10-K

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 1999

OR

[  ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ________to _________

Commission File Number: 0-20725

SIEBEL SYSTEMS, INC.
(Exact name of registrant as specified in its charter)

 

Delaware	94-3187233
(State or Other Jurisdiction of Incorporation or Organization)	(IRS Employer Identification Number)

1855 South Grant Street
San Mateo, CA 94402
(Address of principal executive offices, including zip code)

(650) 295-5000
(Registrant's telephone number, including area code)

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

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

    The aggregate market value of the voting stock held by non-affiliates of the registrant, based on the closing sale price of the Common Stock on February 10, 2000 as reported on the Nasdaq National Market was approximately $13,578,741,895. Shares of Common Stock held by each current executive officer and director and by each person who is known by the registrant to own 5% or more of the outstanding Common Stock have been excluded from this computation in that such persons may be deemed to be affiliates of the Company. Share ownership information of certain persons known by the Company to own greater than 5% of the outstanding common stock for purposes of the preceding calculation is based solely on information on Schedule 13G filed with the Commission and is as of December 31, 1999. This determination of affiliate status is not a conclusive determination for other purposes.

    The number of shares outstanding of the registrant's Common Stock, par value $.001 per share, as of February 10, 2000, was 195,969,654.

SIEBEL SYSTEMS, INC.
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999

TABLE OF CONTENTS

PART I

PART II

PART III

PART IV

Documents Incorporated By Reference

Portions of the registrant's Proxy Statement for its 2000 Annual Stockholders Meeting are incorporated by reference in Part III hereof.

PART I

      The statements contained in this annual report on Form 10-K that are not historical are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934, as amended, including statements regarding our expectations, beliefs, intentions or strategies regarding the future. Forward-looking statements include statements regarding the extent and timing of future revenues and expenses and customer demand, statements regarding the deployment of our products, and statements regarding reliance on third parties. All forward-looking statements included in this document are based on information available to us as of the date hereof, and we assume no obligation to update any forward-looking statement. It is important to note that our actual results could differ materially from those in forward-looking statements as a result of many factors, including those discussed under the heading "Risk Factors" and elsewhere in this report.

Item 1. Business

Overview

     Siebel Systems is the world's leading provider of eBusiness applications. Siebel eBusiness Applications enable organizations to sell to, market to, and service their customers across multiple channels, including the Web, call centers, field, resellers, retail, and dealer networks. By employing comprehensive eBusiness applications to better manage their customer relationships, our customers continue to be leaders in their markets.

     Siebel eBusiness Applications are available in industry-specific versions designed for the pharmaceutical, healthcare, consumer goods, telecommunications, insurance, energy, apparel and footwear, automotive, technology, public sector, and finance markets. With best-of-class functionality of eBusiness software, Siebel eBusiness Applications enable organizations to create a single source of customer information that sales, service, and marketing professionals can use to tailor product and service offerings to meet each of their customer's unique needs. By using Siebel eBusiness Applications, organizations can develop new customer relationships, profitably serve existing customers, and integrate their systems with those of their partners, suppliers, and customers, regardless of location.

     Our customers are known for delivering the highest levels of quality in their products and services and for their commitment to maintaining the highest levels of customer satisfaction. Spanning diverse industries and locations, Siebel eBusiness Applications customers represent organizations of all sizes.

     Through global strategic alliances with industry-leading organizations, we continue to enhance Siebel eBusiness Applications, ensuring that we continue to fully support our customers' rapidly evolving technology requirements and industry best practices today and in the future.

Products

     Siebel eBusiness 99.6, released in September 1999, is the industry's most comprehensive suite of Web-based eBusiness application software. Siebel eBusiness provides organizations with one view of the customer across multiple distribution channels including the Web, call center, field sales and service, resellers, partners, and dealer channels. Our Web-based architecture and diverse product offerings are designed to provide support for sales, marketing and customer service organizations and seamlessly unites the organization's partners, resellers and customers in one global information system.

Siebel Sales

     Siebel Sales is designed to allow teams of sales and marketing professionals to manage sales information throughout the entire sales cycle. This core application includes the Opportunity Management, Account Management, Contact Management, Activity Tracking, Message Broadcasting, Siebel Search, Quotas and Incentives modules.

     Siebel Sales options, as of December 31, 1999, include Siebel Quotes, Siebel Revenue Forecasting, Siebel Product Forecasting, Siebel Proposal, Siebel Presentations, Siebel Campaigns, Siebel Sales Assistant, Siebel Target Account Selling, Siebel Customer Service Integration, Siebel Configurator, Siebel Product Configuration Integration Object and Siebel Sales Handheld.

Siebel Service

     Siebel Service enables teams of customer service, sales and marketing professionals to help ensure complete customer satisfaction by using closed-loop, service request management capabilities. The base application includes the Service Request Management, Account Management, Asset Tracking, Contact Management, Activity Tracking, Message Broadcasting, Solution Management and Siebel Search modules.

     Siebel Service options, as of December 31, 1999, include Siebel Service Assistant, Siebel Quality Management and Siebel eMail Response.

Siebel Field Service

     Siebel Field Service extends upon Siebel's customer service solution and provides field engineers with service functionality for entitlement/contracts management, integration with other customer facing departments, dispatch and scheduling, parts management and repair center operations. Siebel Field Service provides a complete solution for the mobile technician as well as the connected service agent.

     Siebel Field Service options, as of December 31, 1999, include Siebel Service Inventory, Siebel Shipping/Receiving, Siebel Logistics Manager, Siebel Repair, Siebel Service Assistant, Siebel Quality Management and Siebel eMail Response.

Siebel Call Center

     Siebel Call Center provides blended Sales and Service functionality that enables call center agents to provide both sales and customer service assistance to customers. It accesses the power of Siebel Sales and Service Enterprise to integrate all available customer information. This allows each service request to result in additional sales opportunities and provides integrated sales and service histories for each opportunity. This base application includes the Opportunity Management, Service Request Management, Account Management, Asset Tracking, Contact Management, Activity Tracking, Message Broadcasting, Solution Management and Siebel Search modules.

Siebel Call Center options, as of December 31, 1999, include all of the options available for both Siebel Sales and Siebel Service.

Siebel Marketing

     The Siebel Marketing is designed to allow marketing professionals, sales and service managers and business analysts to monitor overall company performance and the effectiveness of company programs and activities. Siebel Marketing is designed to extract information from Siebel Sales Enterprise, Siebel Service Enterprise and Siebel Call Center into a customer data mart, designed for fast data analysis. Siebel Marketing is designed to include a broad range of pre-built analyses about customers, sales pipeline, customer service, competitors, campaigns and products, allowing managers and analysts to drill down into key operational details. Siebel Marketing also includes powerful database marketing capabilities that allow marketing professionals to immediately develop multi-level campaigns that are tailored to target specific market segments.

General Product

     General product options are typically available on any of the Siebel eBusiness base applications and as of December 31, 1999, include Siebel Thin Client, Siebel Encyclopedia, Siebel Office, Siebel Calendar, Siebel Reports, Siebel Expense Reporting, Siebel Executive Information System, Siebel Incentive Compensation, Siebel Order Entry, Siebel Contracts, Siebel Campaigns, Siebel SmartScript, Siebel CTI, Siebel CTI Connect, Siebel Remote, Siebel Anywhere, Siebel Workflow Manager, Siebel Assignment Manager, Siebel Data Quality, Siebel Professional Services, Siebel Resource Assignment, Siebel Time Management and Reporting, Siebel Agreements, Siebel Distance Learning and Siebel Advanced Search.

Siebel .COM Applications

     Siebel .COM Applications allows organizations to interact directly with prospects, customers and partners over the Internet. Using Siebel ..COM Applications, organizations can rapidly deploy scalable, secure and Web-based applications for acquiring, growing and retaining customers. Siebel .COM Applications include Siebel eSales, Siebel eMarketing, Siebel eService, Siebel eChannel, Siebel eBriefings, and Siebel eMail Response.

     Siebel eSales. Siebel eSales is a Web-based application which supports unassisted business-to-business and business-to-consumer selling over the Web. Siebel eSales includes a visual product catalog, Web-based quote generation, self-service solution configuration and on-line ordering. Siebel eSales options, as of December 31, 1999, include Siebel eShopping Basket, Siebel eCatalog, Siebel eConfigurator and Siebel eOrders.

Siebel eMarketing. Siebel eMarketing enables enterprises to create, execute and assess Web-based marketing campaigns. With Siebel eMarketing, enterprises segment their customers and prospects; target them with a personalized, automatically generated Web- or email-based promotions; and create graphical reports to assess the effectiveness and return- on-investment of the campaign.

     Siebel eService and Siebel eMail Response. Through Web- and email-based service automation, Siebel eService and Siebel eMail Response allow organizations to manage the entire service process and to provide world-class customer service and support via the Internet.

Siebel eChannel. Siebel eChannel allows organizations to turn their partners, distributors, resellers, and dealers into a virtual sales and service network. By using Siebel eChannel, organizations can be linked to their business partners over the Internet, allowing business partners to better communicate with the parent organization, sell more, and increase customer satisfaction.

     Siebel eBriefings. Siebel eBriefings allows organizations to provide customized Web-based personalized briefings to sales professionals, partners and resellers over the Web. Briefings include key customer information including opportunities, accounts and contacts and on-line content such as news and company profiles.

Siebel Industry Applications

     Our products are available in industry-specific versions, all with similar functionality, but each specifically designed for a particular industry. Examples of our industry applications include:

• Siebel eFinance
• Siebel eInsurance
• Siebel eCommunications
• Siebel ePharma
• Siebel eConsumer Goods
• Siebel eEnergy

Product Development Expense

      During 1999, 1998 and 1997, the Company had product development expenses of approximately $72.9 million, $44.0 million, and $26.7 million, respectively.

Professional Services

     We provide implementation consulting and other technical services to license customers through our worldwide professional services organization. We provide these services in connection with similar services provided by certain global alliance partners to provide the customer with the full array of services necessary to install, integrate, customize and deploy Siebel eBusiness Applications.

Customer Support and Training

     We offer a comprehensive, multi-tiered, integrated family of global support programs designed to ensure successful implementation and customer satisfaction. These programs include maintenance, technical support, professional services and customer communications, as well as extensive educational offerings. Our educational offerings include technical training, end user training, and advanced sales training.

Marketing and Sales

     In the United States, we market and sell our products and services through our direct sales and services organization, and through channel partners including Great Plains, J.D.Edwards and others. Our sales and service professionals are located in 44 offices throughout the United States. In addition, we employ sales and service professionals in 37offices outside of the United States, selling our products primarily through direct sales and services organization in the countries where we have an office. We also market and sell our products through distributors, primarily in Japan, Latin America, South Africa and Asia.

     Our ability to achieve significant revenue growth in the future will depend in large part on how successfully we recruit, train and retain sufficient direct sales, technical and customer support personnel, and how well we continue to establish and maintain relationships with our strategic partners. We believe that the complexity of our products and the large scale deployments anticipated by our customers will require a number of highly trained customer support personnel.

     The following key elements comprise our marketing and sales strategy:

Target Large Multinational Customers in a Broad Range of Industries

      Our customer base consists of a significant number of large multinational companies. Siebel eBusiness Applications' Web-based architecture supports the complex needs of even the largest global organizations. We intend to leverage our experience and continue to target sales and marketing activities through our direct sales force and channel partners to expand worldwide market acceptance of Siebel eBusiness Applications.

Maintain and Extend Advanced Technology Position

      We provide what we believe to be the industry's most comprehensive family of multichannel eBusiness applications, enabling organizations to sell to, market to, and service customers across multiple channels, including the Web, call centers, field, resellers, retail, and dealer networks. Siebel eBusiness Applications enable organizations to manage, synchronize, and coordinate their customer touchpoints. Utilizing advanced information technology, Siebel eBusiness Applications are built on a component-based architecture that provides a broad range of functionality for eBusiness applications deployments.

      We intend to continue investing substantial resources in technological research and developments, such as:

Proven, Component-based Architecture: The Siebel eBusiness architecture includes Siebel Remote, one of the industry's most scalable data synchronization technologies for mobile clients and server-to-server replication; Siebel Workflow Manager, which allows organizations to visually model business processes and apply workflow automation rules across all channels of distribution; Siebel Tools, a visual development toolset that allows organizations to customize their user interface, business rules, and data; and Siebel EAI, which provides pre-built integration with leading middleware products and industry-specific back office products.

Support for Multiple Computing Platforms: To enable immediate access to key customer information, Siebel eBusiness Applications can operate on multiple computing platforms used by organizations, including mobile clients, connected clients, thin clients, and handheld clients.

