Document:

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                                                                   EXHIBIT 10.11

                  LEASE AGREEMENT PERTAINING TO OFFICE PREMISES

and other industrial Units not in accordance with Article 7A: 1624 of the Dutch
Civil Code

      The undersigned Multimodaal Transportcentrum Amsterdam Westpoint v.o.f.,
established at Cacaoweg 20, in Amsterdam (1047 BM) in the Netherlands,
hereinafter to be referred to as "Lessor," duly represented in this matter by Mr
A.C. Ramselaar by power of attorney, and Starbucks Manufacturing EMEA B.V., a
Dutch corporation, duly represented in this matter by Mr W.J. O'Shea,
hereinafter to be referred to as "Lessee" hereby agree as follows:

                   The Leased Premises, Designated Use and Use

      1.1 This Lease Agreement pertains to warehouses (together approximately
6415 m(2)), office space on the ground floor level consisting of approximately
1160 m2 ("Ground Floor Office Space"), office space on the first floor level
consisting of approximately 1160 m2 ("First Floor Office Space") (the Ground
Floor Office Space and the First Floor Office Space are collectively referred to
herein as the "Office Space") and a designated parking area, to be constructed
by Lessor as outlined and specified in Section 5 herein, situated at Westpoint
II, referred to in the land register as: Municipality of Haarlemmerliede en
Spaarnwoude, Section L, number 3114 (partial) and fully known to both parties,
hereinafter to be referred to as the "Leased Premises," and as shown on EXHIBIT
A attached hereto and made a part hereof, as specified on the preliminary plans
attached as EXHIBIT B and the technical description attached as EXHIBIT C (as
used herein the term Leased Premises also refers to the "leased premises" as
expanded from time to time pursuant to the terms hereof).

      1.2 Lessee shall have the right to occupy and/or use the Leased Premises
for any lawful purpose or purposes, subject to the restrictions contained in
Lessee's environmental permit and in the ground lease, including without
limitation as a business accommodation for uses such as production,
manufacturing, distribution and warehousing, including without limitation coffee
roasting, distributing, manufacturing and storage, with ancillary offices.

      1.3 The maximum load to which the floors of the industrial Units within
the Leased Premises may be subjected is 2.500 kg/m2. However, a part of the
floors of the industrial Units within the Leased Premises is reinforced and may
be subjected to 4000 kg/m(2), this part is specified in EXHIBIT D, attached
hereto and made a part hereof. The maximum load to which the floors of the
offices within the Leased Premises may be subjected is 500 kg/m2. The floors may
not be subjected to any load that exceeds the maximum permissible load.

      1.4 As of the date of the signing of the present Lease Agreement, Lessor
and the Municipality of Amsterdam, the bare owner (the "Owner"), shall have
entered into a ground lease in (the "Ground Lease") more particularly described
in EXHIBIT E attached hereto and made a part hereof. Pursuant to the letter from
the Owner to Lessee, dated 31 October 2001, attached as EXHIBIT F, the Owner has
consented to this lease, the Owner has consented to Lessee becoming a ground
lessee of the Leased Premises if Lessee exercises its option to purchase the
Leased Premises with Lessee in such event, and the Owner has consented that in
that event a direct ground lease relationship between the owner and Lessee in
respect of the Leased Premises will arise. Lessor hereby agrees that it will at
all times comply with all of the covenants, terms, conditions and obligations of
the Ground Lease, that it will keep the Ground Lease in full force and effect
and that

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this lease and all of Lessee's rights hereunder are not and will not be subject,
in a manner disadvantageous to Lessee, to any liens.

General Terms and Conditions

2.1 The General Terms and Conditions applicable to lease agreements pertaining
to the lease of office space and other industrial Units not in accordance with
Article 7A: 1624 of the Dutch Civil Code, as filed at the Office of the District
Court in `s-Gravenhage on 29 February 1996, registered under number 34/1996
(hereinafter referred to as "the General Terms and Conditions") are considered
to constitute an integral part of this Lease Agreement. The content of the said
General Terms and Conditions is known to the parties hereto and Lessee has
received a copy of said General Terms and Conditions.

2.2 The General Terms and Conditions referred to in the previous clause apply to
the extent that the provisions set out in this Lease Agreement do not expressly
stipulate otherwise, unless the application of the said General Terms and
Conditions is not possible in the case of the Leased Premises.

Duration, Renewal and Termination of the Lease Agreement

3.1 This Lease Agreement is entered into for a period of ten (10) years and the
number of days between the date of Substantial Completion of the Leased Premises
and the Commencement Date, commencing on the date on which the Leased Premises
are Substantially Completed (as such term is defined in Section 5 below). For
practical purposes, the Commencement Date of the Lease Agreement will be deemed
to coincide with the first day of the month following the month in which the
Leased Premises are Substantially Completed.

3.2 Following the expiry of the term of the lease referred to in the previous
clause, this Lease Agreement is to be extended for an additional period of five
(5) years, unless this Lease Agreement has been terminated by Lessee in
accordance with the stipulation set out in clause 3.3 hereof. Upon the expiry of
the first option period as referred to above, the Lease Agreement will be
renewed 3 more times, each time by 5 years, unless Lessee terminates the present
Lease Agreement by the end of a current lease period in accordance with the
stipulation set out in Section 3.3 and Section 3.4. Lessor may thus not
terminate until by the end of the thirtieth year of the lease, also with due
observance of a term of at least 9 calendar months.

3.3 Termination of this Lease Agreement is to be by means of notice of
termination issued towards the end of a term of the lease with due observance of
a period of notice of at least nine (9) calendar months. Lessor will serve a
reminder notice in writing to Lessee at least twelve (12) calendar months before
the end of a term of this lease, in order to signal to Lessee that a notice of
termination might be issued by Lessee.

3.4 Notice of termination is to be served in the form of a writ or to be sent by
registered letter.

3.5 Premature termination of this lease is possible in the event that one of the
circumstances listed in Article 7 of the General Terms and Conditions arises.

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3.6 This Lease Agreement may also end automatically in accordance with the
provisions set forth in Section 5 hereof.

Payment Obligation, Term of Payment

4.1 The payment obligation (the "Rent") incumbent upon Lessee under the terms of
this Lease Agreement comprises:

                        the Base Rent (as such term is defined herein)

                        the Additional Rent (as such term is defined herein)

                        the fee for any additional amenities and services
                        described in Section 7 plus any value added tax that may
                        apply

                        the value added tax that applies to the Base Rent and
                        Additional Rent or an equivalent sum in the cases
                        referred to in Section 13.2 of this Lease Agreement.

4.2 At the outset of the Lease Agreement, Lessee shall pay the sum of one
hundred and thirteen euros and forty-four eurocents (113.44) (two hundred and
fifty (250) guilders)/m(2) on an annual basis for that portion of the Office
Space which is more particularly shown on the drawing attached hereto as EXHIBIT
B and as indicatively technically described in the document attached hereto as
EXHIBIT C (the "Finished Office Space"), fifty-five euros and thirty-six
eurocents (55.36) (one hundred twenty-two (122) guilders)/m(2) for warehouse
space, and forty-five euros and thirty-seven eurocents (45.37) (one hundred
(100) guilders)/m(2) for the remaining portion of the Office Space that may be
completed in the future in accordance with Section 5.14 (the "Unfinished Office
Space") (collectively, the "Base Rent"). The Base Rent for the Unfinished Office
Space shall increase to one hundred and thirteen euros and forty-four eurocents
(113.44) (two hundred fifty (250) guilders)/m(2) per annum upon the completion
in accordance with Section 5.14. In the event that Lessee desires to lease
additional exclusive parking spaces (in addition to those provided under Section
13.7 below), Lessee shall provide written notice to Lessor. Such notice shall
include the number of additional exclusive parking spaces requested by Lessee.
Provided such additional exclusive parking spaces are available, Lessor shall
lease such additional exclusive parking spaces to Lessee. Lessee and Lessor
shall reasonably agree on the location of all such additional exclusive parking
spaces. Lessee shall pay the sum of thirteen euros and sixty-one eurocents
(13.61) (thirty (30) guilders)/m(2) on an annual basis per additional exclusive
parking space leased to Lessee.

4.3 The Base Rent is established and indexed on the basis of the price index
that applies as per 1 September 2002. The Base Rent shall be revised for the
first time on the first (1st) anniversary of the Commencement Date, and every
year thereafter on an annual basis in accordance with Article 4 of the General
Terms and Conditions. The above also applies to the rent for the additional
exclusive parking space(s) referred to in the last sentence of Section 4.2.

4.4.1 For the Additional Improvements referred to in Section 5, Lessee shall pay
an amount equal to: (a) the annual amortization of the Additional Improvements
increased by (b) interest on the amount of the prime costs of the Additional
Improvements, which interest rate shall be equal to the effective interest rate
of the financing arrangement that Lessor will conclude hereto, after approval by
Lessee, to finance the Additional Improvements and commence as of the date which
is the latter

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of: (i) the date of the investments concerned or (ii) the date on which Lessee's
obligation to begin paying Rent hereunder commences pursuant to Section 4.5
below, and also to be increased by (c) an additional two percent (2%) to cover
the development fee and risks for Westpoint (the "Additional Rent"). Upon the
full amortization of the Additional Improvements, Lessee shall no longer be
liable for the payment of Additional Rent. The amortization term for the
Additional Improvements shall be calculated as follows: (i) the Additional
Improvements related to the base building shall have an amortization term based
on the economic lifecycle of the Additional Improvements concerned and
determined in accordance with generally accepted accounting principles
consistently applied, but in no event will such term be less than ten (10)
years, and (ii) all other Additional Improvements shall have an amortization
term of 10 years. Lessor shall include the costs of the 13.1 meter clear height,
increased floor loading, and increased pile lengths (if necessary) in the Base
Rent as stated above and those improvements are therefore not characterised as
Additional Improvements. If Lessee terminates the Lease Agreement before expiry
of the amortization term of the Additional Improvements, Lessee shall within 3
months of the end of the lease compensate Lessor for the portion of the cost
price of the Additional Improvements concerned that was not amortized, increased
by any costs involved in the early repayment of the financing arrangement
concluded by Lessor for the purpose of those Additional Improvements, all this
in so far as not pertaining to Additional Improvements that are taken over by
subsequent lessees within two (2) years of the end date of the present Lease
Agreement. Lessor will inform Lessee in writing of subsequent leases until two
(2) years after the end date of the present Lease Agreement.

4.4.2 Lessee and Lessor have agreed a separate arrangement with regard to the
installation of a sprinkler system, based on a proposal by Lessor to Lessee,
dated 22 October 2001, and attached to the present agreement as EXHIBIT G, in
the manner set out in this Section 4.4.2. The sprinkler system to be installed
within the framework of the present agreement is capable of providing the entire
Westpoint II building, as currently envisaged by Lessor, the said building
consisting of 6 phases, with sprinkler facilities. The costs involved in the
installation of the sprinkler system can therefore be divided into the costs
involved in installation of the central sprinkler system, the so-called
"capacity costs", and the costs involved in the installation of the sprinkler
facilities per phase that are to be connected to the central sprinkler
installation, the so-called "direct costs", all this as explained in EXHIBIT G.
The direct costs for the sprinkler facilities of a certain phase will be
entirely for Lessee's account - in the manner to be set out below - if Lessee
leases the phase concerned and as soon as the sprinkler facilities concerned
have been realised (in the first instance, the Leased Premises will comprise
only phase 1). At Lessee's discretion, Lessee may either pay the direct costs by
characterising the sprinkler facilities related to the direct costs as
Additional Improvements, resulting in an Additional Rent to be calculated in
accordance with Section 4.4.1, or by paying the direct costs concerned directly
to the relevant contractor. Each of the parties shall pay one half of the
capacity costs. Lessee shall pay its portion of the capacity costs via the
Additional Rent with due observance of Section 4.4.1. As no more than
approximately 24.5% of the capacity costs pertains to phase 1, assuming the
final realisation and lease of all phases, the payment by Lessee of the
Additional Rent in respect of the remaining 25.5% of the capacity costs will be
decreased if and as soon as Lessor leases phases 2 and/or 3 to a third party, in
proportion to the floor area included in such lease. The direct costs and the
capacity costs shall have an amortization term of 20 years. Upon termination of
the Lease Agreement, Lessee will not be obliged to remove the sprinkler system
and the sprinkler provisions as referred to in EXHIBIT G.

4.5 Lessee's liability for Base and Additional Rent increased by the turnover
tax due thereon shall commence one month after the date on which the Leased
Premises were Substantially

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Completed as referred to in Section 5. As from the date on which the Leased
Premises are Substantially Completed, as referred to in Section 5, Lessee shall
also pay the advance referred to in Section 4.6 and the turnover tax due
thereon.

4.6 Payment of the fee for the ancillary amenities and services referred to in
Section 7 is to be provided for by means of a system of advance payment with
final settlement at a later date, as described in Article 12 of the General
Terms and Conditions. At the outset of this Lease Agreement, the advance for
amenities and services amounts to nine euros and eight eurocents (9.08) (twenty
(20) guilders)/m2 for Finished Office Space (provided that such amount shall not
be applicable to the Unfinished Office Space until such time that the Unfinished
Office Space rent increase commences), one euro and thirty-six eurocents (1.36)
(three (3) guilders)/m2 for warehouse space, and twenty-three eurocents (0.23)
(fifty cents (0.5) guilders)/m2 for the exclusive parking space(s) for Lessee,
all on an annual basis.

4.7 The Base Rent, the Additional Rent, the advance payment relating to the fee
for the additional amenities and services and the value added tax, or the
equivalent sum as stipulated in Section 13.2, of this Lease Agreement are to be
paid in advance as a lump sum in the amount of two monthly instalments. Payment
is to be made by means of transfer to the bank account yet to be stipulated by
Lessor on or before the first day of the relevant calendar month.

                                 "Build to Suit"

5.1 Lessor shall construct, for its own account and risk, the spaces referred to
in Section 4.2, which shall include access roads, driveways and the parking area
in accordance with the Plans attached hereto as EXHIBITS A, B AND C (the
"Preliminary Plans") and as possibly adjusted on account of any law, ordinance,
rule or regulation (hereinafter: the "Basic Facilities"). Initially, Lessor
shall construct the Office Space pursuant to the standards set forth in EXHIBITS
B AND C (excluding, however, the Unfinished Office Space, which shall be
completed in accordance with the provisions of Section 5.14 below).

During the term of the present agreement, Lessee may request that Lessor
realises or has realised Additional Improvements with regard to the Leased
Premises (hereinafter and above referred to as Additional Improvements). To the
extent that the request must be deemed reasonably acceptable to Lessor, the
parties will in mutual consultation attempt to reach an agreement on all aspects
of the Additional Improvements concerned, with due observance of Section 4.4.1.

Lessor shall be responsible for paying the costs of the design and construction,
provided that if as a result of the environmental permit obtained by Lessee
additional improvements need to be constructed, such improvements shall be
included in the Additional Improvements.

A final set of Construction Plans (the "Final Plans") is to be approved by both
Lessor and Lessee in writing prior to commencement of construction, provided
that such Final Plans shall be consistent with the Preliminary Plans and that
which was agreed at the site meetings.

Lessor shall be responsible for procuring all necessary licenses and permits for
the construction of the Basic Facilities and will use best endeavours to procure
all necessary licenses and permits for the construction of the Additional
Improvements (the "Permits"), with the exception that Lessee shall

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be responsible for obtaining the environmental permit necessary for its
operation of a coffee roasting plant, warehouse and distribution centre. All
costs related to the environmental permit are for Lessee's account. Procuring
the Permits will have to be done in close consultation between Lessee and Lessor
and Lessee will have to assist Lessor in procuring the permits as much as
possible.

