reasonable satisfaction, upon the termination of this Lease; provided, however, Landlord may elect to remove such signs and perform such repairs at Tenant’s sole cost and expense.

4.7 Compliance With Laws And Private Restrictions. Tenant shall abide by and shall promptly observe and comply with, at its sole cost and expense, all Laws and Private Restrictions respecting the use and occupancy of the Leased Premises, the Building, the Outside Areas or the Property including, without limitation, all Laws governing the use and/or disposal of Hazardous Materials, and shall defend with counsel selected by Landlord, indemnify and hold Landlord harmless from any claims, damages or liability resulting from Tenant’s failure to so abide, observe, or comply. Notwithstanding anything to the contrary in this Lease, Tenant’s obligations hereunder shall not apply to Laws, Private Restrictions or insurance requirements requiring the construction of alterations unless such compliance is due to Tenant’s alterations or particular use of the Leased Premises. Tenant’s obligations hereunder shall survive the expiration or sooner termination of this Lease. Landlord covenants not to cause or allow any Private Restriction to be recorded against the Property from and after the date of this Lease which would materially adversely affect Tenant’s rights under this Lease or which would impose on Tenant a material cost or burden not currently anticipated.

4.8 Compliance With Insurance Requirements. With respect to any insurance policies carried by Landlord, Tenant shall not conduct nor permit any other person to conduct any activities nor keep, store or use (or allow any other person to keep, store or use) any item or thing within the Leased Premises, the Building, the Outside Areas or the Property which (i) is prohibited under the terms of any such policies, (ii) could result in the termination of the coverage afforded under any of such policies, (iii) could give to the insurance carrier the right to cancel any of such policies, or (iv) causes a material increase in the rates (over standard rates) charged for the coverage afforded under any of such policies, unless Tenant agrees to pay the full amount of any such increase reasonably demonstrated by Landlord to have been actually caused by Tenant. Tenant shall comply with all requirements of any insurance company, insurance underwriter, or Board of Fire Underwriters which are necessary to maintain, at standard rates, the insurance coverages carried by either Landlord or Tenant pursuant to this Lease; provided, however, unless Tenant has actual knowledge that any act or omission of Tenant amounts to a violation of this Paragraph 4.8, Tenant shall not be deemed to have violated this Paragraph 4.8 until ten (10) business days after written notice of such violation, unless such violation poses imminent threat to health or safety.

4.9 Landlord’s Right To Enter. Landlord and its agents shall have the right to enter the Leased Premises during normal business hours after giving Tenant reasonable notice, but no less than 24 hours (except in the case of emergencies), for the purpose of (i) inspecting the same; (ii) showing the Leased Premises and the roof of the Building to prospective purchasers, mortgagees and tenants (provided, however, entry for the purpose of showing the Leased Premises to prospective tenants shall be permitted only during the last nine (9) months of the term of the Lease), or other licensees; (iii) making necessary alterations, additions or repairs; and (iv) performing any of Tenant’s obligations when Tenant has failed to do so. Subject to Tenant’s rights under Paragraph 6.1(b), Tenant acknowledges and agrees that Landlord retains the exclusive right to use the roof of the Building and to enter into one or more leases, licenses or other agreements for use of the roof of the Building, provided any such lease, license or other use agreement shall be limited to use for the benefit of the Building or the Property, and in connection with the same, Landlord and any tenant, licensee or other user pursuant to any such agreement shall have the right upon

8.

the notice required hereunder to enter the Leased Premises for purposes of accessing the roof of the Building provided such entry shall not unreasonably interfere with Tenant’s use of the Leased Premises. Landlord shall have the right, upon the notice required hereunder, to enter the Leased premises during normal business hours (or as otherwise agreed), for purposes of supplying any maintenance or services agreed to be supplied by Landlord. Landlord shall have the right to enter the Outside Areas for purposes of (i) inspecting the exterior of the Building and the Outside Areas; (ii) posting notices of nonresponsibility (and for such purposes Tenant shall provide Landlord at least ten (10) days’ prior written notice of any work to be performed on the Leased Premises); and (iii) supplying any services to be provided by Landlord. Any entry into the Leased Premises or the Outside Areas by Landlord or any other party in accordance with this paragraph shall not under any circumstances be construed or deemed to be a forcible or unlawful entry into, or a detainer of, the Leased Premises, or an eviction, actual or constructive of Tenant from the Leased Premises or any portion thereof. Any entry by Landlord and Landlord’s agents or licensees shall not impair Tenant’s operations more than reasonably necessary, and shall comply with Tenant’s reasonable security measures.

4.10 Use Of Outside Areas. Tenant, in its use of the Outside Areas, shall at all times keep the Outside Areas in a condition free and clear of all materials, equipment, debris, trash (except within existing enclosed trash areas), inoperable vehicles, and other items which are not specifically permitted by Landlord to be stored or located thereon by Tenant. If, in the opinion of Landlord, unauthorized persons are using any of the Outside Areas by reason of, or under claim of, the express or implied authority or consent of Tenant, then Tenant, upon demand of Landlord, shall restrain, to the fullest extent then allowed by Law, such unauthorized use, and shall initiate such appropriate proceedings as may be required to so restrain such use. If Landlord reasonably determines that Tenant’s use of any portion of the Outside Areas requires additional or special cleaning, maintenance or other services, Landlord shall be entitled to arrange for any such additional services at Tenant’s sole cost and expense.

4.11 Environmental Protection. Tenant’s obligations under this Paragraph 4.11 shall survive the expiration or termination of this Lease.

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

         (b) Notwithstanding anything to the contrary in this Lease, Tenant, at its sole cost, shall comply with all Laws relating to the storage, use and disposal of Hazardous Materials; provided, however, that Tenant shall not be responsible for contamination of the Leased Premises by Hazardous Materials unless caused or permitted by Tenant or any subtenant or other occupant of the Leased Premises and their respective agents, contractors, subcontractors, employees, invitees or licensees (collectively, “Tenant Party”), excluding any contamination caused by Landlord or its agents, contractors, subcontractors, employees, invitees or licensees and provided further Tenant shall not be responsible for contamination of the Building or the Property by Hazardous Materials unless caused by Tenant. Tenant shall not store, use or dispose of any Hazardous Materials (not including any Hazardous Materials contained in normal office and janitorial products in accordance with all Laws) except for those Hazardous Materials listed in a Hazardous Materials management plan (“HMMP”) which Tenant shall deliver to Landlord on or before the Commencement Date if Tenant is using any such Hazardous Materials and, if there are changes thereto, update at least annually with Landlord (“Permitted Materials”) which may be used, stored and disposed of provided (i) such Permitted Materials are used, stored, transported, and disposed of in strict compliance with applicable Law, (ii) such Permitted Materials shall be limited to the materials listed on and may be used only in the quantities specified in the HMMP, and (iii) Tenant shall provide Landlord with copies of all material safety data sheets and other documentation required under applicable Law in connection with Tenant’s use of Permitted Materials as and when such documentation is provided to any regulatory authority having jurisdiction, in no event shall Tenant cause or permit to be discharged into the plumbing or sewage system of the Building or the Property or onto the land underlying or adjacent to the Building or the Property any Hazardous Materials. Tenant shall be solely responsible for and shall defend, indemnify, and hold Landlord and its agents harmless from and against all claims,

9.

costs and liabilities, including attorneys’ fees and costs, arising out of or in connection with Tenant’s storage, use and/or disposal of Hazardous Materials. If the presence of Hazardous Materials (x) on the Leased Premises caused or permitted by Tenant or any Tenant Party or (y) on the Building or the Property caused by Tenant or any Tenant Party, result in contamination or deterioration of water or soil, then Tenant shall immediately notify Landlord of the same and shall immediately take any and all action necessary to clean up such contamination, but the foregoing shall in no event be deemed to constitute permission by Landlord to allow the presence of such Hazardous Materials. At any time prior to the expiration of the Lease Term if Tenant has a reasonable basis to suspect that there has been any release or the presence of Hazardous Materials in the ground or ground water on the Property which did not exist upon commencement of the Lease Term, Tenant shall immediately notify Landlord of the same and, with Landlord’s prior written approval, shall have the right to conduct appropriate tests of water and soil and to deliver to Landlord the results of such tests to demonstrate that no contamination in excess of permitted levels has occurred as a result of Tenant’s use of the Leased Premises. Tenant shall further be solely responsible for, and shall defend, indemnify, and hold Landlord and its agents harmless from and against all claims, costs and liabilities, including attorneys’ fees and costs, arising out of or in connection with any removal, cleanup and restoration work and materials required hereunder to return the Leased Premises and any other property of whatever nature to their condition existing prior to the appearance of the Hazardous Materials released by Tenant or any Tenant Party.

(c) Upon termination or expiration of the Lease, Tenant at its sole expense shall cause all Hazardous Materials placed in or about the Leased Premises, the Building and/or the Property by Tenant, its agents, contractors, or invitees, and all installations (whether interior or exterior) made by or on behalf of Tenant relating to the storage, use, disposal or transportation of Hazardous Materials to be removed from the property and transported for use, storage or disposal in accordance and compliance with all Laws and other requirements respecting Hazardous Materials used or permitted to be used by Tenant. To the extent required by law due to Tenant’s particular use of the Leased Premises, Tenant shall apply for and shall obtain from all appropriate regulatory authorities (including any applicable fire department or regional water quality control board) all permits, approvals and clearances necessary for the closure of the Property and shall take all other actions as may be required to complete the closure of the Building and the Property.

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

(e) Landlord may voluntarily cooperate in a reasonable manner with the efforts of all governmental agencies in reducing actual or potential environmental damage. Tenant shall not be entitled to terminate this Lease or to any reduction in or abatement of rent by reason of such compliance or cooperation. Tenant agrees at all times to cooperate in a reasonable manner with the requirements and recommendations of governmental agencies regulating, or otherwise involved in, the protection of the environment provided Tenant shall not be responsible for any contamination of the Building or the Property by Hazardous Materials unless caused by Tenant or any Tenant Party.

(f) Except as set forth in the environmental report(s) delivered to Tenant prior to the execution of this Lease by Tenant, to Landlord’s knowledge, no Hazardous Material in excess of legally permissible levels is present on the Property or in the soil, surface water or groundwater thereof. As used herein, “Landlord’s knowledge” means the actual knowledge of Richard Czerwinski, without duty of investigation or inquiry.

4.12 Rules And Regulations. Landlord shall have the right from time to time to establish reasonable rules and regulations and/or amendments or additions thereto respecting the use of the Leased Premises and the Outside Areas for the care and orderly management of the Property. Upon delivery to Tenant of a copy of such rules and regulations or any amendments or additions thereto, Tenant shall comply with such rules and regulations. Notwithstanding the foregoing, Tenant shall not be required to comply with any new rule or regulation unless the same applies non-discriminatorily to all similarly situated occupants of the Property, does not unreasonably interfere with Tenant’s use of the Leased Premises or Tenant’s parking rights and does not materially increase the obligations or materially decrease the rights of Tenant under this Lease. A material or repeated violation by Tenant of any of such rules and regulations shall constitute a default by Tenant under this Lease. If there is a conflict between the rules and regulations and any of the provisions of this Lease, the provisions of this Lease shall prevail. Landlord shall not be responsible or liable to Tenant for the violation of such rules and regulations by any other tenant of the Property.

ARTICLE 5

REPAIRS, MAINTENANCE, SERVICES AND UTILITIES

5.1 Repair And Maintenance. Except in the case of damage to or destruction of the Leased Premises, the Building, the Outside Areas or the Property caused by an act of God or other peril, in which case the provisions of Article 10 shall control, the parties shall have the following obligations and responsibilities with respect to the repair and maintenance of the Leased Premises, the Building, the Outside Areas, and the Property.

(a) Tenant’s Obligations. Tenant shall, at all times during the Lease Term and at its sole cost and expense, regularly clean and continuously keep and maintain in good order, condition and repair the Leased

10.

Premises and every part thereof including, without limiting the generality of the foregoing, (i) all interior walls, floors and ceilings, (ii) all interior windows, window frames, window casements, interior and exterior doors, door frames and closers, (iii) all electrical wiring, conduits, connectors and fixtures, (iv) all plumbing, pipes, sinks, toilets, faucets and drains, (v) all lighting fixtures, bulbs and lamps and all heating, ventilating and air conditioning equipment, (vi) Tenant’s security systems in or about or serving the Leased Premises and, except to the extent that Landlord notifies tenant in writing of its intention to arrange for such monitoring, cause the fire alarm systems serving the Leased Premises to be monitored by a monitoring or protective services firm approved by Landlord in writing and (vii) all entranceways to the Leased Premises. Tenant shall furnish all other expendables, including paper goods and soaps used in the Leased Premises. Tenant, if requested to do so by Landlord, shall hire, at Tenant’s sole cost and expense, a licensed heating, ventilating and air conditioning contractor to regularly and periodically (not less frequently than every three months) inspect and perform required maintenance on the heating, ventilating and air conditioning equipment and systems serving the Leased Premises, or alternatively, Landlord may, at its election, contract in its own name for such regular and periodic inspections of and maintenance on such heating, ventilating and air conditioning equipment and systems and charge to Tenant, as Additional Rent, the cost thereof. Landlord may, at its election, contract with a licensed roofing contractor to periodically inspect and perform required maintenance on the roof of the Leased Premises and shall have the driveways and parking areas periodically swept and charge to Tenant, as Additional Rent, the cost thereof. Subject to Section 9.3, Tenant shall, at its sole cost and expense, repair all damage to the Leased Premises, the Building, the Outside Areas or the Property caused by the activities of Tenant, its employees, invitees or contractors promptly following written notice from Landlord to so repair such damages. If Tenant shall fail to perform the required maintenance or fail to make repairs required of it pursuant to this paragraph within a reasonable period of time following notice from Landlord to do so, then Landlord may, at its election and without waiving any other remedy it may otherwise have under this Lease or at law, perform such maintenance or make such repairs and charge to Tenant, as Additional Rent, the costs so incurred by Landlord for same. All glass within or a part of the Leased Premises, both interior and exterior, is at the sole risk of Tenant and any broken glass shall promptly be replaced by Tenant at Tenant’s expense with glass of the same kind, size and quality.

(b) Landlord’s Obligation. Landlord shall, at all times during the Lease Term, maintain in good condition and repair the Building Systems, foundation, roof, roof structure, load-bearing and exterior walls of the Building and all other structural portions of the Building and the Outside Areas. Notwithstanding any of the foregoing to the contrary, Landlord shall perform and construct, and Tenant shall have no responsibility to perform or construct, any repair, maintenance or improvements (a) which could be treated as a “capital expenditure” under generally accepted accounting principles or (b) to the electrical, water, sewer, and plumbing systems serving the Leased Premises to the extent not located within and exclusively serving the Leased Premises. The provisions of this subparagraph (b) shall in no way limit the right of Landlord to charge to Tenant, as Additional Rent pursuant to Article 3 (to the extent permitted pursuant to Article 3), the costs incurred by Landlord in performing such maintenance and/or making such repairs.

(c) If a Material Curable Landlord Default (defined below) occurs under this Lease, and if Tenant intends to exercise its cure rights provided in this Paragraph, then, before Tenant may exercise such cure rights, Tenant shall notify Landlord in writing (the “Default Notice”) of the existence of the Material Curable Landlord Default, the nature thereof in reasonable detail and of Tenant’s intent to exercise its rights under this Paragraph.

(i) Landlord shall have 10 Business Days following receipt of a Tenant’s Default Notice to cure such default, unless such Material Curable Landlord Default cannot be reasonably cured within said 10 Business Day period, in which case Landlord shall have such time as is reasonably necessary to cure such default, but only if Landlord commences to cure such default within the 10 Business Day period specified above and thereafter proceeds diligently and continuously to cure such default.

(ii) Tenant shall have the right to cure any Material Curable Landlord Default which is not cured by Landlord within the time periods set forth above. In curing a Material Curable Landlord’s Default, (1) Tenant may only use Landlord-approved contractors for any repairs, modifications or alterations to the Building and the Building Systems; (2) Tenant may not make any changes to the exterior, interior or common areas of the Building or the Building Systems; and (3) Tenant shall only make such repairs or take such action as is reasonably necessary to cure such default.

(iii) Landlord shall reimburse Tenant for the reasonable out-of-pocket costs and expenses incurred by Tenant in curing a Material Curable Landlord Default in accordance with the provisions of this Paragraph within 30 days after receipt of Tenant’s invoice for such amount and supporting data in reasonable detail. Any amount reimbursed to Tenant under this Paragraph shall be included in Operating Expenses, to the extent such amount would have been included in Operating Expenses if Landlord had cured the default in question. All amounts not paid by Landlord when due shall bear interest at the Interest Rate from the due date until paid.

(iv) A “Material Curable Landlord Default” shall mean any default by Landlord in the performance of its obligations under this Lease which (i) materially impairs Tenant’s use of or access to the Leased Premises; (ii) does not arise as a result of a fire or casualty or an act or omission of Tenant, its agents, employees or contractors; and (iii) can be reasonably cured by Landlord. For purposes of the foregoing and without limiting the determination of whether a default can be reasonably cured by Landlord, Landlord’s failure to provide services or repairs because the electric company servicing the Building is unable to delivery electricity to the Building is a default that cannot be reasonably cured by Landlord.

5.2 Utilities. Tenant shall arrange at its sole cost and expense and in its own name, for the supply of utilities to the Leased Premises. Landlord represents that electricity, gas and water services are separately metered. Tenant shall be responsible for determining if the local supplier of utilities can supply the needs of Tenant and whether or not the existing distribution systems within the Building and the Leased Premises are adequate for Tenant’s needs.

11.

5.3 Security.

(a) Tenant acknowledges that Landlord has not undertaken any duty whatsoever to provide security for the Leased Premises, the Building, the Outside Areas or the Property and accordingly, Landlord is not responsible for the security of the same or the protection of Tenant’s property or Tenant’s employees, invitees or contractors. To the extent Tenant determines that such security or protection services are advisable or necessary, Tenant shall arrange for and pay the costs of providing same. Any election by Landlord to provide any security for all or any portion of the Leased Premises, the Building, the Outside Areas or the Property shall not create any liability of Landlord to Tenant for the security of the same or the protection of Tenant’s property or Tenant’s employees, invitees or contractors. Tenant hereby waives any claim against Landlord with respect o any bodily injury, loss by theft or other damaged suffered or incurred by Tenant or Tenant’s employees, invitees, and visitors in connection with any unauthorized entry into the Leased Premises or any other breach of security with respect to the Leased Premises, the Building, the Outside Areas or the Property.

(b) Without limiting the generality of subparagraph (a) above, Tenant agrees to the exercise by Landlord and Landlord’s agents, in their sole discretion, of security measures Landlord or its agents may employ from time to time, including, but not limited to, the evacuation of the Leased Premises, the Building, or the Property for cause, suspected cause or for drill purposes, the denial of any access to the Leased Premises, the Building or the Property and other similarly related actions that Landlord or its agents deem necessary to prevent any threat of property damage or bodily injury. The exercise of such measures by Landlord and its agents, and the resulting interruption of service and cessation of Tenant’s business, if any, shall not be deemed an eviction or disturbance of Tenant’s use and possession of the Leased Premises, or any part thereof, or render Landlord or its agents liable to Tenant for any resulting damages or relieve Tenant from Tenant’s obligations under this Lease.

5.4 Energy And Resource Consumption. Landlord may voluntarily cooperate in a reasonable manner with the efforts of governmental agencies and/or utility suppliers in reducing energy or other resource consumption within the Property provided such cooperation shall not materially interfere with Tenant’s use of the Leased Premises for the Permitted Use. Tenant shall not be entitled to terminate this Lease or to any reduction in or abatement of rent by reason of such compliance or cooperation. Tenant agrees at all times to cooperate in a reasonable manner with Landlord and to abide by all commercially reasonable rules established by Landlord (i) in order to maximize the efficient operation of the electrical, heating, ventilating and air conditioning systems and all other energy or other resource consumption systems with the Property and/or (ii) in order to comply with the requirements and recommendations of utility suppliers and governmental agencies regulating the consumption of energy and/or other resources.

5.5 Limitation Of Landlord’s Liability. Landlord shall not be liable to Tenant for injury to Tenant, its employees, agents, invitees or contractors, damage to Tenant’s property, nor shall Tenant be entitled to any reduction in or abatement of rent by reason of (i) Landlord’s failure or election to provide security services or systems within the Property for the protection of the Leased Premises, the Building or the Outside Areas, or the protection of Tenant’s property or Tenant’s employees, invitees, agents or contractors, or (ii) Landlord’s failure to perform any maintenance or repairs to the Leased Premises, the Building, the Outside Areas or the Property until Tenant shall have first notified Landlord, in writing, of the need for such maintenance or repairs, and then only after Landlord shall have had a reasonable period of time following its receipt of such notice within which to perform such maintenance or repairs and in any case not less than the notice and cure periods set forth in Paragraph 12.3 of this Lease, or (iii) any failure, interruption, rationing or other curtailment in the supply of water, electric current, gas or other utility service to the Leased Premises, the Building, the Outside Areas or the Property from whatever cause (other than Landlord’s sole active negligence or willful misconduct), or (iv) the unauthorized intrusion or entry into the Leased Premises by third parties (other than Landlord). Notwithstanding the foregoing or, anything in this Lease to the contrary, Tenant shall not be entitled to terminate this Lease by reason of any such Landlord failure or intrusion. If Tenant is prevented from using and does not use the Leased Premises or any material portion thereof for the conduct of its business, for three (3) consecutive Business Days (the “Eligibility Period”) as a result of (i) the failure in any material respect of Landlord or its agents or contractors to provide to the Leased Premises any of the utilities and services required to be provided under this Lease (excluding failure caused by Tenant or any Tenant Party or due to the occurrence of a casualty or condemnation), or (ii) because of the presence of Hazardous Materials in, on or around the Building or the Leased Premises which were not caused or introduced by Tenant or any Tenant Party and which Hazardous Materials pose an imminent material and significant health risk to occupants of the Premises as determined by an industrial hygienist or other comparable public health professional, then, in any and all such events, Tenant’s obligation to pay Base Monthly Rent, Tenant’s Operating Payment and Tenant’s Tax Payment shall be abated or reduced, as the case may be, from and after the first day following the last day of the Eligibility Period and continuing for such time that Tenant continues to be so prevented from using for the conduct of its business, and does not so use for the conduct of its business, the Premises or a material portion thereof, in the proportion that the rentable square feet of the portion of the Premises that Tenant is prevented from using, and does not so use, bears to the total rentable square feet of the Premises. For purposes of this Paragraph, Tenant shall not be deemed to have used the Leased Premises for the conduct of its business as a result of the presence of limited numbers of employees of Tenant who are present within the Leased Premises performing activities such as securing the Leased Premises, removing files and computers and engaging in other limited commercial activities.

ARTICLE 6

ALTERATIONS AND IMPROVEMENTS

6.1 By Tenant. (a) Tenant shall not make any alterations to or modifications of the Leased Premises or construct any improvements within the Leased Premises until Landlord shall have first approved, in writing, the plans and specifications therefor, which approval may not be unreasonably withheld. All such modifications, alterations or improvements, once so approved, shall be made, constructed or installed by Tenant at Tenant’s expense (including all permit fees and governmental charges related thereto), using a licensed contractor first

12.

approved by Landlord, in substantial compliance with the Landlord-approved plans and specifications therefor. All work undertaken by Tenant shall be done in accordance with all Laws and in a good and workmanlike manner using new materials of good quality. Tenant shall not commence the making of any such modifications or alterations or the construction of any such improvements until (i) all required governmental approvals and permits shall have been obtained, (ii) all requirements regarding insurance imposed by this Lease have been satisfied, (iii) Tenant shall have given Landlord at least five business days prior written notice of its intention to commence such work so that Landlord may post and file notices of non-responsibility, (iv) if requested by Landlord, Tenant shall have obtained contingent liability and broad form builder’s risk insurance in an amount satisfactory to Landlord in its reasonable discretion to cover any perils relating to the proposed work not covered by insurance carried by Tenant pursuant to Article 9 and (v) with respect to any alteration or modification that affect Building Systems, Tenant shall first obtain approval from Landlord’s designated engineer for the affected Building System. Tenant shall pay to Landlord, within thirty (30) days of demand therefor an administrative fee in connection with any alterations or modifications in the Leased Premises in an amount equal to 3% of the total cost of such alterations or modifications but in any event not to exceed Landlord’s actual out-of-pocket costs related to review, approval and supervision of alterations. Except as specifically set forth in the Lease, in no event shall Tenant make any modification, alterations or improvements whatsoever to the Outside Areas or the exterior or structural components of the Building including, without limitation, any material cuts or penetrations in the floor, roof or exterior walls of the Leased Premises without Landlord’s prior written consent, which may be granted or withheld in Landlord’s sole discretion (collectively, “Prohibited Alterations”). As used in this Article, the term “modifications, alterations and/or improvements” shall include, without limitation, the installation of additional electrical outlets, overhead lighting fixtures, drains, sinks, partitions, doorways, or the like. Notwithstanding the foregoing, Tenant, without Landlord’s prior written consent, shall be permitted to make alterations other than Prohibited Alterations to the Building, provided that: (a) such alterations do not exceed $25,000 individually or $100,000 in the aggregate in any consecutive twelve (12) month period, (b) Tenant shall timely provide Landlord the notice required pursuant to subparagraph (iii) above, (c) Tenant shall notify Landlord in writing within thirty (30) days of completion of the alteration and deliver to Landlord a set of the plans and specifications therefor, either “as built” or marked to show construction changes made, and (d) Tenant shall, upon Landlord’s request, remove the alteration at the termination of the Lease and restore the Leased Premises to their condition prior to such alteration. Landlord shall render a decision, at the time that request is made by Tenant for approval of an alteration or upon notification of an alteration not requiring Landlord’s consent, whether such alteration can remain or if such alteration must be removed at the expiration or sooner termination of the Lease Term; provided that Landlord shall only require the removal of Tenant Extraordinary Fixtures as defined below. As used herein, the term “Extraordinary Fixture” means an alteration, addition or improvement which, at the time of installation, is not the type, quality, or quantity of improvement that is customarily found in a standard office installation in comparable office buildings in vicinity of the Premises. By way of example only, rolling or built-in high density file systems, vaults, safes, raised flooring, dedicated tenant elevators or dumb waiters, special key card systems on stairwells or other entry doors, and internal stairways constitute Extraordinary Fixtures.

(b) During the Lease Term (and any renewals or extensions thereof) Tenant shall have the right, without payment of any fee or charge therefor, to install and operate a transmitter-receiver or satellite dish (a “Satellite Dish”) of a weight, height and width reasonably acceptable to Landlord and as reasonably necessary for Tenant’s use of the Leased Premises. Tenant’s rights pursuant to this Paragraph 6.1 (b) are subject to the following:

(i) The precise location of any Satellite Dish shall be as approved by Landlord in its reasonable discretion.