Web-based Architecture: The Siebel eBusiness Applications product architecture is entirely Web-based and designed for fast performance. Siebel eBusiness Applications are capable of operating within a standard Web browser as thin clients, with no Siebel Systems software installed on the client computing device. This technology contributes to a dramatic reduction of the costs of deploying Siebel eBusiness Applications by nearly eliminating client software distribution costs.

Full Life Cycle Management: Siebel eBusiness Applications technology also makes it easier for organizations to manage the full application deployment life cycle. Automatic Siebel application upgrades and remote software distribution contribute to a dramatic reduction of the costs associated with deploying software and help to ensure the success of the deployment.

The Siebel eBusiness Applications product architecture enables organizations to configure their Siebel eBusiness Applications once and then deploy that same configuration to all their users. Once an organization makes customizations to the underlying objects, the customizations can operate automatically across nearly all types of client computing devices. This technology is designed to provide significant cost savings in deployment and implementation costs, and assures consistency across customer-facing channels.

Global Market Support: We designed and built Siebel eBusiness Applications to support global deployments, including most major European and Asian languages. Siebel eBusiness Applications support both single and double byte characters, multiple currencies, automatic currency conversions including the ENU standards for supporting the euro and real-time interfaces to accept new exchange rates from leading online services.

Siebel eBusiness Applications provide support for multiple organizations, allowing companies to define different organizational structures to manage data visibility, security, and business processes across both centralized and decentralized deployment topologies.

     Global Strategic Alliances

      Having long recognized the power and value of strategic partnerships, one of our key strengths is our ability to develop and maintain long-term global strategic partnerships with the largest and most influential corporations in the technology marketplace, including IBM, Microsoft and Sun.

      We have partnered with best-of-class business and system integrators, hardware, software, support, and training partners to help ensure the successful deployment of Siebel eBusiness Applications. These strategic global partnerships with industry leaders help ensure that we deliver solutions that meet our global customers' sales, marketing, and customer service requirements. We believe these partnerships enable us to deliver the comprehensive suite of eBusiness solutions to our customers.

      Siebel Systems' partners include the following industry leaders:

 

System Integrator	Software	Platform
Andersen Consulting	Ariba	Compaq
Cap Gemini	BroadVision	IBM
Deloitte & Touche	IBM	Lucent
Ernst & Young	Lucent	Sun Microsystems
IBM	Microsoft	Unisys
ICL	Sun Microsystems	USi
PricewaterhouseCoopers
Siemens Business Services

      Successful Customer Implementations

      Our success depends on our customers' successful implementations of Siebel eBusiness Applications. As a result, we actively support the customer's deployment efforts by providing Internet and telephone technical support, and comprehensive instructor-led training, and assigning an account management team to each customer that consists of a sales representative, a technical account manager, and an executive sponsor.

      Expand Global Sales Capabilities

      We currently have operations in Australia, Austria, Belgium, Brazil, Canada, Colombia, Denmark, Finland, France, Germany, Hong Kong, Ireland, Italy, Japan, Mexico, the Netherlands, Norway, Portugal, Scotland, Singapore, Spain, Sweden, Switzerland, the United Kingdom, and the United States, and have introduced localized versions of Siebel eBusiness Applications for major European and Asian markets. We intend to further expand our global sales and marketing capabilities by increasing the size of our direct sales and marketing organizations in major markets, and by continuing to develop our channel partner relationships. As market conditions warrant, we intend to increase our direct sales and marketing activities worldwide.

      During each of 1999, 1998, and 1997, no individual customer accounted for more than 10% of revenues. Export sales for 1999, 1998, and 1997 were $157.3 million, $88.2 million and $41.8 million, respectively. This represented 31%, 30%, and 27% of total license revenues in 1999, 1998 and 1997, respectively.

Acquisitions

In December 1999, we acquired OnTarget, Inc. ("OnTarget"), a professional services firm that develops and implements advanced sales and marketing training and consulting programs for sales organizations competing in complex, multilevel sales campaigns. OnTarget's goal is to provide its clients with a pragmatic, repeatable, and implementable process that will create lasting changes within sales organizations, and which will enable our customers to effectively respond to today's market challenges. Under the terms of the agreement, each outstanding share of OnTarget common stock was exchanged for 0.3077516 newly issued shares of our common stock. This resulted in the issuance of approximately 3,700,000 additional shares of our common stock. In addition, all outstanding stock options of OnTarget were converted into the right to acquire our common stock at the same exchange ratio with a corresponding adjustment to the exercise price. The transaction was accounted for as a pooling of interests.

Competition

     The market for our products is intensely competitive, subject to rapid change and significantly affected by new product introductions and other market activities of industry participants. Our products are targeted at the emerging market for sales, marketing and customer information systems. We face competition from customers' internal development efforts, custom system integration products, as well as other application software providers that offer a variety of products and services designed to address this market. We believe that the market for global eBusiness information systems has historically not been well served by the application software industry. We believe that most customer deployments have been the result of large internal development projects, custom solutions from systems integrators or the application of personal and departmental productivity tools to the global enterprise. Please see "Risk Factors - To be successful, we must effectively compete in the eBusiness systems market."

Internal Development

     Many of our customers and potential customers have in the past attempted to develop sales, marketing and customer service information systems in-house, either alone or with the help of systems integrators. Internal information technology departments have staffed projects to build their own systems utilizing a variety of tools. In some cases, such internal development projects have been successful in satisfying the needs of an organization. The competitive factors in this area require that we produce a product that conforms to the customer's information technology standards, scales to meet the needs of large enterprises, operates globally and costs less than the result of an internal development effort. We cannot assure you that we will be able to compete effectively against such internal development efforts.

Custom System Integration Projects

     A second source of competition results from system integrators engaged to build a custom development application. The introduction of a system integrator typically increases the likelihood of success for the customer. The competitive factors in this area require that we demonstrate to the customer the cost savings and advantages of a configurable, upgradeable and commercially supported product developed by a dedicated professional software organization.

     We frequently rely on system consulting and system integration firms for implementation and other customer support services, as well as recommendations of our products during the evaluation stage of the purchase process. Although we seek to maintain close relationships with these service providers, many of these third parties have similar and often more established relationships with our competitors. We cannot assure you that these third parties, many of which have significantly greater resources than us, will not market software products in competition with us in the future or will not otherwise reduce or discontinue their relationships with or support of us and our products.

Other Competitors

     A large number of personal, departmental and other products exist in the Siebel eBusiness applications market. Companies (products) such as Allegis (Allegis Sales Partner), Annuncio (Annuncio Live), Ariba (Ariba ORMS Application, Ariba Internet Business Exchange Service, Ariba Market Suite), Baan Co. (BaanFrontOffice, Baan E-Enterprise), Blue Martini (Blue Martini Customer Interaction), Brightware (Web Assistance, Email Assistance), BroadVision (One-to-One Enterprise, One-to-One), Broadbase Info. (CRMPerform), Calico Commerce (Calico eSales Configurator, Calico eSales Engine), Callidus Software, Inc. (TrueComp), CAS GmbH (Mapware, Groupware, Referenzen), Chordiant Software (Enterprise Business Center, Chordiant CCS), Clarify (ClearCallCenter, Clear Quality, Clear Telebusiness), Dendrite International (Dendrite Series 6, AIMS, Strategic Selling Guide), Epicor (Epicor eFrontOffice, Epicor eCommerce Suite, Epicor eIntelligence), E.piphany (E.4 System), FirePond (FirePond Application Suite), Firstwave Technologies (Firstwave eRM, eMarketing, eSales, eSupport), GoldMine Software (GoldMine), I2 Technologies (RYTHM), Kana Communications (Kana Connect, Kana Notify, Kana Realtime, Kana Response, Kana Classify, Kana Assist, Kana Forms), MarketFirst (MarketFirst 2.0), MarketSoft (eLeads), Niku (iNiku), Octane Software (Octane 2000), ONYX Software (Customer Center), Oracle (Oracle iMarketing, Oracle iStore, OracleiPayment, Oracle Telephony Manager, Oracle Customer Care. Oracle OpenTel), Pegasystems, Inc. (Pegasystems), Pivotal Software, Inc. (eRelationship 2000), Prime Resposne (Prime@Vantage.com), Quintus Corp. (eContact), Relavis Corp. (Remedy@work), RTS, SalesLogix (CommerceLogix, SupportLogix, ACT!), SAP AG (mySAP.com^TM), Saratoga Systems, ServiceSoft (Web Advisor®, eCenter^TM, Knowledge Builder®, LiveContact^TM, E-mailContact^TM), Silknet Software Inc. (Silknet)(To be acquired by Kana Communications, Inc.), Trilogy (MultiChannel Commerce 2.0), Update Marketing (Marketing Manager®), Vantive Corp. (Vantive)(Acquired by PeopleSoft), Vignette (StoryServer, Syndication Server, Multi-Channel Server, Tools, Professional Services) are among the many firms in this market segment. Some of these competitors have longer operating histories, significantly greater financial, technical, marketing and other resources, significantly greater name recognition and a larger installed base of customers than us. In addition, many competitors have well-established relationships with current and potential customers of ours. As a result, these competitors may be able to respond more quickly to new or emerging technologies and changes in customer requirements or to devote greater resources to the development, promotion and sale of their products than we can. We believe that we compete favorably in this marketplace based on the following competitive advantages: a breadth and depth of functionality, a modern and enduring Web-based product architecture, an ability to manage all customer interactions support across multiple channels, configurable business objects, support for the global enterprise, scalability allowing support for large user communities and strategic alignments with industry leaders. In general, we have priced our products at or above those of our competitors, which pricing we believe is justified by the scope of functionality delivered and the performance characteristics afforded by our products.

     It is also possible that new competitors or alliances among competitors may emerge and rapidly acquire significant market share. We also expect that competition will increase as a result of consolidation in the software industry. Increased competition may result in price reductions, reduced gross margins and loss of market share, any of which could materially and adversely affect our business, operating results and financial condition. We cannot assure you that we will be able to compete successfully against current and future competitors or that competitive pressures faced by us will not materially and adversely affect our business, operating results and financial condition.

Employees

      As of December 31, 1999, we had a total of 3,203 employees, of which 1,200 were engaged in sales and marketing, 473 were in product development, 1,279 were in customer support and 251 were in finance, administration and operations. Our future performance depends in significant part upon the continued service of our key technical, sales and senior management personnel, particularly Thomas M. Siebel, our Chairman and Chief Executive Officer, none of whom is bound by an employment agreement. The loss of the services of one or more of our key employees could have a material adverse effect on our business, operating results and financial condition. Our future success also depends on our continuing ability to attract, train and retain highly qualified technical, sales and managerial personnel. Competition for such personnel is intense, and there can be no assurance that we can retain our key technical, sales and managerial personnel in the future. None of our employees are represented by a labor union. We have not experienced any work stoppages and we consider our relations with our employees to be good.

Item 2. Properties

      Our principal administration, sales, marketing, support and research and development facilities are located in San Mateo, California, pursuant to a lease which expires in August 2008, and Emeryville, California, pursuant to a lease which expires in March, 2001. We have entered into three leases to relocate our principal facilities to another location in San Mateo in the summer of 2000. These three leases expire on July 31, 2012. We will continue to occupy the existing spaces at the current principal facilities in San Mateo and Emeryville. We currently also occupy a number of domestic and international sales and support offices.

Item 3. Legal Proceedings

      In October 1999, SAP America, Inc. filed a complaint against the Company in the Court of Common Pleas of Delaware County, Pennsylvania. The Complaint alleges tortious interference with contractual relations, predatory hiring, misappropriation of trade secrets, and unfair competition in connection with the Company's employment of 27 individuals formerly employed by SAP America or its affiliated companies. In October 1999, the Company filed a complaint against SAP America, Inc. and SAP Labs, Inc. in the Superior Court of California for the County of Santa Clara, alleging unfair competition, violations of Business and Professions Code section 17200, and seeking declaratory relief. In March 2000, the Company and SAP agreed to settle the litigation and dismissed both actions with prejudice.

      We are engaged in other legal actions arising in the ordinary course of business. We believe we have adequate legal defenses and that the ultimate outcome of these actions will not have a material effect on our financial position or results of operations.

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

     At a special stockholders' meeting on October 20, 1999, our stockholders approved (i) an amendment to our certificate of incorporation to increase our authorized number of shares of common stock from 300,000,000 to 800,000,000 shares and (ii) an amendment to our 1996 Equity Incentive Plan to increase the number of shares of common stock authorized for issuance under such plan by 15,000,000 shares, from 40,000,000 shares to 55,000,000 shares. The vote regarding the amendment of our certificate of incorporation, as amended, to increase the authorized number of shares of common stock from 300,000,000 shares to 800,000,000 shares was 76,786,323 votes for, 4,939,828 votes against and 89,127 votes abstaining; on that, the proposal was approved. The vote regarding the amendment of our Equity Incentive Plan to increase the number of shares of common stock authorized for issuance under the plan by 15,000,000 shares, from 40,000,000 shares to 55,000,000, was 40,740,919 votes for, 24,744,860 votes against and 183,839 votes abstaining; on that, the proposal was approved.