5.2 Lessor shall have the right to select and approve the contractor who will
carry out the construction work referred to in Section 5.1, which contractor
will be Hercuton B.V. and/or Ooms Bouwmaatschappij B.V. Lessor shall be
exclusively responsible vis-a-vis Lessee for constructing the Additional
Improvements. In connection with the construction of the Additional
Improvements, Lessee shall have the right to require Lessor to acquire bids from
at least two (2) contractors that are reasonably acceptable to Lessee, which
bids shall be itemised in detail reasonably satisfactory to Lessee, and Lessee
shall be furnished copies of all bids received by Lessor. Lessee shall have the
right to select the contractor(s) who will construct the Additional
Improvements, notwithstanding the fact that the contractor to be selected has to
be reasonably acceptable for Lessor. However, Lessee assumes no obligations with
respect to the manner or quality of this construction.

5.3 Lessor shall (i) commence construction of the Basic Facilities and
realisation of the Additional Improvements agreed prior to the start of the
construction as soon as reasonably possible after obtaining all Permits (ii)
diligently proceed with the construction of the Basic Facilities and those
Additional Improvements, and (iii) achieve Substantial Completion (as such term
is defined below) of the same as soon as reasonably possible but in any event
within seven (7) months after obtaining the Permits referred to in Section 5.1,
including the environmental permit. Substantial Completion of the construction
of the Basic Facilities and the realisation of the Additional Improvements
agreed prior to the start of the construction shall be determined to be the
point at which (a) Lessor and its Architect deliver to Lessee a notice of
Substantial Completion, (b) Lessor delivers possession of the Leased Premises to
Lessee and (c) the construction of the Basic Facilities and the realisation of
the Additional Improvements that were agreed prior to the start of the
construction are Substantially Completed in accordance with the Final Plans
referred to in Section 5.1, subject only to minor items that will not and do not
materially interfere with Lessee's occupancy of the Leased Premises
(hereinafter: "Substantial Completion" or "Substantially Completed").

5.4 Lessor has indicated to Lessee that some lead time will be involved in the
acquisition of piles and piling equipment. The lead times and dates for ordering
such materials are described in EXHIBIT H attached hereto and made a part
hereof. No later than two weeks before issuance of the building permit, Lessee
shall notify Lessor if Lessor should order such materials or not order such
materials. If Lessee instructs Lessor to order such materials, then said seven
(7) month period described above shall not be changed and Lessee shall be
obligated to (i) pay the costs which Lessor incurs in that regard and shown in
EXHIBIT H or (ii) compensate the actual damages incurred by Lessor with respect
to the cancellation of the order for such materials, in so far as that damage is
lower than the aforementioned costs, if Lessee terminates the present agreement
pursuant to Section 5.12 and Lessor consequently cancels the order. If Lessee
fails to instruct Lessor to order such materials, the said seven (7) month
period shall be extended by one day for each day of delay in ordering such
materials beyond the specified date therefore shown in EXHIBIT H, Lessor shall
then order such materials immediately upon receipt of Lessee's notice to order
such materials.

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5.5 Lessor shall advise Lessee no less frequently than monthly regarding the
status of the construction of the Basic Facilities and the Additional
Improvements. In addition, Lessor shall provide Lessee with at least ten (10)
days notice of the anticipated Substantial Completion date of the Basic
Facilities and the Additional Improvements agreed prior to the start of the
construction. Lessee shall have the right to have Lessee's Representative (as
such term is defined below) attend all job meetings with the contractor(s) and
the Architect, and Lessor shall keep Lessee advised as to the scheduling of all
such meetings.

5.6 Lessee shall, at all times, have the right to inspect the progress of the
construction work. Lessee shall give Lessor written notice of any incomplete
work, unsatisfactory conditions or defects (the "Punch List Items") within
thirty (30) days after the discovery of the same, and Lessor shall, in so far as
obligated thereto, comply with Lessee's requirements in that regard as soon as
possible. In addition, Lessee shall give Lessor written notice of any latent
defects discovered by Lessee after the Commencement Date promptly after the
discovery thereof and Lessor shall, in so far as obligated thereto, cause such
latent defects to be corrected as soon as reasonably possible and entirely for
its own account.

5.7 If Lessee requires any change, addition or alteration (collectively, a
"Change") in the (preliminary and/or final) Plans, Lessee shall notify Lessor of
such Change in writing ("Lessee's Change Notice"), providing detailed plans
and/or drawings showing such Change. Lessor shall not unreasonably withhold its
consent to any such Change in the Plans and Lessor shall inform Lessee of its
initial response within (5) business days In principle, Change Notices as
referred to above shall be given to Lessor at weekly site meetings only; in the
event of urgency, Change Notices may be sent to Lessor by registered letter,
signed return receipt requested. At the subsequent site meeting, Lessee will be
informed of the additional or lower costs involved in the Change or the (change
of the) Additional Rent proposed in relation thereto as well as the additional
construction time reasonable required for the Change concerned, after which
Lessee shall inform Lessor of its decision in that regard without delay. Lessee
may either pay the agreed price for the additional work directly to Lessor, or,
if applicable, to the contractor concerned, or have the agreed additional work
included in the Additional Rent in accordance with Section 4.4.1.

5.8 In the event that the construction of Basic Facilities and the realisation
of the Additional Improvements agreed prior to the start of the construction has
not reached Substantial Completion within seven (7) months of obtaining all of
the Permits required hereunder, including the environmental permit, Lessee will
forfeit a penalty equal to one (1) time the daily amount of Base Rent and
Additional Rent due for each day the Substantial Completion is delayed beyond
such time for the first forty-five (45) days of such delay and two (2) times the
daily amount of Base Rent and Additional Rent due for each day the Substantial
Completion is delayed for any days of delay beyond such forty-five (45) day
period. Within 3 business days after establishing an exceeding of the term for
Substantial Completion of the Leased Premises Lessor will inform Lessee in
writing, well documented, what the causes of the delay have been and within what
term and in which manner the Leased Premises may reasonably be expected still to
be Substantially Completed. If the aforesaid term is exceeded by 90 days or
less, Lessor will not be liable for any damage incurred and costs made by Lessee
as a result thereof. In case of an exceeding of the aforesaid term of
Substantial Completion that amount to an exceeding of more than 90 days Lessee
will be able to use, for the benefit of her interests, all claim and remedy
possibilities mentioned in the Dutch Civil Code in relation to an attributable
default or a default, notwithstanding naturally the requirements that the Civil
Code formulates for use of those possibilities and without prejudice to the
defences accruing to

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Lessor under the Dutch Civil Code. In case of an exceeding of the term for
substantial Completion Lessor will use best endeavours to still Substantially
Complete (or cause Substantial Completion of) the Leased Premises as soon as
possible.

5.9 Prior to the Completion, Lessee, its agents, contractors or employees shall
have the right to enter the construction site for the purpose of installing
Lessee's cabling, telecommunications and computer equipment, office furniture,
roasting and packaging equipment, racking and other furniture, fixtures and
equipment necessary for Lessee's use of the Leased Premises, provided that
Lessee shall consult with Lessor about such entry of the construction site and
Lessor's construction work is not materially interfered with.

5.10 The building shall be connected to a public sanitary sewer, potable water
supply, storm sewer, electricity and gas (the "Utilities"), which must be
adequate to serve the needs of Lessee in operation of the business which Lessee
intends to operate upon the Leased Premises, as those needs are described in
EXHIBIT C.

5.11 Lessor shall comply with all national, state, county, and city laws and
ordinances presently affecting or respecting the Leased Premises in the
construction of the Basic Facilities and the Additional Improvements.

5.12 Lessor has supplied the plans, documents and specifications required for
the building permit meanwhile applied for by Lessor. Lessee has supplied the
documents required for the environmental permit meanwhile applied for by Lessee.
Lessee may, but shall not be obligated to, terminate this lease if the building
permit and/or the environmental permit is denied, or is not finally and
irrevocably issued by April 15, 2002. Lessee shall not, however, terminate this
lease prior to June 1, 2002, if these permits can be reasonably expected to be
finally and irrevocably issued on or before this date. If the building permit
and/or environmental permit is not finally and irrevocably issued by June 1,
2002, then Lessee may terminate this Lease. In the event that a governmental
agency that is to grant the said Permits requires a modification in the Plans
that is reasonably unacceptable to Lessee and/or Lessor, the said permits will
be deemed not to have been granted, and Lessee or Lessor may terminate this
lease with immediate effect. In the event that this lease is terminated pursuant
to this Section 5.12, the parties hereto shall have no further rights or
obligations hereunder, unless such delay is a result of any breach of any
provision of this lease by Lessor or Lessee and without prejudice to the
obligation to compensate costs or damage as referred to in Section 5.4.

5.13 Lessor has good title of ground lease to the Leased Premises free and clear
of all liens per the date of signing this agreement, and per the date of signing
this agreement free from special charges and restrictions in the sense of
Article 7:15 of the Dutch Civil Code, other than described in EXHIBIT E and
other than knowledgeable from the public registers of the land register. For the
avoidance of doubt: after the date of signing this agreement Lessor is entirely
free to create security rights in respect of the Leased Premises, which will be
subordinated to this Lease Agreement and will not (cannot) infringe on the
continuity of this Lease Agreement.

5.14 At any time during the term hereof, Lessee may give Lessor written notice
that Lessor should undertake completion of the unfinished Office Space. Upon
receipt of such written notice, Lessor shall, at Lessor's sole cost and expense,
undertake the said completion and shall complete the work within one hundred and
twenty (120) days after Lessor's receipt of Lessee's notice, on the basis of a
completion level and a division of work or costs involved between Lessee and
Lessor as

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set out in and arising from the documents attached hereto as EXHIBIT B and
EXHIBIT C. The realisation and substantial completion and the Commencement Date
of the office space referred to above are otherwise subject to the provisions of
Section 5 above, in so far as relevant to that completion .

Turnover Tax

6.1 All amounts mentioned in this lease are exclusive of turnover tax. Lessee is
required to pay turnover tax on the Base Rent and the Additional Rent and the
fee for additional supplies and services. Turnover tax will be charged by Lessor
and is required to be paid together with the rent and the fee for additional
supplies and services, or the advance payment for these.

6.2 Referring to the Decision of 10 April 1996, no. VB 96/354, amended by the
Decision of 24 March 1999, no. VB 99/571, parties agree that Lessor will charge
Lessee turnover tax on the rent as from the commencement of the lease. Referring
to above-mentioned Decision, Lessor and lessee waive the submission of a joint
request opting for taxed rent as referred to in Article 11, paragraph 1,
subparagraph b, under 5, of the Turnover Tax Act 1968.

6.3 The stipulations in Article 15.1, 15.2 and 15.3 of the general conditions do
not apply to this lease.

6.4 Lessee hereby declares that its financial year commences on 1 October and
ends on 30 September.

6.5 Lessor explicitly states that it will include this lease in its
administration in accordance with the provisions of Section 34a of the Turnover
Tax Act 1968.

Amenities and Services

7.1 The Parties agree that Lessor provides the additional amenities and services
set out in EXHIBIT I to Lessee.

Guarantee by the Group of Companies

8.1 Lessee is not obliged to furnish any bank guarantee because Starbucks
Corporation provides surety vis-a-vis Lessor for the obligations of Lessee under
this agreement in accordance with EXHIBIT J.

Administrator and representation during the construction

9.1 Lessor is to act as the administrator until further notice.

9.2 Lessee has designated Mr D. Organ as its sole representative with respect to
the matters set forth in this lease with respect to the construction and
realisation of the Basic Facilities and the Additional Improvements, who shall
have full authority and responsibility to act on behalf of Lessee as required in
this lease with respect to the construction and realisation of the Basic
Facilities and the Additional Improvements until further notice by Lessee.
Lessee may at any time appoint a new representative as referred to above, after
written notice to Lessor.

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9.3 Lessor has designated Mr A.C. Ramselaar as its sole representative with
respect to the matters set forth in this lease with respect to the construction
and realisation of the Basic Facilities and the Additional Improvements, who,
until further notice by Lessor, shall have full authority and responsibility to
act on behalf of Lessor as required in this lease with respect to the
construction and realisation of the Basic Facilities and the Additional
Improvements. Lessor may at any time appoint a new representative as referred to
above, after written notice to Lessee.

Appendices

10.1 All of the appendices listed at the end of this agreement form part of the
present agreement.

Proviso

11.1 Lessee is aware of the fact that the project of which the Leased Premises
are a part is still under construction. Lessor reserves the right to (instruct a
third party) to introduce any changes in the plans and/or any alterations to the
project and the Leased Premises are reasonably necessary and related to the
construction of the adjacent parts of the building and adjacent industrial park
known as Westpoint II, provided, however, that the said changes in the plans or
alterations may not impair the quality and/or the utility of the Leased
Premises.

Delivery of the Leased Premises at the end of this Lease Agreement

12.1 Upon delivery, the condition of the Leased Premises shall be laid down in a
dated delivery report drawn up in duplicate and signed by both parties, with
each of the parties retaining a copy of the said delivery report.

12.2 In the event of termination of this Lease Agreement the two parties to the
agreement are to act in accordance with the provisions set out in Article 5 of
the General Terms and Conditions, on the understanding that the reference to
Article 1, clause 2, should read "the delivery report as referred to in the
Section 12, paragraph 1, of the Lease Agreement." With regard to the silo
building, the provisions of Section 13, paragraph 11, of the Lease Agreement
apply. With regard to the sprinkler system and the sprinkler provisions as
referred to in EXHIBIT G, only the provisions of the last sentence of Section
4.4.2 apply.

Special Terms and Conditions

13.1 In the event that and to the extent that there are pipelines, cables,
cables ducts and/or meter cabinets (serving other industrial Units) in or only
accessible via the Leased Premises, Lessee hereby warrants vis-a-vis Lessor that
the said pipelines, cables, cables ducts and/or meter cabinets are and shall
continue to be freely accessible at all times. With regard to inspections and/or
work in or on the said pipelines, cables, cables ducts and/or meter cabinets or
any other such items, the provisions set out in Article 10 of the General Terms
and Conditions and any other relevant provisions apply.

13.2 Value Added Tax Clause

            (a) Lessee and Lessor declare explicitly that the rent level was set
on the basis that Lessee will continue to use the Leased Premises, or have it
used, for activities of which at least

                                       10
<PAGE>
the legally determined percentage or percentage yet to be determined is eligible
for deduction of BTW on the grounds of which rent subject to turnover tax can be
opted for.

            (b) Lessee declares that it will use the Leased Premises for
purposes for which the right exists to make a complete or practically complete
(at least 90%) deduction of BTW pursuant to Section 15 of the Turnover Tax Act
1968 and that Lessee belongs to one of the branches of industry indicated by the
State Secretary in order of 19 December 1995, no. VB 95/3796 and subsequently
amended, being employer's organisations, estate agents, travel agents and
working conditions services with an independent legal status.

            (c) If Lessee does not use or no longer uses the Leased Premises for
activities which entitle it to deduct turnover tax as referred to above, Lessee
will no longer owe Lessor turnover tax on the rent, but Lessee will owe Lessor
in addition to the rent exclusive of turnover tax commencing on the date on
which the rent is exempted from turnover tax by way of a separate payment to
Lessor such an amount that the latter is fully compensated for:

                        (i) The turnover tax which is no longer deductible as a
                  result of the cancellation of the possibility to deduct
                  turnover tax from the operating costs of and/or from
                  investments in the Leased Premises.