(ii) Tenant shall pay any federal, state and local taxes applicable to the installation and use of any Satellite Dish and Tenant shall procure, maintain and pay for and obtain all fees, permits and governmental agency licenses necessary in connection with the installation, maintenance and operation of such Satellite Dish; provided, however, that Landlord shall reasonably cooperate with the efforts of Tenant in connection with any governmental application or filing required thereby.

(iii) All installations required in connection with any Satellite Dish shall be made by means of conduits, wires or cables that will pass through existing openings in the walls or roof decks of the Building, and all cables and wires located on the roof of the Building used in connection with any Satellite Dish shall be covered by rust-proof conduits and attachments. In no event shall any of Tenant’s installations be made through the roof surface or membrane of the Building without the prior written consent of Landlord, which consent may be withheld in Landlord’s sole and absolute discretion. The installation of any Satellite Dish shall be subject to Landlord’s review and approval and shall conform to the engineering standards commonly used for installing similar microwave and satellite dishes on comparable buildings.

(iv) Tenant, at its sole cost and expense, shall comply with all present and future laws, Private Restrictions and with any requirements of any applicable fire rating bureau relating to the maintenance, use, installation and operation of any Satellite Dish. Tenant shall install, maintain and operate all of its equipment used in connection with any Satellite Dish in conformity with all laws and all regulations of all government agencies having jurisdiction over the installation, use and operation of such Satellite Dish, including, without limitation, the Federal Aviation Administration and the Federal Communications Commission.

                   (v) Prior to the expiration or earlier termination of the Lease Term Tenant shall remove any Satellite Dish and all wires and cables used in connection with such Satellite Dish, and shall restore and repair all damage to the Building occasioned by the installation, maintenance or removal of such Satellite Dish. If Tenant fails to timely complete such removal, restoration and repair, all sums incurred by Landlord to complete such work shall be paid by Tenant to Landlord upon demand.

(vi) Landlord makes no representations or warranties whatsoever with respect to the fitness or suitability of the Building for the installation, maintenance and operation of any Satellite Dish, including, without limitation, with respect to the quality and clarity of any receptions and transmissions to or from any Satellite Dish and the presence of any interference with such signals, whether emanating from the Building or otherwise.

13.

(vii) Tenant must contact the manager of the Building prior to the date Tenant proposes to install a Satellite Dish on the roof of the Building in order to make arrangements for the movement of any materials needed in connection with the installation of such Satellite Dish.

(viii) Tenant shall provide adequate maintenance personnel in order to ensure the safe operation of any Satellite Dish. In addition, Tenant shall install, maintain and operate all of its equipment used in connection with any Satellite Dish in a fashion and manner so as not to interfere with the use and operation of any: (i) other television or radio equipment in the Building; (ii) present or future electronic control system for any of the Building Systems or the operation of the elevators in the Building; (iii) other transmitting, receiving or master television, telecommunications or microwave antenna equipment currently located on the roof of the Building; or (iv) any radio communication system now used by Landlord. In addition, Tenant shall use its commercially reasonable efforts to ensure that Tenant will not interfere with any equipment installed by Landlord in the future.

6.2 Ownership Of Improvements. All modifications, alterations and improvements made or added to the Leased Premises by Tenant (other than Tenant’s inventory, equipment, movable furniture, wall decorations and trade fixtures) shall be deemed real property and a part of the Leased Premises and shall automatically become the property of Landlord upon the expiration or earlier termination of the Lease (except that Tenant may elect to remove any Extraordinary Fixtures provided Tenant repairs any damage resulting from such removal). Subject to the foregoing, any such modifications, alterations or improvements, other than those not requiring Landlord’s prior consent, once completed, shall not be altered or removed from the Leased Premises during the Lease Term without Landlord’s written approval first obtained in accordance with the provisions of Paragraph 6.1 above. At the expiration or sooner termination of this Lease, all such modifications, alterations and improvements other than Tenant’s inventory, equipment, movable furniture, wall decorations and trade fixtures, shall be surrendered to Landlord as part of the Leased Premises as required pursuant to Article 2, unless Landlord shall require Tenant to remove any of such modifications, alterations or improvements in accordance with the provisions of Paragraph 6.1, in which case Tenant shall so remove same. Landlord shall have no obligations to reimburse Tenant for all or any portion of the cost or value of any such modifications, alterations or improvements so surrendered to Landlord or removed by Tenant or for the cost of removal. All modifications, alterations or improvements which are installed or constructed on or attached to the Leased Premises by Landlord and/or at Landlord’s expense shall be deemed real property and a part of the Leased Premises and shall be property of Landlord. All lighting, plumbing, electrical, heating, ventilating and air conditioning fixtures, partitioning, window coverings, wall coverings and floor coverings installed by Tenant shall be deemed improvements to the Leased Premises and not trade fixtures of Tenant.

6.3 Alterations Required By Law. Tenant shall make all modifications, alterations and improvements to the Leased Premises, at its sole cost, that are required by any Law because of (i) Tenant’s particular use or occupancy of the Leased Premises, the Building, the Outside Areas or the Property, (ii) Tenant’s application for any permit or governmental approval, or (iii) Tenant’s making of any modifications, alterations or improvements to or within the Leased Premises. If Landlord shall, at any time during the Lease Term, be required by any governmental authority to make any modifications, alterations or improvements to the Building or the Property as a result of a law, rule or regulation first becoming effective after the Effective Date, the cost incurred by Landlord in making such modifications, alterations or improvements, including interest at a rate equal to the greater of (a) eight percent (8%); or (b) the annual rate of interest published in The Wall Street Journal from time to time as the prime rate plus two percent (2%) (the “Prime Rate”) shall be amortized by Landlord over the useful life of such modifications, alterations or improvements, as determined in accordance with generally accepted accounting principles and the monthly amortized cost of such modifications, alterations and improvements as so amortized shall be considered a Property Maintenance Cost.

6.4 Liens. Tenant shall keep the Property and every part thereof free from any lien, and shall pay when due all bills arising out of any work performed, materials furnished, or obligations incurred by Tenant, its agents, employees or contractors relating to the Property. If any such claim of lien is recorded against Tenant’s interest in this Lease, the Property or any part thereof, Tenant shall bond against, discharge or otherwise cause such lien to be entirely released within thirty (30) days after the same has been recorded. Tenant’s failure to do so shall be conclusively deemed a material default under the terms of this Lease.

ARTICLE 7

ASSIGNMENT AND SUBLETTING BY TENANT

7.1 By Tenant. Tenant shall not sublet the Leased Premises or any portion thereof or assign its interest in this Lease, whether voluntarily or by operation of Law, without Landlord’s prior written consent which shall not be unreasonably withheld. Any attempted subletting or assignment without Landlord’s prior written consent (except as otherwise permitted under this Article 7) after the expiration of the applicable notice and cure period set forth in Paragraph 12.1(d), at Landlord’s election, shall constitute a default by Tenant under the terms of this Lease. The acceptance of rent by Landlord from any person or entity other than Tenant, or the acceptance of rent by Landlord from Tenant with knowledge of a violation of the provisions of this paragraph, shall not be deemed to be a waiver by Landlord of any provision of this Article or this Lease or to be a consent to any subletting by Tenant or any assignment of Tenant’s interest in this Lease. Without limiting the circumstances in which it may be reasonable for Landlord to withhold its consent to an assignment or subletting, Landlord and Tenant acknowledge that it shall be reasonable for Landlord to withhold its consent in the following instances:

(a) the proposed assignee or sublessee is a governmental agency;

14.

(b) in Landlord’s reasonable judgment, the use of the Premises by the proposed assignee or sublessee would involve occupancy by other than the Permitted Use, would entail any alterations which would materially lessen the value of the leasehold improvements in the Premises, or would materially require increased services by Landlord;

(c) in Landlord’s reasonable judgment, the financial worth of the proposed assignee or sublessee does not meet the then-current reasonable credit standards applied by Landlord for the assignment or sublease in question; or the character of the proposed assignee or sublessee is not reasonably acceptable to Landlord

(d) the proposed assignee or sublessee (or any of its affiliates) has been in material default under a lease within the immediately preceding twelve (12) months, has been in litigation with a previous landlord and found to be at fault, or in the ten years prior to the assignment or sublease has filed for bankruptcy protection, has been the subject of an involuntary bankruptcy, or has been adjudged insolvent;

(e) Landlord or other entities controlling, controlled by or under common control with Landlord have experienced a previous default by or is in litigation with the proposed assignee or sublessee;

(f) Intentionally omitted;

(g) the use of the Premises by the proposed assignee or sublessee will violate any applicable Law;

(h) the proposed assignee or sublessee is, as of the date of this Lease, a tenant at the Property or is a person or entity with whom Landlord is then or has been within the prior six (6) months negotiating in connection with rental of space at the Property;

(i) the proposed assignment or sublease fails to include all of the terms and provisions required to be included therein pursuant to this Article 7;

(j) Tenant is in default of any obligation of Tenant under this Lease beyond applicable notice and cure periods; or

(k) In the case of subletting of less than the entire Premises, if the subletting would result in more than four subtenants in the Leased Premises.

7.2 Merger, Reorganization or Sale of Assets. Any dissolution, merger, consolidation or other reorganization of Tenant, or the sale or other transfer in one or more related transactions of a majority of the capital stock or other beneficial ownership interest in Tenant, or the sale or transfer of all or a substantial portion of the assets of Tenant, shall be deemed a voluntary assignment of Tenant’s interest in this Lease. If Tenant is a partnership, a withdrawal or change, voluntary, involuntary or by operation of Law, of any general partner, or the dissolution of the partnership, shall be deemed a voluntary assignment of Tenant’s interest in this Lease. Notwithstanding the foregoing, the provisions of this Article 7 shall not apply to (i) PMC-Sierra, Inc. or any Permitted Transferee of PMC-Sierra, Inc., and (ii) the transfer of ownership interests in Tenant as part of an initial public offering or if and so long as Tenant is publicly traded on a nationally recognized stock exchange. For purposes of this Article the term transfers shall be deemed to include the issuance of new capital stock or other ownership interests in one or more related transactions which results in a majority of the capital stock or other ownership interests in Tenant being held by a person or entity which does not hold a majority of the capital stock or ownership interests in Tenant on the Effective Date of this Lease. The provisions of Article 7 shall not apply to transactions with a business entity into or with which Tenant is merged, consolidated or converted or to which all or substantially all of Tenant’s assets are transferred, to an assignment or sublease to an entity controlling, controlled by or under common control with Tenant or to a deemed assignment due to a transfer or issuance of Tenant’s ownership interests (each a “Permitted Transferee”) so long as (i) such transfer was made for a legitimate independent business purpose and not for the purpose of transferring this Lease, (ii) the successor to Tenant has net worth computed in accordance with generally accepted accounting principles consistently applied (excluding goodwill) that is not less than $80,000,000.00; (iii) proof reasonably satisfactory to Landlord of such net worth is delivered to Landlord at least 10 days after the effective date of any such transaction, (iv) any such transfer shall be subject and subordinate to all of the terms and provisions of this Lease, and the transferee, if it is an entity other than Tenant, shall assume, in a written document reasonably satisfactory to Landlord and delivered to Landlord at least 10 days after the effective date of such transfer, all the obligations of Tenant under this Lease, and (v) Tenant and any guarantor shall remain fully liable for all obligations to be performed by Tenant under this Lease.

7.3 Landlord’s Election. If Tenant shall desire to assign its interest under the Lease or to sublet more than fifty percent (50%) of the Leased Premises for more than fifty percent (50%) of the remaining term of the Lease, Tenant must first notify Landlord, in writing, of its intent to so assign or sublet, at least thirty (30) days in advance of the date it intends to so assign its interest in this Lease or sublet any portion of the Leased Premises but not sooner than one hundred twenty (120) days in advance of such date, specifying in detail the terms of such proposed assignment or subletting, including the name of the proposed assignee or sublessee, the property assignee’s or sublessee’s intended use of the Leased Premises, current audited annual financial statements (including a balance sheet, income statement and statement of cash flow, all prepared in accordance with generally accepted accounting principles) as well as all monthly and quarterly financials of such proposed assignee or sublessee, the form of documents to be used in effectuating such assignment or subletting and such other information as Landlord may reasonably request. Landlord shall have a period of fifteen (15) business days following receipt of such notice and the required information within which to do one of the following: (i) consent to such requested assignment or subletting subject to Tenant’s compliance with the conditions set forth in Paragraph 7.4 below, or (ii) refuse to so consent to such requested assignment or subletting, provided that such consent shall not be unreasonably refused, or (iii) with respect to any proposed assignment or subletting (in a single transaction or a series of transactions in the aggregate) of 50% or more and the rentable square footage of the Leased Premises terminate this Lease as to the

15.

portion (including all) of the Leased Premises that is the subject of the proposed assignment or subletting and, at Landlord’s option, enter into a direct lease with such proposed assignee or subtenant. During such thirty (30) day period, Tenant covenants and agrees to supply to Landlord, upon request, all necessary or relevant information which Landlord may reasonably request respecting such proposed assignment or subletting and/or the proposed assignee or sublessee.

7.4 Conditions To Landlord’s Consent. If Landlord elects to consent, or shall have been ordered to so consent by a court of competent jurisdiction, to such requested assignment or subletting, such consent shall be expressly conditioned upon the occurrence of each of the conditions below set forth, and any purported assignment or subletting made or ordered prior to the full and complete satisfaction of each of the following conditions shall be void and, at the election of Landlord, which election may be exercised at any time following such a purported assignment or subletting but prior to the satisfaction of each of the stated conditions, shall constitute a material default by Tenant under this Lease until cured by satisfying in full each such condition by the assignee or sublessee. The conditions are as set forth in subsections (a) through (e) below:

(a) Landlord having approved in form and substance the assignment or sublease agreement and any ancillary documents, which approval shall not be unreasonably withheld by Landlord if the requirements of this Article 7 are otherwise complied with.

(b) Each such sublessee or assignee having agreed, in writing satisfactory to Landlord and its counsel and for the benefit of Landlord, to assume, to be bound by, and to perform the obligations of this Lease to be performed by Tenant which relate to space being subleased.

(c) Tenant having fully and completely performed all of its obligations under the terms of this Lease through and including the date of such assignment or subletting.

(d) Tenant having reimbursed to Landlord all reasonable costs and reasonable attorneys’ fees incurred by Landlord in conjunction with the processing and documentation of any such requested subletting or assignment, not to exceed $3,000.

(e) Tenant having delivered to Landlord a complete and fully-executed duplicate original of such sublease agreement or assignment agreement (as applicable) and all related agreements.

If Tenant enters into any assignment or sublease permitted hereunder or consented to by Landlord, then in consideration of such assignment or subletting, Tenant shall pay to Landlord:

(i) In the case of an assignment, on the effective date of the assignment, 50% of all sums and other consideration paid to Tenant by the transferee for or by reason of such assignment after first deducting the Transaction Costs (as hereinafter defined); or

(ii) In the case of a sublease, 50% of any consideration payable under the sublease to Tenant by the transferee which exceeds on a per square foot basis the Base Monthly Rent and Property Operating Expenses and other costs paid pursuant to the Master Lease (including, without limitation, the cost of utilities to the Leased Premises) accruing during the term of the sublease in respect of the sublet space after first deducting the amount of Transaction Costs. The sums payable under this clause shall be paid by Tenant to Landlord monthly as and when paid by the subtenant to Tenant. “Transaction Costs” shall mean Tenant’s reasonable third-party brokerage fees, tenant improvement costs and legal fees paid or to be paid in connection with such transaction (collectively, “Transaction Costs”). In order to get credit for Transaction Costs hereunder, Tenant must deliver to Landlord evidence of the payment of such Transaction Costs promptly after the same are paid.

7.5 Payments. All payments required by this Article to be made to Landlord shall be made in cash in full as and when they become due. At the time Tenant, Tenant’s assignee or sublessee makes each such payment to Landlord, Tenant or Tenant’s assignee, as the case may be, shall deliver to Landlord an itemized statement in reasonable detail showing the method by which the amount due Landlord was calculated and certified by the party making such payment as true and correct.

7.6 Audit; Good Faith. Landlord or its authorized representatives shall have the right, subject to Landlord executing a nondisclosure agreement in Tenant’s commercially reasonable form, at all reasonable times (but not more than once per calendar year with respect to any single transfer) to audit the books, records and papers of Tenant relating to any assignment or subletting, and shall have the right to make copies thereof. If the amounts due to Landlord under this Article 7 shall be found understated, Tenant shall, within thirty (30) days after demand, pay the deficiency, and if understated by more than three percent (3%), Tenant shall pay Landlord’s costs of such audit (but otherwise Landlord shall pay the same at Landlord’s sole cost and expense). The rights granted to Tenant by this Article are granted in consideration of Tenant’s express covenant that all pertinent allocations which are made by Tenant between the rental value of the Leased Premises and the value of any of Tenant’s personal property which may be conveyed or leased generally concurrently with and which may reasonably be considered a part of the same transaction as the permitted assignment or subletting shall be made fairly, honestly and in good faith. If Tenant shall breach this covenant, Landlord may immediately declare Tenant to be in default under the terms of this Lease and terminate this Lease and/or exercise any other rights and remedies Landlord would have under the terms of this Lease in the case of a material default by Tenant under this Lease.

7.7 Effect Of Landlord’s Consent. No subletting or assignment, even with the consent of Landlord, shall relieve Tenant of its personal and primary obligation to pay rent and to perform all of the other obligations to be performed by Tenant hereunder. Consent by Landlord to one or more assignments of Tenant’s interest in this Lease or to one or more sublettings of the Leased Premises shall not be deemed to be a consent to any subsequent assignment or subletting. If Landlord shall have been ordered by a court of competent jurisdiction to consent to a

16.

requested assignment or subletting, or such an assignment or subletting shall have been ordered by a court of competent jurisdiction over the objection of Landlord, such assignment or subletting shall not be binding between the assignee (or sublessee) and Landlord until such time as all conditions set forth in Paragraph 7.4 above have been fully satisfied (to the extent not then satisfied) by the assignee or sublessee, including, without limitation, the payment to Landlord of all agreed assignment considerations and/or excess rentals then due Landlord.

ARTICLE 8

LIMITATION ON LANDLORD’S LIABILITY AND INDEMNITY

8.1 Limitation On Landlord’s Liability And Release. Landlord shall not be liable to Tenant for, and Tenant hereby releases Landlord and its partners, principals, members, officers, agents, employees, lenders, attorneys, and consultants from, any and all liability, whether in contract, tort or on any other basis, for any injury to or any damage sustained by Tenant, Tenant’s agents, employees, contractors or invitees, any damage to Tenant’s property resulting from or attributable to the condition of, the management of, the repair or maintenance of, the protection of, the supply of services or utilities to, the damage in or destruction of the Leased Premises, the Building, the Property or the Outside Areas, including without limitation (i) the failure, interruption, rationing or other curtailment or cessation in the supply of electricity, water, gas or other utility service to the Property, the Building or the Leased Premises; (ii) the vandalism or forcible entry into the Building or the Leased Premises; (iii) the penetration of water into or onto any portion of the Leased Premises; (iv) the failure or election to provide security and/or failure or election to provide any lighting in or about the Property, the Building, the Outside Areas or the Leased Premises, (v) subject to Landlord’s express maintenance and repair obligations and the express warranties set forth in this Lease, the existence of any design or construction defects within the Property, the Building or the Leased Premises; (vi) the failure of any mechanical systems to function properly (such as the HVAC systems), provided, however, that Landlord shall warrant the function of all mechanical systems for a period of one year following the date of Substantial Completion of the Improvement Work; (vii) the blockage of access to any portion of the Property, the Building or the Leased Premises, except that Tenant does not so release Landlord from such liability to the extent such damage was caused by Landlord’s gross negligence, willful misconduct, or Landlord’s failure to perform an obligation expressly undertaken pursuant to this Lease after a reasonable period of time shall have lapsed following receipt of written notice from Tenant to so perform such obligation and in any case not less than the notice and cure periods set forth in Paragraph 12.3 of this Lease. Notwithstanding anything in this Lease to the contrary, Landlord shall not be liable to Tenant for, and Tenant hereby releases Landlord and its partners, principals, members, officers, agents, employees, lenders, attorneys, and consultants from, any and all liability, whether in contract, tort or on any other basis, for any loss to Tenant’s business, loss of Tenant’s profits or any other consequential damages or opportunity costs. Tenant acknowledges that it is fully apprised of the provisions of Law relating to releases, and particularly to those provisions contained in Section 1542 of the California Civil Code which reads as follows:

“A general release does not extend to claims which the creditor does not know or suspect to exist in his favor at the time of executing the release, which if known by him must have materially affected his settlement with the debtor.”

Notwithstanding such statutory provision, and for the purpose of implementing a full and complete release and discharge, Tenant hereby (i) waives the benefit of such statutory provision and (ii) acknowledges that, subject to the exceptions specifically set forth herein, the release and discharge set forth in this paragraph is a full and complete settlement and release and discharge of all claims and is intended to include in its effect, without limitation, all claims which Tenant, as of the date hereof, does not know of or suspect to exist in its favor.

8.2 Tenant’s Indemnification Of Landlord. Tenant shall defend with counsel reasonably approved by Landlord any claims made or legal actions filed or threatened against Landlord with respect to the violation of any Law, or the death, bodily injury, personal injury, property damage, or interference with contractual or property rights suffered by any third party occurring within the Leased Premises or resulting from Tenant’s use or occupancy of the Leased Premises, the Building or the Outside Areas, or resulting from Tenant’s activities in or about the Leased Premises, the Building, the Outside Areas or the Property, and Tenant shall indemnify and hold Landlord, Landlord’s partners, principals, members, employees, agents and contractors harmless from any loss liability, penalties, or expense whatsoever (including any loss attributable to vacant space which otherwise would have been leased, but for such activities) resulting therefrom, except to the extent caused by the negligence or willful misconduct of Landlord or Landlord’s failure to perform an obligation expressly undertaken pursuant to this Lease after a reasonable period of time shall have lapsed following receipt of written notice from Tenant to so perform such obligation and in any case not less than the notice and cure periods set forth in Paragraph 12.3 of this Lease. The provisions of this Paragraph 8.2 shall survive the expiration or sooner termination of this Lease.

8.3 Limitation of Tenant’s Liability And Release. Except only as set forth in Section 13.2 and otherwise, notwithstanding anything in this Lease to the contrary, Tenant shall not be liable to Landlord for, and Landlord hereby releases Tenant and its partners, principals, members, officers, agents, employees, lenders, attorneys, and consultants from, any and all liability, whether in contract, tort or on any other basis, for any consequential damages or opportunity costs. Landlord acknowledges that it is fully apprised of the provisions of Law relating to releases, and particularly to those provisions contained in Section 1542 of the California Civil Code which reads as follows:

“A general release does not extend to claims which the creditor does not know or suspect to exist in his favor at the time of executing the release, which if known by him must have materially affected his settlement with the debtor.”

Notwithstanding such statutory provision, and for the purpose of implementing a full and complete release and discharge, Landlord hereby (i) waives the benefit of such statutory provision and (ii) acknowledges that, subject to the exceptions specifically set forth herein, the release and discharge set forth in this paragraph is a full and complete settlement and release and discharge of all claims and is intended to include in its effect, without limitation, all claims which Landlord, as of the date hereof, does not know of or suspect to exist in its favor.

17.

ARTICLE 9

INSURANCE

9.1 Tenant’s Insurance. Tenant shall maintain insurance complying with all of the following:

(a) Tenant shall procure, pay for and keep in full force and effect, at all times during the Lease Term, the following:

(i) Comprehensive general liability insurance insuring Tenant against liability for personal injury, bodily injury, death and damage to property occurring within the Leased Premises, or resulting from Tenant’s use or occupancy of the Leased Premises, the Building, the Outside Areas or the Property, or resulting from Tenant’s activities in or about the Leased Premises or the Property, with coverage in an amount equal to $3,000,000.00 (“Tenant’s Required Liability Coverage”), which insurance shall contain a “broad form liability” endorsement insuring Tenant’s performance of Tenant’s obligations to indemnify Landlord as contained in this Lease.

(ii) Fire and property damage insurance in so-called “fire and extended coverage” form insuring Tenant against loss from physical damage to Tenant’s personal property, inventory, trade fixtures and improvements within the Leased Premises constructed by or for Tenant other than the Improvement Work with coverage for the full actual replacement cost thereof;

(iii) Plate glass insurance, at actual replacement cost;

(iv) Pressure vessel insurance, if applicable;

(v) Workers’ compensation insurance and any other employee benefit insurance sufficient to comply with all laws; and

(vi) With respect to making of alterations or the construction of improvements or the like undertaken by Tenant, contingent liability and builder’s risk insurance, in an amount and with coverage reasonably satisfactory to Landlord.

(b) Each policy of liability insurance required to be carried by Tenant pursuant to this paragraph or actually carried by Tenant with respect to the Leased Premises or the Property; (i) shall, except with respect to insurance required by subparagraph (a)(vi) above, name Landlord and Wrightwood Capital LLC, ISAOA, and such others with an insurable interest as are designated by Landlord, as additional insureds; (ii) shall be primary insurance providing that the insurer shall be liable for the full amount of the loss, up to and including the total amount of liability set forth in the declaration of coverage, without the right of contribution from or prior payment by any other insurance coverage of Landlord; (iii) shall be in a form satisfactory to Landlord; (iv) shall be carried with companies with Best’s ratings of at least A and XI (or equivalent rating from an alternative rating agency approved by Landlord if Best’s is no longer rating); (v) shall provide that insurance carrier will endeavor to notify Landlord within thirty (30) days’ prior written notice if such policy is subject to cancellation; and (vi) shall contain a so-called “severability” or “cross liability” endorsement.

(c) Prior to the time Tenant or any of its contractors enters the Leased Premises, Tenant shall deliver to Landlord, with respect to each policy of insurance required to be carried by Tenant pursuant to this Article, a copy of such policy (appropriately authenticated by the insurer as having been issued, premium paid) or a certificate of the insurer certifying in form satisfactory to Landlord that a policy has been issued, premium paid, providing the coverage required by this Paragraph and containing the provisions specified herein. With respect to each renewal or replacement of any such insurance, the requirements of this Paragraph must be complied with not less than five (5) business days prior to the expiration or cancellation of the policies being renewed or replaced. Landlord may, at any time and from time to time, inspect and/or copy any and all insurance policies required to be carried by Tenant pursuant to this Article. If Landlord’s Lender or any investor reasonably determines at any time that the amount of coverage set forth in Paragraph 9.1(a) for any policy of insurance Tenant is required to carry pursuant to this Article is not adequate, then Tenant shall increase the amount of coverage for such insurance to such greater amount as Landlord’s Lender or any investor reasonably deems adequate, provided, however, Tenant shall not be required to carry amounts in excess of those customarily required by landlords of comparable properties in the same geographic region as the Property.