     On November 12, 1999, we effected a two-for-one stock split by way of a stock dividend of one share of common stock for each share of common stock held by each stockholder. All share data contained in this report is adjusted to reflect the stock split.

PART II

Item 5. Market for Registrant's Common Stock and Related Stockholder Matters

      (a) Our common stock is traded on the Nasdaq National Market under the symbol "SEBL." The following high and low sales prices were reported by Nasdaq in each quarter during the last two years. All amounts give retroactive effect to the Company's stock split which was effective November 12, 1999.

                                                    High       Low
                                                  --------- ---------
Quarter Ended March 31, 1998....................    $15.88     $9.19
Quarter Ended June 30, 1998.....................     16.22     10.69
Quarter Ended September 30, 1998................     18.50      9.00
Quarter Ended December 31, 1998.................     17.06      7.56
Quarter Ended March 31, 1999....................     27.25     15.88
Quarter Ended June 30, 1999.....................     33.69     16.44
Quarter Ended September 30, 1999................     38.88     24.19
Quarter Ended December 31, 1999.................     92.00     31.84

      As of December 31, 1999, we had approximately 711 holders of record of our common stock. We have never paid any cash dividends on our capital stock and do not expect to pay any such dividends in the foreseeable future.

      (b) The effective date of our first registration statement, filed on Form S-1 under the Securities Act of 1933 (No. 333-12061) relating to our initial public offering of our Common Stock, was June 27, 1996. There has been no change to the disclosure contained in our report on Form 10-Q for the quarter ended March 31, 1998, regarding the use of proceeds generated by our initial public offering.

Item 6. Selected Financial Data

      The acquisitions of OnTarget, Inc. ("OnTarget") in 1999 and Scopus Technology, Inc. ("Scopus") in 1998 have been accounted for as poolings of interests. Accordingly, the financial statements of Siebel have been restated to include the financial position and results of operations of OnTarget and Scopus for all periods presented.

                                                 Year Ended December 31,
                               ---------------------------------------------------
                                  1999       1998      1997      1996      1995
                               ----------- --------- --------- --------- ---------
                              (in thousands, except per share data and employees)
    Operating Data
   Net revenues...............   $790,920  $409,886  $222,071  $111,980   $45,010
   Operating income...........   $182,954   $68,019    $8,518   $18,162    $3,797
   Net income.................   $122,092   $44,265      $643   $13,750    $3,122
   Pro forma net income(1)....   $121,727   $43,460       $55   $13,313    $2,764
   Pro forma diluted net
    income per share(1).......      $0.54     $0.21     $0.00     $0.08     $0.02
   Pro forma basic net
    income per share(1).......      $0.65     $0.24     $0.00     $0.09     $0.02
   Total assets............... $1,226,962  $447,596  $271,535  $209,602   $60,003
   Total equity...............   $674,591  $291,120  $210,950  $173,157   $43,542
   Employees..................      3,203     1,483       955       506       246

     (1) Includes pro forma provision for income taxes to reflect income tax expense that would have been reported if OnTarget Inc. (an S corporation for income tax reporting purposes) had been a C corporation.

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

Overview

     Siebel Systems, Inc. ("Siebel" or the "Company") is the world's leading provider of eBusiness applications. Siebel eBusiness Applications enable organizations to sell to, market to, and service their customers across multiple channels, including the Web, call centers, field, resellers, retail, and dealer networks. By employing comprehensive eBusiness applications to better manage their customer relationships, the Company's customers continue to be leaders in their markets.

     Siebel eBusiness Applications are available in industry-specific versions designed for the pharmaceutical, healthcare, consumer goods, telecommunications, insurance, energy, apparel and footwear, automotive, technology, public sector, and finance markets. With best-of-class functionality of eBusiness software, Siebel eBusiness Applications enable organizations to create a single source of customer information that sales, service, and marketing professionals can use to tailor product and service offerings to meet each of their customer's unique needs. By using Siebel eBusiness Applications, organizations can develop new customer relationships, profitably serve existing customers, and integrate their systems with those of their partners, suppliers, and customers, regardless of location.

      In December 1999, the Company acquired OnTarget, Inc. ("OnTarget"). OnTarget develops and implements advanced sales and marketing training and consulting programs for sales organizations competing in complex, multilevel sales campaigns. OnTarget's goal is to provide its clients with a pragmatic, repeatable and implementable process that will create lasting change within sales organizations, and which will enable Siebel's clients to effectively respond to today's market challenges. Primary customers include corporate clients and business owners who wish to provide for the development and training of their sales and marketing personnel.

      Under the terms of the agreement, each outstanding share of OnTarget common stock was exchanged for 0.3077516 newly issued shares of common stock of the Company. This resulted in the issuance of approximately 3.7 million additional shares of the Company's common stock. In addition, all outstanding stock options of OnTarget were converted into the right to acquire the Company's common stock at the same exchange ratio with a corresponding adjustment to the exercise price.

      The acquisition of OnTarget has been accounted for as a pooling of interests. Accordingly, the financial statements of the Company have been restated to include the financial position and results of operations of OnTarget for all periods presented.

      This Report contains forward looking statements that involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Company, or industry results, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Some of these factors are discussed in "Risk Factors" below.

Results of Operations

      The following table sets forth statement of operations data for the three years ended December 31, 1999 expressed as a percentage of total revenues:

                                                     Year Ended December 31,
                                                --------------------------------
                                                   1999       1998       1997
                                                ---------- ---------- ----------
Revenues:
  Software.....................................      63.1%      71.0%      70.7%
  Professional services, maintenance and other.      36.9%      29.0%      29.3%
                                                ---------- ---------- ----------
    Total revenues.............................     100.0%     100.0%     100.0%
                                                ---------- ---------- ----------
Cost of revenues:
  Software.....................................       1.0%       1.4%       1.9%
  Professional services, maintenance and other.      21.9%      15.9%      14.3%
                                                ---------- ---------- ----------
    Total cost of revenues.....................      22.9%      17.3%      16.2%
                                                ---------- ---------- ----------
    Gross margin...............................      77.1%      82.7%      83.8%
                                                ---------- ---------- ----------
Operating expenses:
  Product development..........................       9.2%      10.7%      12.0%
  Sales and marketing..........................      36.8%      43.7%      46.6%
  General and administrative...................       8.0%       8.4%       9.6%
  Merger-related expenses......................       --         3.3%      11.7%
                                                ---------- ---------- ----------
    Total operating expenses...................      54.0%      66.1%      79.9%
                                                ---------- ---------- ----------
    Operating income...........................      23.1%      16.6%       3.9%
Other income, net..............................       1.8%       1.5%       2.4%
                                                ---------- ---------- ----------
    Income before income taxes.................      24.9%      18.1%       6.3%
Income taxes...................................       9.5%       7.3%       5.9%
                                                ---------- ---------- ----------
    Net income.................................      15.4%      10.8%       0.4%
                                                ========== ========== ==========

Revenues

      Software. License revenues increased to $499,398,000 for the year ended December 31, 1999 from $290,890,000 and $156,971,000 for the years ended December 31, 1998 and 1997, respectively. License revenues as a percentage of total revenues were 63% in the fiscal 1999 period as compared to 71% both in the fiscal 1998 and 1997 periods, respectively. License revenues increased in absolute dollars during these periods from the respective prior year periods due to an increase in the number of licenses of Siebel applications sold to new and existing customers and also due to licenses of new modules, released with the latest version of Siebel applications, to existing users of Siebel base applications. This increase in the number of licenses was primarily due to continued demand by new and existing customers for products in the Siebel applications family both in the United States and internationally. The Company expects that license revenues will continue to increase in absolute dollars, but will remain the same or decrease as a percentage of total revenues as the Company's maintenance and other services revenues continue to grow as a result of increases in the installed base of customers purchasing such services.

      Professional Services, Maintenance and Other. Professional services, maintenance and other revenues increased to $291,522,000 for the year ended December 31, 1999 from $118,996,000 and $65,100,000 for the years ended December 31, 1998 and 1997, respectively, and as a percentage of total revenues were 37% in the fiscal 1999 period as compared to 29% both in the fiscal 1998 and 1997 periods, respectively. These increases in absolute dollars were due to growth in the Company's sales and marketing training businesses, consulting business and in the installed base of customers on maintenance. First-year maintenance is typically sold with the related software license. Revenue related to such maintenance is deferred based on vendor-specific objective evidence of fair value and amortized over the term of the maintenance contract, typically twelve months. The Company expects that professional services, maintenance and other revenues will remain the same or increase as a percentage of total revenues due to increased maintenance revenues derived from the Company's growing installed base and due to the Company's expansion of its consulting and training organization to meet anticipated customer demands in connection with product implementation and sales training.

      A relatively small number of customers account for a significant percentage of the Company's license revenues. For 1999, 1998 and 1997, sales to the Company's ten largest customers accounted for 10%, 19% and 24% of total revenues, respectively. The Company expects that licenses of its products to a limited number of customers will continue to account for a large percentage of revenue for the foreseeable future.

      The Company markets its products in the United States through its direct sales force and internationally through its sales force and distributors, primarily in Japan, Latin America, South Africa and Asia. International revenues accounted for 31%, 30% and 27% of license revenues in 1999, 1998 and 1997, respectively. The Company is increasing its international sales force and is seeking to establish distribution relationships with appropriate strategic partners and expects international revenues will continue to account for a substantial portion of total revenues in the future.

Cost of Revenues

      Software. Cost of software license revenues includes third-party software royalties, product packaging, documentation and production. Cost of license revenues through December 31, 1999 has averaged less than 2% of software license revenues. All costs incurred in the research and development of software products and enhancements to existing products have been expensed as incurred, and, as a result, cost of license revenues includes no amortization of capitalized software development costs. These costs are expected to remain the same or increase as a percentage of total revenues.

      Professional Services, Maintenance and Other. Cost of professional services, maintenance and other revenues consist primarily of personnel, facilities and systems costs incurred in providing consulting, customer support, and training. Cost of professional services, maintenance and other revenues increased to $173,278,000 for the year ended December 31, 1999 from $65,387,000 and $31,646,000 for the years ended December 31, 1998 and 1997, respectively, and as a percentage of professional services, maintenance and other revenues were 59% for the year ended December 31, 1999 as compared to 55% in fiscal 1998 and 49% in fiscal 1997. The increases in the absolute dollar amount reflect the effect of fixed costs resulting from the Company's expansion of its maintenance and support organization and growth in the Company's consulting and training businesses. The Company expects that professional services, maintenance and other costs will continue to increase in absolute dollar amount as the Company expands both its customer support organization to support a growing installed base and its consulting organization to meet anticipated customer demands in connection with product implementation and the training organization to support the growing needs of its customers. These costs are expected to remain the same or increase as a percentage of total revenues.

Operating Expenses

      Product Development. Product development expenses include expenses associated with the development of new products, enhancements of existing products and quality assurance activities, and consist primarily of employee salaries, benefits, consulting costs and the cost of software development tools. Product development expenses increased to $72,853,000 for the year ended December 31, 1999 from $43,950,000 and $26,650,000 for the years ended December 31, 1998 and 1997, respectively, and decreased as a percentage of total revenues to 9% in the fiscal 1999 period from 11% and 12% in the fiscal 1998 and 1997 periods, respectively. The increases in the dollar amount of product development expenses were primarily attributable to costs of additional personnel in the Company's product development operations. The Company anticipates that it will continue to devote substantial resources to product development. The Company expects product development expenses to increase in absolute dollar amount but remain at a similar percentage of total revenues as in 1999. The Company considers technological feasibility of its software products to have been reached upon completion of a working model that has met certain performance criteria. The period between achievement of technological feasibility and general release of a software product is typically very short, and development costs incurred during that period have not been material. Accordingly, the Company has not capitalized any software development costs to date.

      Sales and Marketing. Sales and marketing expenses consist primarily of salaries, commissions and bonuses earned by sales and marketing personnel, field office expenses, travel and entertainment and promotional expenses. Sales and marketing expenses increased to $290,687,000 for the year ended December 31, 1999 from $178,957,000 and $103,551,000 for the years ended December 31, 1998 and 1997, respectively, and as a percentage of total revenues, sales and marketing expenses decreased to 37% in 1999, from 44% and 47% in the fiscal 1998 and 1997 periods, respectively. The increases in the dollar amount of sales and marketing expenses reflect primarily the hiring of additional sales and marketing personnel, costs associated with expanded promotional activities, and indirect merger-related costs, such as corporate sales training and marketing programs. The Company expects that sales and marketing expenses will continue to increase in absolute dollar amount as the Company continues to expand its sales and marketing efforts, establishes additional sales offices in the United States and internationally and increases promotional activities. These expenses are expected to remain at a similar percentage of total revenues as in 1999.