                        (ii) The turnover tax which Lessor has to pay to the tax
                  authorities and/or can no longer reclaim from the tax
                  authorities as a result of the cancellation of the possibility
                  to deduct turnover tax due to a recalculation of the taxed
                  rent as referred to in Clause 15, subsection 4 of the Wet op
                  de omzetbelasting 1968 (Turnover Tax Act 1968) or revision as
                  referred to in Sections 11, 12 and 13 of the
                  Uitvoeringsbeschikking omzetbelasting 1968 (Turnover Tax
                  Implementation) Decree 1968).

                        (iii) All other loss which Lessor incurs as a result of
                  the cancellation of the possibility to deduct turnover tax.

            (d) If a situation as referred to in (c) occurs, Lessor will inform
Lessee what amounts must be paid by Lessor to the tax authorities and provide
insight into the other losses as referred to in (c).

      Lessor will give its co-operation if Lessee wishes to have Lessor's
specification checked by an independent registered accountant. The costs of this
will be at Lessee's expense.

      The financial loss incurred by Lessor as a result of the cancellation of
the taxed rent must be paid by Lessee on Lessor's first demand.

            (e) Lessee will be obliged to inform Lessor by means of a signed
statement within four (4) weeks of the end of its financial year in which it
started to lease the Leased Premises (also if it has been made available wholly
of partially to a third party), whether or not it has used the Leased Premises
in the past financial year for purposes for which a right, as laid down in
Clause 15 of the Wet op de omzetbelasting 1968, to make a complete or
practically complete (at least 90%) deduction of turnover tax exists and belongs
to one of the branches of industry designated by the State Secretary in his
decree of 19 December 1995, no. VB 95/3796 and subsequently amended,

                                       11
<PAGE>
being employer's organisations, estate agents, travel agents and working
conditions services with an independent legal status.

         Lessee shall furthermore be obliged to inform Lessor after each
successive financial year by means of a signed statement within four weeks
following the end of the financial year concerned if the Leased Premises (also
if it has been made available wholly or partially to a third party) were not
used for purposes for which a right, as laid down in Clause 15 of the Wet op de
omzetbelasting 1968, to make a complete or practically complete (at least 90%)
deduction of turnover tax exists and belongs to one of the branches of industry
designated by the State Secretary in his decree of 19 December 1995, no. VB
95/3796 and subsequently amended, being employer's organisations, estate agents,
travel agents and working conditions services with an independent legal status.
In both cases Lessee will be obliged to send a copy of the statement to the tax
authorities within the same period.

            (f) If Lessee does not fulfil the aforementioned obligation to
provide information or if it turns out in retrospect that its assumptions were
incorrect, and it turns out in retrospect that Lessor has wrongly charged
turnover tax on the rent, Lessee shall be in default, and Lessor shall be
entitled to recover the resulting financial disadvantage from Lessee. This
disadvantage concerns the full turnover tax still due by Lessor to the tax
authorities plus interest, as well as the turnover tax which Lessor cannot
deduct. The stipulations in this Section contain an arrangement for compensation
in the event that the taxed rent ceases to be applicable with retroactive
effect, in addition to the arrangement set out in this Section 13.2. The
additional loss which results for Lessor from the retroactive effect, will be
payable by Lessee immediately, in full and as a lump sum. Lessor will give its
co-operation if Lessee wishes to have Lessor's specification of this additional
loss checked by an independent registered accountant. The costs of this will be
at Lessee's expense.

            (g) The stipulations set out in this Section will also apply if
Lessor is confronted with a loss after the termination of the lease, whether
premature or not, due to the cancellation of the taxed rent agreed upon by the
parties. This loss will then be payable by Lessee to Lessor immediately, in full
and as a lump sum.

13.3 Option to Expand the Leased Premises. Lessor hereby grants to Lessee an
option to expand the Leased Premises in accordance with the terms described
herein (the "Expansion Option"). During the term of the Expansion Option, Lessee
may expand the Leased Premises by electing to amend the terms of this lease, so
that one or two (2) similar Units directly adjacent to the Leased Premises,
which Units are more particularly shown on EXHIBIT K attached hereto, will form
part of the Leased Premises. Any time that Lessee exercises the Expansion Option
with respect to either one or both of the two (2) Units described above, such
Unit(s) shall be replaced with additional adjacent Unit(s), which additional
Unit(s) shall be subject to the rights contained in this Section 13.3 (the
"Expansion Replacement Unit(s)"), in so far as such additional units are
actually still available or will become available at that time. If no such
additional units are or will become available, the expansion option will not
apply at that time. The procedure for the replacement of Unit(s) described in
the preceding sentence shall be reapplied any time that Lessee exercises its
right to lease Unit(s) under this Section 13.3. The term of the Expansion Option
shall commence as of the date of the signing of the present agreement and expire
three (3) years from the Commencement Date referred to in Section 3.1 (the
"3-Year Date"). During this period, Lessee shall not be required to pay any fee

                                       12
<PAGE>
or compensation to Lessor in connection with the Expansion Option. Lessee shall
have the option to extend the term of the Expansion Option up to three (3)
consecutive times for a period of twelve (12) months each, provided that Lessee
and Lessor then reach an agreement about the conditions to be attached thereto.
In the event that Lessee exercises its rights under this Section 13.3, this
lease shall be amended to include the additional Units into the definition of
the Leased Premises. Such amendment(s) to the lease shall be on the same
material terms and conditions that apply to the existing Lease Agreement at the
moment of exercising (including but not limited to the then applicable Rent),
with the exception of the 7-months construction period referred to in Section 5.
Upon exercise of the expansion option, Lessor shall start the construction of
the additional unit(s) and/or the Additional Improvements without delay and
complete same within a reasonable term. The lease of the additional Unit(s)
shall expire co-terminously with the existing lease, as such may be extended.

13.4 First Right of Refusal to Lease Additional Space. Without limiting the
provisions of Section 13.3 above, Lessor hereby grants to Lessee a first right
of refusal to lease the four (4) adjacent units more particularly described in
EXHIBIT K attached hereto and made a part hereof (collectively the "Units" and
individually a "Unit") for the term of the lease, as may be extended. In the
event that Lessor, or Lessor's heirs, executors, successors or assigns, at any
time during the term of this lease or any extension thereof, intends or intend
to conclude a lease agreement with regard to the Unit with a third party, Lessor
or Lessor's heirs, executors, successors or assigns shall provide written notice
to Lessee, which notice shall set forth the rent and all other terms and
conditions of the intention concerned (the "Notice of Lease"). At Lessee's first
request, Lessor shall furnish plausible proof to Lessee, evidencing that a
concrete third party actually wishes to lease the Unit(s) concerned at the rent
and subject to other the terms and conditions set out in the Notice of Lease.
Within 10 days of receipt of the Notice of Lease, Lessee shall inform Lessor by
registered letter of whether it wishes to lease the unit referred to in the
Notice of Lease on the conditions set out in the Notice of Lease. If Lessee
timely exercises this first right of refusal in accordance with the conditions
accepted by Lessee, as set out in the Notice of Lease, a lease agreement with
regard to the unit concerned will be effected. If Lessee fails to respond within
the said term or informs Lessor within the said term that it does not intend to
exercise its right of first refusal, Lessor will be authorised to lease the unit
referred to in the Notice of Lease to third parties, provided not on conditions
more favourable to the said third parties than those set out in the Notice of
Lease. In the event that any material term of the Notice of Lease is
subsequently modified to the detriment of Lessee, the process described in this
Section 13.4 shall be reapplied. Each time when a Unit or Units is (are) leased
to a third party or to Lessee pursuant to this Section 13.4, the unit(s)
concerned shall be replaced by additional adjacent unit(s), which additional
unit(s) shall be subject to rights contained in this Section 13.4, in so far as
such additional units are or will become actually available at that time. If no
such units are or will be available, the right of first refusal set out in this
Section 13.4 does not apply at that time. The lease of the unit(s) ends
simultaneously with the existing lease agreement or extensions thereof.

13.5 Option to Purchase The Leased Premises. As from the signing of the present
agreement up to and including 3 years after the Commencement Date, Lessor shall
not sell or offer for sale the Leased Premises and the ground lease in respect
of the Leased Premises. Lessor hereby grants to Lessee an exclusive and
irrevocable option (the "Option") - commencing at the date of signing this
Agreement and valid for the term of the Agreement - to purchase the Leased
Premises and the ground lease in respect of the Leased Premises for the price
and upon the terms and conditions specified in this Article. The Option shall be
exclusive for a term of 3 years after the Commencement Date. During the term of
the present agreement, Lessee may exercise the Option

                                       13
<PAGE>
by giving Lessor notice of its intent to exercise the Option. Upon exercising
the Option, Lessor shall be obligated to sell and convey to Lessee and Lessee
shall be obligated to purchase from Lessor the Leased Premises and the ground
lease in respect of the Leased Premises for a purchase price equal to (i) eleven
and one half times the annual Base Rent, minus the annual ground rent Lessee
will become payable as soon as it has become the leaseholder (formula: 11.5 x
(annual base rent minus annual ground rent)), (ii) increased by the unamortized
value of the Additional Improvement and increased by any costs involved in the
early repayment of the financing arrangement concerned, (iii) increased by any
transfer tax and/or turnover tax and notarial charges due. In the event of
exercise of the purchase option, the parties will agree a provisional date for
the conveyance not later than 3 months after the date on which Lessor received
notice from Lessee that the latter intended to exercise the purchase option,
such also on account of Lessor's ground lease. The parties will then jointly
contact the Municipality of Amsterdam in order to effect a division and
conveyance of lessor's current right of ground lease, in so far as pertaining to
the Leased Premises, or creation of a new ground lease in respect of the Leased
Premises for the benefit of Lessee. The terms (including the ground rent) of the
divided right of ground lease or the new right of ground lease shall be
reasonably acceptable to Lessor and Lessee. Failing which the purchase option
will be deemed not exercised or no purchase agreement will be deemed concluded
and the Lease Agreement will be continued unchanged. The terms set out in
EXHIBITS E AND F are at any rate deemed to be reasonably acceptable to the
parties. The terms of the conveyance or the creation of the new ground lease
shall otherwise be consistent with the terms of such deeds and commercial
customs in the area in which the Property is located. Lessor and Lessee agree
that immediately after the signing of this agreement, the option as regulated in
this Section 13.5 will be entered in the public registers of the Land Register,
subject to co-operation of the Land Register, such for Lessee's account.

13.6 Right of First Refusal to Purchase the Leased Premises. In the event that
Lessor, or Lessor's heirs, executors, successors or assigns, during the term of
this lease intends or intend to sell the Leased Premises or any portion thereof
to a third party, Lessor or Lessor's heirs, executors, successors or assigns
shall provide written notice to Lessee, which notice shall set forth purchase
price, as well as all other terms and conditions of such intention (the "Notice
of Sale"). At Lessee's first request, Lessor shall furnish plausible proof to
Lessee, evidencing that a concrete third party actually wishes to purchase the
Leased Premises and the Ground Lease in respect of the Leased Premises at the
price and subject to the other terms and conditions set out in the Notice of
Sale. Lessee shall inform Lessor by registered letter of whether it wishes to
purchase the Leased Premises and the Ground Lease pertaining to the Leased
Premises within 30 days of receipt of the Notice of Sale. Lessee may choose to
purchase the Leased Premises (and the Ground Lease) at the same price and on the
same terms of the offer set forth in the Notice of Sale or - such until 3 years
after the Commencement Date - per the terms of the Option set forth in section
13.5. If Lessee fails to respond within the 30-days term or informs Lessor
within the said term that it does not intend to exercise its right of first
refusal referred to in this Section or its purchase option referred to in
Section 13.5 (until 3 years after the Commencement Date), Lessor will be
authorised to sell the Leased Premises and the Ground Lease pertaining to the
Leased Premises to third parties, provided not on conditions more favourable to
the said third parties than those set out in the Notice of Sale or - if
applicable - set out in Section 13.5. If any substantial term of the Notice of
Sale is changed afterwards to the detriment of Lessee, the procedure set out in
this Section 13.6 shall be re-applied. If Lessee does timely inform Lessor that
it intends to exercise its right of first refusal referred to in this Section or
- if applicable - its purchase option referred to in Section 13.5, a purchase
agreement

                                       14
<PAGE>
with regard to the leased premises and the ground lease will arise between
lessor and lessee, on the terms set out in the Notice of Sale or - if applicable
- the terms set out in Section 13.5. In addition, the parties will agree a
provisional date for the transfer not later than 3 months after the date on
which Lessor received notice from Lessee that the latter intended to exercise
its right of first refusal or - if applicable - the purchase option, such also
on account of Lessor's ground lease. The parties will then jointly contact the
Municipality of Amsterdam in order to effect transfer of the Leased Premises/the
current ground lease of lessor, in so far as pertaining to the Leased Premises,
or creation of a new ground lease in respect of the Leased Premises for the
benefit of Lessee. The conditions of the division/transfer of the existing
ground lease in respect of the Leased Premises or the conditions of the creation
of a new ground lease in respect of the Leased Premises shall be reasonably
acceptable to Lessee and Lessor. The conditions set out in EXHIBITS E AND F
shall at any rate be deemed to be reasonably acceptable. In the event that any
material term of the Notice of Sale is subsequently modified to the detriment of
Lessee, the process set out in this Section 13.6 shall be reapplied. The rights
contained in this Section 13.6 shall be applicable to any and all intended sales
of the Leased Premises for the duration of the term of this lease. If the Leased
Premises (and the Ground Lease) are transferred to a third party, the option to
purchase the leased premises referred to in Section 13.5 will expire, but
Lessee's right of first refusal to purchase the Leased Premises referred to in
this Section 13.6 will continue to have effect for a period of no more than ten
(10) years after the Commencement Date as referred to in Section 3.1. A third
party in the sense of this Section does not refer to a legal entity of the group
of companies to which Lessor belongs.

      If 3 years after the Commencement Date a situation arises of apparently
simultaneous receipt by Lessor of the notice of Lessee that it exercises the
Purchase Option in Section 13.5 and receipt by Lessee of the Notice of Sale, and
if there is reasonable doubt with regard to which event occurred first, Section
13.6 will prevail.

13.7 Parking Space. Lessor will provide for (paved) parking facilities for 50
passenger cars reasonably adjacent to the Leased Premises, designated to be
exclusively used by Lessee, as situated and indicated in the drawings attached
to this Lease Agreement as EXHIBIT A. The use of these parking facilities by
Lessee is included in the agreed lease price. Lessee cannot enforce any claims
against Lessor if third parties without authorisation make use of the parking
spaces. Lessee may place signs with its brand/name on or near the parking
spaces.

13.8 Signage's. Lessor has given approval to Lessee to establish signage's to or
near the Leased Premises, in order to make clearly visible that Starbucks is
established at Westpoint. The design of these signage's will be handed to Lessor
for prior review. This approval will primarily focus on the question whether the
intended signage's are not out of tune, in size or nature, with the existing
signage's of all Lessees on Westpoint II. The signage's must be in accordance
with statutory and local regulations. It is the responsibility of Lessee to
obtain all the necessary permits for the signage's.

13.9 Exclusivity. Lessor will not lease space at Amsterdam Westpoint I and
Westpoint II to third parties that roast coffee at the location and Lessor will
impose the same obligation on its legal successor in the form of a perpetual
clause.

13.10 Sensitivity of Coffee to Odours. In order to prevent damages to the coffee
as a result of odour emissions by other lessees of Lessor, Lessor will include
in all new lease agreements with respect to Units at Westpoint II, the
obligation for those lessees to refrain from causing any

                                       15
<PAGE>
repeatedly recurring emission of odours, that may adversely affect the coffee of
Starbucks, which means that those lessees would at least would have to refrain
from the following activities:

(a)   Coffee roasting

(b)   Manufacturing of perfumeries or other scented products (cosmetics, scented
      household products, etc.)