9.2 Landlord’s Insurance. With respect to insurance maintained by Landlord:

(a) Landlord shall maintain, as the minimum coverage required of it by this Lease, fire and property damage insurance in so-called “fire and extended coverage” form insuring Landlord (and such others as Landlord may designate) against loss from physical damage to the Building with coverage of not less than one hundred percent (100%) of the full actual replacement cost thereof and against loss of rents for a period of not less than six months. Such fire and property damage insurance, at Landlord’s election but without any requirements on Landlord’s behalf to do so, (i) may be written on a “special cause of loss” form, excluding only those perils commonly excluded from such coverage by Landlord’s then property damage insurer; (ii) may provide coverage for physical damage to the improvements so insured for up to the entire full actual replacement cost thereof; (iii) may be endorsed to cover loss or damage caused by any additional perils against which Landlord may elect to insure, including flood and, if required by Landlord’s Lender or investor or if otherwise customarily carried by landlords of comparable properties in the same geographic region as the Property, earthquake; and/or (iv) may provide coverage

18.

for loss of rents for a period of up to twelve months. Landlord shall not be required to cause such insurance to cover any of Tenant’s personal property, inventory, and trade fixtures, or any modifications, alterations or improvements made or constructed by Tenant to or within the Leased Premises, but shall cover the Improvement Work. Landlord shall use commercially reasonable efforts to obtain such insurance at competitive rates.

(b) Landlord shall maintain comprehensive general liability insurance insuring Landlord (and such others as are designated by Landlord) against liability for personal injury, bodily injury, death, and damage to property occurring in, on or about, or resulting from the use or occupancy of the Property, or any portion thereof, with combined single limit coverage of at least Three Million Dollars ($3,000,000). Landlord may carry such greater coverage as Landlord or Landlord’s Lender, insurance broker, advisor or counsel may from time to time determine is reasonably necessary for the adequate protection of Landlord and the Property. Landlord may satisfy the requirements of this Paragraph 9.2(b) with a combination of primary and excess coverage.

(c) Landlord may maintain any other insurance which in Landlord’s opinion or in the opinion of its insurance broker, advisor or legal counsel is prudent in carry under the given circumstances.

9.3 Mutual Waiver Of Subrogation. Landlord and Tenant shall each procure an appropriate clause in or endorsement to any property insurance covering the Property or any portion thereof and personal property, fixtures and equipment located therein, wherein the insurer waives subrogation or consents to a waiver of right of recovery, and, notwithstanding anything to the contrary in this Lease, Landlord and Tenant agree not to make any claim against, or seek to recover from, the other for any loss or damage to its property or the property of others resulting from fire or other hazards to the extent due to a risk covered by the property insurance that was required to be carried by that party under the terms of this Lease regardless of whether such insurance was then actually carried by such party. Tenant acknowledges that Landlord shall not carry insurance on, and shall not be responsible for, (i) damage to any above Building standard installations made by or for Tenant other than the Improvement Work or any other improvements in the Leased Premises made by or for Tenant, (ii) Tenant’s property, and (iii) any loss suffered by Tenant due to interruption of Tenant’s business.

ARTICLE 10

DAMAGE TO LEASED PREMISES

10.1 Landlord’s Duty To Restore. If the Leased Premises, the Building or the Outside Area are damaged by any peril after the Effective Date of this Lease, Landlord shall restore the same, as and when required by this paragraph, unless this Lease is terminated by Landlord pursuant to Paragraph 10.3 or by Tenant pursuant to Paragraph 10.4. If this Lease is not so terminated, then upon the issuance of all necessary governmental permits, Landlord shall timely commence and diligently prosecute to completion the restoration of the Leased Premises, the Building or the Outside Area, as the case may be, to the extent then allowed by law, to substantially the same condition in which it existed as of the Commencement Date. Landlord’s obligation to restore shall be limited to the improvements constructed by Landlord, including the Improvement Work and any improvements on the date hereof. Landlord shall have no obligation to restore any Improvements made by Tenant to the Leased Premises or any of Tenant’s personal property, inventory or trade fixtures. Upon completion of the restoration by Landlord, Tenant, at its option, shall replace or repair Tenant’s personal property, inventory, trade fixtures and other improvements constructed by Tenant to like or similar conditions as existed at the time immediately prior to such damage or destruction.

10.2 Insurance Proceeds. All insurance proceeds available from the fire and property damage insurance carried by Landlord shall be paid to and become the property of Landlord. If this Lease is terminated pursuant to either Paragraph 10.3 or 10.4, all insurance proceeds available from insurance carried by Tenant which cover loss of property that is Landlord’s property or would become Landlord’s property on termination of this Lease shall be paid to and become the property of Landlord, and the remainder of such proceeds and any other proceeds from other policies carried by Tenant shall be paid to and become the property of Tenant. If this Lease is not terminated pursuant to either Paragraph 10.3 or 10.4, all insurance proceeds available from insurance carried by Tenant which cover loss to property that is Landlord’s property shall be paid to and become the property of Landlord, and all proceeds available from such insurance which cover loss to property which would only become the property of Landlord upon the termination of this Lease shall be paid to and remain the property of Tenant. The determination of Landlord’s property and Tenant’s property shall be made pursuant to Paragraph 6.2.

10.3 Landlord’s Right To Terminate. Landlord shall have the option to terminate this Lease in the event any of the following occurs, which option may be exercised only by delivery to Tenant of a written notice of election to terminate within ninety (90) days after the date of such damage or destruction:

         (a) The Building is damaged by any peril covered by valid and collectible insurance actually carried by Landlord and in force at the time of such damage or destruction (an “insured peril”) to such an extent that the estimated cost to restore the Building exceeds the lesser of (i) the insurance proceeds available to Landlord from insurance actually carried by Landlord (where the shortfall thereof exceeds $250,000 unless Tenant agrees to cover such the shortfall in excess of such amount), or (ii) fifty percent of the then actual replacement cost thereof; provided, however, Landlord shall not be permitted to terminate this Lease if, at the time Landlord purports to exercise its termination right hereunder, Landlord actually intends to restore the Building;

(b) The Building is damaged by an uninsured peril, which peril Landlord was not required to insure against pursuant to the provisions of Article 9 of this Lease and the restoration would cost more than $250,000 and Tenant does not agree to pay the uninsured amount in excess of such amount;

19.

(c) The Building is damaged by any peril and, because of the laws then in force, the Building (i) cannot be restored at reasonable cost or (ii) if restored, cannot be used for the same use being made thereof before such damage;

(d) If any damage during the final 12 months of the Term renders 50% or more of the Leased Premises untenantable.

10.4 Tenant’s Right To Terminate. If the Leased Premises, the Building or the Outside Area are damaged by any peril and Landlord does not elect to terminate this Lease or is not entitled to terminate this Lease pursuant to this Article, then as soon as reasonably practicable, Landlord shall furnish Tenant with the written opinion of Landlord’s architect or construction consultant as to when the restoration work required of Landlord may be complete. Tenant shall have the option to terminate this Lease in the event any of the following occurs, which option may be exercised only by delivery to Landlord of a written notice of election to terminate within twenty-one (21) days after Tenant receives from Landlord the estimate of the time needed to complete such restoration:

(a) If the time estimated to substantially complete the restoration exceeds twelve months from the date of damage or destruction; or

(b) If the damage occurred within twelve months of the last day of the Lease Term and the time estimated to substantially complete the restoration exceeds one hundred eighty days from and after the date such restoration is commenced.

(c) If Landlord fails to Substantially Complete the repair or restoration within 12 months from the date of damage or destruction, Tenant, upon not less than 60 days’ prior written notice (a “Termination Notice”), may elect to terminate this Lease. If Tenant delivers a Termination Notice, this Lease shall be deemed to have terminated as of the date of the giving of the Termination Notice; provided, however, if within such 60-day period Landlord Substantially Completes such repair or restoration then such Termination Notice shall be void and of no force or effect.

10.5 Tenant’s Waiver. Landlord and Tenant agree that the provisions of Paragraph 10.4 above, captioned “Tenant’s Right To Terminate”, are intended to supersede and replace the provisions contained in California Civil Code, Section 1932, Subdivision 2, and California Civil Code, Section 1934, and accordingly, Tenant hereby waives the provisions of such Civil Code Sections and the provisions of any successor Civil Code Sections or similar laws hereinafter enacted.

10.6 Abatement Of Rent. In the event of damage to the Leased Premises which does not result in the termination of this Lease, the Base Monthly Rent (and any Additional Rent) shall be temporarily abated during the period of restoration in proportion in the degree to which Tenant’s use of the Leased Premises is impaired by such damage.

ARTICLE 11

CONDEMNATION

11.1 Tenant’s Right To Terminate. Except as otherwise provided in Paragraph 11.4 below regarding temporary takings, Tenant shall have the option to terminate this Lease if, as a result of any taking, (i) all of the Leased Premises is taken, or (ii) ten percent (10%) or more of the Leased Premises is taken and the part of the Leased Premises that remains cannot, within a reasonable period of time, be made reasonably suitable for the continued operation of Tenant’s business. Tenant must exercise such option within thirty (30) days of Tenant’s first notice of any such condemnation, to be effective on the later to occur of (i) the date that possession of that portion of the Leased Premises that is condemned is taken by the condemnor or (ii) the date Tenant vacated the Leased Premises.

11.2 Landlord’s Right To Terminate. Except as otherwise provided in Paragraph 11.4 below regarding temporary takings, Landlord shall have the option to terminate this Lease if, as a result of any taking, (i) all of the Leased Premises is taken, (ii) twenty-five percent (25%) or more of the Leased Premises is taken and the part of the Leased Premises that remains cannot, within a reasonable period of time, be made reasonably suitable for the continued operation of Tenant’s business, or (iii) because of the laws then in force, the Leased Premises may not be used for the same use being made before such taking, whether or not restored as required by Paragraph 11.3 below. Any such option to terminate by Landlord must be exercised within thirty (30) days of Landlord’s first notice of any such condemnation, to be effective as of the date possession is taken by the condemnor.

11.3 Restoration. If any part of the Leased Premises or the Building is taken and this Lease is not terminated, then Landlord shall, to the extent not prohibited by laws then in force, timely repair any damage occasioned thereby to the remainder thereof to a condition reasonably suitable for Tenant’s continued operations and otherwise, to the extent practicable, in the manner and to the extent provided in Paragraph 10.1.

11.4 Temporary Taking. If a portion of the Leased Premises is temporarily taken for a period of four (4) months or less and such period does not extend beyond the Expiration Date, this Lease shall remain in effect. If any portion of the Leased Premises is temporarily taken for a period which exceeds four months or which extends beyond the Expiration Date, then the rights of Landlord and Tenant shall be determined in accordance with Paragraphs 11.1 and 11.2 above.

11.5 Division Of Condemnation Award. Any award made for any taking of the Property, the Building, or the Leased Premises, or any portion thereof, shall belong to and be paid to Landlord, and Tenant hereby assigns to

20.

Landlord all of its right, title and interest in any such award; provided, however, that Tenant shall be entitled to receive any portion of the award that is made specifically (i) for the taking of personal property, inventory or trade fixtures belonging to Tenant, (ii) for the interruption of Tenant’s business or its relocation costs, or (iii) for the value of any leasehold improvements installed and paid for by Tenant. The rights of Landlord and Tenant regarding any condemnation shall be determined as provided in this Article, and each party hereby waives the provisions of Section 1265.130 of the California Code of Civil Procedure, and the provisions of any similar law hereinafter enacted, allowing either party to petition the Supreme Court to terminate this Lease and/or otherwise allocate condemnation awards between Landlord and Tenant in the event of a taking of the Leased Premises.

11.6 Abatement Of Rent. In the event of a taking of the Leased Premises which does not result in a termination of this Lease (other than a temporary taking), then, as of the date possession is taken by the condemning authority, the Base Monthly Rent and Property Operating Expenses shall be reduced in the same proportion that the area of that part of the Leased Premises so taken (less any addition to the area of the Leased Premises by reason of any reconstruction) bears to the area of the Leased Premises immediately prior to such taking.

11.7 Taking Defined. The term “taking” or “taken” as used in this Article 11 shall mean any transfer or conveyance of all or any portion of the Property to a public or quasi-public agency or other entity having the power of eminent domain pursuant to or as a result of the exercise of such power by such an agency, including any inverse condemnation and/or any sale or transfer by Landlord of all or any portion of the Property to such an agency under threat of condemnation or the exercise of such power.

ARTICLE 12

DEFAULT AND REMEDIES

12.1 Events Of Tenant’s Default. Each of the following events shall be deemed an “Event of Default” hereunder:

(a) Tenant shall have failed to pay Base Monthly Rent or any Additional Rent where such failure continues for three (3) business days after written notice is given to Tenant; or

(b) Tenant shall have done or permitted to be done any act, use or thing in its use, occupancy or possession of the Leased Premises, the Building, the Outside Areas or the Property which is prohibited by the terms of this Lease which continues for more than ten (10) days after written notice from Landlord to Tenant of such violation; or

(c) Tenant shall have failed to perform any other term, covenant or condition of this Lease (other than failures or acts described in subparagraphs (a) or (b) above) within thirty (30) days after written notice from Landlord to Tenant specifying the nature of such failure and requesting Tenant to perform same or such longer period as is reasonably required to cure such failure so long as Tenant is diligently prosecuring such cure, in any case not to exceed ninety (90) days; or

(d) Tenant shall have sublet the Leased Premises or assigned its interest in this Lease in violation of the provisions contained in Article 7, whether voluntarily or by operation of law or Tenant shall have encumbered its interest in this Lease in violation of the provisions of this Lease, which violation continues for more than ten (10) days after written notice from Landlord to Tenant of such violation; or

(e) Tenant shall have abandoned the Leased Premises as defined under applicable Law; or

(f) Tenant or any Guarantor of this Lease shall have permitted or suffered the sequestration or attachment of, or execution on, or the appointment of a custodian or receiver with respect to, all or any substantial part of the property or assets of Tenant (or such Guarantor) or any property or asset essential to the conduct of Tenant’s (or such Guarantor’s) business, and Tenant (or such Guarantor) shall have failed to obtain a return or release of the same within sixty (60) days thereafter, or prior to sale pursuant to such sequestration, attachment or levy, whichever is earlier; or

(g) Tenant or any Guarantor of this Lease shall have made a general assignment of all or a substantial part of its assets for the benefit of its creditors; or

(h) Tenant or any Guarantor of this Lease shall have allowed (or sought) to have entered against it a decree or order which: (i) grants or constitutes an order for relief, appointment of a trustee, or condemnation or a reorganization plan under the bankruptcy laws of the United States; (ii) approves as properly filed a petition seeking liquidation or reorganization under said bankruptcy laws or any other debtor’s relief law or similar statute of the United States or any state thereof; or (iii) otherwise directs the winding up or liquidation of Tenant; provided, however, if any decree or order was entered without Tenant’s consent or over Tenant’s objection, Landlord may not terminate this Lease pursuant to this Subparagraph if such decree or order is rescinded or reversed within sixty (60) days after its original entry; or

(i) Tenant shall have availed itself of the protection of any debtor’s relief law, moratorium law or other similar law which does not require the prior entry of a decree or order.

12.2 Landlord’s Remedies.

(a) Upon the occurrence of an Event of Default under this Lease, Landlord, at its option, and without limiting the exercise of any other right or remedy Landlord may have on account of such Event of Default, and

21.

without any further demand or notice, may give to Tenant 3 days’ notice of termination of this Lease, in which event this Lease and the Lease Term shall come to an end and expire (whether or not the Term shall have commenced) upon the expiration of such 3 day period with the same force and effect as if the date set forth in the notice was the Expiration Date stated herein; and Tenant shall then quit and surrender the Leased Premises to Landlord, but Tenant shall remain liable for damages as provided in this Paragraph 12.2, and/or, to the extent permitted by law, Landlord may remove all persons and property from the Leased Premises, which property shall be stored by Landlord at a warehouse or elsewhere at the risk, expense and for the account of Tenant. If Landlord elects to terminate this Lease, pursuant to Section 1951.2 of the California Civil Code, Landlord shall be entitled to recover from Tenant the aggregate of:

(i) The worth at the time of award of the unpaid rent earned as of the date of the termination hereof;

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

(iii) The worth at the time of award of the amount by which the unpaid rent for the balance of the Term after the time of award exceeds the amount of such rental loss that Tenant proves could have been reasonably avoided; and

(iv) Any other amount necessary to compensate Landlord for the detriment proximately caused by Tenant’s failure to perform its obligations under this Lease or which, in the ordinary course of things, would be likely to result therefrom.

For the purposes of this Paragraph 12.2, “rent” shall be deemed to be and to mean all sums of every nature required to be paid by Tenant pursuant to the terms of this Lease, whether to Landlord or to others, the “time of award” shall mean the date upon which the judgment in any action brought by Landlord against Tenant by reason of such default is entered or such earlier date as the court may determine; the “worth at the time of award” of the amounts referred to in subparagraphs (i) and (ii) above shall be computed by allowing interest on such amounts at the lesser of 10% per annum or the then maximum rate of interest not prohibited or made usurious by law; and the “worth at the time of award” of the amount referred to in subparagraph (iii) shall be computed by discounting such amount at the discount rate of the Federal Reserve Bank of San Francisco at the time of award plus 1% per annum. Tenant agrees that such charges shall be recoverable by Landlord under California Code of Civil Procedure Section 1174(b) or any similar, successor or related provision of law.

(b) Upon the occurrence of an Event of Default under this Lease, in addition to any other remedies available to Landlord at law or in equity or under this Lease, Landlord shall have the remedy described in California Civil Code Section 1951.4 (lessor may continue lease in effect after lessee’s breach and abandonment and recover rent as it becomes due, if lessee has the right to sublet or assign, subject only to reasonable limitations). If Landlord does not elect to terminate this Lease for any reason, Landlord may, from time to time, enforce all of its rights and remedies under this Lease, including the right to recover all Rent as it becomes due. Such remedy may be exercised by Landlord without prejudice to its right thereafter to terminate this Lease in accordance with the other provisions contained in this Paragraph. Landlord’s reentry to perform acts of maintenance or preservation of, or in connection with efforts to relet, the Premises, or any portion thereof, or the appointment of a receiver upon Landlord’s initiative to protect Landlord’s interest under this Lease shall not terminate Tenant’s right to possession of the Leased Premises or any portion thereof and, until Landlord elects to terminate this Lease, this Lease shall continue in full force and Landlord may pursue all its remedies hereunder. Nothing in this Paragraph shall be deemed to affect Landlord’s right to indemnification, under the indemnification clauses contained in this Lease, for losses arising from events occurring prior to the termination of this Lease.

(c) All rights, powers and remedies of Landlord hereunder and under any other agreement now or hereafter in force between Landlord and Tenant shall be cumulative and not alternative and shall be in addition to all rights, powers and remedies given to Landlord at law or in equity. The exercise of any one or more of such rights or remedies shall not impair Landlord’s right to exercise any other right or remedy including any and all rights and remedies of Landlord under California Civil Code Section 1951.8, California Code of Civil Procedure Section 1161 et seq., or any similar, successor or related Law.

(d) If, after the expiration or earlier termination of the Lease, Tenant leaves behind any of Tenant’s property, then Landlord shall store such Tenant’s property at a warehouse or any other location at the risk, expense and for the account of Tenant, and such property shall be released only upon Tenant’s payment of such charges, together with moving and other costs relating thereto and all other sums due and owing under this Lease. If Tenant does not reclaim such Tenant’s property within the period permitted by Law, Landlord may sell such Tenant’s property in accordance with Law and apply the proceeds of such sale to any sums due and owing hereunder, or retain said property, granting Tenant credit against sums due and owing hereunder for the reasonable value of such property.

         (e) Limitation of Landlord’s Recourse. Landlord agrees that (i) the obligations of Tenant under this Lease shall not constitute personal obligations of the officers, directors, trustees, partners, joint venturers, members, owners, stockholders, or other principals of Tenant or any affiliate of Tenant, and (ii) Landlord shall have recourse only to the property of Tenant for the satisfaction of such obligations and not against the assets of such officers, directors, trustees, partners, joint venturers, members, owners, stockholders principals or affiliates. Additionally, Landlord covenants and agrees that no officer, director, trustee, partner, joint venturer, member, owner, stockholder or other principal of Tenant or any affiliate of Tenant shall be sued or named as a party in any suit or action brought by Landlord with respect to any alleged breach of this Lease and no personal judgment shall be sought or obtained against any of them.

22.

(f) To the extent not prohibited by Law, Tenant hereby waives all provisions of, and protections under, any Law to the extent same are inconsistent and in conflict with specific terms and provisions hereof.

12.3 Landlord’s Default And Tenant’s Remedies. In the event Landlord fails to perform its obligations under this Lease, Landlord shall nevertheless not be in default under the terms of this Lease until such time as Tenant shall have first given Landlord written notice specifying the nature of such failure to perform its obligations, and then only after Landlord shall have had thirty (30) days following its receipt of such notice within which to perform such obligations; provided that, if longer than thirty (30) days is reasonably required in order to perform such obligations, Landlord shall have such longer period. In the event of Landlord’s default as above set forth, then, and only then, Tenant may then proceed in equity or at law to compel Landlord to perform its obligations and/or to recover damages proximately caused by such failure to perform (except as and to the extent Tenant has waived its right to damages as provided in this Lease).

(a) Limitation Of Tenant’s Recourse. Tenant agrees that (i) the obligations of Landlord under this Lease shall not constitute personal obligations of the officers, directors, trustees, partners, joint venturers, members, owners, stockholders, or other principals of Landlord or any affiliate of Landlord, and (ii) Tenant shall have recourse only to the property of Landlord for the satisfaction of such obligations and not against the assets of such officers, directors, trustees, partners, joint venturers, members, owners, stockholders principals or affiliates. Additionally, Tenant covenants and agrees that no officer, director, trustee, partner, joint venturer, member, owner, stockholder or other principal of Landlord or any affiliate of Landlord shall be sued or named as a party in any suit or action brought by Tenant with respect to any alleged breach of this Lease and no personal judgment shall be sought or obtained against any of them.

12.4 Tenant’s Waiver. Landlord and Tenant agree that the provisions of Paragraph 12.3 above are intended to supersede and replace the provisions of California Civil Code Sections 1932(1), 1941 and 1942, and accordingly, Tenant hereby waives the provisions of California Civil Code Sections 1932(1), 1941 and 1942 and/or any similar or successor law regarding Tenant’s right to terminate this Lease or to make repairs and deduct the expenses of such repairs from the rent due under this Lease.

ARTICLE 13

GENERAL PROVISIONS

13.1 Taxes On Tenant’s Property. Tenant shall pay before delinquency any and all taxes, assessments, license fees, use fees, permit fees and public charges of whatever nature or description levied, assessed or imposed against Tenant or Landlord by a governmental agency arising out of, caused by reason of or based upon Tenant’s estate in this Lease, Tenant’s ownership of property, improvements made by Tenant to the Leased Premises or the Outside Areas, improvements made by Landlord for Tenant’s use within the Leased Premises or the Outside Areas, Tenant’s use (or estimated use) of public facilities or services or Tenant’s consumption (or estimated consumption) of public utilities, energy, water or other resources (collectively, “Tenant’s Interest”). Upon demand by Landlord, Tenant shall furnish Landlord with satisfactory evidence of these payments. If any such taxes, assessments, fees or public charges are levied against Landlord, Landlord’s property, the Building or the Property, or if the assessed value of the Building or the Property is increased by the inclusion therein of a value placed upon Tenant’s Interest, regardless of the validity thereof, Landlord shall have the right to require Tenant to pay such taxes, and if not paid and satisfactory evidence of payment delivered to Landlord at least ten days prior to delinquency, then Landlord shall have the right to pay such taxes on Tenant’s behalf and to invoice Tenant for the same. Tenant shall, within the earlier to occur of (a) thirty (30) days of the date it receives an invoice from Landlord setting forth the amount of such taxes, assessments, fees, or public charge so levied, or (b) the due date of such invoice, pay to Landlord, as Additional Rent, the amount set forth in such invoice. Failure by Tenant to pay the amount so invoiced within such time period shall be conclusively deemed a default by Tenant under this Lease. Tenant shall have the right to bring suit in any court of competent jurisdiction to recover from the taxing authority the amount of any such taxes, assessments, fees or public charges so paid.

13.2 Holding Over. This Lease shall terminate without further notice on the Expiration Date (as set forth in Article 1). Any holding over by Tenant after expiration of the Lease Term shall neither constitute a renewal nor extension of this Lease nor give Tenant any rights in or to the Leased Premises except as expressly provided in this Paragraph. Any such holding over to which Landlord has consented shall be construed to be a tenancy from month to month, on the same terms and conditions herein specified insofar as applicable, except that the Base Monthly Rent shall be increased to an amount equal to one hundred fifty percent (150%) of the Base Monthly Rent payable during the last full month immediately preceding such holding over. In addition, in the event of a holding over to which Landlord has not consented and which continues for more than sixty (60) days, Tenant shall (a) be liable to Landlord for (1) any payment or rent concession which Landlord may be required to make to any tenant obtained by Landlord for all or any part of the Premises (a “New Tenant”) in order to induce such New Tenant not to terminate its lease by reason of the holding-over by Tenant, and (2) the loss of the benefit of the bargain if any New Tenant shall terminate its lease by reason of the holding-over by Tenant, and (b) indemnify Landlord against all claims for damages by any New Tenant.

13.3 Surrender Of Possession. Immediately prior to the expiration or upon the sooner termination of this Lease, Tenant shall remove all of Tenant’s signs from the exterior of the Building and shall remove all of Tenant’s equipment, trade fixtures, furniture, supplies, wall decorations and other personal property from within the Leased Premises, the Building and the Outside Areas, and shall vacate and surrender the Leased Premises, the Building, the Outside Areas and the Property to Landlord in the same condition, broom clean, as existed at the Commencement Date, reasonable wear and tear, damage by casualty and condemnation and repairs which are specifically made the responsibility of Landlord hereunder excepted. Tenant shall repair all damage to the Leased Premises, the exterior of the Building and the Outside Areas caused by Tenant’s removal of Tenant’s property. Tenant shall patch and refinish, to Landlord’s reasonable satisfaction, all penetrations made by Tenant or its employees to the floor, walls

23.

or ceiling of the Leased Premises, whether such penetrations were made with Landlord’s approval or not. Tenant shall repair or replace all stained or damaged ceiling tiles, wall coverings and floor coverings to the reasonable satisfaction of Landlord. Tenant shall replace as needed all light bulbs and ballasts in the Leased Premises. Tenant shall repair all damage caused by Tenant to the exterior surface of the Building and the paved surfaces of the Outside Areas and, where necessary, replace or resurface same. Additionally, for alterations made by Tenant that Landlord requested be removed upon termination under Paragraph 6.1, Tenant shall, upon the expiration or sooner termination of the Lease, remove any such improvements constructed or installed by Landlord or Tenant and repair all damage caused by such removal. If the Leased Premises, the Building, the Outside Areas and the Property are not surrendered to Landlord in the condition required by this paragraph at the expiration or sooner termination of this Lease, Landlord may, at Tenant’s expense, so remove Tenant’s signs, property and/or improvements not so removed and make such repairs and replacements not so made or hire, at Tenant’s expense, independent contractors to perform such work. Tenant shall be liable to Landlord for all costs incurred by Landlord in returning the Leased Premises, the Building and the Outside Areas to the required condition, together with interest on all costs so incurred from the date paid by Landlord at the then maximum rate of interest not prohibited or made usurious by law until paid. Tenant shall pay to Landlord the amount of all costs so incurred plus such interest thereon, within twenty (20) days of Landlord’s billing Tenant for same.