      General and Administrative. General and administrative expenses consist primarily of salaries and occupancy costs for administrative, executive and finance personnel. General and administrative expenses increased to $63,508,000 for the year ended December 31, 1999 from $34,473,000 and $21,275,000 for the years ended December 31, 1998 and 1997, respectively, and as a percentage of total revenues were 8% in the fiscal 1999 period as compared to 8% and 10% in the fiscal 1998 and 1997 periods, respectively. The increases in the absolute dollar amount of general and administrative expenses were primarily due to increased staffing and associated expenses necessary to manage and support the Company's increased scale of operations. The Company believes that its general and administrative expenses will continue to increase in absolute dollar amount as a result of the continued expansion of the Company's administrative staff and facilities to support growing operations. The Company anticipates that its general and administrative expenses as a percentage of total revenues should remain at a similar percentage as in 1999.

      Merger-Related Expenses. The Company did not incur any significant merger-related costs in connection with the merger with OnTarget.

      In connection with the merger with Scopus, the Company incurred direct merger-related expenses of approximately $13,500,000, comprised primarily of investment bankers, attorneys, accountants and other professional fees of $9,100,000, duplicate facilities and equipment of $3,100,000 and other miscellaneous expenses of $1,300,000.

      The Company incurred costs of approximately $3,300,000 in 1997 in connection with Scopus' planned merger with Clear With Computers, Inc. The merger plan was terminated early in the fourth quarter of 1997.

      On October 1, 1997, the Company completed its purchase of InterActive, a developer of intranet-based business intelligence software technology that has been incorporated into the Siebel eBriefings product. The acquisition was accounted for by the purchase method of accounting. The Company recorded a charge to income of $14,017,000, or $0.09 per diluted share, pursuant to an allocation of the purchase price by an independent appraiser, as a write-off of acquired research and development. Purchased in-process research and development is related to the completion of InterActive's data integration, filtering and formatting technology and its integration into the Company's products. At the time of acquisition, a prototype of InterActive's product existed and was in limited trials, however, the prototype was not stable or sufficiently developed to be scalable on an enterprise-wide basis. InterActive's technology was completed, at a cost of approximately $400,000, and incorporated as a separate module into the Siebel 98 product suite, which was released in June 1998. The Company estimated that technology was approximately 75% complete as of the acquisition date. At that date, the only identifiable asset acquired was the technology under development. Accordingly, essentially all of the excess purchase price over net assets acquired, except for amounts assigned to net current assets, fixed assets and workforce-in-place, was assigned to in-process research and development.

      The valuation of acquired research and development was prepared using the income approach and contemplated that sales of products incorporating InterActive's technology would be $11,500,000 in 1998, increasing to $35,000,000 in 2000, and declining significantly thereafter. Revenue increases were based upon the historical growth rate of software sales for the customer relationship managment market and the Company. Operating costs as a percentage of revenue ranged from 56% in 1998 to 47% in 2000 based upon the Company's normal operating margin. Operating cash flows were reduced by an expected effective tax rate of 38% consistent with the Company's effective tax rate. Net cash flows were discounted to their present value at the acquisition date using an after-tax risk-adjusted discount rate of 30%. The Company believes this discount rate is consistent with that required by venture capitalists for investments in unproven but partially developed software products. Through the end of 1999, total revenues from Siebel eBriefings were approximately $11,000,000; however, the Company is unable to quantify the effect of Siebel eBriefings as a competitive differentiator. The Company does not track selling, general and administrative costs by product but believes the incremental costs associated with selling and distributing Siebel eBriefings were substantially lower than those used in the valuation due to synergies associated with selling the product as a separate component of the Siebel 98 product suite and subsequent versions. If the Company is unable to continuously upgrade the Siebel eBriefings product or existing and future customers do not elect to purchase this module, the Company's ability to recover the value assigned to the acquired research and development will be impaired and revenue and profitability will be adversely affected.

      On November 1, 1997, the Company completed its purchase of Nomadic, a provider of innovative business solutions to pharmaceutical sales forces. The acquisition was accounted for by the purchase method of accounting. Technology acquired from Nomadic has been incorporated into the Siebel ePharma product. The Company recorded a charge to income of $8,723,000 or $0.05 per diluted share, pursuant to an allocation of the purchase price by an independent appraiser, as a write-off of acquired research and development. The appraisal of the acquired research and development was based upon the present value of forecasted operating cash flows from the technology acquired, giving effect to the stage of completion at the acquisition date. These forecasted cash flows were then discounted at a rate commensurate with the risk involved in completing the acquired technology. The forecasted cash flows assumed inclusion of the product developed from acquired technology into the existing Siebel product suite. The purchased in-process research and development expense related to completion of Nomadic's second generation pharmaceutical sales force automation product. This product was completed and enterprise-wide deployment to end-user customers commenced in March 1998. Much of the functionality was incorporated into the Company's ePharma product, which was released in June 1998. At the time of the acquisition, Nomadic had a first-generation product at a limited number of customers, with a very small user base. There were a considerable number of uncertainties as to increasing the product's scalability for deployment on an enterprise-wide basis, improving the stability of the application and identifying and fixing bugs. The Company allocated limited excess purchase price over net assets acquired to net current assets, fixed assets and workforce-in-place. The majority of the excess purchase price was allocated to in-process research and development and other intangible assets (goodwill) based upon the expected cash flows from Nomadic's existing product and the product under development, giving consideration to the stage of completion of the technology under development at the acquisition date. This technology was completed, at a cost of approximately $1,300,000, for enterprise-wide release in March 1998.

      The valuation of acquired research and development was prepared using the income approach and contemplated that sales of products incorporating Nomadic's technology would be $11,500,000 in 1998, increasing to $35,000,000 in 2000, and declining significantly thereafter. Revenue increases were based upon the historical growth rate of software sales for the customer relationship managment market and the Company. Operating costs as a percentage of revenue were estimated at 70%, based upon the Company's normal operating margin. Operating cash flows were reduced by an expected effective tax rate of 39% consistent with the Company's effective tax rate. Net cash flows were discounted to their present value at the acquisition date using an after-tax risk-adjusted discount rate of 25%. The Company believes this discount rate is consistent with that required by venture capitalists for investments in unproven but partially developed software products. Through the end of 1999, total revenues from products incorporating the Nomadic technology under development at the acquisition date were approximately $35,000,000. Although the Company does not track selling, general and administrative costs by product, because these products are sold as vertical eBusiness solutions for the pharmaceutical industry, the Company believes the operating margin is similar to the Company's consolidated operating margin. If the Company is unable to continuously upgrade the Siebel ePharma product or superior products are released by competitors, the Company's ability to recover the value assigned to the acquired research and development will be impaired and revenue and profitability will be adversely affected.

Operating Income and Operating Margin

      Operating income increased to $182,954,000 for the year ended December 31, 1999 from $68,019,000 for the year ended December 31, 1998 and $8,518,000 for the year ended December 31, 1997 and operating margin was 23% in the fiscal 1999 period, as compared with 17% and 4% in the fiscal 1998 and 1997 periods, respectively. Excluding merger-related expenses, operating income increased to $182,954,000 for the year ended December 31, 1999 from $83,303,000 and $34,556,000 for the years ended December 31, 1998 and 1997, respectively, and operating margin was 23% in the fiscal 1999 period as compared to 20% and 16% in the fiscal 1998 and 1997 periods, respectively. These increases in operating income and margin, excluding merger-related expenses, were due to increases in license revenues without a proportional increase in cost, particularly costs associated with the hiring of new personnel. We believe it is likely that operating margins in future periods will be less than the 23% achieved in 1999.

Other Income, Net

      Other income, net, is primarily comprised of interest income earned on the Company's cash and cash equivalents and short-term investments and reflects earnings on increasing cash and cash equivalents and short-term investment balances.

Pro forma Provision for Income Taxes

      Income taxes are comprised primarily of federal and state taxes. The pro forma provision for income taxes reflects income tax expense that would have been reported if OnTarget (an S Corporation for income tax reporting purposes) had been a C Corporation for each of the periods presented. The pro forma provision for income taxes was $75,195,000, $30,817,000, and $13,848,000 in 1999, 1998, and 1997, respectively. The pro forma provision for income taxes as a percentage of pretax income was 38%, 41%, and 100%, respectively. The pro forma tax rate in 1997 was higher than the rates in 1998 and 1999 primarily due to non-deductible items related to acquisitions. The Company expects its effective tax rate in 2000 to be approximately 38%, excluding the effect of non-deductible costs such as merger-related expenses.

      As a result of deductions relating to stock options, the Company paid no federal income taxes during 1999.

Pro forma Net Income

      The Company had pro forma net income of $121,727,000 for the year ended December 31, 1999 and pro forma net income of $43,460,000 and $55,000 for the years ended December 31, 1998 and 1997, respectively. Pro forma net income per diluted share was $0.54 in fiscal 1999, compared with $0.21 in the fiscal 1998, and $0.00 in fiscal 1997, respectively.

Liquidity and Capital Resources

      The Company's cash, cash equivalents, short-term investments and marketable equity securities increased to $805,314,000 as of December 31, 1999 from $232,629,000 as of December 31, 1998, representing approximately 66% and 52% of total assets, respectively. This increase was primarily attributable to issuance of convertible subordinated debentures, net income, sale of certain property and equipment, increases in accounts payable, accrued expenses, income taxes payable and deferred revenue, issuance of common stock under the Company's stock option plans, and the initial public offering and subsequent increase in market value of an equity investment, partially offset by increases in accounts receivable, purchases of property and equipment and charitable contribution of a portion of the Company's marketable equity securities. The Company's days sales outstanding (DSO) in accounts receivable was 98 as of December 31, 1999, as compared with 88 as of December 31, 1998.

      The Company completed a private placement of $300,000,000 of convertible subordinated debentures in September 1999. The seven-year term notes bear interest at a rate of 5.50% and are convertible into approximately 6,432,000 shares of the Company's common stock at any time prior to maturity, at a conversion price of approximately $46.64 per share, subject to adjustment under certain conditions. The Company may redeem the notes, in whole or in part, at any time on or after September 15, 2002. The redemption price will range from $309,420,000 to $302,370,000 if the notes are redeemed between September 15, 2002 through September 14, 2006. Any redemption made on or after September 15, 2006 will be redeemed at $300,000,000. In addition, accrued interest to the redemption date will be paid by the Company in each redemption.

      As of February 10, 2000, the fair market value of the Company's marketable equity securities was $90,340,000.

      The Company recently entered into a lease agreement for a new headquarters facility in San Mateo, California. The Company expects significant capital expenditures in connection with tenant improvements and furniture and fixtures for this facility. These expenditures are expected to be incurred through the end of 2000. In addition, the Company expects to continue to incur capital expenditures associated with tenant improvements, furniture and fixtures for newly-leased offices.

      The Company has used full-serviced office suites on a month-to-month rental basis to establish its presence in new locations. As these locations expand, the Company expects to transition more of the office suites to leased space. This transition will involve build-out of tenant improvements, acquisition of furniture and fixtures, and other capital costs, which were not incurred in connection with the use of fully serviced office suites. The Company has already built out a number of leased facilities, both domestically and internationally, and expects this trend to continue.

      Capital expenditures of the nature described above are expected to increase during 2000 and 2001.

      The Company believes that the anticipated cash flows from operations, cash, cash equivalents and short-term investments will be adequate to meet its cash needs for working capital and capital expenditures for at least the next twelve months.

Risk Factors

Our net revenue and operating results may fluctuate.

     We may experience a shortfall in revenue or earnings or otherwise fail to meet public market expectations, which could materially adversely affect our business and the market price of our common stock. Our net revenue and operating results may fluctuate significantly because of a number of factors, many of which are outside of our control. These factors include:

• Level of product and price competition;
• Length of our sales cycle and customer purchasing patterns;
• The size and timing of individual license transactions;
• Delay or deferral of customer implementations of our products;
• Success in expanding our customer support organization, direct sales force and indirect distribution channels;
• Timing of new product introductions and product enhancements;
• Appropriate mix of products and services sold;
• Levels of international sales;
• Activities of and acquisitions by competitors;
• Timing of new hires and the allocation of our resources;
• Changes in the economy and foreign currency exchange rates; and
• Our ability to develop and market new products and control costs.

     One or more of the foregoing factors may cause our operating expenses to be disproportionately high during any given period or may cause our net revenue and operating results to fluctuate significantly. Based upon the preceding factors, we may experience a shortfall in revenue or earnings or otherwise fail to meet public market expectations, which could materially adversely affect our business, financial condition and the market price of our common stock.

Our quarterly operating results may fluctuate.