(c)   Paint manufacturing or paint application operations

(d)   Private or municipal waste treatment

(e)   Operations that raise, slaughter or process livestock or fish

(f)   Activities involving heavy use of solvents, degreasers or lubricants

(g)   Chemical manufacturing or petroleum refining or processing

      In addition, Lessor guarantees that any existing lease agreements with
respect to the Units mentioned here above do not permit the forbidden activities
as described in this clause and that Lessor will not provide consent under any
of these lease agreements to change activities towards the forbidden activities
as described in this clause. For the avoidance of doubt the parties expressly
agree that logistic activities with respect to the odorous goods indicated above
and cocoa storage and distribution will not be forbidden and furthermore, that
this clause only refers to repeatedly recurring emission of odours in relation
to manufacturing activities.

13.11 Silo building. During the lease term Lessor will, at Lessee's first
written request, construct and build the silo building, subject to the
conditions laid down in Section 5 of the present Agreement, with the exception
of the 7-months construction period, and furthermore in accordance with
requirements yet to be worked out by the parties. The costs of the concrete
structure of the silo building until a height of 13.1m will be for account of
Lessor and will be included in the Base Rent, whereby the Base Rent rate per m2
for the silo building - assuming the same specification level as the warehouse
space - will be equal to the base rent per m2 for the warehouse space of the
Leased Premises, to be increased by indexation pursuant to Section 4.3. A steel
structure will bring the silo building to a height of 22 m. The costs of this
steel structure will be considered Additional Improvements and the Additional
Rent related to this improvement shall be calculated as described in Section
4.4. It is agreed that the parties will make further agreements about the
amortization term when Lessee has requested the construction of a silo building.
Upon expiry of the present Lease Agreement, Lessor shall attempt to lease the
silo building to a third party.

      Lessee will receive 50% of any amount in excess of the annually indexed
Base Rent that Lessor generates from the lease of the silo building in the
period of ten (10) years after termination of this lease. Upon expiry of such
ten (10) year period, Lessor (and its successors) will be under no restriction
any more with respect to exploiting the silo building and all the income
stemming from the silo building will be fully for the account of Lessor. If the
steel top structure would have to be demolished on reasonable grounds, then
Lessee would have to pay the costs thereof (but not the costs of closing the
roof again).

                                       16
<PAGE>
13.12 Where the present agreement or the General Terms and Conditions require
Lessor's consent, Lessor shall not unreasonably withhold its consent.

13.13 Lessee accepts that future building activities will take place at
Westpoint II. Lessor will start building new Units at the other end of the
Westpoint II site, in order to reserve for expansion by Lessee for as long as
possible. Lessor must use best endeavours not to hinder the activities of Lessee
as a result of the building activities. In any event the normal course of
business of Lessee must be able to be continued.

13.14 Lessee is aware that Lessor intends to realise a container debarking
terminal at the quayside alongside the Leased Premises, with a stacking area for
containers. This will not restrict normal operations of Lessee and access of
trucks to the loading docks. The containers will not block the view to the water
from the offices.

13.15    Changes to the General Conditions

                  Article 2.2. The second and third sentence of this Article are
                  replaced by the following:

                  "Lessee shall also observe the instructions given in writing
                  or by word of mouth by or on behalf of Lessor in the interests
                  of the proper use of the Leased Premises and of the inside and
                  outside areas, the installations and fixtures in the building
                  or complex which the Leased Premises are part of, if and
                  insofar as Lessee has been consulted properly by Lessor in
                  advance about the content of these instructions and if and
                  insofar as these instructions can be considered to be
                  reasonable and necessary. Lessee will - in principle - not be
                  bound to unreasonable instructions by or on behalf of Lessor
                  which have an adverse effect on the justified interests of
                  Lessee, on the rights of Lessee stemming from this Lease
                  Agreement or on the activities of Lessee. The instructions by
                  Lessor may inter alia relate to maintenance, image, noise
                  level, order, fire regulations, parking behaviour and the good
                  functioning of the installations, the building or the complex
                  which the Leased Premises are part of."

                  Articles 2.6.1 to 2.6.3 of the General Conditions are replaced
                  by the following:

                  Article 2.6.1. "Lessee knows that Lessor had a soil survey
                  report prepared by Omegam, called Nulonderzoek "Westpoint II",
                  Ruigoordweg in Amsterdam-Westpoint, reference 1106311/VO1,
                  dated 17 May 2001. The said report is attached to the present
                  agreement as EXHIBIT L. To Lessor's knowledge, the report
                  gives a true, accurate and complete description of the
                  condition of the soil of the parcel of land on which the Basic
                  Facilities and the Additional Improvements are to be
                  constructed. As the report dates from 17 May 2001, the Parties
                  agree to instruct Omegam to conduct an additional soil survey
                  and prepare a report thereon, the costs of which will be
                  shared by the parties (on a 50/50 basis). The said survey and
                  report shall be based on sampling of the soil of the parcel of
                  land on which the Basic Facilities and the Additional
                  Improvements are to be constructed, after slags and/or other
                  levelling-up materials have been applied but just prior to the
                  start of the

                                       17
<PAGE>
                  construction of the foundation. Lessee shall receive the
                  report timely before the start of the work on the foundation.
                  If Lessee has reasonable doubts about the accuracy of the
                  report it may have a further soil survey carried out for its
                  own account. If same leads to a delay, the seven-months term
                  referred to in Sections 5.3 and 5.8 will be extended. The
                  parties shall consult with each other about the term of the
                  extension.

                  Lessee is neither liable nor responsible for any
                  (environmentally) hazardous materials, the condition of the
                  environment or other circumstances as described in the
                  aforementioned reports. The term "hazardous materials" refers
                  to (environmentally) hazardous materials, (environmentally)
                  hazardous waste substances or (environmentally) hazardous
                  substances set out in or regulated by applicable laws or
                  regulations, in particular the Wet Bodembescherming (Soil
                  Protection Act) and the Wet Milieubeheer (Environmental
                  Control Act)

                  Any contamination of the leased premises established in the
                  aforementioned reports shall be cleaned up for Lessor's risk
                  and account, if Lessor is obligated thereto under current
                  regulations. The cleaning up shall be executed in the manner
                  prescribed by relevant applicable acts and regulations. In the
                  event of "serious soil contamination", as defined in the Soil
                  Protection Act and located on the place where the building
                  under consideration is to be built, Lessor shall clean up that
                  contamination before the start of construction work and the
                  seven-months (7) building term will be extended by the term
                  required for the cleaning up. If the consequences of the said
                  contamination are reasonably unacceptable to Lessor and/or
                  Lessee, the parties will seek a solution in mutual
                  consultation, taking into account the interests of both
                  parties.

                   At the end of the lease as well as in the event of transfer
                  of the Leased Premises (and the ground rent) to Lessee, a
                  similar soil survey will be carried out. If higher
                  concentrations of one or more of the substances to which
                  Omegam's previous surveys pertained are then found in, on or
                  around the Leased Premises, same will be deemed an indication
                  of Lessee having caused that contamination.

                  Article 2.6.2. "It is forbidden to Lessee, its personnel or
                  persons or goods under its control to contaminate in any way
                  (the soil of) the Leased Premises and Lessee shall compensate
                  the damage arising from contamination caused by Lessee, its
                  personnel or persons or goods under its control and he shall
                  be liable to Lessor and third parties for expenses relating to
                  the removal of such contamination or for the taking of other
                  measures.

                  Article 2.6.3. "Lessor does not indemnify Lessee against
                  (Government) orders for further investigation or the taking of
                  measures, unless those orders are related to a contamination
                  that has been caused by Lessor or pollution that was already
                  present on or in the Leased Premises prior to the Commencement
                  Date."

                  Article 2.10.2. Article 2.10.2 of the General Conditions is
                  not applicable:

                  1. with respect to Lessee's construction plans described in
                  EXHIBIT M;

                                       18
<PAGE>
                  2. interior alteration that are non-structural, if and insofar
                  these alterations do not adversely affect the Leased Premises;

                  3. structural alterations, subject to prior written approval
                  of Lessor, which approval can only be withheld on reasonable
                  grounds.

                  Articles 3.1 and 3.2. Contrary to the provisions in Articles
                  3.1. and 3.2 of the General Conditions it was agreed that:

                  1. sublease is permitted after prior written approval of
                  Lessor, which approval can only be withheld on reasonable
                  grounds;

                  2. transfer of the rights and obligations under the lease
                  agreement to a company of which all shares are directly or
                  indirectly held by Starbuck Corporation is permitted

                  Article 6.5. The words "gross" and "serious" in this Article
                  are considered to be deleted.

                  Article 6.6. The words "gross" and "serious" in this Article
                  are considered to be deleted.

                  Article 9.3. In addition to this Article 9.3 it is agreed that
                  Lessee is entitled to a 30 days cure period after written
                  notice by Lessor to cure the concerned defaults, before the
                  lessor can conduct the maintenance as described in this
                  Article himself.

13.18 Environmental Testing. At any time during the term hereof, Lessee may
undertake such environmental testing with respect to the Leased Premises and the
Land as Lessee deems desirable, including, without limitation, soil and ground
water testing.

14.1 Choice of law. The parties declare that the present agreement as well as
the guarantee attached as EXHIBIT J are governed by Dutch law.

14.2 Dutch version. The parties declare that only the Dutch version of the
present agreement will be binding. The English version of the agreement,
attached as an appendix to the present agreement, is for information purposes
only and in no way relevant to the legal relationship between the parties or the
parties' intent.

14.3 The Dutch Court has jurisdiction. The civil court in Amsterdam will have
exclusive jurisdiction to adjudicate any disputes arising from or related to the
present agreement, both in the first instance and on appeal.

                            [Signature Page Follows]

                                       19
<PAGE>
         Drawn up and signed in Amsterdam on ____________________________.

Lessor:                                 Lessee:

-------------------------------         -------------------------------
Name:                                   Name:
     --------------------------              --------------------------
Title:                                  Title:
     --------------------------              --------------------------
Date:                                   Date:
     --------------------------              --------------------------

                                       20
<PAGE>
LIST OF APPENDICES AND EXHIBITS

<TABLE>
<CAPTION>
EXHIBITS:
<S>                       <C>
Exhibit A:                the Leased Premises (indicated by means of hatching)
Exhibit B:                Preliminary Plans (as attached to the application for the Building Permit)
Exhibit C:                Technical Description (as to be provided by the contractor)
Exhibit D:                reinforced floor area (increased maximum floor load)
Exhibit E:                deeds of temporary issue of leasehold land
Exhibit F:                letter for the Gemeentelijk Havenbedrijf Amsterdam, dated 31 October 2001 (reference:
                          01.06923)

Exhibit G:                Sprinkler system proposal

Exhibit H:                letter about the piling equipment and materials required
Exhibit I:                list of addition amenities and services
Exhibit J:                guarantee

Exhibit K:                expansion option and first right of refusal to lease additional space
Exhibit L:                soil survey report "Nulonderzoek "Westpoint II", Ruigoordweg in Amsterdam-Westpoint,
                          prepared by Omegam, dated 17 May 2001, project number 1106311
Exhibit M:                Lessee's construction drawings
</TABLE>

APPENDICES:

General Terms and Conditions lease of office space and other industrial Units
not in accordance with Article 7A: 1624 of the Dutch Civil Code

Power of attorney Westpoint

English translation of the present agreement

                                       21<PAGE>
                                                                   EXHIBIT 4.1

        THIS INSTRUMENT AND THE COMMON STOCK ISSUABLE UPON ITS CONVERSION HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), AND MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE
TRANSFERRED EXCEPT PURSUANT TO AN AVAILABLE EXEMPTION FROM REGISTRATION UNDER
THE SECURITIES ACT OR PURSUANT TO THE REGISTRATION PROVISIONS OF THE SECURITIES
ACT AND IN ACCORDANCE WITH ALL APPLICABLE SECURITIES LAWS OF THE STATES OF THE
UNITED STATES.

                  CATAPULT COMMUNICATIONS INTERNATIONAL LIMITED

                    2% CONVERTIBLE SUBORDINATED NOTE DUE 2004

No. 1                                                           U.S. $10,000,000

               Catapult Communications International Limited, a company
organized under the laws of Ireland (the "Company"), for value received, hereby
promises to pay to Tekelec, a California corporation, the lesser of Ten Million
U.S. Dollars ($10,00,000) or the outstanding principal balance hereof, on August
30, 2004 (the "Maturity Date"), and to pay interest thereon, at the rate of 2%
per annum until the principal hereof is paid in full. Payment of interest and
all other amounts payable in cash with respect to this Instrument shall be made
by wire transfer to the holder, provided that if the holder shall not have
furnished wire instructions in writing to the Company on or prior to the second
Business Day immediately preceding the date on which the Company makes such
payment, such payment may be made by U.S. Dollar check mailed to the address of
the holder as such address appears in the Company security register (or to any
address subsequently provided in writing by the holder to the Company for
purposes of payment hereunder). This 2% Convertible Subordinated Note Due 2004
(this "Instrument") is being issued in connection with that certain Asset
Purchase Agreement, dated as of July 15, 2002 (the "Purchase Agreement"), by and
between Catapult Communications Corporation (the "Parent") and Tekelec. The
Parent has guaranteed the obligations of the Company under this Instrument
pursuant to that certain Subordinated Guaranty, dated as of July 15, 2002 (the
"Guaranty"). Capitalized terms used and not otherwise defined herein, shall have
the respective meanings given to those terms in Section 6 hereof.

        1.     PAYMENT TERMS.

               (a) On the Maturity Date and upon the surrender of this
Instrument to the Company, at c/o Catapult Communications Corporation, 160 South
Whisman Road, Mountain View, CA 94041, Attention Chief Operating Officer (or
such other office within the United States as shall be designated by the Company
to the holder hereof) (the "Designated Office"), the Company shall pay the
outstanding principal balance of this Instrument, in any combination of the
following: (A) U.S. Dollars and/or (B) Common Stock, provided that each share of
Common Stock (as hereinafter defined) transferred to the holder of this
Instrument in lieu of a cash payment pursuant to this provision shall be valued
at the AVWAP times 0.825, together with all accrued and unpaid interest thereon,
in U.S. Dollars.

<PAGE>

               (b) At any time, the Company may elect to pre-pay outstanding
principal amounts due hereunder by setting-off, in accordance with the terms of
the Purchase Agreement, Indemnification Set-Off Amounts (as such term is defined
in the Purchase Agreement) due the Parent pursuant to the Purchase Agreement
against the outstanding principal payment obligations due hereunder. The Company
shall give to the holder of this Instrument written notice of the application of
any such Indemnification Set-Off Amount within three Business Days after the
date thereof. Any Indemnification Set-Off Amounts set-off against principal
obligations under this Instrument shall be applied dollar for dollar in
satisfaction of such principal obligations, without penalty or premium.

               (c) Interest shall be computed based on the actual number of days
elapsed.

               (d) Except as expressly provided in Section 1(b) herein, the
Company shall not have any right to prepay any amounts owed hereunder to the
holder of this Instrument.

        2.     CONVERSION.

               (a) (1) Provided that there are no unresolved claims for losses
incurred by the Parent pursuant to the indemnification provisions of Section 8
of the Purchase Agreement, the holder of this Instrument is entitled at any time
after August 30, 2003 and from time to time before the close of business on the
Maturity Date, to convert the principal amount of this Instrument (or any
portion of the principal amount hereof that is an integral multiple of $1,000),
into fully paid and nonassessable Common Stock (calculated as to each conversion
to the nearest 1/100 of a share) of the Parent at the rate of 62.50 shares of
Common Stock for each $1,000 principal amount of Instrument (or at the then
current adjusted rate if an adjustment has been made as provided below) (the
"Conversion Rate") by surrender of this Instrument, duly endorsed or assigned to
the Company or in blank to the Company at the Designated Office, accompanied by
written notice to the Company, in the form attached hereto, that the holder
hereof elects to convert this Instrument (or if less than the entire principal
amount hereof is to be converted, specifying the portion hereof to be
converted). If the holder elects to exercise its conversion right hereunder,
then the Company shall, within five (5) Business Days after receipt of written
notice of such election, deliver or cause to be delivered to the holder at the
address specified by the holder to the Company in the conversion notice a
certificate or certificates for the Common Stock issued upon such conversion and
any replacement Instrument issued as a result of any partial conversion of this
Instrument.