13.4 Subordination To Mortgages. This Lease is subject to and subordinate to all ground leases, mortgages and deeds of trust which affect the Building or the Property and which are of public record as of the Effective Date of this Lease, and to all renewals, modifications, consolidations, replacements and extensions thereof. However, if the lessor under any such ground lease or any lender holding any such mortgage or deed of trust shall advise Landlord that it desires or requires this Lease to be made prior and superior thereto, then, upon written request of Landlord to Tenant, Tenant shall promptly execute, acknowledge and deliver any and all customary or reasonable documents or instruments which Landlord and such lessor or lender deems necessary or desirable to make this Lease prior thereto. Tenant hereby consents to Landlord’s ground leasing the land underlying the Building or the Property and/or encumbering the Building or the Property as security for future loans on such terms as Landlord shall desire, all of which future ground leases, mortgages or deeds of trust shall be subject to and subordinate to this Lease. However, if any lessor under any such future ground lease or any lender holding such future mortgage or deed of trust shall desire or require that this Lease be made subject to and subordinate to such future ground lease, mortgage or deed of trust, then Tenant agrees, within ten (10) business days after Landlord’s written request therefor, to execute, acknowledge and deliver to Landlord any and all documents or instruments requested by Landlord or by such lessor or lender as may be necessary or proper to assure the subordination of this Lease to such future ground lease, mortgage or deed of trust, but only if such lessor or lender agrees to recognize Tenant’s rights under this Lease and agrees not to disturb Tenant’s quiet possession of the Leased Premises so long as Tenant is not in default under this Lease. If Landlord assigns the Lease as security for a loan, Tenant agrees to execute such documents as are reasonably requested by the lender and to provide reasonable provisions in the Lease protecting such lender’s security interest which are customarily required by institutional lenders making loans secured by a deed of trust.

Notwithstanding anything to contrary herein:

(a) Landlord shall use commercially reasonable efforts to obtain from any and all current lenders or current ground lessors of the Leased Premises as of the Effective Date a written agreement in substantially the form attached hereto as Exhibit D. If such agreement is not obtained on or before September 30, 2010 from all such lenders or current ground lessors, then Tenant shall have the right, as Tenant’s sole and exclusive remedy thereupon, to terminate this Lease by written notice to Landlord given no earlier than September 30, 2010 and no later than October 11, 2010, such termination to be effective on the date such notice is given, and thereafter neither party shall have any liability to the other hereunder, except that Landlord shall return to Tenant the Security Deposit together with all prepaid Rent deposited by Tenant hereunder; provided, however, (i) if such agreement is executed by such current lenders or ground lessors on or before the date that is 10 business days following Landlord’s receipt of Tenant’s termination notice, or (ii) if such current lenders or ground lessors execute a recognition agreement in their standard form and in addition Landlord agrees to provide adequate security for the performance of Landlord’s obligation to construct the Tenant Improvements notwithstanding any foreclosure by such lenders or ground lessors, including without limitation, deposit of funds with a third party escrow, delivery of a guaranty from a creditworthy parent or affiliate of Landlord reasonably acceptable to Tenant, or delivery of a letter of credit in the amount of the estimated cost to complete the Tenant Improvements less any Over-Allowance Amount, all of the foregoing on terms and conditions reasonably acceptable to Tenant and Landlord, then, in either case of (i) or (ii) above, Tenant’s termination shall be void and of no force and effect and this Lease will continue in full force and effect.

(b) The subordination of this Lease to any future ground lease or instrument of security shall be conditioned upon Tenant’s receipt from any such ground lessors or lenders of a recognition agreement in form reasonably satisfactory to Tenant providing for recognition of Tenant’s interests under this Lease in the event of a foreclosure of the lender’s security interest or termination of the ground lease.

13.5 Tenant’s Attornment Upon Foreclosure. Tenant shall, upon request, attorn (i) to any purchaser of the Building or the Property at any foreclosure sale or private sale conducted pursuant to any security instruments encumbering the Building or the Property, (ii) to any grantee or transferee designated in any deed given in lieu of foreclosure of any security interest encumbering the Building or the Property, or (iii) to the lessor under an underlying ground lease of the land underlying the Building or the Property, should such ground lease be terminated; provided that such purchaser, grantee or lessor recognizes Tenant’s rights under this Lease.

13.6 Mortgagee Protection. In the event of any default on the part of Landlord, Tenant will give notice by registered mail to any Lender or lessor under any underlying ground lease who shall have requested, in writing, to Tenant that it be provided with such notice, and Tenant shall offer such Lender or lessor a reasonable opportunity to cure the default, including time to obtain possession of the Leased Premises by power of sale or judicial foreclosure or other appropriate legal proceedings, including, without limitation, appointment of a receiver if reasonably necessary to effect a cure.

24.

13.7 Estoppel Certificate. Tenant will, following any request by Landlord, promptly execute and deliver to Landlord an estoppel certificate (i) certifying that this Lease is unmodified and in full force and effect, or, if modified, stating the nature of such modification and certifying that this Lease, as so modified, is in full force and effect, (ii) stating the date to which the rent and other charges are paid in advance, if any, (iii) acknowledging that there are not, to Tenant’s knowledge, any uncured defaults on the part of Landlord hereunder, or specifying such defaults if any are claimed, and (iv) certifying such other information about this Lease as may be reasonably requested by Landlord, its Lender or prospective lenders, investors or purchasers of the Building or the Property. Tenant’s failure to execute and deliver such estoppel certificate within ten (10) business days after Landlord’s request therefor, where such failure shall continue for an additional five (5) business days after delivery of written notice to Tenant of such failure, shall be a material default by Tenant under this Lease, and Landlord shall have all of the rights and remedies available to Landlord as Landlord would otherwise have in the case of any other material default by Tenant, including the right to terminate this Lease and sue for damages proximately caused thereby, it being agreed and understood by Tenant that Tenant’s failure to so deliver such estoppel certificate in a timely manner could result in Landlord being unable to perform committed obligations to other third parties which were made by Landlord in reliance upon this covenant of Tenant. Landlord and Tenant intend that any statement delivered pursuant to this paragraph may be relied upon by any Lender or purchaser or prospective Lender or purchaser of the Building, the Property, or any interest in them.

13.8 Tenant’s Financial Information. Tenant shall, within fifteen (15) days after Landlord’s request therefor, which request shall not be made more than twice per calendar year, deliver to Landlord a copy of Tenant’s current financial statements (including a balance sheet, income statement and statement of cash flow, all prepared in accordance with generally accepted accounting principles and audited by an accountant reasonably acceptable to Landlord) and any such other information reasonably requested by Landlord regarding Tenant’s financial condition. Landlord shall be entitled to disclose such financial statements or other information to its Lender, to any present or prospective principal of or investor in Landlord, or to any prospective Lender or purchaser of the Building, the Property, or any portion thereof or interest therein; provided that during any period when the stock in Tenant is not publically traded, any such recipient first executes a commercially reasonable confidentiality agreement. Any such financial statement or other information which is marked “confidential” or “company secrets” (or is otherwise similarly marked by Tenant) shall be confidential and shall not be disclosed by Landlord to any third party except as specifically provided in this paragraph, unless the same becomes a part of the public domain without the fault of Landlord.

13.9 Transfer By Landlord. Landlord and its successors in interest shall have the right to transfer their interest in the Building, the Property, or any portion thereof at any time and to any person or entity. In the event of any such transfer, the Landlord originally named herein (and in the case of any subsequent transfer, the transferor), upon the effective date of such transfer to a successor in interest, (i) shall be automatically relieved, without any further act by any person or entity, of all liability for the performance of the obligations of the Landlord hereunder which may accrue after the date of such transfer and (ii) shall be relieved of all liability for the performance of the obligations of the Landlord hereunder which have accrued before the date of transfer if its transferee agrees to assume and perform all such prior obligations of the Landlord hereunder. Tenant shall attorn to any such transferee. After the date of any such transfer, the term “Landlord” as used herein shall mean the transferee of such interest in the Building or the Property.

13.10 Force Majeure. The obligations of each of the parties under this Lease (other than the obligations to pay money) shall be temporarily excused if such party is prevented or delayed in performing such obligations by reason of any strikes, lockouts or labor disputes; government restrictions, regulations, controls, action or inaction; civil commotion; or extraordinary weather, fire or other acts of God.

13.11 Notices. Any notice required or desired to be given by a party regarding this Lease shall be in writing and shall be personally served, or in lieu of personal service may be given by reputable overnight courier service, postage prepaid, addressed to the other party as follows:

If to Landlord:	WCP Bourdeaux Centre LLC
	c/o Wrightwood Capital
	2 North LaSalle Street
	9th Floor
	Chicago, Illinois 60602
	Attention: General Counsel
with a copy to:	WCP Bourdeaux Centre LLC
	c/o Wrightwood Capital
	2 North LaSalle Street
	9th Floor
	Chicago, Illinois 60602
	Attention: Director of Portfolio Management
and a copy to:	DLA Piper LLP (US)
	203 N. LaSalle
	Chicago, Illinois 60601
	Attention: Alison Mitchell
If to Tenant:	Before the Commencement Date:
	PMC-Sierra, Inc.
	3975 Freedom Circle, Suite 300
	Santa Clara, CA 95054
	Attn: General Counsel

25.

with a copy to:	PMC-Sierra
	8555 Baxter Place
	Burnaby, BC, V5A 4V7, Canada
	Attn: Director, Worldwide Facilities
	After the Commencement Date:
	PMC-Sierra, Inc.
	1380 Bordeaux Drive
	Sunnyvale, California 94089
	Attention: General Counsel
with a copy to:	PMC-Sierra
	8555 Baxter Place
	Burnaby, BC, V5A 4V7, Canada
	Attention: Director, Worldwide Facilities

Any notice given in accordance with the foregoing shall be deemed received upon actual receipt or refusal to accept delivery. Either party may change its address for notice hereunder by written notice to the other party.

13.12 Attorneys’ Fees. In the event any party shall bring any action, arbitration proceeding or legal proceeding alleging a breach of any provision of this Lease, to recover rent, to terminate this Lease, or to enforce, protect, determine or establish any term or covenant of this Lease or rights or duties hereunder of either party, the prevailing party shall be entitled to recover from the non-prevailing party as a part of such action or proceeding, or in a separate action for that purpose brought within one year from the determination of such proceeding, reasonable attorneys’ fees, expert witness fees, court costs and other reasonable expenses incurred by the prevailing party.

13.13 Definitions. Any term that is given a special meaning by any provision in this Lease shall, unless otherwise specifically stated, have such meaning wherever used in this Lease or in any Addenda or amendment hereto. In addition to the terms defined in Article 1, the following terms shall have the following meanings:

(a) Real Property Taxes. The term “Real Property Tax” or “Real Property Taxes” shall each mean Tenant’s Expense Share of (i) all taxes, assessments, levies and other charges of any kind or nature whatsoever, general and special, foreseen and unforeseen (including all instruments of principal and interest required to pay any general or special assessments for public improvements and any increases resulting from reassessments caused by any change in ownership or new construction), now or hereafter imposed by any governmental or quasi-governmental authority or special district having the direct or indirect power to tax or levy assessments, which are levied or assessed for whatever reason against the Property or any portion thereof, or Landlord’s interest herein, or the fixtures, equipment and other property of Landlord that is an integral part of the Property and located thereon, or Landlord’s business of owning, leasing or managing the Property or the gross receipts, income or rentals from the Property, (ii) all charges, levies or fees imposed by any governmental authority against Landlord by reason of or based upon the use of or number of parking spaces within the Property, the amount of public services or public utilities used or consumed (e.g. water, gas, electricity, sewage or waste water disposal) at the Property, the number of person employed by tenants of the Property, the size (whether measured in area, volume, number of tenants or whatever) or the value of the Property, or the type of use or uses conducted within the Property, and all costs and fees (including attorneys’ fees) reasonably incurred by Landlord in contesting any Real Property Tax and in negotiating with public authorities as to any Real Property Tax. If, at any time during the Lease Term, the taxation or assessment of the Property prevailing as of the Effective Date of this Lease shall be altered so that in lieu of or in addition to any the Real Property Tax described above there shall be levied, awarded or imposed (whether by reason of a change in the method of taxation or assessment, creation of a new tax or charge, or any other cause) an alternate, substitute, or additional use or charge (i) on the value, size, use or occupancy of the Property or Landlord’s interest therein or (ii) on or measured by the gross receipts, income or rentals from the Property, or on Landlord’s business of owning, leasing or managing the Property or (iii) computed in any manner with respect to the operation of the Property, then any such tax or charge, however designated, shall be included within the meaning of the terms “Real Property Tax” or “Real Property Taxes” for purposes of this Lease. If any Real Property Tax is partly based upon property or rents unrelated to the Property, then only that part of such Real Property Tax that is fairly allocable to the Property shall be included within the meaning of the terms “Real Property Tax” or “Real Property Taxes.” Notwithstanding the foregoing, the terms “Real Property Tax” or “Real Property Taxes” and “Property Operating Expenses” shall not include estate, inheritance, transfer, gift or franchise taxes of Landlord or the federal or state income tax imposed on Landlord’s income from all sources. If a special assessment payable in installments is levied against the Building, Property Taxes for any year shall include only the installment of such assessment and any interest payable or paid during such year as if such assessment were paid over the longest possible term, unless the same would subject Landlord to interest (beyond the interest applicable to a special assessment going to bond) or penalties.

         (b) Landlord’s Insurance Costs. The term “Landlord’s Insurance Costs” shall mean Tenant’s Expense Share of the costs to Landlord to carry and maintain the policies of fire and property damage insurance for the Building and the Property and general liability and any other insurance required or permitted to be carried by Landlord pursuant to Article 9, together with any deductible amounts paid by Landlord upon the occurrence of any insured casualty or loss, not to exceed $60,000 per occurrence. In determining the amount of Landlord’s Insurance Costs for any calendar year, if less than 100% of the rentable area of the Property is occupied by tenants at any time, Landlord’s Insurance Costs shall be determined to be an amount equal to the like expenses which would normally be expected to be incurred had such occupancy been 100%.

26.

(c) Property Maintenance Costs. The term “Property Maintenance Costs” shall mean, without duplication, Tenant’s Expense Share of the aggregate of all costs and expenses paid or incurred by or on behalf of Landlord in connection with the ownership, operation, repair and maintenance of the Property, including the rental value of any management office at the Property and capital improvements if such capital improvement is reasonably intended to result in a reduction in Property Maintenance Costs (but then only to the extent of the anticipated reduction in Property Maintenance Costs) or are required for compliance with Laws or insurance requirements first becoming effective after the Effective Date. Such capital improvements shall be amortized on a straight-line basis over the reasonable life of the capital item in question, and the amount included in Property Maintenance Costs in any calendar year shall be equal to the annual amortized amount. Property Maintenance Costs shall also include all costs for management and administration of the Leased Premises, the Building, the Outside Areas and the Property or any portion thereof, including, without limitation, a property management fee (not to exceed 3% of the Base Rent), accounting, auditing, billing postage, salaries and benefits for all employees and contractors engaged in the management, operating, maintenance, repair and protection of the Building and the Property, whether located on the Property or offsite. During any period when Tenant’s Expense Share is less than 100%, if during all or part of any calendar year, Landlord shall not furnish any particular item(s) of work or service (which would otherwise constitute a Property Maintenance Cost) to any occupiable able portions of the Property for any reason, then, for purposes of computing Property Maintenance Costs for such period, the amount included in Property Maintenance Costs for such period shall be increased by an amount equal to the costs and expenses that would have been reasonably incurred by Landlord during such period if Landlord had furnished such item(s) of work or service to such portion of the Property. During any period when Tenant’s Expense Share is less than 100%, in determining the amount of Property Maintenance Costs for any calendar year, if less than 100% of the rentable area of the Property is occupied by tenants at any time, Property Maintenance Costs shall be determined to be an amount equal to the like expenses which would normally be expected to be incurred had such occupancy been 100%. Notwithstanding the foregoing, Property Maintenance Costs and Property Operating Expenses shall not include (a) costs that are reimbursed out of insurance, warranties, guaranties or condemnation proceeds (b) costs to remedy violations of any Laws or violations of any Private Restrictions applicable to the Leased Premises, the Building or the Property to the extent the same amount to such a violation on or prior to the Effective Date, (c) costs incurred in connection with the presence of any Hazardous Material, except to the extent caused by the release or emission of the Hazardous Material in question by Tenant or any Tenant Party and except to the extent related to Hazardous Materials classified as such after the Effective Date, (d) costs which could properly be capitalized under generally accepted accounting principles, except to the extent set forth in the first two sentences of this Section 13.13(c), (e) expense reserves, (f) costs occasioned by the violation of any law by Landlord, any other occupant of the Property, or their respective agents, employees or contractors, (g) fees, commissions, attorneys’ fees, costs or other disbursements incurred in connection with negotiations or disputes with any other occupant of the Property and costs arising from the violation by Landlord or any occupant of the Property (other than Tenant) of the terms and conditions of any lease or other agreement, (h) interest, charges and fees incurred on debt, payments on mortgages and rent under ground leases; (i) costs for which Landlord has a right of reimbursement from others (other than through the obligation of tenants of the Property to pay their respective share of Property Maintenance Costs); (j) depreciation; (k) costs incurred in connection with the operation of any parking or commercial concession within the Property; (l) advertising or promotional costs; (m) costs of sculptures, fountains, paintings and other art objects, provided, however, the cost of maintaining and repairing any of the foregoing located at the Building or the Project as of the Effective Date shall not be excluded; or (n) costs for insurance in excess of the cost of insurance customarily carried by landlords of similar projects in the vicinity of the Premises.

(d) Property Operating Expenses. The term “Property Operating Expenses” shall mean and include all Real Property Taxes, plus all Landlord’s Insurance Costs, plus all Property Maintenance Costs.

(e) Law. The term “Law” shall mean any judicial decisions and any statute, constitution, ordinance, resolution, regulation, rule, administrative order, or other requirements of any municipal, county, state, federal, or other governmental agency or authority having jurisdiction over the parties to this Lease, the Leased Premises, the Building or the Property, or any of them, in effect either at the Effective Date of this Lease or at any time during the Lease Term, including, without limitation, any regulation, order, or published policy of any quasi-official entity or body (e.g. a board of fire examiners or a public utility or special district).

(f) Lender. The term “Lender” shall mean the holder of any promissory note or other evidence of indebtedness secured by the Property or any portion thereof.

(g) Private Restrictions. The term “Private Restrictions” shall mean (as they may exist from time to time) any and all covenants, conditions and restrictions, private agreements, easements, and any other recorded documents or instruments affecting the use of the Property, the Building, the Leased Premises, or the Outside Areas.

(h) Rent. The term “Rent” shall mean collectively Base Monthly Rent and all Additional Rent.

(i) Building Systems. The term “Building Systems” shall mean collectively the mechanical, electrical, plumbing, sanitary, sprinkler, heating, ventilation and air conditioning, security, life safety, elevator and other service systems or facilities of the Building and the finished ceiling and Building standard lighting fixtures in the Leased Premises, that are excluding any Premises Fixtures.

(j) Premises Fixtures. The term “Premises Fixtures” shall mean Tenant’s security systems in the Leased Premises and all non-Building standard lighting in the Premises.

13.14 General Waivers. One party’s consent to or approval of any act by the other party requiring the first party’s consent or approval shall not be deemed to waive or render unnecessary the first party’s consent to or

27.

approval of any subsequent similar act by the other party. No waiver of any provision hereof, or any waiver of any breach of any provision hereof, shall be effective unless in writing and signed by the waiving party. The receipt by Landlord of any Rent or other payment with or without knowledge of the breach of any other provision hereof shall not be deemed a waiver of any such breach. No waiver of any provision of this Lease shall be deemed a continuing waiver unless such waiver specifically states so in writing and is signed by both Landlord and Tenant. No delay or omission in the exercise of any right or remedy accruing to either party upon any breach by the other party under this Lease shall impair such right or remedy or be construed as a waiver of any such breach theretofore or thereafter occurring. The waiver by either party of any breach of any provision of this Lease shall not be deemed to be a waiver of any subsequent breach of the same or any other provisions herein contained.

13.15 Private Adjudication; Waiver of Jury Trial. The parties hereto agree that any and all disputes or controversies of any nature between them arising at any time that are before any state court located within the county where the Property is located shall be decided by a reference to a private judge, mutually selected by the parties (or, if they cannot agree, by the presiding judge of the Santa Clara County Superior Court) appointed in accordance with California Code of Civil Procedure Section 638 (or pursuant to comparable provisions of federal law if the dispute falls within the exclusive jurisdiction of the federal courts), sitting without a jury, in Santa Clara County, California; and the parties hereby submit to the jurisdiction of such court. The reference proceedings shall be conducted pursuant to and in accordance with the provisions of California Code of Civil Procedure §§ 638 through 645.1, inclusive. The private judge shall have the power, among others, to grant provisional relief, including without limitation, entering temporary restraining orders, issuing preliminary and permanent injunctions and appointing receivers. All such proceedings shall be closed to the public and confidential and all records relating thereto shall be permanently sealed. If during the course of any dispute, a party desires to seek provisional relief, but a judge has not been appointed at that point pursuant to the judicial reference procedures, then such party may apply to the Santa Clara County Superior Court for such relief. THE PARTIES ACKNOWLEDGE THAT JUDICIAL REFERENCE PROCEEDINGS CONDUCTED IN ACCORDANCE WITH THIS PARAGRAPH WOULD BE CONDUCTED BY A PRIVATE JUDGE ONLY, SITTING WITHOUT A JURY.

WITHOUT INTENDING IN ANY WAY TO LIMIT THE PARTIES’ AGREEMENT TO RESOLVE ANY DISPUTE PURSUANT TO JUDICIAL REFERENCE AS SET FORTH IMMEDIATELY ABOVE, TO THE EXTENT ANY DISPUTE IS NOT SUBMITTED TO A REFEREE, THEN TO THE FULLEST EXTENT NOT PROHIBITED BY LAW, each party hereto, knowingly and voluntarily, and for their mutual benefit, waives any right to trial by jury in the event of litigation regarding the performance or enforcement of, or in any way related to, this Agreement.

13.16 Miscellaneous. Should any provisions of this Lease prove to be invalid or illegal, such invalidity or illegality shall in no way affect, impair or invalidate any other provisions hereof, and such remaining provisions shall remain in full force and effect. Time is of the essence with respect to the performance of every provision of this Lease in which time of performance is a factor. Any copy of this Lease which is executed by the parties shall be deemed an original for all purposes. This Lease shall, subject to the provisions regarding assignment, apply to and bind the respective heirs, successors, executors, administrators and assigns of Landlord and Tenant. The term “party” shall mean Landlord or Tenant as the context implies. If Tenant consists of more than one person or entity, then all members of Tenant shall be jointly and severally liable hereunder. This Lease shall be construed and enforced in accordance with the Laws of the State in which the Leased Premises are located. The captions in this Lease are for convenience only and shall not be construed in the construction or interpretation of any provision hereof. When the context of this Lease requires, the neuter gender includes the masculine, the feminine, a partnership, corporation, limited liability company, joint venture, or other form of business entity, and the singular includes the plural. The terms “must,” “shall,” “will,” and “agree” are mandatory. The term “may” is permissive. When a party is required to do something by this Lease, it shall do so at its sole cost and expense without right of reimbursement from the other party unless specific provision is made therefor. Where Landlord’s consent is required hereunder, the consent of any Lender shall also be required. Landlord and Tenant shall both be deemed to have drafted this Lease, and the rule of construction that a document is to be construed against the drafting party shall not be employed in the construction or interpretation of this Lease. Where Tenant is obligated not to perform any act or is not permitted to perform any act, Tenant is also obligated to restrain any others reasonably within its control, including agents, invitees, contractors, subcontractors and employees, from performing such act. Landlord shall not become or be deemed a partner or a joint venturer with Tenant by reason of any of the provisions of this Lease.

ARTICLE 14

CORPORATE AUTHORITY

BROKERS AND ENTIRE AGREEMENT

14.1 Corporate Authority. Tenant represents and warrants that Tenant is validly formed and duly authorized and existing, that Tenant is qualified to do business in the State in which the Leased Premises are located, that Tenant has the full right and legal authority to enter into this Lease, and that the individual executing this Lease on its behalf is duly authorized to execute and deliver this Lease on behalf of Tenant in accordance with its terms.

14.2 Brokerage Commissions. Landlord and Tenant each represents, warrants and agrees that it has not had any dealings with any real estate brokers, leasing agents, finders or salesmen, other than the Broker (as named in Article 1) with respect to the negotiations of this Lease. Landlord shall be responsible at its sole cost for all such commissions payable to the Broker in connection with this Lease. Each party hereby agrees to indemnify, defend (with counsel reasonably approved by the indemnified party), and hold harmless the other party from any liability for the payment of any real estate brokerage commissions, leasing commissions or finder’s fees claimed by any other real estate brokers, leasing agents, finders, or salesmen to be earned or due and payable by reason of the indemnifying party’s agreement or promise (implied or otherwise) to pay (or to have Landlord pay) such a commission or finder’s fee with respect to this Lease.

28.

14.3 Entire Agreement. This Lease and the Exhibits which Exhibits are by this reference incorporated herein, constitute the entire agreement between the parties, and there are no other agreements, understandings or representations between the parties relating to the lease by Landlord of the Leased Premises to Tenant, except as expressed herein. No subsequent changes, modifications or additions to this Lease shall be binding upon the parties unless in writing and signed by both Landlord and Tenant.

14.4 Landlord’s Representations. Tenant acknowledges that neither Landlord nor any of its agents made any representations or warranties respecting the Property, the Building or the Leased Premises, upon which Tenant relied in entering into the Lease, which are not expressly set forth in this Lease. Tenant further acknowledges that neither Landlord nor any of its agents made any representations as to (i) whether the leased Premises may be used for Tenant’s intended use under existing Law, or (ii) the suitability of the Leased Premises for the conduct of Tenant’s business, or (iii) the exact square footage of the Leased Premises, and that Tenant relies solely upon its own investigations with respect to such matters. Tenant expressly waives any and all claims for damage by reason of any statement, representation, warranty, promise or other agreement of Landlord or Landlord’s agent(s), if any, not contained in this Lease or in any Exhibit attached hereto.