     Our net revenue and operating results may vary drastically from quarter to quarter. The main factors that may affect these fluctuations are:

• The discretionary nature of our customer's purchase and budget cycles;
• The size and complexity of our license transactions;
• The potential delays in recognizing revenue from license transactions;
• The timing of new product releases;
• Seasonal variations in operating results; and
• Variations in the fiscal or quarterly cycles of our customers.

     Each customer's decision to implement our products and services is discretionary, involves a significant commitment of resources and is subject to their budget cycles. In addition, the timing of license revenue is difficult to predict because of the length of our sales cycle, which has ranged to date from one to twenty four months. We base our operating expenses on anticipated revenue trends. Because a high percentage of these expenses are relatively fixed, a delay in recognizing revenue from license transactions could cause significant variations in operating results from quarter to quarter and could result in operating losses. If these expenses precede, or are not subsequently followed by, increased revenues, our operating results could be materially and adversely affected. Although we have not experienced significant seasonal variations in operating results, such variations could develop in the future.

     As a result of these and other factors, revenues for any quarter are subject to significant variation and we believe that period-to-period comparisons of our results of operations are not necessarily useful. You should not rely on these comparisons as indications of future performance. It is likely that our future quarterly operating results from time to time will not meet the expectations of market analysts or investors, which would likely have an adverse effect on the price of our common stock.

We need to successfully integrate acquisitions and manage growth.

     Our business strategy includes pursuing opportunities to grow our business, both internally and through selective acquisitions, investments, joint ventures and strategic alliances. Our ability to implement this strategy depends, in part, on our success in making such acquisitions, investments, joint ventures and strategic alliances on satisfactory terms and successfully integrating them into our operations. Implementation of our growth strategy may impose significant strains on our management, operating systems and financial resources. Failure to manage this growth, or unexpected difficulties encountered during expansion, could have an adverse effect on our business, operating results and financial condition.

We rely on strategic relationships with systems integrators.

     Failure to maintain existing strategic relationships with systems integrators, or to establish new relationships in the future, could have a material adverse effect on our business. We have established strategic relationships with a number of organizations that we believe are important to our sales, marketing and support activities, and the implementation of our products. We believe that our relationships with these organizations provide marketing and sales opportunities for our direct sales force and expand the distribution of our products. These relationships allow us to keep pace with the technological and marketing developments of major software vendors and provide us with technical assistance for our product development efforts.

     In particular, we have established a non-exclusive strategic relationship with Andersen Consulting, one of our largest stockholders. We have also entered into significant relationships with other third-party systems integrators such as IBM Global Services, PricewaterhouseCoopers and Deloitte Consulting. A significant portion of our revenues have historically been derived from customers for whom Andersen Consulting, or another systems integrator with which we have a significant relationship, have been engaged to provide system integration services. Any deterioration of our relationship with these significant third-party systems integrators could have a material adverse effect on our business, financial condition and results of operations. We also have relationships with IBM Corporation, Compaq Computer Corporation, Microsoft Corporation and Sun Microsystems, among others. Failure to maintain existing relationships, or to establish new relationships in the future, could have a material adverse effect on our business, results of operations and financial condition.

     Our current and potential customers may also rely on third-party systems integrators to develop, deploy or manage Siebel eBusiness Applications. If we do not adequately train a sufficient number of system integrators, or if these integrators do not have, or do not devote, the resources necessary to implement our products, our business, operating results and financial condition could be materially and adversely affected.

The Internet presents unique risks.

     We may not be able to compete effectively in the Internet-related products and services market. Siebel eBusiness Applications communicate through public and private networks over the Internet. The success of our products may depend, in part, on our ability to continue developing products that are compatible with the Internet. We cannot predict with any assurance whether the Internet will be a viable commercial marketplace or whether the demand for Internet-related products and services will increase or decrease in the future. The increased commercial use of the Internet could require substantial modification and customization of our products and the introduction of new products.

     Critical issues concerning the commercial use of the Internet, including security, demand, reliability, cost, ease of use, accessibility, quality of service and potential tax or other government regulation, remain unresolved and may affect the use of the Internet as a medium to support the functionality of our products and distribution of our software. If these critical issues are not favorably resolved, our business, operating results and financial condition could be materially and adversely affected.

We operate in a competitive and rapidly changing market.

     If the Web-based applications market fails to grow or grows more slowly than we currently anticipate, our business, operating results and financial condition could be materially and adversely affected. The market for Web-based application software is relatively new, highly competitive and rapidly changing. We market our products only to customers who have migrated or are in the process of migrating their enterprise computing systems to Web-based computing environments. Our future financial performance will partly depend on the continued growth of organizations successfully adopting Web-based computing environments.

Our customers may not successfully implement our products.

     If existing customers have difficulty further deploying Siebel eBusiness Applications or for any other reason are not satisfied with Siebel eBusiness Applications, our business, operating results and financial condition could be materially and adversely affected. Many of our customers purchase and implement our products in phases. Our customers frequently deploy our products to large numbers of sales, marketing and customer service personnel. These end-users may not accept our products. Our products are also being deployed on a variety of computer hardware platforms and used with a number of third-party software applications and programming tools. This use may present significant technical challenges, particularly as large numbers of personnel attempt to use our product concurrently.

A limited number of products provides a substantial part of our license revenues.

     A substantial majority of our license revenues are attributable to sales of Siebel Sales Enterprise, Siebel Service Enterprise, Siebel Call Center and related products. We expect that such products and related consulting, maintenance and training services will continue to account for a majority of our future revenues. As a result, factors adversely affecting the pricing of or demand for such products, such as competition or technological change, could have a material adverse effect on our business, operating results and financial condition.

The length of time required to engage a client and to implement our products may be lengthy and unpredictable.

     The timing of the sales and implementation of our products and services is lengthy and not predictable with any degree of accuracy. You should not rely on prior sales and implementation cycles as any indication of future cycles.

     The license of our software products is often an enterprise-wide decision by prospective customers and generally requires us to provide a significant level of education to prospective customers regarding the use and benefits of our products. In addition, the implementation of our products involves a significant commitment of resources by prospective customers and is commonly associated with substantial reengineering efforts that may be performed by the customer or third-party systems integrators. The cost to the customer of our product is typically only a portion of the related hardware, software, development, training and integration costs of implementing a large-scale eBusiness software system. For these and other reasons, the period between initial contact and the implementation of our products is often lengthy and is subject to a number of factors that may cause significant delays, over many of which we have little or no control. These factors include (i) the size and complexity of the overall project and (ii) delays in our customers' implementation of Web-based computing environments. A delay in the sale or implementation of even a limited number of license transactions could have a material adverse effect on our business and operations and cause our operating results to vary significantly from quarter to quarter.

Our success will require us to continue to expand our direct sales force and technical support staff.

     Failure to expand our direct sales force or technical and customer support staff or to expand our distribution channels could materially and adversely affect our business, operating results and financial condition. We have expanded the distribution of our products in recent years. This expansion has placed new and increased demands on our direct sales force and technical and sales support staff. Our ability to achieve revenue growth in the future will depend, in part, on our success in recruiting and training sufficient direct sales, technical and customer support personnel. Although we invest significant resources to expand our direct sales force and our technical and customer support staff, there is only a limited number of qualified personnel in these areas. Therefore, we may not be able to expand our direct sales force and technical support staff as necessary to support our growing operations. In addition, such expansion may not result in increased revenues.

Our expanding distribution channels may create additional risks.

     Failure to minimize channel conflicts could materially and adversely affect our business, operating results and financial condition. We have recently entered into a number of relationships with resellers in order to obtain broad market coverage. We have generally avoided exclusive relationships with resellers of our products. Discount policies and reseller licensing programs are intended to support each distribution channel with a minimum level of channel conflicts.

Our revenue is concentrated in a relatively small number of customers.

     Our success depends on maintaining relationships with our existing customers. A relatively small number of customers have accounted for a significant percentage of our revenues. For 1999, license revenues from our ten largest customers accounted for 10% of total revenues. We expect that licenses of our products to a limited number of customers will continue to account for a significant percentage of revenue for the foreseeable future. The loss of a small number of customers or any reduction or delay in orders by any such customer, or failure to successfully market our products to new customers, could have a material adverse effect on our business, financial condition and results of operations.

Our continued success will require us to keep pace with technological developments, evolving industry standards and changing customer needs.

     The software market in which we compete is characterized by (i) rapid technological change, (ii) frequent introductions of new products, (iii) changing customer needs and (iv) evolving industry standards. To keep pace with technological developments, evolving industry standards and changing customer needs, we must support existing products and develop new products. We may not be successful in developing, marketing and releasing new products or new versions of the Siebel eBusiness Applications that respond to technological developments, evolving industry standards or changing customer requirements. We may also experience difficulties that could delay or prevent the successful development, introduction and sale of these enhancements. In addition, these enhancements may not adequately meet the requirements of the marketplace and may not achieve any significant degree of market acceptance. If release dates of any future products or enhancements to the Siebel eBusiness Applications are delayed, or if these products or enhancements fail to achieve market acceptance when released, our business, operating results and financial condition could be materially and adversely affected. In addition, new products or enhancements by our competitors may cause customers to defer or forego purchases of our products, which could have a material adverse effect on our business, financial condition and results of operations.

To be successful, we must effectively compete in the eBusiness systems market.

     Our products target the eBusiness systems market. This market is highly competitive, rapidly changing and significantly affected by new product introductions. We face competition primarily from our customers' internal information technology departments and systems integrators, as well as from other application software providers that offer a variety of products and services to address this market. Many of our customers and potential customers have attempted to develop eBusiness systems in-house, either alone or with the help of systems integrators. We may not be able to compete successfully against such internal development efforts.

     We rely on a number of systems consulting and systems integration firms for a substantial portion of implementation and other customer support services, as well as for recommendations of our products during the evaluation stage of the purchase process. Although we seek to maintain close relationships with these service providers, many of them have similar and often more established, relationships with our competitors. If we are unable to develop and retain effective, long-term relationships with these third parties, our competitive position could be materially and adversely affected. Further, many of these third parties have significantly greater resources than we do and may market software products that compete with us.

      A large number of personal, departmental and other products exist in the Siebel eBusiness applications market. Companies (products) such as Allegis (Allegis Sales Partner), Annuncio (Annuncio Live), Ariba (Ariba ORMS Application, Ariba Internet Business Exchange Service, Ariba Market Suite), Baan Co. (BaanFrontOffice, Baan E-Enterprise), Blue Martini (Blue Martini Customer Interaction), Brightware (Web Assistance, Email Assistance), BroadVision (One-to-One Enterprise, One-to-One), Broadbase Info. (CRMPerform), Calico Commerce (Calico eSales Configurator, Calico eSales Engine), Callidus Software, Inc. (TrueComp), CAS GmbH (Mapware, Groupware, Referenzen), Chordiant Software (Enterprise Business Center, Chordiant CCS), Clarify (ClearCallCenter, Clear Quality, Clear Telebusiness), Dendrite International (Dendrite Series 6, AIMS, Strategic Selling Guide), Epicor (Epicor eFrontOffice, Epicor eCommerce Suite, Epicor eIntelligence), E.piphany (E.4 System), FirePond (FirePond Application Suite), Firstwave Technologies (Firstwave eRM, eMarketing, eSales, eSupport), GoldMine Software (GoldMine), I2 Technologies (RYTHM), Kana Communications (Kana Connect, Kana Notify, Kana Realtime, Kana Response, Kana Classify, Kana Assist, Kana Forms), MarketFirst (MarketFirst 2.0), MarketSoft (eLeads), Niku (iNiku), Octane Software (Octane 2000), ONYX Software (Customer Center), Oracle (Oracle iMarketing, Oracle iStore, OracleiPayment, Oracle Telephony Manager, Oracle Customer Care. Oracle OpenTel), Pegasystems, Inc. (Pegasystems), Pivotal Software, Inc. (eRelationship 2000), Prime Resposne (Prime@Vantage.com), Quintus Corp. (eContact), Relavis Corp. (Remedy@work), RTS, SalesLogix (CommerceLogix, SupportLogix, ACT!), SAP AG (mySAP.com^TM), Saratoga Systems, ServiceSoft (Web Advisor®, eCenter^TM, Knowledge Builder®, LiveContact^TM, E-mailContact^TM), Silknet Software Inc. (Silknet)(To be acquired by Kana Communications, Inc.), Trilogy (MultiChannel Commerce 2.0), Update Marketing (Marketing Manager®), Vantive Corp. (Vantive)(Acquired by PeopleSoft), Vignette (StoryServer, Syndication Server, Multi-Channel Server, Tools, Professional Services) are among the many firms in this market segment. Some of these competitors have longer operating histories, significantly greater financial, technical, marketing and other resources, significantly greater name recognition and a larger installed base of customers than we do. In addition, many competitors have well-established relationships with our current and potential customers. As a result, these competitors may be able to respond more quickly to new or emerging technologies and changes in customer requirements, or to devote greater resources to the development, promotion and sale of their products than we can.