                      (2) Upon surrender of this Instrument for conversion, the
holder will be entitled to payment in cash within three (3) Business Days
thereafter of the interest accrued on the principal amount of this Instrument
then being converted and unpaid to such date of conversion (a "Company
Conversion Date").

                      (3) Subject to Section 2(b) below, no payment or
adjustment is to be made on conversion for dividends on the Common Stock issued
on conversion hereof. No fractions of shares or scrip representing fractions of
shares will be issued on conversion, but instead of any fractional interest, the
Company shall pay a cash adjustment, computed on the basis of the Closing Price
of the Common Stock on the Trading Day immediately prior to the Company
Conversion Date, or, at its option, the Company shall round up to the next
higher whole share.

                                      -2-
<PAGE>

                      (4) In the event that the conversion of this Instrument
into shares of Common Stock would require the Parent and the holder of this
Instrument to file notification and report forms with the Federal Trade
Commission (the "FTC") and Antitrust Division of the Department of Justice (the
"DOJ") pursuant to the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended (the "HSR Act"), then (i) the holder of this Instrument shall, and the
Company shall cause the Parent to use best efforts to complete all applicable
filings and provide all necessary information as required pursuant to the HSR
Act, and (ii) the holder of this Instrument and the Company agree that such
conversion of this Instrument into shares of Common Stock shall not occur until
such time as the required filings are made pursuant to the HSR Act and the
required waiting period(s) have expired or early termination of the required
waiting period(s) has been granted by the FTC or the DOJ. The Parent and the
holder will each bear their own respective filing fees for any filings made
pursuant to the HSR Act, and the Company shall cause the Parent to pay any such
fees to be borne by it.

        The Company shall, if the holder so elects, and within the time period
prescribed in Section 2(a)(1) hereof, deliver or cause to be delivered the
Common Stock issuable upon conversion of this Instrument to any third party or
parties designated by the holder, subject to compliance with Sections 2(f), 8(d)
and 8(f) hereof.

               (b) The Conversion Rate will be subject to adjustments from time
to time as follows:

                      (1) In case the Parent shall pay or make a dividend or
other distribution on Common Stock of the Parent payable in Common Stock, the
Conversion Rate in effect at the opening of business on the day following the
Determination Date (as hereinafter defined) for such dividend or other
distribution shall be increased by dividing such Conversion Rate by a fraction
of which the numerator shall be the number of shares of Common Stock outstanding
at the close of business on such Determination Date and the denominator shall be
the sum of such number of shares of Common Stock and the total number of shares
of Common Stock constituting such dividend or other distribution, such increase
to become effective immediately after the opening of business on the day
following such Determination Date. For the purposes of this paragraph (1), the
number of shares of Common Stock at any time outstanding shall not include
Common Stock held in the treasury of the Parent but shall include Common Stock
issuable in respect of scrip certificates issued in lieu of fractions of Common
Stock. The Parent will not pay any dividend or make any distribution on Common
Stock held in the treasury of the Parent.

                      (2) In case the Parent shall issue rights, options or
warrants to all holders of its Common Stock entitling them to subscribe for or
purchase Common Stock at a price per share less than the current market price
per share (determined as provided in paragraph (7) of this Section 2(b)) of the
Common Stock on the Determination Date for such distribution, the Conversion
Rate in effect at the opening of business on the day following such
Determination Date shall be increased by dividing such Conversion Rate by a
fraction of which the numerator shall be the number of shares of Common Stock
outstanding at the close of business on such Determination Date plus the number
of shares of Common Stock which the aggregate of the offering price of the total
number of shares of Common Stock so offered for subscription or purchase would
purchase at such current market price and the denominator shall be the number of
shares of Common Stock

                                      -3-
<PAGE>

outstanding at the close of business on such Determination Date plus the number
of shares of Common Stock so offered for subscription or purchase, such increase
to become effective immediately after the opening of business on the day
following such Determination Date. For the purposes of this paragraph (2), the
number of shares of Common Stock at any time outstanding shall not include
Common Stock held in the treasury of the Parent but shall include Common Stock
issuable in respect of scrip certificates issued in lieu of fractions of Common
Stock. The Parent will not issue any rights, options or warrants in respect of
Common Stock held in the treasury of the Parent. Upon the expiration of any
right, option or warrant to purchase Common Stock the issuance of which resulted
in an adjustment to the Conversion Rate pursuant to this paragraph (2) of
Section 2(b), if any such right, option or warrant shall expire and shall not
have been exercised, the Conversion Rate shall immediately upon such expiration
be recomputed to the Conversion Rate which would have been in effect had the
adjustment of the Conversion Rate made upon the issuance of such right, option
or warrant been made on the basis of offering for subscription or purchase only
that number of shares of Common Stock actually purchased upon the exercise of
such right, option and warrant actually exercised.

                      (3) In case outstanding Common Stock shall be subdivided
into a greater number of shares of Common Stock, the Conversion Rate in effect
at the opening of business on the day following the day upon which such
subdivision becomes effective shall be proportionately increased, and,
conversely, in case outstanding Common Stock shall each be combined into a
smaller number of shares of Common Stock, the Conversion Rate in effect at the
opening of business on the day following the day upon which such combination
becomes effective shall be proportionately reduced, such increase or reduction,
as the case may be, to become effective immediately after the opening of
business on the day following the day upon which such subdivision or combination
becomes effective.

                      (4) In case the Parent shall, by dividend or otherwise,
distribute to all holders of its Common Stock evidences of its indebtedness,
shares of any class of capital stock, or other property (including securities,
but excluding (i) any rights, options or warrants referred to in paragraph (2)
of this Section 2(b), (ii) any dividend or distribution paid exclusively in
cash, (iii) any dividend or distribution referred to in paragraph (1) of this
Section 2(b) and (iv) any merger or consolidation to which Section 2(h) applies
(the "Distributed Property"), the Conversion Rate shall be adjusted so that the
same shall equal the rate determined by dividing the Conversion Rate in effect
immediately prior to the close of business on the Determination Date for such
distribution by a fraction of which the numerator shall be the current market
price per share (determined as provided in paragraph (7) of this Section 2(b))
of the Common Stock on such Determination Date less the then fair market value
(as determined in good faith by the Board of Directors of the Parent in
accordance with the provisions of this paragraph 4 of Section 2(b)) of the
portion of the assets, shares or evidences of indebtedness so distributed
applicable to one share of Common Stock and the denominator shall be such
current market price per share of the Common Stock, such adjustment to become
effective immediately prior to the opening of business on the day following such
Determination Date; provided, however, that if the Distributed Property consists
of shares of capital stock of a Subsidiary, the Parent may, at its option and in
lieu of the foregoing adjustment to the Conversion Rate, elect to make adequate
provision so that the holder of this Instrument shall have the right to receive
upon conversion the amount of such shares of capital stock that such holder of
this Instrument would have received if such holder of this Instrument had
converted such Instrument

                                      -4-
<PAGE>

on the record date. If the Board of Directors determines the fair market value
of any distribution for purposes of this paragraph (4) by reference to the
actual or when issued trading market for any securities constituting such
distribution, it must in doing so consider the prices in such market over the
same period used in computing the current market price per share pursuant to
paragraph (7) of this Section 2(b).

        In the event the Parent implements a stockholder's rights plan (a
"Rights Plan"), upon conversion of this Instrument into Common Stock, to the
extent that the Rights Plan is still in effect upon such conversion, the holder
of this Instrument will receive, in addition to the Common Stock, the rights
described therein (whether or not the rights have separated from the Common
Stock at the time of conversion), subject to the limitations set forth in the
Rights Plan. Any distribution of rights or warrants pursuant to the Rights Plan
in compliance with the requirements set forth in the immediately preceding
sentence of this paragraph shall not constitute a distribution of rights or
warrants pursuant to this Section 2(b).

        Rights or warrants distributed by the Parent to all holders of Common
Stock entitling the holders thereof to subscribe for or purchase shares of the
Parent's capital stock (either initially or under certain circumstances), which
rights or warrants, until the occurrence of a specified event or events
("Trigger Event"): (i) are deemed to be transferred with such shares of Common
Stock; (ii) are not exercisable; and (iii) are also issued in respect of future
issuances of Common Stock, shall be deemed not to have been distributed for
purposes of this Section 2(b) (and no adjustment to the Conversion Rate under
this Section 2(b) will be required) until the occurrence of the earliest Trigger
Event, whereupon such rights and warrants shall be deemed to have been
distributed and an appropriate adjustment (if any is required) to the Conversion
Rate shall be made under this Section 2(b). If any such right or warrant,
including any such existing rights or warrants distributed prior to the original
issue date of this Instrument, are subject to events, upon the occurrence of
which such rights or warrants become exercisable to purchase different
securities, evidences of indebtedness or other assets, then the date of the
occurrence of any and each such event shall be deemed to be the date of
distribution and record date with respect to new rights or warrants with such
rights (and a termination or expiration of the existing rights or warrants
without exercise by any of the holders thereof). In addition, in the event of
any distribution (or deemed distribution) of rights or warrants, or any Trigger
Event or other event (of the type described in the preceding sentence) with
respect thereto that was counted for purposes of calculating a distribution
amount for which an adjustment to the Conversion Rate under this section was
made, (x) in the case of any such rights or warrants which shall all have been
redeemed or repurchased without exercise by any holders thereof, the Conversion
Rate shall be readjusted upon such final redemption or repurchase to give effect
to such distribution or Trigger Event, as the case may be, as though it were a
cash distribution, equal to the per share redemption or repurchase price
received by a holder or holders of Common Stock with respect to such rights or
warrants (assuming such holder had retained such rights or warrants), made to
all holders of Common Stock as of the date of such redemption or repurchase, and
(y) in the case of such rights or warrants which shall have expired or been
terminated without exercise by any holders thereof, the Conversion Rate shall be
readjusted as if such rights and warrants had not been issued.

                      (5) In case the Parent shall, by dividend or otherwise,
distribute to all holders of its Common Stock cash (excluding any cash that is
distributed as part of a distribution

                                      -5-
<PAGE>

referred to in paragraph (4) of Section 2(b)) in an aggregate amount that,
combined with (I) the aggregate amount of any other cash distributions to all
holders of its Common Stock made exclusively in cash within the twelve (12)
months preceding the date of payment of such distribution and in respect of
which no adjustment pursuant to this paragraph (5) of Section 2(b) has been made
and (II) the aggregate of any cash plus the fair market value (as determined by
the Parent's Board of Directors, whose determination shall be conclusive and
described in a board resolution) of consideration payable in respect of any
tender offer by the Parent or any of its subsidiaries for all or any portion of
the Common Stock concluded within the twelve (12) months preceding the date of
payment of such distribution and in respect of which no adjustment pursuant to
paragraph (6) of Section 2(b) has been made (the "combined cash and tender
amount"), exceeds ten percent (10%) of the product of the current market price
per share of the Common Stock (determined as provided in paragraph (7) of this
Section 2(b)) on the date for the determination of holders of shares of Common
Stock entitled to receive such distribution times the number of shares of Common
Stock outstanding on such date (the "aggregate current market price"), then, and
in each such case, immediately after the close of business on such date for
determination, the Conversion Rate shall be adjusted so that the same shall
equal the rate determined by dividing the Conversion Rate in effect immediately
prior to the close of business on the date fixed for determination of the
stockholders entitled to receive such distribution by a fraction (i) the
numerator of which shall be equal to the current market price per share of the
Common Stock on the date fixed for such determination less an amount equal to
the quotient of (x) the excess of such combined cash and tender amount over ten
percent (10%) of such aggregate current market price divided by (y) the number
of shares of Common Stock outstanding on such date for determination and (ii)
the denominator of which shall be equal to the current market price per share of
the Common Stock on such date for determination.

                      (6) In case of a tender offer made by the Parent or any
Subsidiary of the Parent for all or any portion of the Common Stock shall expire
and such tender offer or exchange (as amended upon the expiration thereof) shall
require the payment to stockholders (based on the acceptance (up to any maximum
specified in the terms of the tender offer) of Purchased Shares (as defined
below)) of an aggregate consideration having a fair market value (as determined
by the Parent's Board of Directors, whose determination shall be conclusive and
described in a board resolution), that combined together with (I) the aggregate
of the cash plus the fair market value (as determined by the Parent's Board of
Directors, whose determination shall be conclusive and described in a board
resolution), as of the expiration of such tender or exchange offer, of
consideration payable in respect of any other tender or exchange offer by the
Parent or any Subsidiary of the Parent for all or any portion of the Common
Stock expiring within the 12 months preceding the expiration of such tender or
exchange offer and in respect of which no adjustment pursuant to this paragraph
(6) of Section 2(b) has been made and (II) the aggregate amount of any cash
distributions to all holders of the Parent's Common Stock within twelve (12)
months preceding the expiration of such tender or exchange offer and in respect
of which no adjustment pursuant to paragraph (5) of Section 2(b) has been made
(the "combined tender and cash amount") exceeds ten percent (10%) of the product
of the current market price per share of the Common Stock (determined as
provided in paragraph (7) of this Section 2(b)) as of the last time (the
"Expiration Time") tenders or exchange could have been made pursuant to such
tender or exchange offer (as it may be amended) times the number of shares of
Common Stock outstanding (including any tendered or exchange shares) as of the
Expiration Time, then, and in each such case, immediately prior to the opening
of business on the day after the date of the Expiration Time, the Conversion
Rate shall be adjusted so

                                      -6-
<PAGE>

that the same shall equal the rate determined by dividing the Conversion Rate
immediately prior to close of business on the date of the Expiration Time by a
fraction (i) the numerator of which shall be equal to (A) the product of (I) the
current market price per share of Common Stock on the date of the Expiration
Time multiplied by (II) the number of shares of Common Stock outstanding
(including any tendered or exchanged shares) on the date of the Expiration Time
less (B) the combined tender and cash amount, and (ii) the denominator of which
shall be equal to the product of (A) the current market price per share of the
Common Stock as of the Expiration Time multiplied by (B) the number of shares of
Common Stock outstanding (including any tendered or exchanged shares) as of the
Expiration Time less the number of all shares validly tendered or exchanged and
not withdrawn as of the Expiration Time (the shares deemed so accepted up to and
any such maximum, being referred to as the "Purchased Shares").

                      (7) For the purpose of any computation under paragraphs
(2), (4), (5) or (6) of this Section 2(b), the current market price per share of
Common Stock on any date shall be calculated by the Parent and be deemed to be
the average of the daily Closing Prices for the ten (10) consecutive Trading
Days before the earlier of (i) the day in question and (ii) the day before the
"ex" date with respect to the issuance or distribution requiring such
computation or, if such Closing Prices are not available, then such current
market price shall be deemed to be such value as is determined in good faith by
the Board of Directors of the Parent, whose determination shall be conclusive
and described in a board resolution. For purposes of this paragraph, the term
"ex date", when used with respect to any issuance or distribution, means the
first date on which the Common Stock trades regular way in the applicable
securities market or on the applicable securities exchange without the right to
receive such issuance or distribution.