ARTICLE 15

OPTIONS TO TERMINATE, EXTEND

15.1 Option to Terminate. Provided that Tenant is not in default under this Lease, and subject to the following terms and provisions, Tenant shall have a one time option, exercisable if at all by irrevocable notice to Landlord delivered at least eighteen (18) full calendar months prior to the effective date of termination, to terminate this Lease effective on the ninety sixth (96th) full calendar month of the Lease Term. If Tenant elects to so terminate this Lease, Tenant shall pay to Landlord at the time of Tenant’s delivery of the notice of termination a termination fee (the “Termination Fee”) in an amount equal to One Million One Hundred Thousand and 00/100 Dollars $1,100,000.00. If Tenant fails to timely deliver to Landlord its notice of termination, together with its payment of the Termination Fee, then Tenant’s rights, pursuant to this Section 15.1, shall lapse and be of no further force or effect.

15.2 Renewal Term. Tenant shall have the right to renew the initial Term for all of the Leased Premises for one (1) renewal term of five (5) years (the “Renewal Term”), commencing on the day after the expiration of the initial Lease Term (the “Renewal Term Commencement Date”) and ending on the day immediately preceding the fifth (5th) anniversary of the Renewal Term Commencement Date, unless the Renewal Term shall sooner terminate pursuant to any of the terms of this Lease or otherwise. The Renewal Term shall commence only if (i) Tenant notifies Landlord in writing (the “Renewal Exercise Notice”) of Tenant’s exercise of such renewal right not earlier than fifteen (15) full calendar months, and not later than twelve (12) full calendar months, prior to the Expiration Date (the “Extension Deadline”), and, (ii) at the time of the exercise of such right and, at the option of Landlord, immediately prior to the Renewal Term Commencement Date, no Event of Default under this Lease shall have occurred and be continuing hereunder. A Renewal Exercise Notice shall be irrevocable once delivered. Time is of the essence with respect to the giving of the Renewal Exercise Notice. The Renewal Term shall be upon all of the agreements, terms, covenants and conditions of this Lease, except that (a) the Base Monthly Rent shall be determined as provided below and (b) Tenant shall have no further right to renew or extend the Lease Term. Upon the commencement of the Renewal Term, (1) the Renewal Term shall be added to and become part of the Lease Term, (2) any reference to “this Lease”, to the “Lease Term”, the “term of this Lease” or any similar expression shall be deemed to include the Renewal Term, and (3) the expiration of the Renewal Term shall become the Expiration Date. Any termination, cancellation or surrender of any interest of Tenant under this Lease at any time during the Lease Term shall automatically terminate the renewal rights set forth herein. The renewal right contained herein shall be personal to PMC-Sierra, Inc. (and Permitted Transferees) (and not available to any other assignee, or any other sublessee or other transferee) and may be exercised only provided and on condition that PMC-Sierra, Inc. has not assigned its interest in this Lease (except to a Permitted Transferee) or sublet (except to a Permitted Transferee) more than 50% of Leased Premises as of the date Tenant purports to give the Renewal Exercise Notice and, at the option of Landlord, upon commencement of the Renewal Term.

15.3 Renewal Term Rent. The Base Monthly Rent payable during the Renewal Term shall be equal to the Fair Market Value (as hereinafter defined) of the Leased Premises, as of the last day of the calendar month immediately preceding the Renewal Term (the “Calculation Date”). “Fair Market Value” shall mean the fair market monthly rent, taking into account all escalations, at which, as of the Calculation Date, tenants are leasing non-sublease, non-renewal, non-encumbered, non-equity, non-expansion space comparable in size, location and quality to the Leased Premises for a term of five (5) years, in an arm’s-length transaction, which comparable space is located in the same geographic market as the Property, and which comparable transactions (collectively, the “Comparable Transactions”) have been entered into within the six (6) month period immediately preceding the Calculation Date, taking into consideration the following concessions (the “Concessions”): (a) rental abatement concessions, if any, being granted such tenants in connection with such comparable space; and (b) tenant improvements or allowances provided or to be provided for such comparable space, taking into account, and deducting the value of, the existing improvements in the Leased Premises, such value to be based upon the age, condition, design, quality of finishes and layout of the improvements and the extent to which the same can be utilized by a Tenant based upon the fact that the precise tenant improvements existing in the Leased Premises are specifically suitable to Tenant; and (c) other reasonable monetary concessions being granted such tenants in connection with such comparable space; provided, however, that in calculating the Fair Market Value, no consideration shall be given to (i) the fact that Landlord is or is not required to pay a real estate brokerage commission in connection with Tenant’s exercise of its right to lease the Leased Premises during the Renewal Term, as the case may be, or in connection with the Comparable Transactions or the fact that landlords are or are not paying real estate brokerage commissions in connection with such comparable space; and (ii) any period of rental abatement, if any, granted to tenants in Comparable Transactions in connection with the design, permitting and construction of tenant improvements in such comparable spaces.

29.

15.4 Parties to Confer Regarding Fair Market Rental. If Tenant has determined that it may exercise its right to renew the Lease Term pursuant to this Article, Tenant may give Landlord notice in writing thereof (the “Notice to Confer”) at least sixty (60) days prior to the Extension Deadline. Following delivery of the Notice to Confer, Landlord and Tenant shall confer and in good faith endeavor to mutually agree upon the matters to be determined pursuant to Paragraph 15.2 above. If the parties are not able to agree on the Fair Market Value prior to the Extension Deadline and Tenant elects to deliver the Renewal Exercise Notice and timely delivers the same in accordance with the provisions of this Lease, then the Fair Market Value shall be determined as provided below.

(a) Rent Notice. Landlord shall advise Tenant (the “Rent Notice”) of Landlord’s determination of Fair Market Value of the Leased Premises for the Renewal Term prior to the Renewal Term Commencement Date. If Tenant timely disputes Landlord’s determination of Fair Market Value in accordance with Paragraph 15.4(e) below, then the dispute shall be resolved by arbitration as provided in Paragraph 15.4(e) below. If the Base Monthly Rent payable during the Renewal Term is not determined prior to the Renewal Term Commencement Date, Tenant shall pay Base Monthly Rent in an amount equal to the Base Monthly Rent in effect on the initial Expiration Date (the “Interim Rent”). Upon final determination of the Base Monthly Rent for the Renewal Term, Tenant shall commence paying such Base Monthly Rent as so determined, and within ten (10) days after such determination Tenant shall pay any deficiency in prior payments or, if the Base Monthly Rent as so determined shall be less than the Interim Rent, Tenant shall be entitled to a credit against the next succeeding installments of Base Monthly Rent in an amount equal to the difference between each installment of Interim Rent and the Base Monthly Rent as so determined which should have been paid for such installment until the total amount of the over payment has been recouped.

(b) Arbitration. If Tenant wishes to dispute Landlord’s determination of Fair Market Value of the Premises for the Renewal Term pursuant to the foregoing provisions of this Article 15, then Tenant shall give notice to Landlord of such dispute within ten (10) business days after delivery of the Rent Notice, and such dispute thereafter shall be determined by arbitration in accordance with the then prevailing Expedited Procedures of the American Arbitration Association or its successor for arbitration of commercial disputes, except that the Expedited Procedures shall be modified as follows:

(i) In its demand for arbitration, Tenant shall specify the name and address of the person who has agreed to act as the arbitrator on Tenant’s behalf. The arbitrator shall be a real estate broker with at least ten (10) years’ full-time commercial brokerage experience who is familiar with the Fair Market Value of first-class office space in the geographic market of the Building. Failure on the part of Tenant to make the timely and proper demand for such arbitration shall constitute a waiver of the right thereto and the Base Monthly Rent shall be as set forth in the Rent Notice. Within ten (10) business days after the service of the demand for arbitration, Landlord shall give notice to Tenant specifying the name and address of the person designated by Landlord to act as arbitrator on its behalf, which arbitrator shall be similarly qualified. If Landlord fails to notify Tenant of the appointment of its arbitrator within such ten (10) business day period, and such failure continues for three (3) business days after Tenant delivers a second notice to Landlord, then the arbitrator appointed by Tenant shall be the arbitrator to determine the Fair Market Value for the Premises.

(ii) If two arbitrators are chosen pursuant to subparagraph (i) above, the arbitrators so chosen shall meet within ten (10) business days after the second arbitrator is appointed and shall seek to reach agreement on Fair Market Value. If within twenty (20) days after the second arbitrator is appointed the two arbitrators are unable to reach agreement on Fair Market Value then the two arbitrators shall appoint a third arbitrator, who shall be a competent and impartial person with qualifications similar to those required of the first two arbitrators. If they are unable to agree upon such appointment within five (5) business days after expiration of such twenty (20) day period, the third arbitrator shall be selected by the presiding judge of the superior court in which the Property is located. The third arbitrator shall decide the dispute, if it has not been previously resolved, by following the procedures set forth in subparagraph (iii) below. Each party shall pay the fees and expenses of its respective arbitrator and both shall share the fees and expenses of the third arbitrator. Attorneys’ fees and expenses of counsel and of witnesses for the respective parties shall be paid by the respective party engaging such counsel or calling such witnesses.

(iii) Fair Market Value shall be fixed by the third arbitrator in accordance with the following procedures. Concurrently with the appointment of the third arbitrator, each of the arbitrators selected by the parties shall state, in writing, his or her determination of the Fair Market Value supported by the reasons therefor. The third arbitrator shall have the right to consult experts and competent authorities for factual information or evidence pertaining to a determination of Fair Market Value, but any conclusion of such determination shall be made in the presence of both parties with full right on their part to cross-examine. The third arbitrator shall conduct such hearings and investigations as he or she deem appropriate and shall, within twenty (20) days after being appointed, select which of the two proposed determinations most closely approximates his or her determination of Fair Market Value. The third arbitrator shall have no right to propose a middle ground or any modification of either of the two proposed determinations. The determination he or she chooses as that most closely approximating his or her determination of the Fair Market Value shall constitute the decision of the third arbitrator and shall be final and binding upon the parties. The third arbitrator shall render the decision in writing with counterpart copies to each party. The third arbitrator shall have no power to add to or modify the provisions of this Lease. Promptly following receipt of the third arbitrator’s decision, the parties shall enter into an amendment to this Lease evidencing the extension of the Lease Term for the Renewal Term and confirming the Base Monthly Rent for the Renewal Term, but the failure of the parties to do so shall not affect the effectiveness of the third arbitrator’s determination or that the Lease Term is extended.

                (iv) In the event of a failure, refusal or inability of any arbitrator to act, his or her successor shall be appointed by him or her, but in the case of the third arbitrator, his or her successor shall be appointed in the same manner as that set forth herein with respect to the appointment of the original third arbitrator.

(Signature page continue next page)

30.

IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease as of the date first set forth above with the intent to be legally bound thereby as of the Effective Date of this Lease.

LANDLORD:
WCP BORDEAUX CENTRE LLC,
a Delaware limited liability company
By:	/s/ Henry Bieber
Name:	Henry Bieber
Title:	Vice President
TENANT:
PMC-SIERRA, INC.,
a Delaware corporation
By:	/s/ Gregory S. Lang
Name:	Gregory S. Lang
Title:	President and Chief Executive Officer

EXHIBIT A

LEGAL DESCRIPTION OF PROPERTY AND SITE PLAN

THE LAND REFERRED TO HEREIN BELOW IS SITUATED IN THE CITY OF SUNNYVALE, COUNTY OF SANTA CLARA, STATE OF CALIFORNIA, AND IS DESCRIBED AS FOLLOWS:

All that certain real property described as Parcel A and Parcel B in that certain, “Certificate of Compliance (Lot Line Adjustment)” recorded on July 31, 2007 as Instrument No. 19532077, Santa Clara County Records, more particularly described as follows:

Parcel A:

Being a portion of Parcel 1 as shown on that certain Parcel Map filed for record on September 25, 1998 in Book 708, pages 25 and 26, Santa Clara County Records and being more particularly described as follows:

Beginning at the northwesterly corner of said Parcel 1 and also being on the easterly line of Mathilda Avenue as shown on said Parcel Map;

Thence along the westerly line of said Parcel 1, South 14°52’14” West 312.00 feet;

Thence along a curve to the left, having a radius of 50.00 feet, through a central angle of 90°00’00” an arc distance of 78.54 feet to a point on the southerly line of said Parcel 1;

Thence along said southerly line, South 75°07’46” East, 257.66 feet;

Thence leaving said line, North 14°52’14” East, 362.00 feet along a line parallel with and distant 73.22 feet westerly measured at right angles to the common line between Parcel 1 and Parcel 2 of said Parcel Map to a point on the northerly line of said Parcel;

Thence along said northerly line, North 75°07’46” West, 307.66 feet to the Point of Beginning.

Parcel B:

Being all of Parcel 2 and a portion of Parcel 1 as shown on that certain Parcel Map filed for record on September 25, 1998 in Book 708, pages 25 and 26, Santa Clara County Records and being more particularly described as follows:

Beginning at the northwesterly corner of said Parcel 1 said corner also being on the easterly line of Mathilda Avenue as shown on said Parcel Map;

Thence along the westerly line of said Parcel 1, South 14°52’14” West 312.00 feet;

Thence along a curve to the left, having a radius of 50.00 feet, through a central angle of 90°00’00” an arc distance of 78.54 feet to a point on the southerly line of said Parcel 1;

Thence along said southerly line, South 75°07’46” East, 257.66 feet to the True Point of Beginning of Parcel B;

Thence continuing along the southerly line of said Parcel 1 and Parcel 2, South 75°07’46” East, 346.00 feet to the southeasterly corner of said Parcel 2;

Thence along the easterly line of said Parcel 2, North 14°52’14” East, 362.00 feet to the northeasterly corner of said Parcel 2;

Thence along the northerly line of said Parcel 2 and Parcel 1, North 75°07’46” West, 346.00 feet;

Thence leaving said northerly line, South 14°52’14” West 362.00 feet along a line parallel with and distant 73.22 feet westerly measured at right angles to the common line between Parcel 1 and Parcel 2 to the True Point of Beginning.

APN: 110-26-050, 051

A-1.

EXHIBIT B

WORK LETTER

This Work Letter sets forth the terms and conditions relating to the initial improvement of the Leased Premises for Tenant. This Work Letter addresses the issues of construction of the initial improvement of the Leased Premises for Tenant. All references in this Work Letter to Articles or Sections of “this Lease” shall mean the portions of the Lease to which this Work Letter is attached.

SECTION 1

TENANT IMPROVEMENTS

The parties have previously agreed on a draft space plan for tenant improvements in the Leased Premises prepared by Arc Tec and attached hereto as Exhibit A-3 (the “Draft Space Plan”) and the initial scope of work specified in the Initial Cost Proposal (defined below). Tenant has indicated that it would like to make modifications to the Draft Space Plan (the “Space Plan Modifications”). Within ten (10) Business Days after the Effective Date, Tenant may submit Space Plan Modifications to Landlord for Landlord’s approval, which shall not be unreasonably withheld, conditioned or delayed; provided however, Landlord may disapprove of any Space Plan Modifications in Landlord’s sole discretion if such Space Plan Modifications would be of a quality lower than the quality of the Building-standard improvements. If Tenant fails to submit Space Plan Modifications to Landlord for Landlord’s approval within such ten (10) Business Day period, then (A) Tenant shall be deemed to have waived its right to make any modifications to the Draft Space Plan, and (B) the parties shall be deemed to have approved the unmodified Draft Space Plan as the “Final Space Plan”. If Tenant submits any Space Plan Modifications to Landlord within such ten (10) Business Day period, then Landlord shall notify Tenant of either (1) Landlord’s approval of such Space Plan Modifications, or (2) Landlord’s disapproval of such Space Plan Modifications, in which case Landlord shall specify in reasonable detail Landlord’s reasons for such disapproval. The Draft Space Plan as modified by any Space Plan Modifications approved by Landlord shall be referred to herein as the “Final Space Plan”. Landlord shall obtain a revised cost proposal (the “Final Cost Proposal”) based on the Final Space Plan setting forth any change in the Initial Cost Proposal resulting from Space Plan Modifications. The improvements in accordance with the Final Space Plan and the Final Cost Proposal are referred to herein as the “Tenant Improvements”). Unless otherwise agreed in writing by Landlord and Tenant, all subsequent plans shall be consistent with the Final Space Plan.

As used herein, “Initial Cost Proposal” means 1) the Scope of Work and Remarks provided in OPI Commercial Builder Inc. Preliminary Budget- dated 8/6/10 in the amount of $3,485,110.00 and attached hereto as Exhibit “A-1”, 2) the Scope of Services outlined in the Arc Tec-contract architectural services proposal dated 6/16/10 revised 6/23/10 and 6/25/10 in the amount of $160,201.01 and attached hereto as Exhibit “A-2”, and 3) Skyline Partners, Inc. construction management proposal dated 6/25/10 in the amount of $37,000.00; provided, however, the Initial Cost Proposal excludes any items or specifications not included in Exhibits “A-1” or “A-2” as well as any additional work or costs related to the Assumptions/Exceptions section on page 9 of said Arc Tec-contract architectural services proposal (see Exhibit “A-2”), and the Qualifications and Exclusions section on page 2 of said OPI Commercial Builders, Inc proposal (see Exhibit “A-1”).

Landlord shall retain Arc Tec Inc. (the “Architect”) and shall retain engineering consultants reasonably acceptable to Landlord and Tenant (the “Engineers”) to prepare all plans and engineering working drawings relating to the structural, mechanical, electrical, plumbing, HVAC, life safety, sprinkler and IT engineering work in the Leased Premises (collectively as the “Construction Drawings”). All Construction Drawings shall comply with the drawing format and specifications reasonably determined by Landlord, and shall be subject to Landlord’s and Tenant’s approval, which approval shall not be unreasonably conditioned or denied. Tenant shall supply the Engineers with a complete listing of standard and non-standard equipment and specifications, including, without limitation, B.T.U. calculations, electrical requirements and special electrical receptacle requirements for the Leased Premises, to enable the Engineers and the Architect to complete the Final Working Drawings (defined below) in the manner as set forth below. The Architect and the Engineers shall complete the architectural and engineering drawings for the Leased Premises, and Architect shall compile a fully coordinated set of architectural, structural, mechanical, electrical, fire life safety, plumbing and telecommunications working drawings in a form which is complete to allow subcontractors to bid on the work and to obtain all applicable permits (collectively, as reasonably approved by Landlord and Tenant, the “Final Working Drawings”). Landlord shall construct the Tenant Improvements in accordance with the Final Working Drawings. Tenant shall make no changes or modifications to the Final Working Drawings without the prior written consent of Landlord, which consent shall not be unreasonably withheld, conditioned or delayed; provided, however, any delay in “Substantial Completion,” as that term is defined in Section 5.1 of this Work Letter caused by such changes or modifications by Tenant to the Final Working Drawings previously approved by Landlord and Tenant shall be a Tenant Delay and any increase in the cost of designing or constructing the Tenant Improvements as a result of such changes to the previously approved Final Working Drawings shall be at Tenant’s cost.

SECTION 2

OVER-ALLOWANCE AMOUNT; ALLOWANCES

        Landlord shall construct, at its cost (except as specifically set forth herein) the Tenant Improvements described in the Final Working Drawings. As of the date hereof the total estimated cost of the Tenant Improvements pursuant to the Draft Space Plan and the Initial Cost Proposal is $3,682,311.01 (the “Estimated TI Costs”). Landlord shall be responsible for the costs of the Tenant Improvements in excess of the Estimated TI Costs, except

B-1.

that any actual increase in costs incurred by Landlord as a result of Space Plan Modifications to the Draft Space Plan or changes in the scope of work set forth in the Initial Cost Proposal or other changes requested by Tenant (subject to Landlord’s approval of the same) to the Final Space Plan or the scope of work described in the Final Cost Proposal shall be paid by Tenant (any such amounts are referred to herein as the “Over-Allowance Amount”). Landlord shall request payment of the Over-Allowance Amount from time to time as costs are incurred and the same shall be paid by Tenant to Landlord within ten (10) days of Landlord’s request. Landlord shall disburse the Over-Allowance Amount concurrently with disbursements of Landlord’s contribution to the construction of the Tenant Improvements, on a pro rata pari passu basis.

Upon final completion of the Tenant Improvements, Landlord shall provide reasonable evidence to Tenant of all of the hard and soft cost of construction of the Tenant Improvements (collectively, the “Final TI Costs”) including, without limitation, copies of contractor and subcontractor invoices and any other vendor invoices constituting part of the Final TI Costs. In addition, Landlord shall provide an additional allowance (the “Additional Allowance”) in an amount equal to the sum of (i) $218,711.99, plus (ii) if the Final TI Costs are less than the Estimated TI Costs, one hundred percent (100%) of the difference between the Estimated TI Costs less the Final TI Costs. Tenant shall be entitled to use the Additional Allowance to pay for Tenant’s wiring and furniture in the Leased Premises in an amount not to exceed eight dollars ($8.00) per rentable square foot of the Leased Premises and any remaining portion of the Additional Allowance shall be credited against installments of Base Monthly Rent due under the Lease after application of any rent abatement pursuant to Section 3.1 of the Lease, provided and on condition that Tenant is not in default under the Lease at the time such credit is to be applied. After all costs of the Tenant Improvements have been paid in full, Landlord shall disburse that portion of the Additional Allowance Tenant elects to use for wiring and furniture directly to Tenant within thirty (30) days of Landlord’s receipt from Tenant of original or certified copies of all invoices for such expenses, together with reasonable supporting documentation.

For purposes of this Section 2, the Final TI Costs shall not be deemed to include, and Landlord shall be solely responsible for, any of the following: (a) costs incurred to remove Hazardous Materials from the premises or the surrounding area; (b) attorneys’ fees incurred in connection with negotiation of construction contracts, and attorneys’ fees, experts’ fees and other costs in connection with disputes with third parties; (c) interest and other costs of financing construction costs; (d) costs to bring the Leased Premises or the Building into compliance with applicable laws, building codes and restrictions, including, without limitation, the Americans with Disabilities Act and environmental laws; or (e) wages, labor and overhead for overtime and premium time, unless requested or approved by Tenant.

SECTION 3

CONSTRUCTION OF TENANT IMPROVEMENTS

Landlord shall retain OPI (“Contractor”) to construct the Tenant Improvements in accordance with the Final Working Drawings. Landlord shall require that Contractor obtain at least three (3) competitive bids for each major trade. Landlord shall cause the Contractor to construct the Tenant Improvements in accordance with the Final Working Drawings and all Laws in a good and workmanlike manner. Landlord shall deliver the Leased Premises to Tenant promptly upon Substantial Completion of the Tenant Improvements. Landlord shall, at Landlord’s sole cost and expense, repair any defects in the Tenant Improvements (other than those caused by or resulting from the negligence or willful misconduct of a Tenant Party) for a period of one year following Substantial Completion thereof. Landlord hereby assigns, on a non-exclusive basis, to Tenant all warranties and guaranties by Contractor and other third party contractors, subcontractors and vendors relating to the Tenant Improvements from and after the date that is one year after Substantial Completion thereof. From and after such date, Tenant hereby waives all claims against Landlord relating to, or arising out of the construction of the Tenant Improvements.

        If Landlord fails to cause construction of the Tenant Improvements in accordance with this Work Letter and such failure continues for a period of thirty (30) days after written notice to Landlord, Tenant shall have the right at any time after such thirty (30) day period while such failure is continuing, to elect to undertake the Tenant Improvements on Landlord’s behalf and, upon such election Tenant shall have the right to offset the cost of such undertaking against payments of Rent due under the Lease (with interest accruing thereon at the lesser of 10% per annum or the then maximum rate of interest not prohibited or made usurious by Law from the date of the expenditure until the date Tenant has been reimbursed therefor through such offset), provided that notwithstanding any such undertaking, Tenant shall remain responsible for any Over-Allowance Amount. Any work so undertaken by Tenant shall be performed by the Contractor, Architect, and Engineers named herein unless otherwise approved in writing by Landlord, which approval shall not be unreasonably withheld, conditioned or delayed.

SECTION 4

TENANT’S COVENANTS

        Tenant shall cooperate with Landlord with respect to construction of the Tenant Improvements, Tenant shall timely comply with all Time Deadlines set forth on the attached Schedule 1 and Tenant shall promptly reply to any other requests for information or approval Landlord may make with respect to the Tenant Improvements.

SECTION 5

COMPLETION OF THE TENANT IMPROVEMENTS;

LEASE COMMENCEMENT DATE

5.1 Ready for Occupancy. As used herein “Substantial Completion” means that the Tenant Improvements have been completed, as reasonably determined by Architect, with a Certificate of Occupancy

B-2.

granted from the City of Sunnyvale, with the exception of any punch list items including minor details of construction and mechanical adjustments and any tenant fixtures, work-stations, built-in furniture, or equipment to be installed by Tenant.

5.2 Delay of the Substantial Completion of the Leased Premises. Except as provided in this Section 5.2, the Commencement Date shall occur as set forth in the Lease. If and to the extent there are delays in the Substantial Completion of the Tenant Improvements or in the occurrence of any of the other conditions precedent to the Commencement Date, as set forth in of the Lease, to the extent resulting from:

5.2.1 Tenant’s failure to comply with Section 4 of this Work Letter;

5.2.2 A breach by Tenant of the terms of this Work Letter or the Lease;

5.2.3 Tenant’s request for changes in the Final Working Drawings;

5.2.4 Tenant’s requirement for materials, components, finishes or improvements which are not available in a commercially reasonable time given the anticipated date of Substantial Completion of the Tenant Improvements, as set forth in the Lease, to the extent such lead times are in excess of the those applicable to the materials, components, finishes or improvements set forth in the Approved Scope Proposal;

5.2.5 Tenant’s request for changes to the Final Work Drawings previously approved by Tenant and Landlord that involve changes to the base Building shell and core;

5.2.6 Any failure by Tenant to timely pay any Over Allowance Amount.

5.2.7 Any other acts or omissions of Tenant, or its agents, or employees;

(individually and collectively, “Tenant Delay”) then, notwithstanding anything to the contrary set forth in the Lease or this Work Letter and regardless of the actual date of the Substantial Completion of the Tenant Improvements, the date of Substantial Completion of the Leased Premises shall be deemed to be the date the Substantial Completion of the Tenant Improvements would have occurred if no Tenant Delay(s), as set forth above, had occurred.

SECTION 6

MISCELLANEOUS

6.1 Freight Elevators. Landlord shall, consistent with its obligations to other tenants of the Building, make the freight elevator reasonably available to Tenant in connection with initial decorating, furnishing and moving into the Leased Premises.

6.2 Tenant’s Representative. Tenant has designated Don Thiel as its sole representative with respect to the matters set forth in this Work Letter, who, until further notice to Landlord, shall have full authority and responsibility to act on behalf of the Tenant as required in this Work Letter.

6.3 Landlord’s Representative. Landlord has designated Richard Czerwinski as its sole representative with respect to the matters set forth in this Work Letter, who, until further notice to Tenant, shall have full authority and responsibility to act on behalf of the Landlord as required in this Work Letter.

6.4 Tenant’s Agents. All subcontractors, laborers, materialmen, and suppliers retained directly by Tenant shall all be union labor in compliance with the then existing master labor agreements (except as otherwise approved by Landlord, which approval shall not be unreasonably withheld). This Section 6.4 shall not apply to furniture installers, movers, data cabling contractors, AV contractors, security contractors and signage contractors.