     There are many factors that may increase competition in the eBusiness systems market, including (i) entry of new competitors, (ii) alliances among existing competitors, (iii) consolidation in the software industry and (iv) technological changes or changes in the use of the Internet. Increased competition may result in price reductions, reduced gross margins or loss of market share, any of which could materially and adversely affect our business, operating results and financial condition. If we cannot compete successfully against current and future competitors or overcome competitive pressures, our business, operating results and financial condition may be adversely affected.

If we do not maintain our relationships with third-party vendors, interruptions in the supply of our products may result.

     We may not be able to replace the functionality provided by the third-party software currently offered with our products if that software becomes obsolete or incompatible with future versions of our products or is not adequately maintained or updated. Portions of our products incorporate software that was developed and is maintained by third-party software developers. Although we believe there are other sources for these products, any significant interruption in the supply of these products could adversely impact our sales unless and until we can secure another source. We depend in part on these third parties' abilities to enhance their current products, to develop new products on a timely and cost-effective basis and to respond to emerging industry standards and other technological changes. The absence of or any significant delay in the replacement of functionality provided by third-party software in our products could materially and adversely affect our sales.

Software errors or defects in our products could reduce revenues.

     Software products frequently contain errors or failures, especially when first introduced or when new versions are released. Although we conduct extensive product testing during product development, we have, in the past, been forced to delay the commercial release of products until the correction of software problems. We could lose revenues as a result of software errors or defects. Our products are intended for use in sales applications that may be critical to a customer's business. As a result, we expect that our customers and potential customers will have a greater sensitivity to product defects than the market for software products generally. Testing errors may also be found in new products or releases after commencement of commercial shipments, resulting in loss of revenue or delay in market acceptance, damage to our reputation, or increased service and warranty costs, any of which could have a material adverse effect upon our business, operating results and financial condition.

If we do not successfully manage our growth, our business may be negatively impacted.

     If we fail to manage our growth effectively, our business, financial condition and results of operations could be materially and adversely affected. Our business has grown rapidly in recent years. This growth has placed a significant strain on our management systems and resources. To manage future growth, we must continue to (i) improve our financial and management controls, reporting systems and procedures on a timely basis and (ii) expand, train and manage our employee work force.

The loss of key personnel could negatively affect our performance.

     Our performance depends on the continued service of our key technical, sales and senior management personnel, particularly Thomas M. Siebel, our Chairman and Chief Executive Officer. None of our key employees has entered into an employment agreement with us. The loss of the services of one or more of our executive officers could have a material adverse effect on our business, operating results and financial condition.

Substantial leverage and debt service obligations may adversely affect our cash flow.

     We have substantial amounts of outstanding indebtedness, primarily consisting of our 5-1/2% convertible subordinated notes due September 15, 2006. As a result of this indebtedness, our principal and interest payment obligations are substantial. We may be unable to generate cash sufficient to pay the principal of, interest on and other amounts due in respect of our indebtedness when due. We also expect to add additional equipment loans and lease lines to finance capital expenditures and may obtain additional long-term debt, working capital lines of credit and lease lines. There can be no assurance that any financing arrangements will be available.

     Our substantial leverage could have significant negative consequences, including:

• Increasing our vulnerability to general adverse economic and industry conditions;
• Limiting our ability to obtain additional financing;
• Requiring the dedication of a substantial portion of our expected cash flow from operations to service our indebtedness, thereby reducing the amount of our expected cash flow available for other purposes, including capital expenditures;
• Limiting our flexibility in planning for, or reacting to, changes in our business and the industry in which we compete; and
• Placing us at a competitive disadvantage compared to less leveraged competitors and competitors that have better access to capital resources.

The protection of our proprietary information is limited.

     We rely primarily on a combination of patent, copyright, trade secret and trademark laws, confidentiality procedures and contractual provisions to protect our proprietary rights. We also believe that the technological and creative skills of our personnel, new product developments, frequent product enhancements, name recognition and reliable product maintenance are essential to establishing and maintaining a technology leadership position. We seek to protect our software, documentation and other written materials under patent, trade secret and copyright laws, which afford only limited protection. Any patents issued to us may be invalidated, circumvented or challenged. Any of our pending or future patent applications, whether or not being currently challenged, may not be issued with the scope of the claims we seek, if at all. Furthermore, others may develop technologies that are similar or superior to our technology or design around our patents. Despite our efforts to protect our proprietary rights, unauthorized parties may attempt to copy aspects of our products or to obtain and use information that we regard as proprietary. Policing unauthorized use of our products is difficult. In addition, the laws of some foreign countries do not protect our proprietary rights as fully as do the laws of the United States. Our means of protecting our proprietary rights in the United States or abroad may not be adequate. We have entered into agreements with substantially all of our customers that require us to place Siebel eBusiness Applications source code into escrow. Such agreements generally provide that such parties will have a limited, non-exclusive right to use such code if (i) there is a bankruptcy proceeding by or against us, (ii) we cease to do business, or (iii) we fail to meet our support obligations.

     Although we do not believe that we are infringing any proprietary rights of others, third parties may claim that we have infringed their intellectual property rights. Furthermore, former employers of our former, current or future employees may assert claims that such employees have improperly disclosed to us the confidential or proprietary information of such former employers. Any such claims, with or without merit, could (i) be time consuming to defend, (ii) result in costly litigation, (iii) divert management's attention and resources, (iv) cause product shipment delays and (v) require us to pay money damages or enter into royalty or licensing agreements. A successful claim of product infringement against us and our failure or inability to license or create a workaround for such infringed or similar technology may materially and adversely affect our business, operating results and financial condition.

     We license certain software from third parties. These third-party software licenses may not continue to be available to us on acceptable terms. The loss of, or inability to maintain, any of these software licenses could result in shipment delays or reductions. This could materially and adversely affect our business, operating results and financial condition.

International operations involve unique risks.

     Our revenues are primarily derived from large multi-national companies. To service the needs of these companies, we must provide worldwide product support services. We have expanded and intend to continue expanding, our international operations and enter additional international markets. This will require significant management attention and financial resources that could adversely affect our operating margins and earnings. We may not be able to maintain or increase international market demand for Siebel eBusiness Applications. If we do not, our international sales will be limited and our business, operating results and financial condition could be materially and adversely affected.

     Our international operations are subject to a variety of risks, including (i) foreign currency fluctuations, (ii) economic or political instability, (iii) shipping delays and (iv) various trade restrictions. Any of these risks could have a significant impact on our ability to deliver products on a competitive and timely basis. Significant increases in the level of customs duties, export quotas or other trade restrictions could also have an adverse effect on our business, financial condition and results of operations. In situations where direct sales are denominated in foreign currency, any fluctuation in foreign currency or the exchange rate may adversely affect our business, financial condition and results of operations. We manage our foreign currency exchange rate risk by entering into contracts to sell foreign currency at the time a foreign currency receivable is generated. When the foreign currency receivable is collected, the contract is liquidated, thereby converting the foreign currency to US dollars and mitigating the exchange rate risk. In certain instances, we have not hedged foreign currency receivables when the forward contracts in the relevant currency were not readily available or were not cost effective.

Certain stockholders may be able to exercise control over matters requiring stockholder approval.

     Our current officers, directors and entities affiliated with us together beneficially owned a significant portion of the outstanding shares of common stock as of December 31, 1999. While these stockholders do not hold a majority of our outstanding common stock, they will be able to exercise significant influence over matters requiring stockholder approval, including the election of directors and the approval of mergers, consolidations and sales of our assets. This may prevent or discourage tender offers for our common stock.

Our stock price may continue to be volatile.

     Our stock price has fluctuated substantially since our initial public offering in June 1996. The trading price of our common stock is subject to significant fluctuations in response to variations in quarterly operating results, the gain or loss of significant orders, changes in earning estimates by analysts, announcements of technological innovations or new products by us or our competitors, general conditions in the software and computer industries and other events or factors. In addition, the stock market in general has experienced extreme price and volume fluctuations that have affected the market price for many companies in industries similar or related to ours and that have been unrelated to the operating performance of these companies. These market fluctuations have adversely affected and may continue to adversely affect the market price of our common stock.

Certain provisions in our charter documents may prevent certain corporate actions.

     Our Board of Directors is authorized to issue up to 2,000,000 shares of preferred stock and to determine the price, rights, preferences, privileges and restrictions, including voting rights, of those shares without any further approval by our stockholders. The preferred stock could be issued with voting, liquidation, dividend and other rights superior to those of the common stock. The rights of the holders of common stock will be subject to and may be adversely affected by, the rights of the holders of any preferred stock that may be issued in the future. The issuance of preferred stock, while providing desirable flexibility in connection with possible acquisitions and other corporate purposes, could make it more difficult for a third party to acquire a majority of our outstanding voting stock. We have a classified Board of Directors. This and certain other provisions of our certificate of incorporation and certain provisions of our Bylaws and of Delaware law, could delay or make more difficult a merger, tender offer or proxy contest.

Audit Committee

      The Company has established an Audit Committee of the Board of Directors, the charter of which is to oversee the activities of management and the Company's external auditors as they relate to the financial reporting process. In 1999, the Audit Committee was comprised of James C. Gaither, Charles R. Schwab and George T. Shaheen. In particular, the Audit Committee's role includes ensuring that management properly develops and adheres to a sound system of internal controls, and that the Company's auditors, through their own review, assess the effectiveness of those controls and management's adherence to them.

      In fulfilling their responsibilities, the Audit Committee conducted regular, quarterly meetings with the Company's outside auditors. In each of these meetings, the Audit Committee met with the Company's outside auditors, independent of management, to assure the Audit Committee an independent and confidential view of the Company's management and internal controls as they relate to the quality and reliability of the Company's financial statements.

      The Company is committed to supporting this process and the Audit Committee in fulfilling their role of ensuring the integrity of the Company's internal controls and financial reporting.

Item 7a. Quantitative and Qualitative Disclosures About Market Risk

      The tables below provide information about the Company's derivative financial instruments and financial instruments that are subject to market risk. These include foreign currency forward contracts used to hedge foreign currency receivables and intercompany balances, which are subject to exchange rate risk, cash equivalents and available-for-sale short-term investments, which are subject to interest rate risk.

      The Company manages its foreign currency exchange rate risk by entering into contracts to sell foreign currency at the time a foreign currency receivable is generated. When the foreign currency receivable is collected, the contract is liquidated, thereby converting the foreign currency to US dollars and mitigating the exchange rate risk.

      The Company manages its interest rate risk by maintaining an investment portfolio with debt instruments of high credit quality and relatively short average maturities. The Company also manages interest rate risk by maintaining sufficient cash and cash equivalent balances such that it is typically able to hold its investments to maturity.

      The Company is exposed to equity price risks on marketable equity securities. This investment is in a publicly-trade company in the high-technology industry sector. The Company typically does not attempt to reduce or eliminate its market exposure on these securities. A 10% adverse change in the equity price would result in an approximate $14,200,000 decrease in the fair value of the Company's marketable equity securities as of December 31, 1999.

      The fair value of the Company's convertible subordinated debenture fluctuates based upon changes in the price of the Company's common stock, changes in interest rates and changes in the creditworthiness of the Company. The fair market value of the convertible subordinated debenture as of December 31, 1999 was $580,140,000.

      The following summarizes the Company's foreign currency forward contracts, all of which mature in 2000, by currency, as of December 31, 1999. Contract amounts are representative of the expected payments to be made under these instruments (in thousands):

                                                                    Fair Value
                                          Contract      Contract        at
                                        Amount (Local     Amount   December 31,
                                          Currency)       (US$)     1999 (US$)
                                       --------------- ----------- ------------
  German marks (contracts to pay
   DM/receive US$).....................     DM  5,930      $3,081          $36
  British pounds (contracts to pay
   Pounds/receive US$)................. (Pounds)4,211      $6,779         ($42)
  Japanese yen (contracts to pay
   Yen/receive US$)....................(Yen)2,008,000     $19,663           $8
  Euro (contracts to pay
   EUR/receive US$)....................    (EUR)7,664      $7,499         $133
  British pounds (contracts to pay
   Pounds/receive EUR).................   (Pounds)970   (EUR)1,402       ($164)

The following summarizes the Company's short-term investments and the weighted average yields, as of December 31, 1999 (in thousands):

                                     Expected maturity date
                          -----------------------------------------------------
                                                                        There-
                            2000     2001     2002     2003     2004    after
                          -------- -------- -------- -------- -------- --------
US treasury securities.    $9,752  $10,974   $4,945   $1,953   $6,262       --
Wtd. Avg. Yld..........      5.24%    6.27%    6.42%    6.36%    7.16%

Municipal securities...   $52,116  $37,942  $36,395   $5,305       --       --
Wtd. Avg. Yld..........      3.98%    3.86%    4.50%    4.73%

Corporate bonds........    $6,124   $5,430  $20,367       --       --       --
Wtd. Avg. Yld..........      6.05%    6.97%    6.80%

      On December 31, 1999, the Company had an investment portfolio of fixed income securities, excluding those classified as cash and cash equivalents, of $197,565,000. These securities, like all fixed income instruments, are subject to interest rate risk and will fall in value if market interest rates increase. If market interest rates were to increase immediately and uniformly by 100 basis points from levels as of December 31, 1999, the fair value of the portfolio would decline by approximately $2,834,000.