                      (8) No adjustment in the Conversion Rate shall be required
unless such adjustment (plus any adjustments not previously made by reason of
this paragraph (8)) would require an increase or decrease of at least one
percent (1%) in such rate; provided, however, that any adjustments which by
reason of this paragraph (8) are not required to be made shall be carried
forward and taken into account in any subsequent adjustment. All calculations
under this Section 2 shall be made to the nearest cent or to the nearest
one-hundredth of a share, as the case may be.

                      (9) The Company may make such increases in the Conversion
Rate, for the remaining term of this Instrument or any shorter term, in addition
to those required by paragraphs (1), (2), (3), (4), (5) and (6) of this Section
2(b) as it considers to be advisable in order to avoid or diminish any income
tax to any holders of Common Stock resulting from any dividend or distribution
of stock or issuance of rights or warrants to purchase or subscribe for stock or
from any event treated as such for income tax purposes.

               (c) Whenever the Conversion Rate is adjusted as provided in
Section 2(b), the Company shall or shall cause the Parent to compute the
adjusted Conversion Rate in accordance with Section 2(b) and shall promptly
prepare a certificate which will be signed by the chief financial officer of the
Parent setting forth the adjusted Conversion Rate and showing in reasonable
detail the facts upon which such adjustment is based, and the Company shall or
shall cause the Parent, within 15 Business Days following such adjustment, to
deliver such certificate to the holder of this Instrument.

                                      -7-
<PAGE>

               (d) In case:

                      (1) the Parent shall declare a dividend or other
distribution on its Common Stock that would require any adjustment pursuant to
Section 2(b); or

                      (2) the Parent shall authorize the granting to the holders
of its Common Stock of rights, options or warrants to subscribe for or purchase
any shares of capital stock of any class or of any other rights; or

                      (3) of any reclassification of the Common Stock of the
Parent, or of any consolidation, merger or share exchange to which the Parent is
a party and for which approval of any shareholders of the Parent is required, or
of the conveyance, sale, transfer or lease of all or substantially all of the
assets of the Parent; or

                      (4) of the voluntary or involuntary dissolution,
liquidation or winding up of the Parent; or

                      (5) the Parent or any Subsidiary shall commence a tender
offer for all or a portion of the Parent's outstanding Common Stock (or shall
amend any such tender offer);

then the Company shall or shall cause the Parent to deliver to the holder of
this Instrument, at least twenty (20) days (or ten (10) days in any case
specified in clause (1) or (2) above) prior to the applicable record, expiration
or effective date hereinafter specified, a notice stating (x) the date on which
a record is to be taken for the purpose of such dividend, distribution, rights,
options or warrants, or, if a record is not to be taken, the date as of which
the holders of Common Stock of record to be entitled to such dividend,
distribution, rights, options or warrants are to be determined, (y) the date on
which the right to make tenders under such tender offer expires or (z) the date
on which such reclassification, consolidation, merger, conveyance, transfer,
sale, lease, dissolution, liquidation or winding up is expected to become
effective, and the date as of which it is expected that holders of Common Stock
of record shall be entitled to exchange their Common Stock for securities, cash
or other property deliverable upon such reclassification, consolidation, merger,
conveyance, transfer, sale, lease, dissolution, liquidation or winding up.
Neither the failure to give such notice nor any defect therein shall affect the
legality or validity of the proceedings described in clauses (1) through (5) of
this Section 2(d).

               (e) The Company shall cause the Parent at all times to reserve
and keep available, free from preemptive rights, out of its authorized but
unissued Common Stock, for the purpose of effecting the conversion of this
Instrument, the full number of shares of Common Stock then issuable upon the
conversion of this Instrument, without regard to any limitations on conversion.

               (f) Except as provided in the next sentence, the Company will pay
any and all taxes and duties that may be payable in respect of the issue or
delivery of Common Stock on conversion of the Instrument. The Company shall not,
however, be required to pay any tax or duty which may be payable in respect of
any transfer involved in the issue and delivery of Common Stock in a name other
than that of the holder of this Instrument, and no such issue or delivery shall
be made unless and until the Person requesting such issue has paid to the
Company the amount of any

                                      -8-
<PAGE>

such tax or duty, or has established to the satisfaction of the Company that
such tax or duty has been paid.

               (g) The Company shall cause, and shall ensure that Parent causes,
all Common Stock which may be delivered upon conversion of this Instrument, upon
such delivery, to have been duly authorized and validly issued and will be fully
paid and nonassessable (and shall be issued out of the Parent's authorized but
unissued shares of Common Stock) and, except as provided in Section 2(f), the
Company will pay all taxes, liens and charges with respect to the issue thereof.

               (h) In case of any recapitalization or reclassification of the
Common Stock (other than a change in par value, or as a result of a subdivision
or combination covered by paragraph (3) of Section 2(b)), or any consolidation
of the Parent with any other Person, any merger of the Parent into another
Person or of another Person into the Parent (other than a merger which does not
result in a reclassification, conversion, exchange or cancellation of the
outstanding Common Stock), or any conveyance, sale, transfer or lease of all or
substantially all of the properties and assets of the Parent (collectively, a
"Capital Reorganization"), the Parent or the Person formed by such Capital
Reorganization, as the case may be, shall execute and deliver to the holder of
this Instrument a supplemental agreement providing that such holder has the
right thereafter, during the period this Instrument shall be convertible as
specified in Section 2(a), to convert this Instrument only into the kind and
amount of securities, cash and other property receivable upon such Capital
Reorganization by a holder of the number of shares of Common Stock of the Parent
into which this Instrument might have been converted immediately prior to such
Capital Reorganization, assuming such holder of Common Stock of the Parent (i)
is not a Person with which the Parent consolidated, into which the Parent merged
or which merged into the Parent or to which any conveyance, sale, transfer or
lease was made, as the case may be (a "Constituent Person"), or an Affiliate of
a Constituent Person and (ii) failed to exercise its rights of election, if any,
as to the kind or amount of securities, cash and other property receivable upon
such Capital Reorganization (provided that if the kind or amount of securities,
cash and other property receivable upon such Capital Reorganization is not the
same for each share of Common Stock of the Parent held immediately prior to such
Capital Reorganization by others than a Constituent Person or an Affiliate
thereof and in respect of which such rights of election shall not have been
exercised ("Non-electing Share"), then for the purpose of this Section 2(h) the
kind and amount of securities, cash and other property receivable upon such
Capital Reorganization by the holders of each Non-electing Share shall be deemed
to be the kind and amount so receivable per share by a plurality of the
Non-electing Shares). Such supplemental agreement shall provide for adjustments
which, for events subsequent to the effective date of such supplemental
agreement, shall be equivalent to the adjustments provided for in this Section
2. The above provisions of this Section 2(h) shall similarly apply to successive
Capital Reorganizations. If this Section 2(h) applies to any event or
occurrence, then the other provisions of Section 2(b) shall not apply.

               (i) The Company will cause the Parent to take all necessary
actions to list the Common Stock required to be issued and delivered upon
conversion of this Instrument, on each national securities exchange on which
outstanding Common Stock of the Parent is listed or quoted, or if the Common
Stock is not then listed on any securities exchange, to qualify the Common Stock
for quotation on the Nasdaq National Market or such other inter-dealer quotation
system, if any, on

                                      -9-
<PAGE>

which the Common Stock is then quoted. The Company represents and warrants that,
as of the date hereof, the Common Stock is qualified for quotation on the Nasdaq
National Market.

        3.     EVENTS OF DEFAULT.

               (a) "Event of Default", wherever used herein, means any one of
the following events (whatever the reason for such Event of Default and whether
it shall be voluntary or involuntary or be effected by operation of law or
pursuant to any judgment, decree or order of any court or any order, rule or
regulation of any administrative or governmental body):

                      (1) default in the payment of principal on this Instrument
when due on the Maturity Date or on any Repurchase Date; or

                      (2) default in the payment of any interest on this
Instrument when it becomes due and payable, including without limitation on any
Repurchase Date; or

                      (3) default in the performance, or breach, of any other
covenant of the Company (other than a covenant the default in the performance or
breach of which is specifically dealt with elsewhere in this Section 3(a)) and,
in the case only of defaults and breaches which are capable of being cured,
continuance of such default or breach for a period of 40 days after there has
been given, by registered or certified mail, to the Company by the holder of
this Instrument a written notice specifying such default or breach and requiring
it to be remedied and stating that such notice is a "Notice of Default"
hereunder; or

                      (4) commencement of an involuntary case, petition or other
proceeding against the Company or Parent seeking liquidation, receivership,
examinership, reorganization, assignment, adjustment or composition of or in
respect to the Company or Parent or other relief with respect to it or its debts
under any applicable federal or state bankruptcy, insolvency or other similar
law now or hereafter in effect or seeking the appointment of a trustee,
receiver, examiner, liquidator, custodian or other similar official of it or any
substantial part of its assets, and such involuntary case or other proceeding
shall remain undismissed or unstayed for a period of 60 consecutive days or
anything analogous thereto occurring in the case of the Company pursuant to the
laws of the jurisdiction where the Company is incorporated and constituted; or

                      (5) the commencement by the Company or Parent of a
voluntary case or proceeding under any applicable Federal or State bankruptcy,
insolvency, reorganization or other similar law or of any other case or
proceeding to be adjudicated a bankrupt or insolvent, or to be wound up, or the
consent by the Company or Parent to the entry of a decree or order for relief in
respect of the Company or Parent in an involuntary case or proceeding under any
applicable Federal or State bankruptcy, insolvency, reorganization or other
similar law or to the commencement of any bankruptcy or insolvency case or
proceeding against either the Company or Parent, or the filing by either the
Company or Parent of a petition or answer or consent seeking reorganization or
similar relief under any applicable Federal or State law, or the consent by it
to the filing of such petition or to the appointment of or taking possession by
a custodian, receiver, examiner, liquidator, assignee, trustee, sequestrator or
other similar official of the Company or Parent or of any substantial part of
the property of the Company or Parent, or the making by either the Company or
Parent of an

                                      -10-
<PAGE>

assignment for the benefit of creditors, or the admission by either the Company
or Parent in writing of its inability to pay its debts generally as they become
due, or the taking of corporate action by the Company or Parent in furtherance
of any such action or anything analogous thereto occurring in the case of the
Company pursuant to the laws of the jurisdiction where the Company is
incorporated and constituted; or

                      (6) the failure by the Company to duly observe or perform
any of the covenants on the part of the Company in the Convertible Cash Note
and, in the case only of defaults and breaches which are capable of being cured,
continuance of such default or breach for a period of 40 days after there has
been given to the Company by the holder of this Instrument a written notice
specifying such default or breach and requiring it to be remedied and stating
that such notice is a "Notice of Default" under this Instrument; or

                      (7) the liquidation, examinership, winding up or
dissolution of the Company or Parent and in the case of the Company, its
receivership or examination.

               (b) If an Event of Default (other than an Event of Default
specified in Sections 3(a)(4) or 3(a)(5)) occurs and is continuing, then in
every such case the holder of this Instrument may declare the principal hereof
to be due and payable immediately, by a notice in writing to the Company, and
upon any such declaration such principal and all accrued interest thereon shall
become immediately due and payable. If an Event of Default specified in Sections
3(a)(4) or 3(a)(5) occurs and is continuing with respect to the Company or
Parent, the principal of, and accrued interest on, this Instrument shall ipso
facto become immediately due and payable without any declaration or other act of
the holders.

        4. CONSOLIDATION, MERGER, ETC.

               (a) The Company shall not (so far as it is able) consolidate with
or merge into any other Person, or (so far as it is able) register the transfer
of any shares in its share register with respect to any such consolidation or
merger, or directly or indirectly, convey, transfer, sell or lease all or
substantially all of its properties and assets to any Person, and the Company
shall not permit any Person to consolidate with or merge into the Company or,
directly or indirectly, convey, transfer, sell or lease all or substantially all
of its properties and assets to the Company, unless:

                      (1) in case the Company shall consolidate with or merge
into another Person or convey, transfer, sell or lease all or substantially all
of its properties and assets to any Person, the Person formed by such
consolidation or into which the Company is merged or the Person which acquires
by conveyance, transfer or sale, or which leases, all or substantially all the
properties and assets of the Company shall be a corporation, limited liability
company, partnership or trust, shall be organized and validly existing under the
laws of the United States of America, any State thereof or the District of
Columbia, and shall expressly assume, if other than the Company , by an
agreement supplemental hereto, executed and delivered to the holder of this
Instrument in form satisfactory to the holder, the due and punctual payment of
the principal of and any interest on this Instrument and the performance or
observance of every covenant of this Instrument on the part of the Company to be
performed or observed, including the conversion rights provided herein;

                                      -11-
<PAGE>

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

               (b) Upon any consolidation of the Company with, or merger of the
Company into, any other Person, or transfer of a controlling interest in the
Company, or any conveyance, transfer, sale or lease of all or substantially all
of the properties and assets of the Company in accordance with Section 4(a), the
successor Person formed by such consolidation or into which the Company is
merged or to which such conveyance, transfer, sale or lease is made shall
succeed to, and be substituted for, and may exercise every right and power of,
the Company under this Instrument with the same effect as if such successor
Person had been named as the Company herein, and thereafter, except in the case
of a lease, the predecessor Person shall be relieved of all obligations and
covenants under this Instrument.

        5.     SUBORDINATION.

               (a) The Company covenants and agrees, and the holder of this
Instrument by its acceptance hereof likewise covenants and agrees, that this
Instrument is subject to the provisions of this Section 5; and each Person
holding this Instrument, whether upon original issue or upon transfer,
assignment or exchange thereof, accepts and agrees to be bound by such
provisions.

        The payment of the principal of, premium, if any, and interest on this
Instrument shall, to the extent and in the manner hereinafter set forth, be
subordinated to the prior payment in full, in cash or in such other form of
payment as may be acceptable to the holders of Senior Indebtedness, of all
Senior Indebtedness, whether outstanding at the date of original issuance of
this Instrument or thereafter incurred or created.

        No provision of this Section 5 shall prevent the occurrence of any
default or Event of Default under this Instrument.

               (b) Payments to Holders. No payment shall be made with respect to
the principal of, or premium, if any, or interest on this Instrument, if:

                      (1) a default in the payment of principal, premium, if
any, or interest or other payment due on Senior Indebtedness occurs and is
continuing beyond any applicable period of grace (a "Payment Default"); or

                      (2) a default, other than a Payment Default, occurs and is
continuing with respect to Designated Senior Indebtedness that then permits
holders of the Designated Senior Indebtedness as to which such default relates
to accelerate its maturity and the holder of this Instrument and the Company
receive a written notice of such default (a "Payment Blockage Notice") from a
representative of Designated Senior Indebtedness or a holder of Designated
Senior Indebtedness (a "Non-Payment Default") and each such period during which
payments in respect of this Instrument are so prohibited is referred to as a
"Payment Blockage Period."

        The Company may and shall resume payments on this Instrument in the case
of a Payment Default, on the date upon which such default is cured or waived or
ceases to exist. The Company

                                      -12-
<PAGE>

may and shall resume payments on this Instrument, and the applicable Payment
Blockage Period shall terminate, in the case of a Non-Payment Default, on the
earliest to occur of the following dates: (w) the date upon which such
Non-Payment Default is cured or waived or otherwise ceases to exist; (x) 179
days after the date of receipt by the holder of this Instrument of such Payment
Blockage Notice (provided the Senior Indebtedness shall not theretofore have
been accelerated and provided further, that upon the rescission (if any) of such
acceleration, payments in respect of this Instrument shall resume as and to the
extent set forth below); (y) the date on which the Senior Indebtedness shall
have been discharged or paid in full; or (z) the date on which such Payment
Blockage Period shall have been terminated by written notice to the Company or
the holder of this Instrument from the holder of Senior Indebtedness who
delivered the Payment Blockage Notice or its representative, and after which, in
the case of clauses (w) through (z), the Company shall resume making any and all
required payments in respect of this Instrument, including any payments not made
during the Payment Blockage Period.