6.5 Time of the Essence in This Work Letter. Unless otherwise indicated, all references herein to a “number of days” shall mean and refer to calendar days. In all instances where Tenant is required to approve or deliver an item, if no written notice of approval is given or the item is not delivered within the stated time period, Landlord may, but shall not be obligated to send Tenant written notice of Tenant’s failure to so approve or deliver. If such failure continues for a period of three (3) Business Days after such notice, then at Landlord’s sole option, at the end of such period the item shall automatically be deemed approved or delivered by Tenant and the next succeeding time period shall commence.

        6.6 Tenant’s Lease Default. Notwithstanding any provision to the contrary contained in this Lease, if an event of default as described in the Lease, or a default by Tenant under this Work Letter, has occurred at any time on or before the Substantial Completion of the Premises, then (i) in addition to all other rights and remedies granted to Landlord pursuant to the Lease, upon written notice to Tenant of such default, Landlord shall have the right to cause Contractor to cease the construction of the Premises (in which case, Tenant shall be responsible for any delay in the Substantial Completion of the Premises caused by such work stoppage as set forth in Section 5 of this Work Letter), and (ii) all other obligations of Landlord under the terms of this Work Letter shall be suspended until such time as such default is cured pursuant to the terms of the Lease.

B-3.

SCHEDULE 1

TIME DEADLINES

Deadline	Actions to be Performed
Within 21 days after approval of Final Space Plan.	Working Drawings to be provided for Tenant review.
Within 3 business days after receipt of Working Drawings.	Tenant to approve or provide any comments to Working Drawings.
Within 3 business days after receipt of revised Working Drawings.	Tenant to approve or provide any comments.

B-4.

EXHIBIT A-1 TO WORK LETTER

OPI

Commercial Builders

Design

Build… Repeat

August 6, 2010

RE: PMC Sierra Tenant Improvements - - Rev 8-6-10

Dear Gentlemen:

OPI Commercial Builders is pleased to provide you with the following revised preliminary budget for the PMC Sierra Tenant Improvements at 1380 Bordeaux per plans dated 7.29.10, by ARCTEC, the revised scope of work by Skyline Partners dated August 5, 2010 and attached hereto, the following descriptive cost breakdown, and the qualifications and exclusions.

Our budget for the work as described is: $3,485,110.00

Please review the following scope of work and the qualifications and exclusions. Feel free to call me if you have any questions or if you need any additional information. I can be reached at (408) 209-1383.

We have not included any hazardous material removal, permits, or latent conditions in this budget. In addition, we have based this budget on all work taking place during normal working hours.

Thank you for the opportunity to provide this budget.

Sincerely,

Jon Persing

President

445 Leigh Avenue, Los Gatos, CA 95032 Ph: 408-377-4800 Fax: 408-377-4804 Lic #816254

1

B-5.

QUALIFICATIONS AND EXCLUSIONS

This budget shall be subject to an AIA107 Guaranteed Maximum Price provided final drawings are based upon the finishes stated herein (or equal) and layout is based upon plans dated 7.29.10, by ARCTEC.

We exclude any hazardous material removal.

This budget is based upon normal working hours.

Tenant signage is assumed to be provided and installed by tenant.

Low-voltage / data cabling are not included.

445 Leigh Avenue, Los Gatos, CA 95032 + Ph: 408-377-4800 + Fax: 408-377-4804 + Lic #816254

2

B-6.

OPI

Commercial Builders

Design Build… Repeat

PMC SIERRA

1380 BORDEAUX DRIVE

SUNNYVALE, CA

PRELIMINARY BUDGET - REVISED

AUGUST 4, 2010

CODE ACTIVITY DESCRIPTION ESTIMATE PSF REMARKS

01 GENERAL REQUIREMENTS

1000 INSURANCE 49,943 0.82 Liability insurance at 1.5% of the project cost.

1010 PRINTING AND SUPPLIES 1,500 0.02 Cost to reproduce drawings for permit and subcontractors.

1020 PERMITS 75,000 1.23 Allowance for permit fees.

1200 PROJECT EXPENSES 20,000 0.33 Cost for dumpsters, small tools and protection of existing finishes.

1220 RENTALS 8,000 0.13 Cost for equipment rentals and portable toilet rental.

1510 PROJECT SUPERVISION 62,800 1.03 Cost for field supervision.

1520 PROJECT MANAGEMENT 34,200 0.56 Cost for project management.

1700 DAILY CLEANUP 15,000 0.25 Daily clean up based upon 4 hours per day.

1800 FINAL CLEAN UP 5,400 0.09 Final clean the entire space and stock bathrooms.

1900 OVERHEAD AND FEE 128,058 2.10

05 METALS

5700 ORNAMENTAL METAL 38,000 0.62 Includes aluminum column covers at the lobby.

06 WOOD AND PLASTICS

6100 ROUGH CARPENTRY 7,500 0.12 Install sleepers for fan coils and new framing for the roof top boiler. Cost includes miscellaneous backing and deck repair at penetrations.

6400 CUSTOM CASEWORK 74,582 1.22 Supply and install P-lam case work in standard P-lam colors with white melamine interiors per layout shown at phone rooms, copy and office break areas. Also includes new counters in restroom cores, lockers in showers, and an allowance for a new reception desk.

6400 CUSTOM CASEWORK 24,110 0.40 Supply and install 3 form feature wall behind the reception desk at the first floor lobby.

6400 CUSTOM CASEWORK 26,800 0.44 Interlam panels at 1st, second, and third floor lobby per notes.

7010 CAULKING 2,500 0.04 Allowance to fire caulk penetrations in rated walls.

7200 INSULATION 12,587 0.21 Supply and install R-11 unfaced batts at new walls.

7500 BUILT UP ROOFING 2,500 0.04 Allowance to patch miscellaneous rooftop penetrations as a result of our work.

445 Leigh Avenue, Los Gatos, CA 95032 + Ph: 408-377-4800 + Fax: 408-377-4804 + Lic #816254

3

B-7.

08 DOORS AND WINDOWS

8100 DOORS, FRAMES & HARDWARE

72,480

1.19

Supply and install (37) 3080 pre-finished maple doors with integral sidelights per layout shown. Supply and install (11) pre-finished maple doors with no sidelights. Door hardware to be Schlage ND-series.

8800 GLASS & GLAZING

64,528

1.06

Supply and install 1/4” clear tempered glass at offices and small conference rooms. Supply and install 3/8” butt glazing in expanded sidelight frames at large conference rooms. New mirrors in gym and new restroom core. New storefront system at second floor lobby balcony.

09 FINISHES

9250 DRYWALL

217,859

3.57

Supply and install walls per layout shown in a level 4 smooth wall finish. Office and conference room walls to be under grid. Includes soffets shown as dotted line on plan. Includes an allowance for an additional 21 ea. 10x14 offices.

9300 CERAMIC TILE

81,439

1.34

New Dal Group 1 or II tile in showers. New Dal Terrazzo tile in lobby and elevator lobbies per plans.

9500 SUSPENDED CEILINGS

201,568

3.30

Supply and install 2’x4’ Armstrong 15/16” Prelude ceiling grid with 2’x4’ Armstrong Dune # 2712 Second Look ceiling tile at office areas. Provide Armstrong Metalworks ceiling in copy areas and elevator lobbies as shown. Install new 2x2 grid in main lobby and hallways shown.

9540 WAINSCOT/WALL SPECIALTY

4,500

0.07

Supply and install standard FRP at the galley and janitors closets.

9650 FLOOR COVERINGS

228,410

3.74

Supply and install carpet as direct glue using a field carpet of Patcraft Razzle 10118 or equal at office areas. Upgraded carpet at the board room. Supply and install Armstrong Standard Excelon VCT at Server, IDF rooms and Labs. Supply and install Armstrong Stone-Tex VCT in the break room. Supply and install Burke 4” rubber base at new walls. Cost includes a Padimat entry at the lobby doors.

9900 PAINTING

31,400

0.51

Paint new walls in (2) coats of latex enamel paint.

9950 WALL COVERINGS

26,800

0.44

Interlam panels at 1st, second, and third floor lobby per notes.

10 SPECIALTIES

10100 CHALKBOARDS, TACKBOARDS

12,000

0.20

Standard 4’x8’ whiteboards at conference rooms and huddle room.

10520 FIRE EXTINGUISHERS

4,500

0.07

Allowance for paintable fire extinguishers and cabinets.

10655 SIGNAGE

3,500

0.06

Allowance for tactile signage per code.

10670 STORAGE SHELVING

1,500

0.02

Shelves at storage areas.

10800 TOILET AND BATH ACCESSORIES

4,580

0.08

Partitions and accessories in showers.

445 Leigh Avenue, Los Gatos, CA 95032 Ph: 408-377-4800 Fax: 408-377-4804 Lic #816254

4

B-8.

11 EQUIPMENT

11130 AUDIO VISUAL EQUIPMENT

21,000

0.34

(8) New ceiling mounted standard projection screens.

11400 FOOD SERVICE EQUIPMENT

8,000

0.13

Supply and install (3) GE ADA compliant dishwashers and refrigerators at coffee stations and break rooms, provide new refrigerators at galley and lunch rooms.

12500 WINDOW TREATMENT

28,000

0.46

New Levolor 1” mini blinds at all perimeter windows.

13 SPECIAL CONSTRUCTION

13950 PRE-ACTION SYSTEM

17,500

0.29

Provide dry pre-action system at server room.

15 MECHANICAL

15300 FIRE PROTECTION SYSTEMS

78,425

1.29

Add and relocate sprinkler heads as required by code. Office area heads to be semi-recessed, heads at the lobby to be recessed. Relocate sprinkler lines at trusses on each floor for HVAC ducting.

15400 PLUMBING

61,880

1.01

Supply and install (5) break room sinks at the break areas. Supply and install new showers and restroom core on second floor. Plumbing to galley as shown. Install condensates to new HVAC units.

15500 HVAC

958,222

15.71

Supply and install 1 hot water fan coil system at first floor, 3 VAV zones (3) 20 ton units with air cooled condensers on roof, (3) 15 ton split systems in server room, (1) new VAV zone and exhaust for gym, coffee bars, and (1) solder exhaust hood, (3) new VAV zones and exhaust at lunch room, (3) conference room zones, and (1) lobby zone. New ductwork on second floor with 22 VAV zones, (2) 5 ton split systems in lab, and (1) 2 ton split system in IDF room, (1) 5 ton split system in IT setup room, 4 hot water coils on 3rd floor with 25 new VAV zones, 2 ton split in IDF, drawings, engineering, and permit.

15950 CONTROLS

110,258

1.81

Supply and install a Johnson Controls Metasys digital controls system for the HVAC system or equal

16 ELECTRICAL

16100 ELECTRICAL

483,800

7.93

Supply and install Avanti indirect T-8 light fixtures at office areas, (2) receptacles per office and conference room, (4) GFI outlets per break area, power for split systems. Supply and install cubicle power at (3) cubes per circuit. Supply and install new panels and transformers as required for new work. Supply and install (60) new 120V-30 amp receptacles at the server room, (134) 120V 20 amp dedicated receptacles at lab, (3) at each IDF room, (47) new ceiling boxes for new cubes, (15) power, date poke throughs, connect new HVAC equipment, includes plans and permit.

445 Leigh Avenue, Los Gatos, CA 95032 + Ph: 408-377-4800 + Fax: 408-377-4804 + Lic #816254

5

B-9.

16700 COMMUNICATIONS

0

0.00

NIC

16760 FIRE ALARM SYSTEMS

68,826

1.13

Full evacuation system along with Preaction panel and tie in to server room.

SUBTOTAL

$3,379,455

55.40

UPS System

105,655

1.73

Furnish and install new 225 KVA APC UPS system with bypass, and in server room.

TOTAL

$3,485,110

57.13

445 Leigh Avenue, Los Gatos, CA 95032 + Ph: 408-377-4800 + Fax: 408-377-4804 + Lic #816254

6

B-10.

Exhibit A

PMC Sierra Scope Proposal

Issued: 6/2/2010

The specifications and scope listed in this document shall be considered a minimal guideline. Should these change after the design is complete it is agreed the equivelant manufactures and products (equivelant shall mean equal in price and quality) will be acceptable.

Description

PMC Specific Requirements

Division 1

1900

Demolition

Division 2

Site Construction

Division 3

Concrete

As required

Division 4

Masonry

Division 5

Metals

As required. Include angle at: A) all stair stringers that are not flush with gypboard wall B) all areas where there is a gap at slab and curtain wall system such that flooring has material to adhere to.

Division 6

Wood and Plastics

6100

Rough Carpentry

Provide required backing for wall hung TV’s at Game Room, and Gym.

Provide backing as required for wall hung plasma screens in board room.

6200

Finish Carpentry

6400

Architectural Woodwork / Millwork All cabinets to be plastic laminate exteriors and melamine interiors. Uppers to have adjustable shelving. The following rooms shall have enclosed uppers and lowers: Coffee Station, Copy / Mail, lunch room, first aid room, Gallery – Gallery also to have a countertop / pass-through with sliding doors. Include an allowance of $20000 for reception desk.

Install wood veneer on boardroom wall.

Division 7

Thermal and Moisture Protection

Provide floor / moisture sealer if required to accommodate vinyl flooring

in 1st floor lab, IT Set Up Room and server room.

7100

Damproofing and Waterproofing

7800

Fire and Smoke Protection

Provide fire life safety system per code.

7900

Joint Sealers

Division

8

Doors and Windows

8100

Metal Doors and Frames

8200

Wood and Plastic Doors Solid core doors with wood veneer faces and transparent finish. Doors For Transparent Finish: Standard White Maple doors with factory finish Provide 9’ wood veneer doors with anodized aluminum frames. Hardware to be Schlage

ND series. Provide electronic latch sets to accommodate card readers where noted on the plan. All conference rooms and offices to have locksets. IDF Rooms to have lockset. Quite room to have an “in use” lockset. Gallery Room to have lockset.

8300

Specially Doors

8400

Entrances and Storefronts

Provide full height storefront glazing at second floor lobby.

8500

Windows

8700

Hardware

See section 8200

Page 1 of 4

B-11.

Exhibit A

8800

Glazing

Glazing at all offices, labs, huddle rooms, conference rooms, and coffee stations, to be butt glazed and have dusted crystal frost film on 1/3 of elevation. Gym to have all glass mirror floor to ceiling on one wall.

8900

Glazed Curtain Wall

Division 9

Finishes

In general the intent is to match the finishes found in Cortina for quality.

9200

Gypsum Board

Gypboard to have a level 4 finish (deleted level 5 as Cortina did not have this). All conference room (deleted office walls) to be 6” through grid (deleted to deck) with insulation. All walls that share electric panels to be 6” studs or as required to accommodate recessed panels. Board room to have 50% gypsum board ceiling. Locker rooms to have gypsum board ceilings. Elevator lobbies to have a barrel gypsum board ceiling. All existing fire taped walls to be finish taped. Contractor to verify that all existing framing is plumb and true. Should framing not be plumb and true, contractor to repair. Insulation to be placed on top of ceiling where wall goes 6” through grid.

9300

Tile

Locker rooms on floor 1 shall have a ceramic tile wainscot throughout. (deleted coffee) Reception area to have terrazzo tile flooring or equivalent. All showers to be ceramic tile showers, no pre-manufactured fiberglass showers.

9400

Terrazzo

9500

Ceilings

Acoustic T-Bar ceiling specification in lobby to be Optima 2 x 2 with 9/16” grid and square tegular tile. Remaining office area shall have Dune 2x4 Second Look Ceiling tiles with 15/16* grid, Labs on floor 1, Server Room on floor 1, lab on floor 2, which shall have 2 x 4 Cortega 2nd Look in 15/16 lay in grid. All elevator lobbies and coffee break areas to have Armstrong Metal works ceilings.

9600

Flooring

Lab on floor 1, server room, lab on floor 2, IT Set Up room on floor 1 shall have VCT flooring with static dissapative wax Gym to have rubber floor tiles designed for commercial weight rooms. Locker rooms on floor 1 shall have ceramic tile flooring. All storage rooms to have VCT, Lunch room to have VCT, copy rooms to have sheet vinyl, coffee stations to have sheetvinyl, IDF rooms to have VCT with static dissapative wax. The following areas to have Building standard carpet which is to be comparable to Patcraft carpet tile: Razzie 10118carpet: Stairs, Conf. Rooms, Offices, Specialty / Quite Room, huddle rooms, game area. First Aid Room to have VCT, CL room to have VCT. Lobby to receive a terrazzo tile. Elevator lobbies to receive terrazzo tile. Board room to have a carpet based upon a $50.00 yd material cost Galley Room to have VCT flooring. All floors to be prepped and leveled. Lunch room to have VCT flooring.

9700

Wall Finishes

9800

Acoustical Treatment

9900

Paints and Coatings

Space to be painted throughout. (1) coat of primer (2) coats of finish paint

Division 10

Specialties

10100

Visual Display Boards

10200

Louvers and Vents

Building standard to match 1376 Bordeaux.

10240

Grilles and Screens

Building standard to match 1376 Bordeaux.

10260

Wall and Corner Guards

Provide stainless steel corner guards on all corners where applicable.

10270

Access Flooring

Page 2 of 4

B-12.

Exhibit A

10400

Identification Devices

10500

Lockers

Provide laminate lockers with the ability to be locked with a padlock in the men’s & women’s locker rooms off of the gym.

10520

Fire Protection Specialties

All fire extinguishers shall be placed in recessed fire extinguisher cabinets clear anodized finish with black vertical lettering and no window.

10600

Partitions

10670

Storage Shelving

6’ high Storage shelving to be placed in the following rooms on two walls: Any storage room.

10800

Toilet, Bath, and Laundry Specialties

10900

Window Coverings

All exterior glazing to have perforated ‘aluminum’ finish 1” level or mini-blinds to match 1376 Bordeaux.

Division 11

Equipment

11130

Audio-Visual Equipment

Provide 8’ electrical projection screen in conference rooms and boardroom.

11460

Appliances

Provide the following appliances: Dishwasher at: lunch room, coffee station floor 2 & 3, Gallery, lunch room. Full size stainless steel refrigerator at coffee station floor 2 and 3, Gallery, (2) at Lunch Room

Division 12

Furnishings

12050

Fabrics

12300

Manufactured Casework

12400

Furnishings and Accessories

12500

Furniture

Division 13

Special Construction

Division 14

Conveying Systems

Division 15

Mechanical

Mechanical Loads shall be as follows: Server Room Equipment Loads Only shall require 30 Tons of 24 / 7 HVAC distributed via a minimum of at leaset two separate units. Lab floor # 2 Provide 11 tons of 24/7 Cooling. Lab Floor #1 Provide 60 tons of 24/7 cooling. IT Set Up Room Floor 1 provide 5 tons of 24 / 7 cooling. Provide exhaust fans in the following rooms: Gym, Galley, Coffee stations, copy mail room, locker rooms floor 1, Office space shall be zoned per industry standards(I changed since I don’t have design criteria referenced) Provide fully engineered drawings and obtain all permits as required. Include (1) 6’long soldering hood. Provide a DDC building control system. Oven Lab shall receive upt to 7.5 tons of dedicted cooling.

Plumbing

Provide complete design build plumbing to include: All permits necessary, garbage disposals with an air switch at each sink, pre-manufactured fiberglass showers will not be acceptable, all showers to be ceramic tile. Provide water and hook up at all: refrigerators, coffee machines (assume two coffee machines at each coffee bar, galley, and lunch room). Don’t have water coolers and CDA isn’t in their labProvide gas & Plumbing as required to all mechanical units.

Fire Protection

Provide a complete code compliant fire protection system to include: Preaction system and server room, provide recessed heads at all gypsum board ceilings. Provide fully engineered drawings and obtain all permits as required.

Page 3 of 4

B-13.

Exhibit A

Division 16

Electrical

Every office shall have two duplex receptacles. A 20 AMP dedicated circuit shall be shared by two offices. Open cubicle areas shall have direct / indirect ceiling lay in light fixtures. Offices shall have 2 x 4 direct / indirect Lithonia lay in to match Cortina. Provide electrical for vending machines at lunch room. Provide power and hook up to cubicles, provide 3 circuits per cluster of 9 cubes. Server Room Power Requirements: Provide electrical distribution of 5.5 KW per rack, assume 30 racks total, power to be distributed overhead, all power to be back up by UPS that shall last 15 minutes- furnish and install of UPS shall be part of scope. Lab Requirements (Lab on Floor 1, Lab on Floor 2, IT Set Up Room on floor 1): Labs shall receive 1 dedicated 20 amp 120V circuit for every 2 benches. There will be a total of 8 ovens in the lab which will require a 112 KVA transformer and a 25 AMP subpanel in total for the ovens. Total of 8 ovens. Each bench shall have two duplex receptacles. Assume 3 benches in IT set Up Room. Quite room to have an “in use” light on the corridor side. Provide all electrical as required for vending ma

Shell Construction

Any existing shell construction to be made code compliant and of good workmanship that would ordinarily be found of the industry.

Architecture & Engineering

Provide complete architecture and engineering to include: All specialty lighting specifications, all color and finish specifications, all evacuation and other code signage, all reimbursable expenses and plan copies needed to construct space to include complete sets to tenant of each revision as needed, completeness to obtain all building permits.

Permits

Include the cost of all building permits as needed.

Signage

Provide all code required signage.

Page 4 of 4

B-14.

DEXHIBIT A-2 TO WORK LETTER

June 16, 2010

Revised June 23, 2010

Revised June 25, 2010 (Revisions in bold italics)

Mr. Keith DeBrine

Managing Partner

Skyline Partners, Inc.

270 Chestnut Street, Suite 201

Redwood City, CA 94063

Phone (650) 367-9657

Fax (650) 367-9657

Email: keith@skylinepartnerscm.com

Arizona

2960 E. Northern Avenue

Building {

Phoenix, AZ 85028

602.953.2355

602.953.2988

California

99 Almaden Boulevard

Suite 840

San Jose, CA 95113

408.496.0676

408.496.1121

FOR

Mr. Rick Czerwinski

Asset Manager

Wrightwood Capital

2 N. La Salle Street, 9th Floor

Chicago, IL 60602

Phone (312)324-5963

Email: rczerwinski@wrightwoodcapital.com

Cc: Jeff.Houston@cbre.com

Re: Contract Architectural Services

PMC-Sierra Build-out

1380 Bordeaux Drive, Sunnyvale

ARC TEC # 092370.06

Dear Keith:

In response to your request, ARC TEC is very enthusiastic about the prospect of working with you, Skyline Partners, Inc. and Wrightwood Capital on this project. ARC TEC is pleased do submit this proposal for professional services.

SCOPE OF PROJECT

PMC-Sierra, the premier internet infrastructure semiconductor solution provider, has entered into an agreement with Wrightwood Capital (the Client) to lease the building

located at 1380 Bordeaux Drive in Sunnyvale. The building is an existing three-story warm shell building. Their requirements will include 10,000 square feet of Light Dry Lab, 51,000 square feet of office space to include offices, conference rooms, open cubicle areas, gym and lunch room. PMC Sierra requires the value of a flexible and timeless design to last a minimum of 10 years. ARC TEC assumes the General Contractor will be negotiated and will be part of the team at the commencement of the project.

This proposal is based upon the space plans prepared by ARC TEC dated June 10, 2010. Any program changes will be reviewed. If changes in the scope of work are significant, this proposal will be revised accordingly.

B-15.

ARC TEC # 092370.06

Mr. Keith DeBrine

June 16, 2010

Revised June 23, 2010

Revised June 25, 2010

Page 2

SCOPE OF SERVICES

ARC TEC understands the goal of Wrightwood Capital is to provide an efficient, design oriented, flexible, innovative and highly interactive tenant improvement. We believe that the only means of achieving this goal is through a highly creative and proven design process that delivers an excellent quality product. ARC TEC’s team assembled for this project possesses a vast wealth of experience on projects delivered under this approach. This experience enables us to provide programming, site planning, design and engineering services for this project. ARC TEC shall provide the following professional Architectural and Engineering services for the Project:

Program Validation

As a process, programming involves the analysis and identification of a problem and its context. This process centers on translating the functional requirements into architectural vocabularies. It involves the investigation of the organizational, social and individual aspects of the organization or projects and considers the physical, psychological, sociological, and cultural attributes of the uses involved. This is achieved by defining project objectives (GOALS), collecting factual data (FACTS), determining spatial and physical requirements (NEEDS), and uncovering functional operational structures (CONCEPTS), to arrive at a final problem definition. Professional services will include:

Review and discuss the current and intended organization of the company process as it affects design. Discuss potential future operational developments that could affect design.

Review and discuss organizational and functional requirements for initial and long-term operational uses.

Review and discuss facility form and image and their impact on the functional requirements.

Review and discuss schedule issues, including projected growth and project phasing.

Review and discuss project budget and its relationship with image, function and schedule.

Obtain interior functional & qualitative requirements & data through interviews with management.

Identify group space, adjacency and interaction requirements.

Compile space demand data, which will include personnel, support, equipment and circulation space, as well as future growth requirements.

Schematic Design

Based on a mutually agreed upon program, schedule, and construction budget requirements, ARC TEC shall prepare for approval by the Client, schematic design documents illustrating the scale and relationship of the Project components. These Professional services will include:

Attend design meetings deemed necessary to complete the project.

Prepare schematic floor plans to indicate new construction, new construction and adjacencies to existing construction, if applicable, and identify fixed equipment and architectural woodwork.

Furniture and moveable equipment layouts (1/8”=1’-0” for all areas: ¼”=1’0” for specialty areas).

Prepare interior and exterior elevations.

Prepare diagrammatic building sections.

Prepare typical wall sections indicating materials, relationships and design intent.

Prepare key architectural details.

Prepare room finishes and material outline.

Perform a building code analysis.

Prepare outline specifications.

Conduct preliminary review meeting with the City of Sunnyvale for compliance with city requirements.

B-16.

ARC TEC # 092370.06

Mr. Keith DeBrine

June 16, 2010

Revised June 23, 2010

Revised June 25, 2010

Page 3

Design Development

Based on the approved Schematic Design Documents and any adjustments in the program, schedule or construction budget authorized by the Client, ARC TEC will prepare, for approval by the Client, Design Development Documents consisting of drawings and other documents to fix and describe the size and character of the Project as to architectural, the acceptance of the interior design, and all other systems and components which are appropriate for the building, structural, mechanical and electrical systems, materials and such other elements as may be appropriate. Professional services will include:

Prepare final floor and reflected ceiling plans in AutoCAD for Client review and approval, to also be serve as CAD base files for design-build mechanical, electrical and plumbing subcontractors to utilize for preparation of MEP construction documents for permit.

Select interior finishes and colors.

Provide preliminary and final finish presentation for Client approval.

Prepare presentation boards with color and finish samples.

Prepare section drawings indicating the type(s) of material(s), construction type, and vertical dimensions.