Item 8. Financial Statements and Supplementary Data

      The Company's consolidated financial statements, together with related notes and the report of KPMG LLP, the Company's independent auditors, are set forth on the pages indicated in Item 14.

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

      Not Applicable.

PART III

      Certain information required by Part III is omitted from this Report on Form 10-K since the Company will file a definitive Proxy Statement for its Annual Meeting of Stockholders to be held on May 9, 2000, pursuant to Regulation 14A of the Securities Exchange Act of 1934, as amended (the "Proxy Statement"), not later than 120 days after the end of the fiscal year covered by this Report, and certain information included in the Proxy Statement is incorporated herein by reference.

Item 10. Directors and Executive Officers of the Registrant

(a) Executive Officers

      The executive officers of the Company as of February 1, 2000, and their ages as of such date, are as follows:

              Name              Age                    Position
- ----------------------------- ------ ---------------------------------------------
   Thomas M. Siebel...........   47  Chairman, Chief Executive Officer and
                                      President
   Paul Wahl..................   47  President & Chief Operating Officer
   Pat House..................   45  Executive Vice President and Co-Founder
   Howard H. Graham...........   52  Senior Vice President, Finance and
                                      Administration and Chief Financial Officer
   Craig D. Ramsey............   53  Senior Vice President, Worldwide Operations
   R. David Schmaier..........   36  Senior Vice President, Products
   Mike Saranga...............   62  Senior Vice President, Engineering
   Karen M. Riley.............   46  Vice President, Global Services

      Thomas M. Siebel has served as Chairman, Chief Executive Officer of the Company since its inception in July 1993.

      Paul Wahl has served as President and Chief Operating Officer of the Company since April 1999. From November 1998 to April 1999, he served as Chief Executive Officer and President of TriStrata, an internet security company. From June 1991 to September 1998, Mr. Wahl served as Chief Executive Officer of SAP America, Inc., a software company, and was an Executive Board Member of SAP AG.

      Pat House has been with the Company since its inception in July 1993. From February 1996 to the present, she has served as the Company's Executive Vice President and Co-Founder, and from July 1993 to February 1996, she served as Senior Vice President, Marketing.

      Howard H. Graham has served as the Company's Senior Vice President, Finance and Administration and Chief Financial Officer since January 1997. From February 1990 to December 1996, Mr. Graham served as Senior Vice President and Chief Financial Officer of Informix, Inc.

      Craig D. Ramsey has served as the Company's Senior Vice President, Worldwide Operations since March 1996. From March 1994 to March 1996, Mr. Ramsey served as Senior Vice President of Worldwide Sales, Marketing and Support for nCUBE, a leader in distribution of digitized media.

      R. David Schmaier has served as Senior Vice President, Products since March 1994.

      Mike Saranga has served as Senior Vice President, Engineering since October 1998. From 1993 to 1998, Mr. Saranga served as Senior Vice President of Research and Development for Informix, Inc.

      Karen M. Rileyhas served as Vice President, Global Services since May 1999. From May 1979 to April 1999, Ms. Riley served in a variety of software development, product management, and services executive positions and as General Manger of Global CRM and business process outsourcing services practices at IBM.

      The Company's current officers, directors and affiliated entities together beneficially owned approximately 14.58% of the outstanding shares of Common Stock as of December 31, 1999. In particular, Thomas M. Siebel, the Company's Chairman and Chief Executive Officer, owned approximately 11.78% of the outstanding shares of Common Stock as of December 31, 1999. As a result, these stockholders will be able to exercise control over matters requiring stockholder approval, including the election of directors, and the approval of mergers, consolidations and sales of all or substantially all of the assets of the Company. This may prevent or discourage tender offers for the Company's Common Stock unless the terms are approved by such stockholders.

      The Company's Board of Directors has the authority to issue up to 2,000,000 shares of Preferred Stock and to determine the price, rights, preferences, privileges and restrictions, including voting rights, of those shares without any further vote or action by the stockholders. The Preferred Stock could be issued with voting, liquidation, dividend and other rights superior to those of the Common Stock. The rights of the holders of Common Stock will be subject to, and may be adversely affected by, the rights of the holders of any Preferred Stock that may be issued in the future. The issuance of Preferred Stock, while providing desirable flexibility in connection with possible acquisitions and other corporate purposes, could have the effect of making it more difficult for a third party to acquire a majority of the outstanding voting stock of the Company. Pursuant to the Company's Certificate of Incorporation, the Company has instituted a classified Board of Directors. This and certain other provisions of the Company's Certificate of Incorporation and certain provisions of the Company's Bylaws and of Delaware law, could delay or make more difficult a merger, tender offer or proxy contest involving the Company.

(b) Directors

     The information required by this Item is incorporated by reference to the section entitled "Election of Directors" in the Proxy Statement.

Item 11. Executive Compensation

      The information required by this Item is incorporated by reference to the section entitled "Executive Compensation" in the Proxy Statement.

Item 12. Security Ownership of Certain Beneficial Owners and Management

      The information required by this Item is incorporated by reference to the section entitled "Security Ownership of Certain Beneficial Owners and Management" in the Proxy Statement.

Item 13. Certain Relationships and Related Transactions

      The information required by this Item is incorporated by reference to the section entitled "Certain Transactions" in the Proxy Statement.

PART IV

Item 14. Exhibits, Financial Statements and Reports on Form 8-K

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

1. Financial Statements

Consolidated Financial Statements:

2. Financial Statement Schedule

Schedule II--Valuation and Qualifying Accounts

3. Exhibits

Exhibit
Number   Description of Document
- -------- ---------------------------------------------------------------
 2.1     Agreement and Plan of Merger and Reorganization, dated March 1,
         1998, among the Registrant, Syracuse Acquisition Sub, Inc. and
         Scopus Technology, Inc.(4)
 2.2     Agreement and Plan of Merger and Reorganization dated November
         17, 1999, among the Registrant, SE Acquisition Corp. and
         OnTarget, Inc. (8)
 3.1     Amended and Restated Certificate of Incorporation of the
         Registrant.(3)
 3.2     Certificate of Amendment of the Amended and Restated
         Certificiate of Incorporation of the Registrant (9)
 3.3     Bylaws of the Registrant.(1)
 4.1     Reference is made to Exhibits 3.1 and 3.2.
 4.2     Specimen Stock Certificate.(1)
 4.3     Restated Investor Rights Agreement, dated December 1, 1995,
         between the Registrant and certain investors, as amended April
         30, 1996 and June 14, 1996.(1)
10.1     Registrant's 1996 Equity Incentive Plan, as amended.(3)
10.2     Registrant's Employee Stock Purchase Plan, as amended.(3)
10.3     Form of Indemnity Agreement entered into between the Registrant
         and its officers and directors.(1)
10.4     Registrant's Deferred Compensation Plan, dated January 10,
         1997.(5)
10.5     Master Alliance Agreement, dated March 17, 1995, between the
         Registrant and Andersen Consulting LLP.(1)(2)
10.6     Assignment Agreement, dated September 20, 1995, by and between
         the Registrant and Thomas M. Siebel.(1)
10.7     Lease Agreement, dated June 4, 1996, by and between the
         Registrant and Crossroad Associates and Clocktower
         Associates.(1)
10.8     Lease Agreement, dated March 11, 1999, by and between the
         Registrant and Sobrato Interests III.(9)
10.9     Lease Agreement, dated March 11, 1999, by and between the
         Registrant and Sobrato Interests III.(9)
10.10    Lease Agreement, dated June 11, 1999, by and between the
         Registrant and Sobrato Interests III.(9)
10.11    Lease Agreement, dated August 24, 1994, by and between the
         Registrant and Watergate Tower Associates.(9)
10.12    Lease Agreement, dated August 16, 1999, by and between the
         Registrant and Spieker Properties, L.P..(9)
10.13    Lease Amendment 10, dated April 8, 1999, by and between the
         Registrant and Spieker Properties, L.P..(9)
10.14    Lease Amendment 11, dated August 13, 1999, by and between the
         Registrant and Spieker Properties, L.P..(9)
10.15    Lease Amendment 12, dated October 28, 1999, by and between
         the Registrant and Spieker Properties, L.P..(9)
23.1     Consent of KPMG LLP, Independent Auditors.(9)
27.1     Financial Data Schedule.(9)

 ---------

(1) Incorporated by reference to the Registrant's Registration Statement on Form S-1 (No. 333-03751), as amended.
(2) Confidential treatment has been granted with respect to portions of this exhibit.
(3) Incorporated by reference to the Registrant's Registration Statement on Form S-8 (No. 333-07983), as amended.
(4) Incorporated by reference to exhibit 99.1 of the Registrant's Current Report on Form 8-K filed by the Registrant on March 16, 1998.
(5) Incorporated by reference to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1996.
(6) Incorporated by reference to exhibit 99.3 of the Registrant's Current Report on Form 8-K filed by the Registrant on March 16, 1998.
(7) Incorporated by reference to exhibit 99.5 of the Registrant's Current Report on Form 8-K filed by the Registrant on March 16, 1998.
(8) Incorporated by reference the Registrant's Current Report on Form 8-K filed by the Registrant on January 7, 2000.
(9) Filed herewith.

      (b) Reports on Form 8-K

      On January 7, 2000, the Registrant filed a report on Form 8-K relating to the Registrant's restated audited consolidated financial statements, giving effect to the merger with OnTarget, Inc. for the three years ended December 31, 1998, and the related consolidated financial statement schedule, selected financial data and management's discussion and analysis of financial condition and results of operations.

INDEPENDENT AUDITORS' REPORT

The Board of Directors and Stockholders
Siebel Systems, Inc.:

      We have audited the accompanying consolidated balance sheets of Siebel Systems, Inc. and subsidiaries as of December 31, 1999 and 1998, and the related consolidated statements of operations and comprehensive income, stockholders' equity, and cash flows for each of the years in the three- year period ended December 31, 1999. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

      We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

      In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Siebel Systems, Inc. and subsidiaries as of December 31, 1999 and 1998, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1999, in conformity with generally accepted accounting principles.

/s/ KPMG LLP

Mountain View, California
January 24, 2000

SIEBEL SYSTEMS, INC.

Consolidated Balance Sheets

(in thousands, except per share data)

                                                             December 31,
                                                        ----------------------
                                                           1999        1998
                                                        ----------- ----------
                          Assets 
Current assets:
  Cash and cash equivalents............................   $465,810    $80,741
  Short-term investments...............................    197,565    151,888
  Marketable equity securities..........................   141,939         --
  Accounts receivable, net.............................    293,010    126,081
  Deferred income taxes................................        --      13,270
  Prepaids and other...................................     30,711     14,402
                                                        ----------- ----------
    Total current assets...............................  1,129,035    386,382
  Property and equipment, net..........................     56,875     46,384
  Other assets.........................................     41,052     14,830
                                                        ----------- ----------
    Total assets....................................... $1,226,962   $447,596
                                                        =========== ==========
         Liabilities and Stockholders' Equity
Current liabilities:
  Accounts payable.....................................    $11,845     $4,558
  Accrued expenses.....................................    125,085     88,185
  Income taxes payable.................................        --      10,917
  Deferred revenue.....................................     86,170     52,033
  Deferred income taxes................................     27,832         --
                                                        ----------- ----------
    Total current liabilities..........................    250,932    155,693

Convertible subordinated debentures.....................   300,000         --
Deferred income taxes..................................      1,439        783
                                                        ----------- ----------
    Total liabilities..................................    552,371    156,476
                                                        ----------- ----------

Commitments and contingencies

Stockholders' equity:
  Common stock; $0.001 par value; 800,000 shares
   authorized; 194,597 and 182,036 shares issued and
   outstanding, respectively...........................        195        182
  Additional paid-in capital...........................    415,408    235,400
  Notes receivable from stockholders...................       (406)      (406)
  Deferred stock compensation..........................     (1,203)      (360)
  Accumulated other comprehensive income (losses)......     83,612       (669)
  Retained earnings....................................    176,985     56,973
                                                        ----------- ----------
    Total stockholders' equity.........................    674,591    291,120
                                                        ----------- ----------
    Total liabilities and stockholders' equity......... $1,226,962   $447,596
                                                        =========== ==========

See accompanying notes to consolidated financial statements.