        At any time (i) after the occurrence of a Payment Default and until the
conditions described in the first sentence of the previous paragraph are
satisfied, or (ii) after the receipt of a Payment Blockage Notice by the holder
of this Instrument and the Company and until the termination of the Payment
Blockage Period, the holder of this Instrument shall have no right to accelerate
the maturity of the amounts due under this Instrument or otherwise demand
payment thereof, enforce any claim with respect to the amounts due under this
Instrument, institute or attempt to institute any bankruptcy or insolvency
proceedings against the Company or the Company's property without the prior
written consent of each holder of Senior Indebtedness, until the first to occur
of (a) acceleration of the Senior Indebtedness; or (b) commencement of judicial
enforcement of any rights or remedies under the documents evidencing the Senior
Indebtedness of applicable law with respect to the Senior Indebtedness or the
documents evidencing the Senior Indebtedness, or commencement of a proceeding of
the nature described in Sections 3(a)(4) or 3(a)(5) above (each, an "Insolvency
Proceeding"), except to the extent (but only to such extent) that the
commencement of a legal action may be required to toll the running of any
applicable statute of limitation.

        No new period of payment blockage may be commenced pursuant to a Payment
Blockage Notice unless at least 365 days shall have elapsed since the Company's
receipt of the immediately prior Payment Blockage Notice. No default (whether or
not such event of default is on the same issue of Designated Senior
Indebtedness) that existed or was continuing on the date of delivery of any
Payment Blockage Notice to the holder of this Instrument shall be, or be made,
the basis for a subsequent Payment Blockage Notice.

        If payment of this Instrument is accelerated because of an Event of
Default, the Company shall promptly notify holders of Senior Indebtedness of the
acceleration.

        Notwithstanding the foregoing, in the event that the holder of this
Instrument receives any payment or distribution of assets of the Company of any
kind in contravention of any term of this Section 5, whether in cash, property
or securities, including, without limitation, by way of setoff or otherwise,
before all Senior Indebtedness is paid in full, in cash or such other form of
payment as may be acceptable to the holders of Senior Indebtedness, then such
payment or distribution shall be held by the recipient or recipients in trust
for the benefit of, and shall promptly be paid over or delivered to, the holders
of Senior Indebtedness or their respective representative or representatives,

                                      -13-
<PAGE>

or to the trustee or trustees under any indenture pursuant to which any
instruments evidencing any Senior Indebtedness may have been issued, as their
respective interests may appear, as calculated by the Company, for application
to the payment of all Senior Indebtedness remaining unpaid to the extent
necessary to make payment in full, in cash or such other form of payment as may
be acceptable to the holders of Senior Indebtedness, of all Senior Indebtedness
remaining unpaid, after giving effect to any concurrent payment or distribution,
or provision therefor, to or for the holders of such Senior Indebtedness.

        (c) Bankruptcy and Dissolution, Etc. Upon any payment by the Company, or
distribution of assets of the Company of any kind or character, whether in cash,
property or securities, to creditors or members upon any dissolution,
winding-up, liquidation, reorganization, receivership, examinership or other
proceeding of the Company, whether voluntary or involuntary or in bankruptcy,
insolvency, examinership, receivership or other proceedings, all amounts due or
to become due upon all Senior Indebtedness shall first be paid in full, in cash
or in such other form of payment as may be acceptable to the holders of Senior
Indebtedness, before any payment is made on account of the principal or premium,
if any, and interest on this Instrument; and upon any such dissolution,
winding-up, liquidation or reorganization or bankruptcy, insolvency,
receivership, examinership or other such proceedings, any payment by the
Company, or distribution of assets of the Company of any kind or character,
whether in cash, property or securities, to which the holders of this Instrument
would be entitled, except for the provisions of this Section 5, shall (except as
aforesaid) be paid by the Company or by any receiver, examiner, trustee in
bankruptcy, liquidating trustee, agent or other Person making such payment or
distribution, or by the holder of this Instrument if received by it, directly to
the holders of Senior Indebtedness (pro rata to such holders on the basis of the
respective amounts of Senior Indebtedness held by such holders, or as otherwise
required by law or a court order) or their respective representative or
representatives, or to the trustee or trustees under any indenture pursuant to
which any instruments evidencing any Senior Indebtedness may have been issued,
as their respective interests may appear, to the extent necessary to pay all
Senior Indebtedness in full in cash or in such other form of payment as may be
acceptable to the holders of Senior Indebtedness after giving effect to any
concurrent payment or distribution to or for the holders of Senior Indebtedness,
before any payment or distribution is made to the holder of this Instrument.

        Notwithstanding the foregoing, in the event that the holder of this
Instrument receives any payment or distribution of assets of the Company of any
kind in contravention of any term of this Instrument, whether in cash, property
or securities, including, without limitation, by way of setoff or otherwise,
before all Senior Indebtedness is paid in full, in cash or such other form of
payment as may be acceptable to the holders of Senior Indebtedness, then such
payment or distribution shall be held by the recipient or recipients in trust
for the benefit of, and shall promptly be paid over or delivered to, the holders
of Senior Indebtedness or their respective representative or representatives, or
to the trustee or trustees under any indenture pursuant to which any instruments
evidencing any Senior Indebtedness may have been issued, as their respective
interests may appear, as calculated by the Company, for application to the
payment of all Senior Indebtedness remaining unpaid to the extent necessary to
make payment in full, in cash or such other form of payment as may be acceptable
to the holders of Senior Indebtedness, of all Senior Indebtedness remaining
unpaid, after giving effect to any concurrent payment or distribution, or
provision therefor, to or for the holders of such Senior Indebtedness.

                                      -14-
<PAGE>

        For purposes of Section 5(b) hereof and this Section 5(c), the words
"cash, property or securities" shall not be deemed to include shares of stock of
the Company as reorganized or readjusted, or securities of the Company or any
other corporation provided for by a plan of reorganization or readjustment, the
payment of which is subordinated (at least to the extent provided in this
Section 5 with respect to this Instrument) to the payment of all Senior
Indebtedness which may at the time be outstanding. The consolidation of the
Company with, or the merger of the Company into, another corporation or the
liquidation or dissolution of the Company following the conveyance or transfer
of its property as an entirety, or substantially as an entirety, to another
corporation upon the terms and conditions provided for in Section 4 shall not be
deemed a dissolution, winding-up, liquidation or reorganization for the purposes
of this Section 5(c) if such other corporation shall, as a part of such
consolidation, merger, conveyance or transfer, comply with the conditions stated
in Section 4.

               (d) Subrogation. Subject to the payment in full in cash, or in
such other form of payment as may be acceptable to the holders of Senior
Indebtedness, of all Senior Indebtedness, the rights of the holder of this
Instrument shall be subrogated to the extent of the payments or distributions
made to the holders of such Senior Indebtedness pursuant to the provisions of
this Section 5 (equally and ratably with the holders of all indebtedness of the
Company which by its express terms is subordinated to other indebtedness of the
Company to substantially the same extent as this Instrument is subordinated and
is entitled to like rights of subrogation) to the rights of the holders of
Senior Indebtedness to receive payments or distributions of cash, property or
securities of the Company applicable to the Senior Indebtedness until the
principal of, and premium, if any, and interest on this Instrument shall be paid
in full; and, for the purposes of such subrogation, no payments or distributions
to the holders of the Senior Indebtedness of any cash, property or securities to
which the holder of this Instrument would be entitled except for the provisions
of this Section 5, and no payment over pursuant to the provisions of this
Section 5, to or for the benefit of the holders of Senior Indebtedness by
holders of this Instrument, shall, as between the Company, its creditors other
than holders of Senior Indebtedness, and the holder of this Instrument, be
deemed to be a payment by the Company to or on account of the Senior
Indebtedness; and no payments or distributions of cash, property or securities
to or for the benefit of the holder of this Instrument pursuant to the
subrogation provisions of this Section 5, which would otherwise have been paid
to the holders of Senior Indebtedness shall be deemed to be a payment by the
Company to or for the account of this Instrument. It is understood that the
provisions of this Section 5 are and are intended solely for the purposes of
defining the relative rights of the holder of this Instrument, on the one hand,
and the holders of the Senior Indebtedness, on the other hand.

        Nothing contained in this Section 5 or elsewhere in this Instrument is
intended to or shall impair, as among the Company, its creditors other than the
holders of Senior Indebtedness, and the holder of this Instrument, the
obligation of the Company, which is absolute and unconditional, to pay to the
holder of this Instrument the principal of, and premium, if any, and interest on
the Instrument as and when the same shall become due and payable in accordance
with their terms, or is intended to or shall affect the relative rights of the
holder of this Instrument and creditors of the Company other than the holders of
the Senior Indebtedness, nor shall anything herein or therein prevent the holder
of this Instrument from exercising all remedies otherwise permitted by
applicable law upon default under this Instrument, subject to the rights, if
any, under this Section 5 of the holders of Senior

                                      -15-
<PAGE>

Indebtedness in respect of cash, property or securities of the Company received
upon the exercise of any such remedy.

        Upon any payment or distribution of assets of the Company referred to in
this Section 5, the holder of this Instrument shall be entitled to rely upon any
order or decree made by any court of competent jurisdiction in which such
bankruptcy, dissolution, winding-up, liquidation, reorganization, receivership
or examinership proceedings are pending, or a certificate of the receiver,
trustee in bankruptcy, liquidating trustee, agent or other Person making such
payment or distribution, delivered to the holder of this Instrument, for the
purpose of ascertaining the Persons entitled to participate in such
distribution, the holders of the Senior Indebtedness and other indebtedness of
the Company, the amount thereof or payable thereon, the amount or amounts paid
or distributed thereon and all other facts pertinent thereto or to this Section
5.

               (e) Notice.The Company shall give prompt written notice to the
holder of this Instrument of any fact known to the Company which would prohibit
the making of any payment of monies due in respect of this Instrument pursuant
to the provisions of this Section 5.

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

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

        Without in any way limiting the generality of the foregoing paragraph,
the holders of the Senior Indebtedness may, at any time and from time to time,
without the consent of or notice to the holder of this Instrument, without
incurring responsibility to the holder of this Instrument, and without impairing
or releasing the subordination provided in this Instrument or the obligations of
the holder of this Instrument to the holders of the Senior Indebtedness, do any
one or more of the following: (a) change the manner, place, or terms of payment
(including any change in the rate of interest) or extend the time of payment of,
or renew, amend, modify, alter, or grant any waiver or release with respect to,
or consent to any departure from, any Senior Indebtedness or any instrument
evidencing the same or any agreement evidencing, governing, creating,
guaranteeing or securing any

                                      -16-
<PAGE>

Senior Indebtedness; (b) sell, exchange, release, or otherwise deal with any
property pledged, mortgaged or otherwise securing Senior Indebtedness; (c)
release any Person liable under or in respect of the Senior Indebtedness; (d)
fail or delay in the perfection of liens securing the Senior Indebtedness; (e)
exercise or refrain from exercising any rights against Company and any other
Person; or (f) amend, or grant any waiver or release with respect to, or consent
to any departure from, any guarantee for all or any of the Senior Indebtedness.

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

        6. DEFINITIONS. Unless otherwise defined in this Instrument, the
following capitalized terms shall have the following respective meanings when
used herein:

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

        "Averaging Period" means the period of five consecutive Trading Days
ending on the second Trading Day immediately prior to the Maturity Date.

        "AVWAP" means the arithmetic average of the daily volume weighted
average prices for the Common Stock as reported by Bloomberg L.P. for each
Trading Day in the Averaging Period.

        "Business Day" means each Monday, Tuesday, Wednesday, Thursday and
Friday which is not a day on which the banking institutions in the City of New
York or San Francisco, California are authorized or obligated by law or
executive order to close or be closed.

                                      -17-
<PAGE>

        "Closing Price" means, with respect to the Common Stock of the Parent,
for any day, the reported last sale price per share on the Nasdaq National
Market, or, if the Common Stock is not admitted to trading on the Nasdaq
National Market, on the principal national securities exchange or inter-dealer
quotation system on which the Common Stock is listed or admitted to trading, or
if not admitted to trading on the Nasdaq National Market, or listed or admitted
to trading on any national securities exchange or inter-dealer quotation system,
the closing bid price per share in the over-the-counter market as furnished by
any New York Stock Exchange member firm selected from time to time by the Parent
for that purpose.

        "Common Stock" means the Common Stock, par value $0.001 per share, of
the Parent authorized at the date of this instrument as originally executed.
Subject to the provisions of Section 2, shares issuable on conversion of this
Instrument shall include only Common Stock or shares of any class or classes of
common stock resulting from any reclassification or reclassifications thereof;
provided, however, that if at any time there shall be more than one such
resulting class, the shares so issuable on conversion of this Instrument shall
include shares of all such classes, and the shares of each such class then so
issuable shall be substantially in the proportion which the total number of
shares of such class resulting from all such reclassifications bears to the
total number of shares of all such classes resulting from all such
reclassifications.

        "Convertible Cash Note" has the meaning given to such term in the
Purchase Agreement.

        "Designated Senior Indebtedness" means the Company's obligations under
any Senior Indebtedness with a principal amount in excess of Ten Million Dollars
($10,000,000) in which the instrument creating or evidencing the same or the
assumption or guarantee thereof (or related agreements or documents to which the
Company is a party) expressly provides that such Senior Indebtedness shall be
"Designated Senior Indebtedness" for purposes of this Instrument (provided that
such instrument, agreement or other document may place limitations and
conditions on the right of such Senior Indebtedness to exercise the rights of
Designated Senior Indebtedness).

        "Determination Date" means, in the case of a dividend or other
distribution, including the issuance of rights, options or warrants, to
shareholders, the date fixed for the determination of shareholders entitled to
receive such dividend or other distribution and, in the case of a tender offer,
the last time that tenders could have been made pursuant to such tender offer.

        "Exchange Act" means the Securities Exchange Act of 1934, as amended.

        "FTC" has the meaning given to the term in Section 2(a)(4).

        "Indebtedness" means, with respect to any Person:

               (a) All obligations, contingent or otherwise, of such Person (i)
        for borrowed money (whether or not the recourse of the lender is to the
        whole of the assets of such Person or only to a portion thereof), (ii)
        evidenced by a note, debenture, bond or written instrument (including a
        purchase money obligation), (iii) in respect of leases of such Person
        required, in conformity with generally accepted accounting principles,
        to be accounted for as capitalized lease obligations on the balance
        sheet of such Person and all obligations and other liabilities

                                      -18-
<PAGE>

        (contingent or otherwise) under any lease or related document (including
        a purchase agreement) in connection with the lease of real property
        which provides that such Person is contractually obligated to purchase
        or cause a third party to purchase the leased property and thereby
        guarantee a minimum residual value of the leased property to the lessor
        and the obligations of such Person under such lease or related document
        to purchase or to cause a third party to purchase such leased property;
        or (iv) in respect of letters of credit (including reimbursement
        obligations with respect thereto), local guarantees or bankers'
        acceptances;

               (b) All obligations secured by a mortgage, pledge, lien,
        encumbrance, charge or adverse claim affecting title or resulting in an
        encumbrance to which the property or assets of such Person are subject,
        whether or not the obligations secured thereby shall have been assumed
        by or shall otherwise be such Person's legal liability;

               (c) To the extent not otherwise included, all obligations of such
        Person under interest rate and currency swap agreements, cap, floor and
        collar agreements, spot and forward contracts and similar agreements and
        arrangements;

               (d) All obligations of others of the type described in clauses
        (a), (b), or (c) above assumed by or guaranteed in any manner by such
        Person or in effect guaranteed by such Person through an agreement to
        purchase, contingent or otherwise (and the obligations of such Person
        under any such assumptions, guarantees or other such arrangements); and

               (e) All obligations, contingent or otherwise, of such Person
        under or in respect of any and all deferrals, renewals, extensions and
        refundings of, or amendments, modifications or supplements to, any
        liability of the kinds described in any of the preceding clauses (a),
        (b), (c) or (d).