Provide finish selections, furniture, typical millwork layouts, technical documentation regarding design elements, and details and specifications, which will be reviewed by the Client.

Coordinate corporate workstation design and standards for each functional level.

Develop design scheme with finishes, for the Reception Desk in the Main Lobby. A separate line item is provided in the fee section.

Coordinate finish specifications, and furniture and workstation specifications from selected vendors.

Coordinate MEP Design-Build sub-contractor design.

Assistance in review of colors and design for modular furniture and office furniture systems.

Recommend interior acoustical concepts.

Recommend lighting and ceiling concepts.

At completion of Design Development, Skyline Partners, Inc. will conduct a thorough review of the Design Development documents and create a list of clarifications and questions for ARC TEC and/or PMC Sierra to consider. ARC TEC will incorporate all approved changes into the documents.

B-17.

ARC TEC # 092370.06

Mr. Keith DeBrine

June 16, 2010

Revised June 23, 2010

Revised June 25, 2010

Page 4

Construction Documentation

Based on the approved Design Development Documents and any further adjustments in the scope or quality of the Project or in the construction budget authorized by the Client, ARC TEC shall prepare, for approval by the Client, Construction Documents consisting of Drawings and Specifications setting forth in detail the requirements for the construction of the Project. Professional services will include:

Prepare dimensioned site, floor, and reflected ceiling plans for the defined Scope of Work.

Prepare interior elevations and details.

Prepare door and hardware schedules.

Develop architectural detailing to describe design intent, obtain contractor bids, and construct the improvements.

Prepare architectural specifications.

Prepare finish and material drawing(s) and review documentation of Client’s selected furniture supplier.

Prepare a complete color board for Tenant presentation.

Coordinate the documentation of Mechanical, Plumbing, Electrical and Fire Protection design build contractors relative to Architectural intent and design.

Coordinate audio/visual consultant relative to architectural intent and design.

Provide design criteria which will outline the rooms that will require AV and the specific requirements of each room. Equipment specification is not included.

Participate in a value Engineering studies. Drawing changes are not included.

Follow the City of Sunnyvale Building Department plan check process through to Permit.

Two individual Permit Packages will be submitted; one for the Data Center, and one for the balance of the build-out.

Architectural Drawings to be produced on AutoCADTM 2008.

Bidding and Construction Contract Award

Upon the Client’s approval of the Construction Documents and the recent probable Construction Cost, ARC TEC shall assist the Client in obtaining bids or negotiated proposals and assist in awarding and preparing contracts for construction. Professional Services will include:

Recommend prospective qualified bidders to Client.

Conduct, or assist Client in conducting, the pre-bid conference with qualified bidders.

At Client’s direction, distribute construction documents to qualified bidders (reproduction costs are a reimbursable expense).

Respond to bidder’s questions and requests for clarifications regarding the construction documents.

Issue appropriate addenda to the construction documents to the bidders.

Assist the Client in the evaluation of bids and make recommendations for bid selection.

Conduct, or assist Client in conducting, the pre-construction conference with the successful bidder and subcontractors.

B-18.

ARC TEC # 092370.06

Mr. Keith DeBrine

June 16, 2010

Revised June 23, 2010

Revised June 25, 2010

Page 5

Construction Administration

ARC TEC’s responsibility to provide Basic Services for the construction phase commences with the award of the initial contract for construction and terminates sixty (60) days after the originally scheduled date of Substantial Completion of Work. Professional services will include:

Arrange and conduct the pre-construction conference with the successful bidder and subcontractors.

Attend weekly project meetings for a period of twelve (12) weeks. The General Contractor or Construction Manager will be responsible for writing and distributing minutes for these meetings.

Process relevant documents, including interpretation of construction documents, shop drawings and submittals.

Provide clarification of project documents, including written responses to written requests for information.

Perform site observation visits for a period of twelve (12) weeks. Scheduling of observation visits will be at intervals appropriate to the stage of construction, or as otherwise agreed in writing by the Client and ARC TEC, in order to become generally familiar with the progress and quality of the work completed and to determine, in general, if the work is being performed in a manner indicating that the work, when completed will be in accordance with the construction documents.

On the basis of on-site observation as an architect, ARC TEC shall keep the Client informed of the progress and quality of the work, and shall endeavor to guard the Client against defects and deficiencies in the work. (Additional and more extensive site representation may be authorized as an Additional Service.)

Prepare changes to construction documents and specifications to reflect Client approved change orders. Redesign due to changes and modifications would justify adjustments to our professional service fee, and will be authorized upon acceptance of an Additional Service proposal.

Maintain responsibility for design, documentation, and construction administration for the project.

Provide a document control log.

Provide deficiency “punch list” and track issues through completion.

Other Included Services

Assist the Client by preparing a Certificate of Substantial Completion and in obtaining a Temporary Certificate of Occupancy.

Assist in preparing application in order to obtain the Building Permit.

Prepare Evacuation Maps to be approved by the City of Sunnyvale. A separate line item is provided in the fee section.

Provide one set of Record Documents and Specs in both hard and electronic copies. Record Documents and defined as a reproducible set of drawings that conform to the marked-up prints, drawings and other data furnished to ARC TEC by the General Contractor (shall include all RFI’s, ASI’s, superintendent red lines, and any other changes made during the course of construction). This set of Record Documents will show the reported location of the Work and significant changes made during the construction process. The Record Documents are based on unverified information provided by other parties, which will be assumed reliable. ARC TEC cannot and does not warrant the accuracy of Record Documents. A separate line item is provided in the fee section.

B-19.

Mr.Keith DeBrine

ARC TEC # 092370.06

June 16, 2010

Revised June 23, 2010

Revised June 25, 2010

Page 6

FURNITURE

Develop the criteria to direct the design-build furniture vendors. Criteria will include:

Prepare a block plan showing the entire floor areas to include:

Complete layout and size of all cubes.

Complete layout and size of all hard wall offices.

Complete layout and size of all conference tables.

A layout of the lineal footage of filing needed.

Prepare a generic finish plan or schedule. This shall identify generally the color selections of the finishes. The exact spec will be identified upon completion of the Client’s selected furniture vendor contract documents.

Review computer generated furniture layouts provided by the Client’s selected furniture vendor.

Coordinate of furniture layouts provided by the furniture vendor.

Provide generic specifications. This shall identify general requirements of each cube to include 1) acoustic qualities, 2) electrical requirement (how many outlets, where located, height), 3) depth of pedestals, 4) etc.

Provide a typical layout that lists the specific heights and dimensions of power and data that is coordinated with the furniture.

All items listed above are included in our base bid. The last two bullet items are included as a separate line item in the fee section.

IT ENGINEERING

If independent consultant documentation in lieu of design build sub-contractor documentation is deemed necessary, the following scope of work will be provided by the IT vendor design-build subcontractor.

Attend design meetings deemed necessary to complete the project.

Provide other engineering disciplines with pertinent information to support the telecommunications infrastructure.

Provide diagrams for copper, fiber optic, grounding and pathway risers indicating sizes, quantities and destinations as required. All riser diagrams shall indicate new and existing facilities.

Provide floor plan drawings indicating all voice, data outlet and equipment locations to include numbering sequences and distribution method; i.e., conduit, J-hooks, etc. All pathways shall be dimensioned and coordinated with the other disciplines.

Provide enlarged plans of all telecommunications rooms, server rooms, equipment rooms and engineering labs as applicable. Drawings shall include all new equipment locations, frame locations, power receptacle requirements (circuiting provided by the electrical engineer), cooling requirements, fire suppression systems, racking systems, grounding locations and sizing. All drawings shall provide plan view and sectional views of all walls, racks, and pertinent systems to include all dimensions for all new or relocated equipment.

Provide a full set of detailed drawings indicating mounting and support systems and requirements. Details shall include, but are not limited to the following, rack mounting, seismic support systems, ground bus and hardware installation and termination requirements, cable tray mounting and seismic support) as required. J-hook mounting and requirements, cable termination hardware mounting, cable termination requirements, outlet types and configurations complete fire stop systems details, cable routing practices and

B-20.

Mr. Keith DeBrine

ARC TEC # 092370.06

June 16, 2010

Revised June 23, 2010

Revised June 25, 2010

Page 7

requirements, coordination details for installation of non-telecom contractor installed systems such as plywood backboards, conduits, cable trays, etc., manhole butterfly details, duct bank installation requirements, waterproofing requirements and all other pertinent information required for complete server room and telecommunications infrastructure and support systems.

The specifics shall address the following items:

Telecommunications and IT Rooms System General Conditions

Telecommunications and IT Rooms Outside Plant Support Systems (as required)

Telecommunications and IT Rooms Equipment Racks/Cabinets, Distribution Frames, Shelving, Rails, Fasteners and Cable Management Devices

Telecommunications and IT Rooms Copper Cabling and Termination

Telecommunications and IT Rooms Fiber Optic Cabling and Termination

Fire Stop and Suppression Systems

Telecommunications and IT Rooms Cabling Schedules

Testing and Acceptance Requirements

All of the items listed above shall be fully coordinated with all other applicable disciplines for architectural, electrical, mechanical, structural, and civil requirements throughout the design process. All drawings shall be provided in AutoCAD Release 2007 and PDF format.

Provide all Programming Questionnaires, Calculations, Spreadsheets, and Designs.

Provide Bidding and Negotiation Services to include:

Assist Owner’s representative with selection of qualified Telecommunications Contractors and Vendors.

Provide a Request for Proposal document to qualified Telecommunications Contractors to include detailed drawings, specifications, scope of work and pricing breakdown requirements for the completion of the project.

Conduct bidders’ conference and walk-through of the project site, addressing all bidders questions.

Address all bidder written requests for information.

Review all submitted bids for technical compliance and budgetary quality.

Assist Client personnel in the selection of the most qualified Telecommunications Vendors for the project.

Assist and guide the Client through the process of both designing for and getting any possible rebates from PG&E.

Provide Construction Administration Services to include:

Conduct a telecommunications kick-off meeting with Owner’s representative, the General Contractor, and the Telecommunications Contractor in order to coordinate responsibilities and scheduling. Develop a telecommunications installation schedule in accordance with the results from the kick-off meeting.

Attend weekly progress meetings at the request of the Owner, throughout the construction phase of the project. Conduct site visits and provide field observation reports as necessary for each visit, indicating any discrepancies with the overall telecommunications design and/or failure to comply with specifications and drawings.

Review and comment on all required submittals, shop drawings, cable placement schedules and other documentation from the selected Telecommunications Contractor as required in the Telecommunications Specification.

B-21.

ARC TEC # 092370.06

Mr. Keith DeBrine

June 16, 2010

Revised June 23, 2010

Revised June 25, 2010

Page 8

Review and advise on any and all telecommunications related change orders.

Assist Owner’s representative in resolving any telecommunications related disputes, which may arise and review contractor’s applications for payment at the request of the Owner’s representative.

Review all as-built drawings, test results and cable documentation for compliance with the requirements as stated in the telecommunications specifications prior to acceptance of the specified system. Coordinate the as-builts for issuance to Owner’s representative as indicated in the specification.

ITEMS NOT INCLUDED

The following items are not part of Basic Services, but may be provided as an Additional Service if requested and authorized by the Client:

Acoustical design and vibration analysis Modular furniture design

Audio / Visual design Planning submittal

Cafeteria design Renderings

Cost estimating Security system design

Electrical engineering Signage design

Energy evaluation and conservation studies Title 24 building envelope energy calculations

Exterior work of any kind Telecommunications, telephone, data network design.

Fire protection engineering

Food consultant Value engineering

Furnishings, fixtures and equipment specification Work due to existing conditions uncovered during construction

Lighting design Work due to constructed conditions not in accordance with contract documents

Mechanical and plumbing equipment

CLIENT REQUIREMENTS

The Client will provide ARC TEC access to the site and existing facilities for field and inventory activities.

The Client shall designate a representative authorized to act on the Client’s behalf with respect to the Project. The Client or such designated representative shall render decisions in a timely manner pertaining to documents submitted by ARC TEC in order to avoid unreasonable delay in the orderly and sequential progress of ARC TEC’s services.

The Client shall provide sign-offs in accordance with scope of work and schedule requirements.

The services, information, surveys and reports required by the Project will be furnished at the client’s expense, and ARC TEC shall be entitled to rely upon the accuracy and completeness thereof.

The Client shall provide prompt written notice to ARC TEC if the Client becomes aware of any fault of defect in the Project, including any errors, omissions or inconsistencies in ARC TEC’s Documentation.

The Client will pay for all City and other miscellaneous fees required to complete the project.

B-22.

ARC TEC # 092370.06

Mr. Keith DeBrine

June 16, 2010

Revised June 23, 2010

Revised June 25, 2010

Page 9

ASSUMPTIONS/EXCEPTIONS

We assume there will not be any modifications required to the existing exterior of the building, the existing roof, or the existing roof screening.

We assume there will not be a requirement for any energy evaluations or studies, including Title 24 calculations.

We assume we will not be required to prepare BOMA calculations for the building.

We assume site modifications are not required.

We assume the Client will provide ARC TEC with all programming information, direction and approval in a manner consistent with the agreed upon schedule.

We assume that there will not be any hazardous material review required by the City.

We assume a planning submittal will not be required.

We assume fire protection systems will be a deferred submittal, but information required for permitting by the City will be provided to ARC TEC during the CD phase.

We assume the City Permit Submittal will be acceptable for bidding purposes by the General Contractor.

We assume no civil engineering will be required for this scope of work.

We assume the Client will provide directly, or contracted through the General Contractor, the services of Mechanical, Plumbing, Fire Protection, and Electrical Engineering (including: design, drawings, specifications, and necessary Title 24 calculations).

We assume the Client will contract directly (or contractually through ARC TEC) for any other consultants required by the governing jurisdiction regulating agency to complete the Project.

We assume the Client will provide the necessary and required consultant services. Should ARC TEC be required to secure such services, the expense will be cost +15% markup.

We assume audio/visual and acoustical expertise will be provided by the Client’s in-house staff.

We assume the Client will provide “in-house” design for security systems.

We assume landscape architectural design is not required.

We assume the General Contractor will prepare Record Documents and As-Builts.

We assume the General Contractor will be the engineer-of-record for the fire sprinkler and fire alarm

B-23.

Mr. Keith DeBrine

ARC TEC # 092370.06

June 16, 2010

Revised June 23, 2010

Revised June 25, 2010

Page 10

SCHEDULE

Our proposal is based on the following project schedule. The basis for the project schedule is an initiation date indicated of June 28, 2010. Slippage in the project initiation date may result in an overall schedule slippage.

Program Validation 1 Week

Schematic Design 1 Week

Design Development 3 Weeks

Construction Documents 4 Weeks

Submit Data Center to City of Sunnyvale On or before August 2, 2010

Submit TI plans to City of Sunnyvale On or before September 1, 2010

City plan check comments* To be Determined

Building permit** To be Determined

Construction begins To be Determined

Data Center Move In September 1, 2010

PMC Sierra Moved In December 1, 2010

*Scheduling beyond the control of ARC TEC. ARC TEC will work with City of Sunnyvale Building Department in an effort to expedite the City’s plan check and approval process.

**Should any construction begin prior to obtaining a Building Permit, the Client acknowledges that the Construction is at risk. Redesign and modification to the in-place construction is a possibility.

COMPENSATION

ARC TEC’s approach to the development of professional services fees is one of flexibility and responsiveness to owner requirements. The firm has taken projects on a variety of fee basis methods including: percentage of construction cost; lump sum fixed fee; various forms of cost reimbursable, labor and expenses; and combinations of the above for various phases of projects.

The needs and requirements of each client and project are carefully reviewed by ARC TEC, and a fee structure is established which closely matches project requirements. ARC TEC has developed a consistent track record of satisfactorily arriving at agreements with clients regarding our fees for services, based on the cost effectiveness of services rendered.

B-24.

ARC TEC # 092370.06

Mr. Keith DeBrine

June 16, 2010

Revised June 23, 2010

Revised June 25, 2010

Page 11

ARC TEC will perform the professional services associated with the scope of work defined above for a stipulated sum to be billed monthly on a percent complete basis.

The breakdown for the professional service fee is as follows:

Money Spent to Date Thru 05/31/10 (ARC TEC # 092370.05):

Labor Fee $6,820.00

Reimbursable Expenses $206.01

Total $7,026.01

Architectural (ARC TEC)

Program Validation $4,000.00

Schematic Design $5,000.00

Design Development $16,500.00

Basic Furniture Layouts * Included

Construction Documents $39,000.00

Bid Coordination $2,000.00

Construction Administration $18,000.00

Furniture Architectural Assistance $3,000.00

Custom Reception Desk Design $2,000.00

Evacuation Maps $1,000.00

Record Documents $2,000.00

Drawing Coordination * Included

Specifications * Included

Estimated Reimbursable Expenses $9,500.00

Sub-Total Architectural $102,000.00

IT Engineering (NETCOR)

Programming $1,365.00

Schematic Design $2,270.00

Design Development $9,085.00

Construction Documents $18,170.00

Bid Coordination $2,725.00

Construction Administration $11,810.00

Drawing Coordination * Included

Specifications * Included

Sub-Total IT Engineering $45,425.00

Structural (Allowance) $5,750.00

* Included In Construction Documents Fee

B-25.

Mr. Keith DeBrine

ARC TEC # 092370.06

June 16, 2010

Revised June 23, 2010

Revised June 25, 2010

Page 12

In addition to the above labor fees, reimbursable expenses include all printing for design review, project coordination (other than ARC TEC review) and government agencies review; express courier service; one reproducible set for bidding; and other direct expenses incurred in performing Work on this project will be charged. The fee for these expenses shall be the actual expense +15%.

If ARC TEC is required to perform any services in addition to those described in this Agreement, whether by reason of substantial changes ordered by the Client, or for any reason beyond ARC TEC’s reasonable control, ARC TEC will be entitled to receive payment of such additional services in accordance with rates provided for additional services under the Proposal. ARC TEC will not be obligated to perform these additional services until it receives authorization in writing from the Client.

Keith, please find attached a copy of our terms and conditions and hourly rate schedule. Should you have any questions, or if I can be of further assistance, feel free to contact me at any time.

Upon your review and acceptance, please forward a signed copy of this proposal to my attention at ARC TEC. Thank You.

Sincerely,

ARC TEC, Inc.

[GRAPHIC APPEARS]

Craig Almeleh, NCARB

Principal

Accepted by:

Signature

Date

Title

B-26.

TERMS AND CONDITIONS

Capitalized words are defined in the Definitions section at the end of this Terms and Conditions.

BILLING

Progress invoicing is monthly and payment is expected within 30 days of the date of the invoice. All fees unpaid after 60 days will accrue interest at a rate of 1 1/2% per month.

ADA COMPLIANCE

The Americans with Disabilities Act (ADA) requires the removal of architectural barriers in existing facilities where removal is readily achievable. The Client acknowledges that the definition of “readily achievable” contained in the ADA is flexible and subject to interpretation on a case-by-case basis. The requirements of the ADA will therefore be subject to various and possible contradictory interpretations. ARC TEC will use its reasonable professional efforts and judgment to interpret applicable ADA requirements and to advise the Client as to the modifications to the Client’s facility that may be required to comply with the ADA. ARC TEC cannot and does not warrant or guarantee that the Client’s facility will fully comply with interpretations of ADA requirements by regulatory bodies or court decisions.

INSURANCE

ARC TEC will maintain the following insurance, and upon request by the Client, ARC TEC will provide the Client with Certificates of insurance:

Workers’ Compensation coverage as required by law.

Professional liability insurance including errors and omissions in the amount of $1,000.000. This insurance will remain in effect during the term of this Agreement and for a period of one year after completion of the services performed by ARC TEC.

General Liability and Automobile coverage with personal injury limits of at least $1,000,000.

OWNERSHIP OF DOCUMENTS

The Client acknowledges and agrees that the Documents may be used only for this Project. The parties agree that the Design Team will be the author of the Documents and will retain all common law, statutory and other reserved rights, including copyright. Upon request, the Client will be provided with reproducible copies of the Documents.

The Client will not use or authorize any person to use the Documents for anything other than the Project. The Client will indemnify and hold harmless the Design Team, its officers, directors, employees, agents, contractors, sub-contractors, consultants and sub-consultants against claims, damages, losses and expenses, including but not limited to attorney’s fees, arising out of the unauthorized use of the Documents.

ASSIGNMENT

Neither party to this Agreement will transfer, subject or assign any rights under or interest in this Agreement (including but not limited to monies that are due or monies that may be due) without the prior written consent of the other party.

WAIVERS

No act, failure or delay by any party will constitute a waiver of any its rights and remedies. Each party will retain the right to enforce any provision of this Agreement.

B-27.

TERMS AND CONDITIONS

LIMITATION OF LIABILITY

In recognition of the relative risks and benefits of the Project to both the Client and the Design Team, the total aggregate liability of the Design Team to the Client and to all construction contractors and sub-contractors on the Project for any and all claims, losses, costs, expenses or damages of any nature whatsoever arising out of or in any way connected with the performance of this Agreement or the services provided under this Agreement is hereby limited to $100,000 or the amount paid by the Client under this Agreement, whichever is less. This limitation applies to all liability, including, but not limited to, negligence, professional errors or omissions, strict liability, breach of contract or warranty claims.

The Client will, to the fullest extent permitted by law and subject to the limit set forth in the previous paragraph, indemnify and hold harmless the Design Team and its officers, directors, employees, agents, contractors, sub-contractors, consultants and sub-consultants from all losses, claims, demands, damages, assessments, reasonable attorney’s fees, costs and expenses arising out of or in any way connected with the performance of this Agreement by the Design Team except to the extent such damages, liabilities or costs are caused by the sole negligence or willful misconduct of the Design Team or any of its members.

The Design Team will not be responsible for, have authority over, or be subject to any liability for construction, construction supervision or observation of construction means, methods, techniques, or safety measures.

SEVERABILITY

If any provision of this Agreement is held to be invalid or unenforceable, the remainder of the provisions will remain in full force and effect.

COMPLIANCE WITH LAWS

The Client and ARC TEC shall comply with the provisions of the applicable federal, state, county and local laws, ordinances, regulations and codes.

NOTICES

Any notice, demand or request required or permitted to be given under the provisions of this Agreement must be in writing and will be deemed to have been duly delivered on the date of personal delivery or on the date of mailing if mailed by registered or certified mail, postage prepaid and return receipt requested to the other party at the address set forth in this Agreement, unless either party gives written notice to the other party of a change of address.

FORCE MAJEURE

Neither party will be liable for delays or failure to meet its obligations under this Agreement due to causes beyond the party’s reasonable control, provided the non-performing party promptly notifies the other party of the nonperformance and takes all reasonable steps to recommence performance promptly.

SURVIVAL

Notwithstanding anything else in this Agreement, all rights and obligations of the parties, specifically including but not limited to those set forth in the Section entitled “Ownership of Documents” and any other terms, which by the specific language or by reasonable implication are to continue beyond the term of this Agreement, will survive the expiration or termination of this Agreement.

B-28.

TERMS AND CONDITIONS

APPLICABLE LAW

This Agreement will be governed by and construed in accordance with the laws of the State of California.

HAZARDOUS MATERIALS

It is acknowledged by both parties that the services to be provided by ARC TEC under this Agreement do not include any services related to asbestos or hazardous or toxic materials. In the event ARC TEC or any other party encounters asbestos or hazardous or toxic materials at the Project site, or it becomes known in any way that such materials may be present at the Project site or any adjacent areas that may affect the performance of ARC TEC’s service, ARC TEC may, at its option and without liability for consequential or any other damages, suspend performance of its services on the Project until the Client retains appropriate specialty consultants or contractors to identify, abate and/or remove the asbestos, hazardous or toxic materials, and such specialty consultants or contractors warrant in writing that the Project site is in full compliance with applicable laws and regulations.

WARRANTY OF CONDITIONS

ARC TEC will not be required to execute any document that would result in the certifying, guaranteeing and warranting of concealed conditions whose existence cannot be ascertained by ARC TEC at the Project site.

CHANGES AND ADDITIONAL SERVICES

If ARC TEC is required to perform any services in addition to those described in this Agreement, whether by reason of substantial changes ordered by the Client, or for any reason beyond ARC TEC’s reasonable control, ARC TEC will be entitled to receive payment for such additional services in accordance with rates provided for additional services under the Proposal. ARC TEC will not be obligated to perform these additional services until it receives authorization in writing from the Client.

CALIFORNIA ARCHITECTURAL REGISTRATION

Pursuant to the California Architectural Practice Act, Section 5536.22, any contract for architectural services must contain the name and license number of the architect providing the architectural services. The following architects, who are licensed in good standing in the State of California, may be providing services on the Project, and may seal and sign any required documentation:

Craig J. Almeleh License # C-21289 Expires 10/31/2011

Daniel S. Kirby License # C-19463 Expires 09/30/2011

MEDIATION

All claims, disputes and other matters in question between the parties to this Agreement, arising out of, or relating to, this Agreement or the breach of this Agreement, will be submitted to non-binding mediation under the auspices of a mutually agreed upon mediation service, experienced in the resolution of construction disputes, prior to initiation of any lawsuit or other litigation. The cost of the mediation will be split equally between the parties.

The Client and ARC TEC further agree to include a similar mediation provision in all agreements with independent contractors and consultants retained for the Project and to require all independent contractors and consultants to include a similar mediation provision in all agreements with sub-contractors, sub-consultants, suppliers or fabricators so retained.

B-29.

TERMS AND CONDITIONS

TERMINATION OR SUSPENSION

Either party may terminate this Agreement at any time with or without cause upon giving the other party seven calendar days prior written notice. The Client will within 30 calendar days of termination pay ARC TEC for all services rendered and all costs incurred up to the date of termination, in accordance with the Billing provisions of this Agreement.

If the Client elects to suspend the project for more than thirty (30) consecutive days, ARC TEC shall be compensated for services performed prior to notice of such suspension. When the Project is resumed, ARC TEC shall be compensated for expenses incurred in the interruption and resumption of ARC TEC’s services. The Architect’s fees for the remaining services and the time schedules shall be equitably adjusted.

COMPLETE AGREEMENTS

The Agreement constitutes the entire agreement between the parties pertaining to the subject matter of this Agreement. This Agreement supersedes and cancels all prior oral and written agreements between the parties with respect to this subject matter. This Agreement may not be changed in any way except by an instrument in writing signed by both parties. No representations or statements of any kind made by a representative of either party, which are not stated herein, will be binding on that party. No course of dealing or course of performance will be relevant to explain or supplement any term expressed in this contract.

DEFINITIONS

The following terms are defined below and will have that meaning throughout the Agreement:

“Agreement” will mean the Proposal and this Terms and Conditions.

“ARC TEC” will mean ARC TEC, Inc.

“Client” will mean Wrightwood Capital.

“Design Team” will mean ARC TEC and any contractors, sub-contractors, consultants and sub-consultants used on the Project by ARC TEC.

“Documents” will mean all drawings, specifications and other documents prepared by ARC TEC, either through its own employees or through contractors or consultants, for the Project.