        "Instrument" has the meaning given to such term in the first paragraph
hereof and also refers to any Instrument executed and delivered by the Company
upon partial conversion or in exchange or replacement of this Instrument
pursuant to Sections 2 or 7(d) hereof.

        "Person" shall mean and include an individual, a partnership, a
corporation (including a business trust), a joint stock company, a limited
liability company, an unincorporated association, a joint venture or other
entity or a governmental authority.

        "Rights Plan" has the meaning given to such term in Section 2(b)(4).

        "Securities Act" means the Securities Act of 1933, as amended.

        "Senior Indebtedness" means, unless expressly subordinated to or made on
a parity with the amounts due under this Note, the principal of (and premium, if
any), unpaid interest on and amounts reimbursable, fees, expenses, costs of
enforcement and other amounts due in connection with, (i) Indebtedness of the
Company, or with respect to which the Company is a guarantor, to banks,
commercial finance lenders, insurance companies, or other lending institutions
regularly engaged in the business of lending money, which is for money borrowed,
whether or not secured, (ii) Indebtedness of the Company secured by assets of
the Company, or (iii) any such Indebtedness or any debentures, notes or other
evidence of Indebtedness issued in exchange for such Indebtedness

                                      -19-
<PAGE>

identified in clause (i) or (ii) of this sentence, in each case to the extent
incurred on an arm's length basis with non-Affiliates of the Company.

        "Subsidiary" shall mean (a) any corporation of which more than 50% of
the issued and outstanding equity securities having ordinary voting power to
elect a majority of the board of directors of such corporation is at the time
directly or indirectly owned or controlled by the Company, (b) any partnership,
joint venture, limited liability company or other association of which more than
50% of the equity interests having the power to vote, direct or control the
management of such partnership, joint venture, limited liability company or
other association is at the time directly or indirectly owned and controlled by
the Company, and (c) any other entity included in the financial statements of
the Company on a consolidated basis.

        "Trading Day" means (i) if the Common Stock is admitted to trading on
the Nasdaq National Market or any other system of automated dissemination of
quotations of securities prices, a day on which trades may be effected through
such system; (ii) if the Common Stock is listed or admitted for trading on the
New York Stock Exchange or any other national securities exchange, a day on
which such exchange is open for business; or (iii) if the Common Stock is not
admitted to trading on the Nasdaq National Market or listed or admitted for
trading on any national securities exchange or any other system of automated
dissemination of quotation of securities prices, a day on which the Common Stock
is traded regular way in the over-the-counter market and for which a closing bid
and a closing asked price for the Common Stock are available.

        "U.S. Dollars" means such coin or currency of the United States of
America as at the time of payment shall be legal tender for the payment of
public and private debts.

        7.     RIGHT TO REQUIRE REPURCHASE.

               (a) In the event that a Change in Control (as hereinafter
defined) shall occur, then the holder of this Instrument shall have the right,
at such holder's option, to require the Company to repurchase, and upon the
exercise of such right the Company shall repurchase, all or part of this
Instrument (as provided hereinbelow) on the date (the "Repurchase Date") that is
20 Business Days (or such longer period as required by applicable law) after the
date on which the Company gives notice of such Change of Control to the holder
of this Instrument, at a purchase price equal to the Repurchase Price (as
hereinafter defined). The Company agrees to give the holder of this Instrument
notice, in the manner provided in Section 8(c), of any Change in Control,
promptly and in any event within three (3) Business Days after the occurrence
thereof.

               (b) To exercise a repurchase right, the holder shall deliver to
the Company on or before the 5th Business Day prior to the Repurchase Date,
together with this Instrument, written notice of the holder's exercise of such
right, which notice shall set forth the name of the holder, the principal amount
of this Instrument to be repurchased (and, if this Instrument is to be
repurchased in part, the portion of the principal amount thereof to be
repurchased) and a statement that an election to exercise the repurchase right
is being made thereby. Such written notice shall be irrevocable, except that the
right of the holder to convert this Instrument (or the portion hereof with
respect to which the repurchase right is being exercised) shall continue until
the close of business on the Business Day prior to the Repurchase Date.

                                      -20-
<PAGE>

               (c) In the event a repurchase right shall be exercised in
accordance with the terms hereof, the Company shall pay or cause to be paid to
the holder the Repurchase Price in cash on the Repurchase Date in the manner set
forth in the introductory paragraph to this Instrument.

               (d) If this Instrument is to be repurchased only in part, it
shall be surrendered to the Company at the Designated Office (with, if the
Company so requires, due endorsement by, or a written instrument of transfer in
form satisfactory to the Company, duly executed by the holder hereof), and the
Company shall execute and deliver to the holder, without service charge, a new
Instrument containing terms and conditions identical to those contained herein
and in a principal amount equal to and in exchange for the unrepurchased portion
of the principal of this Instrument.

               (e) For purposes of this Section 7:

                      (1) the term "beneficial owner" shall be determined in
accordance with Rule 13d-3 promulgated by the Securities and Exchange Commission
pursuant to the Exchange Act;

                      (2) a "Change in Control" shall be deemed to have occurred
at the time, after the original issuance of this Instrument, of:

                             (i) the acquisition by any Person (including, for
purposes of this Section 7, any group of two or more persons or entities acting
together as contemplated by Section 14(d) of the Exchange Act) of beneficial
ownership, directly or indirectly, through a purchase, merger or other
acquisition transaction or series of transactions, of shares of capital stock of
the Company or the Parent entitling such Person to exercise 50% or more of the
total voting power of all shares of capital stock of the Company or the Parent
entitled to vote generally in the elections of directors (any shares of voting
stock of which such Person is the beneficial owner that are not then outstanding
being deemed outstanding for purposes of calculating such percentage) other than
any such acquisition by the Company or the Parent or any employee benefit plan
of the Company or the Parent; or

                             (ii) any consolidation or merger of the Company or
the Parent with or into, any other Person, any merger of another Person with or
into the Company or the Parent, or any conveyance, transfer, sale, lease or
other disposition of all or substantially all of the assets of the Company or
the Parent to another Person (other than (a) any such transaction pursuant to
which holders of capital stock of the Company (or if applicable, of the Parent)
immediately prior to such transaction have the entitlement to exercise, directly
or indirectly, 50% or more of the total voting power of all shares of capital
stock entitled to vote generally in the election of directors of the continuing
or surviving Person immediately after such transaction and (b) any merger (x)
which does not result in any reclassification, conversion, exchange or
cancellation of outstanding Common Stock or (y) which is effected solely to
change the jurisdiction of incorporation of the Company or the Parent and
results in a reclassification, conversion or exchange of outstanding Common
Stock into solely shares of common stock);

                                      -21-
<PAGE>

                             (iii) "Repurchase Price" means the sum of (a) 100%
of the principal amount of this Instrument to be repurchased pursuant to this
Section 7 and (b) accrued and unpaid interest on this Instrument to the date of
payment.

        8.     OTHER.

               (a) No provision of this Instrument shall alter or impair the
obligation of the Company, which is absolute and unconditional, to pay the
principal of and interest, on this Instrument at the times, places and rate, and
in the coin or currency, herein prescribed or to cause the conversion of this
Instrument as herein provided.

               (b) The Company will give prompt written notice to the holder of
this Instrument of any change in the location of the Designated Office.

               (c) Any notice hereunder to the Company or to the holder of this
Instrument shall be given in the manner set forth in Section 10.1 of the
Purchase Agreement and shall be given to the Company in care of the Parent
pursuant to such Section 10.1.

               (d) This Instrument and the Common Stock issuable upon conversion
of this Instrument have not been registered under the Securities Act, or the
securities laws of any state or other jurisdiction. Neither this Instrument nor
the Common Stock issuable upon conversion of this Instrument nor any interest or
participation herein may be reoffered, sold, assigned, transferred, pledged,
encumbered or otherwise disposed of (a "Transfer") in the absence of such
registration or unless such transaction is exempt from, or not subject to,
registration. The holder by its acceptance of this Instrument or the Common
Stock issuable upon conversion of this Instrument agrees that it shall not
offer, sell, assign, transfer, pledge, encumber or otherwise dispose of this
Instrument or any portion thereof or interest therein (other than with respect
to a Transfer of the Common Stock issuable upon conversion of this Instrument
(i) pursuant to a registration statement that is effective at the time of such
Transfer or (ii) pursuant to an exemption from the registration requirements of
the Securities Act).

               (e) Upon receipt by the Company of evidence reasonably
satisfactory to it of the loss, theft, destruction or mutilation of this
Instrument, and in the case of loss, theft or destruction, receipt of indemnity
or security reasonably satisfactory to the Company, and upon reimbursement to
the Company of all reasonable expenses incidental thereto, and upon surrender
and cancellation of such Instrument, if mutilated, the Company will deliver a
new Instrument of like tenor and dated as of such cancellation, in lieu of such
Instrument.

               (f) The holder represents that it is an "accredited investor"
within the meaning of Rule 501 of the Securities Act. The holder has been
advised that this Instrument has not been registered under the Securities Act,
or any state securities laws and, therefore, cannot be resold unless it is
registered under the Securities Act and applicable state securities laws or
unless an exemption from such registration requirements is available. Subject to
Section 8(g), the holder is aware that the Company is under no obligation to
effect any such registration or to file for or comply with any exemption from
registration. The holder has not been formed solely for the

                                      -22-
<PAGE>
purpose of making this investment and is acquiring the Instrument for its own
account for investment, and not with a view to, or for resale in connection
with, the distribution thereof.

               (g) The shares of Common Stock issuable upon conversion of this
Instrument are subject to that certain Registration Rights Agreement, dated as
of July 15, 2002, between the Parent and the holder of this Instrument.

               (h) The Company (i) will take all such actions as may be
necessary or appropriate to cause the Parent to validly and legally issue and
deliver fully paid and non-assessable shares of Common Stock upon conversion of
this Instrument; and (ii) will not take any action and will cause the Parent not
to take any action which results in any adjustment of the Conversion Rate, if
after giving effect to such action, the total number of shares of Common Stock
issuable after the conversion of all of the outstanding principal amount of this
Instrument would exceed the total number of shares of Common Stock authorized by
the Parent's certificate of incorporation and available for the purpose of
issuance upon such conversion.

               (i) In the case of an Event of Default, the Company, to the
extent permitted by law, waives presentment, demand, notice, protest and all
other demands or notices in connection with the enforcement of this Instrument.

               (j) In case any one or more of the provisions contained in this
Instrument shall for any reason be held to be invalid, illegal or unenforceable
in any respect, such invalidity, illegality or unenforceability shall not affect
any other provisions of this Instrument, but this Instrument shall be construed
as if such invalid or illegal or unenforceable provision had never been
contained herein.

               (k) No failure on the part of the holder to exercise, and no
delay in exercising, any right, remedy or power hereunder shall operate as a
waiver thereof, nor shall any single or partial exercise by the holder of any
right, remedy or power hereunder preclude any other or future exercise of any
other right, remedy or power. Each and every right, remedy or power hereby
granted to the holder or allowed it by law or other agreement shall be
cumulative and not exclusive of any other, and may be exercised by the holder
from time to time.

               (l) Any provision of this Instrument may be amended, waived or
modified upon the written consent of Company and the holder of this Instrument.
The holder of this Instrument by its acceptance hereof acknowledges and agrees
that the subordination provisions of this instrument are for the benefit of the
holders of the Senior Indebtedness and that, accordingly, no provision of
Section 5 hereof may be amended or otherwise modified without the prior written
consent of each holder of Senior Indebtedness at such time outstanding.

               (m) THIS INSTRUMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF CALIFORNIA, WITHOUT GIVING
EFFECT TO PRINCIPLES OF CONFLICTS OF LAW.

               (n) ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS
INSTRUMENT MAY BE BROUGHT ONLY IN THE COURTS OF THE COUNTY OF LOS ANGELES, IN
THE STATE OF CALIFORNIA OR ANY COURT OF THE UNITED STATES OF AMERICA FOR THE
CENTRAL DISTRICT OF CALIFORNIA, AND, EACH OF THE

                                      -23-
<PAGE>

COMPANY AND THE HOLDER OF THIS INSTRUMENT HEREBY ACCEPTS FOR ITSELF AND IN
RESPECT OF ITS PROPERTY, GENERALLY AND UNCONDITIONALLY, THE EXCLUSIVE
JURISDICTION OF SUCH COURTS. EACH OF THE COMPANY AND THE HOLDER OF THIS
INSTRUMENT IRREVOCABLY WAIVES ANY OBJECTION, INCLUDING ANY OBJECTION TO THE
LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS, WHICH IT MAY
NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY SUCH ACTION OR PROCEEDING IN SUCH
JURISDICTION. EACH OF THE COMPANY AND THE HOLDER OF THIS INSTRUMENT IRREVOCABLY
CONSENTS TO THE SERVICE OF PROCESS OF ANY OF SUCH COURTS IN ANY SUCH ACTION OR
PROCEEDING.

               (o) The Company agrees to pay to the holder of this Instrument
all expenses (including, without limitation, the reasonable fees and
disbursements of counsel) incurred by the holder solely with respect to the
enforcement of this Instrument and the collection of any and all amounts owed to
the holder hereunder.

                  [Remainder of page intentionally left blank.]

                                      -24-
<PAGE>

        IN WITNESS WHEREOF, the Company has caused this Instrument to be duly
executed as a deed.

        Dated: August 30, 2002

PRESENT when the Official Seal of            /s Barbara Fairhurst
Catapult Communications International        BARBARA FAIRHURST, DIRECTOR
Limited was affixed hereto:

                                             /s David Mayfield
                                             DAVID MAYFIELD, DIRECTOR

We Barbara Fairhurst and David Mayfield hereby certify that the official seal of
CATAPULT COMMUNICATIONS INTERNATIONAL LIMITED has been affixed to this
Instrument on August 30, 2002 at 160 South Whisman Road, Mountain View,
California, United States of America.

/s Barbara Fairhurst                         /s David Mayfield
BARBARA FAIRHURST                            DAVID MAYFIELD
Director                                     Director

                                      -25-
<PAGE>

                                CONVERSION NOTICE

        The undersigned holder of this Instrument hereby irrevocably exercises
the option to convert this Instrument, or any portion of the principal amount
hereof (which is an integral multiple of $1,000) below designated, into Common
Stock in accordance with the terms of this Instrument, and directs that such
shares, together with a check in payment for any fractional share and any
Instrument representing any unconverted principal amount hereof, be delivered to
and be registered in the name of the undersigned unless a different name has
been indicated below. If Common Stock is to be registered in the name of a
Person other than the undersigned, the undersigned will pay all transfer taxes
payable with respect thereto.

                                             Dated:
                                                    ----------------------------

                                             TEKELEC

                                             By:
                                                --------------------------------
                                             Name:
                                             Title:

If shares are to be registered in the name of a Person other than the holder,
please print such Person's name and address:

-----------------------------------
Name

-----------------------------------
Address

-----------------------------------
Social Instrument or other Taxpayer Identification Number, if any

If only a portion of the Instrument is to be converted, please indicate:

1. Principal amount to be converted: $___________

2. Principal amount of Instrument representing unconverted principal amount to
be issued:

        Amount: $________

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