“Project” will mean PMC-Sierra, Inc., 1380 Bordeaux Drive, Sunnyvale.

“Proposal” will mean the attached revised letter June 25, 2010, from ARC TEC to the Client, which describes the specific architectural services for the Project.

WRITTEN CONTRACT

ARC TEC will not perform any services until a signed copy of this Agreement is returned. This offer will remain valid for 30 days from the date first identified in the Proposal.

The Client and ARC TEC acknowledge that they have read this Agreement, understand the terms and agree to be bound by this Agreement.

The Client and ARC TEC acknowledge that they have read this Agreement, including Appendices and Addenda, if any, understand them and agree to be bound by their terms and conditions.

B-30.

HOURLY RATE SCHEDULE

ARCHITECTURAL (ARC TEC)

Principal $145.00 - $165.00/hr.

Project Manager $110.00 - $130.00/hr.

Project Designer $95.00 - $120.00/hr.

Project Captain $80.00 - $110.00/hr.

Technical Support $65.00 - $85.00/hr.

Administrative $65.00/hr.

STRUCTURAL (S.E.I.) Structural Engineers Inc.)

Principal $145.00-165.00/hr.

Associate- Structural Engineer $110.00-145.00/hr.

Project Manager- Civil Engineer $95.00-120.00/hr.

Project Engineer $80.00-105.00/hr.

CAD Operator $75.00-110.00/hr.

Administrative $65.00-90.00/hr.

B-31.

EXHIBIT A-3 TO WORK LETTER

B-32.

FIRST FLOOR PLAN

ELEVATION AT LOBBY FEATURE WALL

PMC-Sierra

1380 Bordeaux Drive, Building A

Sunnyvale, DA

B-33.

FIRST FLOOR PLAN

ELEVATION AT LOBBY FEATURE WALL

PMC-Sierra

B-34.

ARC TEC

SECOND FLOOR

REFLECTED CEILING PLAN

PMC-Sierra

SP-7

B-35.

SECOND FLOOR PLAN

PMC-Sierra

B-36.

THIRD FLOOR REFLECTED CEILING PLAN

PMC-Sierra

B-37.

ARC TEC

THIRD FLOOR PLAN

PMC-Sierra

SP-7

B-38.

B-39.

EXHIBIT C

FORM OF COMMENCEMENT CERTIFICATE

                           , 200    

__________________                             

__________________                             

__________________                             

__________________                             

RE: Office Lease (“Lease”) dated                 , 200     between,                  as

“Tenant”, and, as “Landlord”, for the premises located at                             

Commencement Certificate

Dear                     :

We have deemed the Improvement Work in the Leased Premises “substantially complete” (subject to punchlist items that have been noted by Tenant in writing) as of                 . In accordance with the above Lease, this letter is to confirm the following:

Commencement Date is/occurred on                 .

Expiration Date is                 , 20     unless earlier terminated.

[LANDLORD/PROPERTY MANAGER TO INCLUDE OTHER VARIABLE INFORMATION THAT MUST BE CONFIRMED AFTER THE COMMENCEMENT DATE]

If you concur with the aforementioned, please execute and return one original copy to my attention.

Thank you.	ACCEPTED AND AGREED:
Sincerely,
	By:
	Name:
	Title:
Property Manager

C-1.

EXHIBIT D

FORM OF SNDA

Attached.

RECORDING REQUESTED BY
AND WHEN RECORDED MAIL TO:
Bank of America, N.A. c/o Jeremy Bunnow
Barack, Ferrazzano, Kirschbaum & Nagelberg LLP
200 West Madison Street, Suite 3900
Chicago, Illinois 60606
	Space above for Recorder’s Use

SUBORDINATION, NONDISTURBANCE AND

ATTORNMENT AGREEMENT

This Subordination, Nondisturbance and Attornment Agreement (“Agreement”) is entered into as of                     , 20        , by BANK OF AMERICA, N.A. (“Bank”), and (“Tenant”).

RECITALS

A. WCP BORDEAUX CENTRE LLC, a Delaware limited liability company (“Landlord”), owns the real property located at 1376 Bordeaux Drive, Sunnyvale, California (such real property, including all buildings, improvements, structures and fixtures located thereon, “Landlord’s Premises”), as more particularly described in Schedule A.

B. Landlord has encumbered Landlord’s Premises by entering into that certain Deed of Trust, Assignment of Rents, Security Agreement and Fixture Filing (“Deed of Trust”) dated as of July 29, 2009, and recorded on July 30, 2009, as Instrument No. 20371108 in the Official Records of Santa Clara County, California, encumbering the Property. The Deed of Trust secures certain obligations to Bank as more particularly described therein.

C. Pursuant to a Lease, dated as of                      (the “Lease”); Landlord demised to Tenant a portion of Landlord’s Premises (“Tenant’s Premises”).

D. Tenant and Bank desire to agree upon the relative priorities of their interests in Landlord’s Premises and their rights and obligations if certain events occur.

NOW, THEREFORE, for good and sufficient consideration, Tenant and Bank agree:

1. Definitions.

The following terms shall have the following meanings for purposes of this Agreement.

1.1 Construction-Related Obligation. A “Construction-Related Obligation” means the “Additional Allowance” under Exhibit B to the Lease and any other obligation of Landlord under the Lease to make, pay for, or reimburse Tenant for any alterations, demolition, or other improvements or work at Landlord’s Premises, including Tenant’s Premises. “Construction-Related Obligations” shall not include: (a) reconstruction or repair following fire, casualty or condemnation; or (b) day-to-day maintenance and repairs.

1.2 Foreclosure Event. A “Foreclosure Event” means: (a) foreclosure under the Deed of Trust; (b) any other exercise by Bank of rights and remedies (whether under the Deed of Trust or under applicable law, including bankruptcy law) as holder of the Loan and/or the Deed of Trust, as a result of

D-1.

which Successor Landlord becomes owner of Landlord’s Premises; or (c) delivery by Landlord to Bank (or its designee or nominee) of a deed or other conveyance of Landlord’s interest in Landlord’s Premises in lieu of any of the foregoing.

1.3 Former Landlord. A “Former Landlord” means Landlord and any other party that was landlord under the Lease at any time before the occurrence of any attornment under this Agreement.

1.4 Offset Right. An “Offset Right” means any right or alleged right of Tenant to any offset, defense (other than one arising from actual payment and performance, which payment and performance would bind a Successor Landlord pursuant to this Agreement), claim, counterclaim, reduction, deduction, or abatement against Tenant’s payment of Rent or performance of Tenant’s other obligations under the Lease, arising (whether under the Lease or other applicable law) from Landlord’s breach or default under the Lease.

1.5 Rent. The “Rent” means any fixed rent, base rent or additional rent under the Lease.

1.6 Successor Landlord. A “Successor Landlord” means any party that becomes owner of Landlord’s Premises as the result of a Foreclosure Event.

1.7 Termination Right. A “Termination Right” means any right of Tenant to cancel or terminate the Lease or to claim a partial or total eviction arising (whether under the Lease or under applicable law) from Landlord’s breach or default under the Lease.

2. Subordination.

The Lease shall be, and shall at all times remain, subject and subordinate to the Deed of Trust, the lien imposed by the Deed of Trust, and all advances made under the Deed of Trust.

3. Nondisturbance, Recognition and Attornment.

3.1 No Exercise of Deed of Trust Remedies Against Tenant. So long as the Lease has not been terminated on account of Tenant’s default that has continued beyond applicable cure periods (an “Event of Default”), Bank shall not name or join Tenant as a defendant in any exercise of Bank’s rights and remedies arising upon a default under the Deed of Trust unless applicable law requires Tenant to be made a party thereto as a condition to proceeding against Landlord or prosecuting such rights and remedies. In the latter case, Bank may join Tenant as a defendant in such action only for such purpose and not to terminate the Lease or otherwise adversely affect Tenant’s rights under the Lease or this Agreement in such action.

3.2 Nondisturbance and Attornment. If the Lease has not been terminated on account of an Event of Default by Tenant, then, when Successor Landlord takes title to Landlord’s Premises: (a) Successor Landlord shall not terminate or disturb Tenant’s possession of Tenant’s Premises under the Lease, except in accordance with the terms of the Lease and this Agreement; (b) Successor Landlord shall be bound to Tenant under all the terms and conditions of the Lease (except as provided in this Agreement); (c) Tenant shall recognize and attorn to Successor Landlord as Tenant’s direct landlord under the Lease as affected by this Agreement; and (d) the Lease shall continue in full force and effect as a direct lease, in accordance with its terms (except as provided in this Agreement), between Successor Landlord and Tenant.

3.3 Further Documentation. The provisions of this Article shall be effective and self-operative without any need for Successor Landlord or Tenant to execute any further documents. Tenant and Successor Landlord shall, however, confirm the provisions of this Article in writing upon request by either of them.

D-2.

4. Protection of Successor Landlord.

Notwithstanding anything to the contrary in the Lease or the Deed of Trust, Successor Landlord shall not be liable for or bound by any of the following matters:

4.1 Claims Against Former Landlord. Any Offset Right that Tenant may have against any Former Landlord relating to any event or occurrence before the date of attornment (except for any such Offset Right specifically set forth in the Lease), including any claim for damages of any kind whatsoever as the result of any breach by Former Landlord that occurred before the date of attornment. (The foregoing shall not limit either (a) Tenant’s right to exercise against Successor Landlord any Offset Right specifically set forth in the Lease whether occurring prior to or after the date of attornment; (b) Tenant’s right to exercise against Successor Landlord any Offset Right otherwise available to Tenant because of events occurring after the date of attornment or (c) Successor Landlord’s obligation to correct any conditions that existed as of the date of attornment and violate Successor Landlord’s obligations as landlord under the Lease.)

4.2 Prepayments. Any payment of Rent that Tenant may have made to Former Landlord more than thirty days before the date such Rent was first due and payable under the Lease with respect to any period after the date of attornment other than, and only to the extent that, the Lease expressly required such a prepayment.

4.3 Payment; Security Deposit. Any obligation: (a) to pay Tenant any damages that any Former Landlord owed to Tenant or (b) with respect to any security deposited with Former Landlord, unless such security was actually delivered to Bank. This paragraph is not intended to apply to Landlord’s obligation to make any payment that constitutes a “Construction-Related Obligation” or to provide any rent credit specifically set forth in the Lease.

4.4 Modification, Amendment, or Waiver. Any modification or amendment of the Lease, or any waiver of any terms of the Lease, made without Bank’s written consent.

4.5 Surrender, Etc. Any consensual or negotiated surrender, cancellation, or termination of the Lease, in whole or in part, agreed upon between Landlord and Tenant, unless approved in writing by Bank or unless effected unilaterally by Tenant or Landlord pursuant to the express terms of the Lease.

4.6 Construction Related Obligations. Any Construction Related Obligation of Landlord under the Lease, but subject to any Offset Right specifically set forth in the Lease.

4.7 Default Under Deed of Trust. In the event that Bank notifies Tenant of a default under the Deed of Trust and demands that Tenant pay its rent and all other sums due under the Lease directly to Bank, Tenant shall honor such demand and pay the full amount of its rent and all other sums due under the Lease directly to Bank, without offset, or as otherwise required pursuant to such notice beginning with the payment next due after such notice of default, without inquiry as to whether a default actually exists under the Deed of Trust and notwithstanding any contrary instructions of or demands from Landlord.

5. Exculpation of Successor Landlord.

Notwithstanding anything to the contrary in this Agreement or the Lease, upon any attornment pursuant to this Agreement the Lease shall be deemed to have been automatically amended to provide that Successor Landlord’s obligations and liability under the Lease shall never extend beyond Successor Landlord’s (or its successors’ or assigns’) interest, if any, in Landlord’s Premises from time to time, including insurance and condemnation proceeds, Successor Landlord’s interest in the Lease, and the proceeds from any sale or other disposition of Landlord’s Premises by Successor Landlord (collectively, “Successor Landlord’s Interest”). Tenant shall look exclusively to Successor Landlord’s Interest (or that of

D-3.

its successors and assigns) for payment or discharge of any obligations of Successor Landlord under the Lease as affected by this Agreement. If Tenant obtains any money judgment against Successor Landlord with respect to the Lease or the relationship between Successor Landlord and Tenant, then Tenant shall look solely to Successor Landlord’s Interest (or that of its successors and assigns) to collect such judgment. Tenant shall not collect or attempt to collect any such judgment out of any other assets of Successor Landlord.

6. Bank’s Right to Cure.

6.1 Notice to Bank. Notwithstanding anything to the contrary in the Lease or this Agreement, before exercising any Termination Right, Tenant shall provide Bank with notice of the breach or default by Landlord giving rise to same (the “Default Notice”) and, thereafter, the opportunity to cure such breach or default as provided for below.

6.2 Bank’s Cure Period. After Bank receives a Default Notice, Bank shall have a period of thirty days beyond the time available to Landlord under the Lease in which to cure the breach or default by Landlord. Bank shall have no obligation to cure (and shall have no liability or obligation for not curing) any breach or default by Landlord, except to the extent that Bank agrees or undertakes otherwise in writing.

6.3 Extended Cure Period. In addition, as to any breach or default by Landlord the cure of which requires possession and control of Landlord’s Premises, provided only that Bank undertakes to Tenant by written notice to Tenant within thirty days after receipt of the Default Notice to exercise reasonable efforts to cure or cause to be cured by a receiver such breach or default within the period permitted by this paragraph, Bank’s cure period shall continue for such additional time (the “Extended Cure Period”) as Bank may reasonably require to either (a) obtain possession and control of Landlord’s Premises and thereafter cure the breach or default with reasonable diligence and continuity or (b) obtain the appointment of a receiver and give such receiver a reasonable period of time in which to cure the default.

7. Confirmation of Facts.

Tenant represents to Bank and to any Successor Landlord, in each case as of the date hereof:

7.1 Effectiveness of Lease. The Lease is in full force and effect, has not been modified, and constitutes the entire agreement between Landlord and Tenant relating to Tenant’s Premises. Tenant has no interest in Landlord’s Premises except pursuant to the Lease. No unfulfilled conditions exist to Tenant’s obligations under the Lease.

7.2 Rent. Tenant has not paid any Rent that is first due and payable under the Lease after the date hereof except for the prepaid rent specifically required under Paragraph 3.6 of the Lease.

7.3 No Landlord Default. To Tenant’s knowledge, no breach or default by Landlord exists and no event has occurred that, with the giving of notice, the passage of time or both, would constitute such a breach or default.

7.4 No Tenant Default. Tenant is not in default under the Lease and has not received any uncured notice of any default by Tenant under the Lease.

7.5 No Termination. Tenant has not commenced any action nor sent or received any notice to terminate the Lease. Tenant has no presently exercisable Termination Right(s) or Offset Right(s).

D-4.

7.6 No Transfer. Tenant has not transferred, encumbered, mortgaged, assigned, conveyed or otherwise disposed of the Lease or any interest therein, other than sublease(s) made in compliance with the Lease.

7.7 Due Authorization. Tenant has full authority to enter into this Agreement, which has been duly authorized by all necessary actions.

8. Miscellaneous.

8.1 Notices. All notices or other communications required or permitted under this Agreement shall be in writing and given by certified mail (return receipt requested) or by nationally recognized overnight courier service that regularly maintains records of items delivered. Each party’s address is as set forth in the opening paragraph of this Agreement, subject to change by notice under this paragraph. Notices shall be effective the next business day after being sent by overnight courier service, and five business days after being sent by certified mail (return receipt requested).

8.2 Successors and Assigns. This Agreement shall bind and benefit the parties, their successors and assigns, any Successor Landlord, and its successors and assigns. If Bank assigns the Deed of Trust, then upon delivery to Tenant of written notice thereof accompanied by the assignee’s written assumption of all obligations under this Agreement, all liability of the assignor shall terminate.

8.3 Entire Agreement. This Agreement constitutes the entire agreement between Bank and Tenant regarding the subordination of the Lease to the Deed of Trust and the rights and obligations of Tenant and Bank as to the subject matter of this Agreement.

8.4 Interaction with Lease and with Deed of Trust. If this Agreement conflicts with the Lease, then this Agreement shall govern as between the parties and any Successor Landlord, including upon any attornment pursuant to this Agreement. This Agreement supersedes, and constitutes full compliance with, any provisions in the Lease that provide for subordination of the Lease to, or for delivery of nondisturbance agreements by the holder of, the Deed of Trust. Bank confirms that Bank has consented to Landlord’s entering into the Lease.

8.5 Bank’s Rights and Obligations. Except as expressly provided for in this Agreement, Bank shall have no obligations to Tenant with respect to the Lease. If an attornment occurs pursuant to this Agreement, then all rights and obligations of Bank under this Agreement shall terminate, without thereby affecting in any way the rights and obligations of Successor Landlord provided for in this Agreement.

8.6 Interpretation; Governing Law. The interpretation, validity and enforcement of this Agreement shall be governed by and construed under the internal laws of the State of Missouri, excluding its principles of conflict of laws.

8.7 Amendments. This Agreement may be amended, discharged or terminated, or any of its provisions waived, only by a written instrument executed by the party to be charged.

8.8 Execution. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original and all of which together shall constitute one and the same instrument.

8.9 Bank’s Representation. Bank represents that Bank has full authority to enter into this Agreement, and Bank’s entry into this Agreement has been duly authorized by all necessary actions.

[Signature Pages Follow]

D-5.

IN WITNESS WHEREOF, this Agreement has been duly executed and sealed by Bank and Tenant as of the Effective Date.

BANK
BANK OF AMERICA, N.A., a national banking association
By:
Name:
Title:
	[BANK SEAL]

STATE OF	)
	)	SS
COUNTY OF	)

I,                                                                              , a notary public in and for and residing in said county, in the state aforesaid, do hereby certify that                     , a                                   who is personally known to me to be the same person whose name is subscribed to the foregoing instrument as such                     , appeared before me this day in person and acknowledged that he signed the said instrument as his own free and voluntary act and as the free and voluntary act of                     , for the uses and purposes therein set forth.

GIVEN under my hand and notarial seal this          day of             , 20    .

	Notary Public
My commission expires:

D-6.

TENANT
By:
Name:
Title:
	[CORPORATE SEAL]

STATE OF	)
	)    ss.
COUNTY OF	)

On                                                       before me,                                              , personally appeared                                         , who proved to me on the basis of satisfactory evidence to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument. I certify under PENALTY OF PERJURY under the laws of the State of California that the foregoing paragraph is true and correct.

WITNESS my hand and official seal.

Notary Public                                  (Seal)

D-7.

LANDLORD’S CONSENT

Landlord consents and agrees to the foregoing Agreement, which was entered into at Landlord’s request. The foregoing Agreement shall not alter, waive or diminish any of Landlord’s obligations under the Deed of Trust or the Lease. The above Agreement discharges any obligations of Bank under the Deed of Trust and related loan documents to enter into a nondisturbance agreement with Tenant. Tenant is hereby authorized to pay its rent and all other sums due under the Lease directly to Bank upon receipt of a notice as set forth in Section 4.7 above from Bank and that Tenant is not obligated to inquire as to whether a default actually exists under the Deed of Trust and to the extent Tenant so makes such payments firectly to Bank, Tenant shall be released from any obligation to pay such amounts to Landlord. Landlord is not a party to the above Agreement.

LANDLORD

WCP BORDEAUX CENTRE LLC, a Delaware

limited liability company

By:

Name:

Title:

Dated:                    , 20    

[CORPORATE SEAL]

STATE OF	)
	)	SS
COUNTY OF	)

I,                                                                      , a notary public in and for and residing in said county, in the state aforesaid, do hereby certify that                                     , a                                                                           who is personally known to me to be the same person whose name is subscribed to the foregoing instrument as such                                     , appeared before me this day in person and acknowledged that he signed the said instrument as his own free and voluntary act and as the free and voluntary act of                                     , for the uses and purposes therein set forth.

GIVEN under my hand and notarial seal this          day of             , 20        .

Notary Public

My commission expires:

Attachment:

Schedule A = Description of Landlord’s Premises

D-8.

SCHEDULE A

Description of Landlord’s Premises

D-1.

TABLE OF CONTENTS

		PAGE
ARTICLE 1	REFERENCE PROVISIONS		1
1.1	References		1
ARTICLE 2	LEASED PREMISES, TERM AND POSSESSION		2
2.1	Demise Of Leased Premises		2
2.2	Right To Use Outside Areas		3
2.3	Commencement Date And Lease Term		3
2.4	Delivery Of Possession		3
2.5	Performance Of Improvement Work; Acceptance Of Possession		3
ARTICLE 3	RENT, LATE CHARGES AND SECURITY DEPOSITS		4
3.1	Base Monthly Rent		4
3.2	Additional Rent		4
3.3	Year-End Adjustments		4
3.4	Late Charge, And Interest On Rent In Default		5
3.5	Payment Of Rent		5
3.6	Prepaid Rent; First Partial Month		5
3.7	Security Deposit		5
ARTICLE 4	USE OF LEASED PREMISES AND OUTSIDE AREA		6
4.1	Permitted Use		6
4.2	General Limitations On Use		6
4.3	Noise And Emissions		6
4.4	Trash Disposal		6
4.5	Parking		6
4.6	Signs		6
4.7	Compliance With Laws And Private Restrictions		7
4.8	Compliance With Insurance Requirements		7
4.9	Landlord’s Right To Enter		7
4.10	Use Of Outside Areas		8
4.11	Environmental Protection		8
4.12	Rules And Regulations		9
ARTICLE 5	REPAIRS, MAINTENANCE, SERVICES AND UTILITIES		9
5.1	Repair And Maintenance		9
5.2	Utilities		10
5.3	Security		11
5.4	Energy And Resource Consumption		11
5.5	Limitation Of Landlord’s Liability		11
ARTICLE 6	ALTERATIONS AND IMPROVEMENTS		11
6.1	By Tenant		11
6.2	Ownership Of Improvements		13
6.3	Alterations Required By Law		13
6.4	Liens		13
ARTICLE 7	ASSIGNMENT AND SUBLETTING BY TENANT		13
7.1	By Tenant		13
7.2	Merger, Reorganization or Sale of Assets		14
7.3	Landlord’s Election		14
7.4	Conditions To Landlord’s Consent		15
7.5	Payments		15
7.6	Audit; Good Faith		15

i.

TABLE OF CONTENTS

(CONTINUED)

		PAGE
7.7	Effect Of Landlord’s Consent		15
ARTICLE 8	LIMITATION ON LANDLORD’S LIABILITY AND INDEMNITY		16
8.1	Limitation On Landlord’s Liability And Release		16
8.2	Tenant’s Indemnification Of Landlord		16
8.3	Limitation of Tenant’s Liability And Release		16
ARTICLE 9	INSURANCE		17
9.1	Tenant’s Insurance		17
9.2	Landlord’s Insurance		17
9.3	Mutual Waiver Of Subrogation		18
ARTICLE 10	DAMAGE TO LEASED PREMISES		18
10.1	Landlord’s Duty To Restore		18
10.2	Insurance Proceeds		18
10.3	Landlord’s Right To Terminate		18
10.4	Tenant’s Right To Terminate		19
10.5	Tenant’s Waiver		19
10.6	Abatement Of Rent		19
ARTICLE 11	CONDEMNATION		19
11.1	Tenant’s Right To Terminate		19
11.2	Landlord’s Right To Terminate		19
11.3	Restoration		19
11.4	Temporary Taking		19
11.5	Division Of Condemnation Award		19
11.6	Abatement Of Rent		20
11.7	Taking Defined		20
ARTICLE 12	DEFAULT AND REMEDIES		20
12.1	Events Of Tenant’s Default		20
12.2	Landlord’s Remedies		20
12.3	Landlord’s Default And Tenant’s Remedies		22
12.4	Tenant’s Waiver		22
ARTICLE 13	GENERAL PROVISIONS		22
13.1	Taxes On Tenant’s Property		22
13.2	Holding Over		22
13.3	Surrender Of Possession		22
13.4	Subordination To Mortgages		23
13.5	Tenant’s Attornment Upon Foreclosure		23
13.6	Mortgagee Protection		23
13.7	Estoppel Certificate		24
13.8	Tenant’s Financial Information		24
13.9	Transfer By Landlord		24
13.10	Force Majeure		24
13.11	Notices		24
13.12	Attorneys’ Fees		25
13.13	Definitions		25
13.14	General Waivers		26
13.15	Private Adjudication; Waiver of Jury Trial		27
13.16	Miscellaneous		27
ARTICLE 14	CORPORATE AUTHORITY BROKERS AND ENTIRE AGREEMENT		27

ii.

TABLE OF CONTENTS

(CONTINUED)

		PAGE
14.1	Corporate Authority		27
14.2	Brokerage Commissions		27
14.3	Entire Agreement		28
14.4	Landlord’s Representations		28
ARTICLE 15	OPTIONS TO TERMINATE, EXTEND		28
15.1	Option to Terminate		28
15.2	Renewal Term		28
15.3	Renewal Term Rent		28
15.4	Parties to Confer Regarding Fair Market Rental		29

iii.

An extra section break has been inserted above this paragraph. Do not delete this section break if you plan to add

text after the Table of Contents/Authorities. Deleting this break will cause Table of Contents/Authorities headers

and footers to appear on any pages following the Table of Contents/Authorities.

EX-31.1

Exhibit 31.1

CERTIFICATION

I, Gregory S. Lang, certify that:

1. I have reviewed this quarterly report on Form 10-Q of PMC-Sierra, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 4, 2010	/s/    Gregory S. Lang
	Gregory S. Lang
	President and Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION

I, Michael W. Zellner, certify that:

1. I have reviewed this quarterly report on Form 10-Q of PMC-Sierra, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 4, 2010	/s/    Michael W. Zellner
	Michael W. Zellner
	Vice President,
	Chief Financial Officer and Principal Accounting Officer

EX-32.1

Exhibit 32.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

PURSUANT TO 18 U.S.C. SECTION 1350

AS ADOPTED PURSUANT TO SECTION 906

OF THE SARBANES-OXLEY ACT OF 2002

I, Gregory S. Lang, hereby certify, in accordance with 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, in my capacity as an officer of PMC-Sierra, Inc. (“PMC”), that, to my knowledge, this Quarterly Report of PMC on Form 10-Q for the period ended September 26, 2010, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that the information contained in such report fairly presents, in all material respects, the financial condition and results of operations of PMC.

Date: November 4, 2010	By:	/s/    Gregory S. Lang
		Gregory S. Lang
		President and Chief Executive Officer

EX-32.2

Exhibit 32.2

CERTIFICATION OF 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, Michael W. Zellner hereby certify, in accordance with 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, in my capacity as an officer of PMC-Sierra, Inc. (“PMC”), that, to my knowledge, this Quarterly Report of PMC on Form 10-Q for the period ended September 26, 2010, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that the information contained in such report fairly presents, in all material respects, the financial condition and results of operations of PMC.

Date: November 4, 2010	By:	/s/    Michael W. Zellner
		Michael W. Zellner
		Vice President,
		Chief Financial Officer and Principal Accounting Officer