SIEBEL SYSTEMS, INC.

Consolidated Statements of Operations and Comprehensive Income

(in thousands, except per share data)

                                                  Year Ended December 31,
                                                --------------------------------
                                                   1999       1998       1997
                                                ---------- ---------- ----------
Revenues:
  Software.....................................  $499,398   $290,890   $156,971
  Professional services, maintenance and other.   291,522    118,996     65,100
                                                ---------- ---------- ----------
    Total revenues.............................   790,920    409,886    222,071
                                                ---------- ---------- ----------
Cost of revenues:
  Software.....................................     7,640      5,600      4,393
  Professional services, maintenance and other.   173,278     65,387     31,646
                                                ---------- ---------- ----------
    Total cost of revenues.....................   180,918     70,987     36,039
                                                ---------- ---------- ----------
    Gross margin...............................   610,002    338,899    186,032
                                                ---------- ---------- ----------
Operating expenses:
  Product development..........................    72,853     43,950     26,650
  Sales and marketing..........................   290,687    178,957    103,551
  General and administrative...................    63,508     34,473     21,275
  Merger-related expenses......................       --      13,500     26,038
                                                ---------- ---------- ----------
    Total operating expenses...................   427,048    270,880    177,514
                                                ---------- ---------- ----------
    Operating income...........................   182,954     68,019      8,518
Other income, net..............................    13,968      6,258      5,385
                                                ---------- ---------- ----------
    Income before income taxes.................   196,922     74,277     13,903
Income taxes...................................    74,830     30,012     13,260
                                                ---------- ---------- ----------
    Net income.................................  $122,092    $44,265       $643
                                                ========== ========== ==========

Pro forma net income and per share data:
    Income before taxes as reported............. $196,922    $74,277    $13,903
    Pro forma income taxes......................   75,195     30,817     13,848
                                                ---------- ---------- ----------
    Pro forma net income........................ $121,727    $43,460        $55
                                                ========== ========== ==========

Pro forma diluted net income  per share.........    $0.54      $0.21      $0.00
                                                ========== ========== ==========

Pro forma basic net income  per share...........    $0.65      $0.24      $0.00
                                                ========== ========== ==========

Shares used in diluted pro forma net income
  per share computation.........................  226,279    202,204    191,338
                                                ========== ========== ==========
Shares used in basic pro forma net income
  per share computation.........................  188,088    177,446    169,904
                                                ========== ========== ==========

Comprehensive income:
  Net income...................................  $122,092    $44,265       $643

Other comprehensive income (loss), net of tax:
  Foreign currency translation adjustments.....       615       (505)      (365)
  Unrealized gains on securities...............    83,666        201         --
                                                ---------- ---------- ----------
Other comprehensive income (loss)..............    84,281       (304)      (365)
                                                ---------- ---------- ----------
    Total comprehensive income.................  $206,373    $43,961       $278
                                                ========== ========== ==========

See accompanying notes to consolidated financial statements.

SIEBEL SYSTEMS, INC.

Consolidated Statements of Stockholders' Equity

(in thousands)

                                                      Notes            Accumu-
                                                     Receiv-            lated
                                                       able   Deferred  Other               Total
                           Common stock    Additional  from    Stock   Compre-             Stock-
                          ----------------  Paid-in   Stock-  Compen-  hensive  Retained  holders'
                           Shares  Amount   Capital  holders   sation   Losses  Earnings   Equity
                          -------- ------- --------- -------- -------- -------- --------- ---------
Balances, December 31,
 1996.................... 166,247    $166  $157,058    ($508) ($1,173)      --   $17,613  $173,156
Issuance of common
 stock under Employee
 Stock Option Plans......   4,134       5     4,785      --        --       --       --      4,790
Issuance of common
 stock under Employee
 Stock Purchase Plans....   1,252       1     4,299      --        --       --       --      4,300
Issuance of common
 stock related to
 InterActive acquisition.   1,204       1    14,580      --        --       --       --     14,581
Issuance of common
 stock related to
 Nomadic acquisition.....   1,200       1    10,392      --        --       --       --     10,393
Repayment of note
 receivable..............     --      --         --      102       --       --       --        102
Compensation related
 to stock options........     --      --       (256)     --       256       --       --        --
Cancellation of stock
 options issued below
 fair value..............     --      --         (1)     --         1       --       --        --
Tax benefit from
 stock options...........     --      --      4,046      --        --       --       --      4,046
Amortization of
 deferred compensation
 related to stock
 options.................     --      --         --      --       277       --       --        277
Currency translation
 adjustment (net of
 taxes of $214)..........     --      --         --      --        --     (365)      --       (365)
Subchapter S
 distributions by
 On Target...............     --      --         --      --        --       --      (973)     (973)
Net income...............     --      --         --      --        --       --       643       643
                          -------- ------- --------- -------- -------- -------- --------- ---------
Balances, December 31,
 1997.................... 174,037     174   194,903     (406)    (639)    (365)   17,283   210,950
Issuance of common stock
 under Employee Stock
 Option Plans............   6,767       7    17,855      --        --       --       --     17,862
Issuance of common stock
 under Employee Stock
 Purchase Plans..........   1,232       1     8,534      --        --       --       --      8,535
Adjustment to conform
 acquired company's
 year-end................     --      --         --      --        --       --    (1,464)   (1,464)
Cancellation of stock
 options issued below
 fair value..............     --      --        (39)     --        39       --       --        --
Tax benefit from
 stock options...........     --      --     13,516      --        --       --       --     13,516
Amortization of deferred
 compensation related
 to stock options........     --      --         --      --       240       --       --        240
Unrealized gain on
 short-term investments
 (net of taxes of $118)..     --      --         --      --        --      201       --        201
Currency translation
 adjustment (net of
 taxes of $297)..........     --      --         --      --        --     (505)      --       (505)
Transfer of common
 stock to employees.......    --      --        631      --        --       --       --        631
Subchapter S
 distributions by
 On Target...............     --      --         --      --        --       --    (3,111)   (3,111)
Net income......              --      --         --      --        --       --    44,265    44,265
                          -------- ------- --------- -------- -------- -------- --------- ---------
Balances, December 31,
 1998.................... 182,036     182   235,400     (406)    (360)    (669)   56,973   291,120
Issuance of common stock
 under Employee Stock
 Option Plans............  10,354      10    58,818      --        --       --       --     58,828
Issuance of common stock
 under Employee Stock
 Purchase Plans..........     827       1    15,736      --        --       --       --     15,737
Issuance of common stock
 under stock award
 plan....................     --      --        198      --        --       --       --        198
Tax benefit from
 stock options...........     --      --     91,679      --        --       --       --     91,679
Compensation related
 to stock options........     --      --      1,498      --    (1,498)      --       --        --
Amortization of deferred
 compensation related
 to stock options........     --      --         --      --       655       --       --        655
Unrealized gain on
 short-term investments
 (net of taxes
  of $51,279)............     --      --         --      --        --   83,666       --     83,666
Currency translation
 adjustment (net of
 taxes of $361)..........     --      --         --      --        --      615       --        615
Subchapter S
 distributions by
 On Target...............     --      --         --      --        --       --    (2,080)   (2,080)
Conversion of
convertible notes to
common stock.............     645       1     6,918      --        --       --       --      6,919
Issuance of common stock
related to Target
Marketing Systems
Worldwide and Target
Marketing Systems S.A.
acquisitions.............     735       1     5,161      --        --       --       --      5,162
Net income...............     --      --         --      --        --       --   122,092   122,092
                          -------- ------- --------- -------- -------- -------- --------- ---------
Balances, December 31,
 1999.................... 194,597    $195  $415,408    ($406) ($1,203) $83,612  $176,985  $674,591
                          ======== ======= ========= ======== ======== ======== ========= =========

See accompanying notes to consolidated financial statements.

SIEBEL SYSTEMS, INC.

Consolidated Statements of Cash Flows

(in thousands)

                                                       Year Ended December 31,
                                                  -----------------------------
                                                    1999      1998      1997
                                                  --------- --------- --------- 
Cash flows from operating activities:
  Net income .................................... $122,092   $44,265      $643
  Adjustments to reconcile net income to net
   cash provided by operating activities:
    Compensation related to stock options........      655       240       277
    Depreciation and amortization................   22,339    13,638     8,275
    Deferred income taxes........................  (10,450)   (9,543)   (1,614)
    Tax benefit from exercise of stock options...   91,679    13,516     4,046
    Loss on disposal of property and equipment...      714     4,557       307
    Provision for doubtful accounts and
     returns, net................................    7,478     6,613     2,348
    Write-off of acquired research and
     development.................................      --        --     22,740
    Changes in operating assets and liabilities:
      Accounts receivable........................ (170,766)  (68,739)  (41,344)
      Prepaids and other.........................  (15,721)   (6,744)   (1,946)
      Accounts payable and accrued expenses......   48,237    49,802    14,130
      Income taxes payable.......................  (10,803)    9,228    (1,896)
      Deferred revenue...........................   34,118    30,286    15,744
                                                  --------- --------- ---------
        Net cash provided by operating
         activities..............................  119,572    87,119    21,710
                                                  --------- --------- ---------
Cash flows from investing activities:
  Purchases of property and equipment............  (42,835)  (39,581)  (18,013)
  Purchases, sales and maturities of short-term
   investments, net..............................  (45,677)  (56,751)  (17,866)
  Proceeds from disposal of property and
   equipment.....................................   13,225       --        --
  Cash acquired in acquisitions..................      993       (31)      129
  Other assets...................................  (21,974)   (2,641)   (1,764)
                                                  --------- --------- ---------
        Net cash used in investing activities....  (96,268)  (99,004)  (37,514)
                                                  --------- --------- ---------
Cash flows from financing activities:
  Proceeds from issuance of common stock, net
   of repurchases................................   74,575    27,254     8,725
  Proceeds from issuance of convertible
   debt, net.....................................  291,316       --        --
  Borrowings on line of credit...................    5,874     1,542       130
  Repayments of line of credit...................   (7,659)      --        --
  Subchapter S distributions.....................   (2,080)   (2,366)     (974)
  Repayment of stockholder notes.................      --        --        (43)
                                                  --------- --------- ---------
        Net cash provided by financing
         activities..............................  362,026    26,430     7,838
                                                  --------- --------- ---------
Effect of exchange rate changes in cash..........     (261)      --        --
                                                  --------- --------- ---------
Change in cash and cash equivalents..............  385,069    14,545    (7,966)
Adjustment to conform acquired company's year end      --     (4,140)      --
Cash and cash equivalents, beginning of year.....   80,741    70,336    78,302
                                                  --------- --------- ---------
Cash and cash equivalents, end of year........... $465,810   $80,741   $70,336
                                                  ========= ========= =========

Cash paid for interest...........................       $3     $ --        $22
                                                  ========= ========= =========

Cash paid for income taxes.......................  $14,537   $14,194   $14,579
                                                  ========= ========= =========

Supplemental disclosures of noncash financing
 and investing activities:
  Purchase price payable 20*20 Group, Ltd........    $ --     $6,000     $ --
                                                  ========= ========= =========

  Common stock issued for acquisitions...........   $4,934     $ --    $24,974
                                                  ========= ========= =========

  Subchapter S distributions payable.............    $ --       $745       $22
                                                  ========= ========= =========

  Convertible notes issued for acquisitions......   $6,918     $ --      $ --
                                                  ========= ========= =========

See accompanying notes to consolidated financial statements.

SIEBEL SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(1) Summary of Significant Accounting Policies

The Company

      Siebel Systems, Inc. ("Siebel" or the "Company") is the market leader in eBusiness application software for organizations focused on increasing sales, marketing and customer service effectiveness in field sales, customer service, telesales, telemarketing, call centers, and third-party resellers. The Company designs, develops, markets, and supports Siebel eBusiness Applications, a leading Web-based application software product family designed to meet the sales, marketing and customer service information system requirements of even the largest multi-national organizations.

      In December 1999, the Company acquired OnTarget, Inc. ("OnTarget") in a business combination accounted for as a pooling of interests. Accordingly, all financial information has been restated to reflect the combined operations of the two companies. See Note 9.

Principles of Consolidation

      The accompanying consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany accounts and transactions have been eliminated.

Revenue Recognition

      Prior to January 1, 1998, the Company recognized revenue in accordance with Statement of Position ("SOP") No. 91-1, "Software Revenue Recognition". Software license revenue was recognized when all of the following criteria had been met: there was an executed license agreement; software had been shipped to the customer; no significant vendor obligations remained; the license fee was fixed and payable within twelve months and collection was deemed probable.

      On January 1, 1998, the Company adopted the provisions of Statement of Position No. 97-2 "Software Revenue Recognition". Revenue is recognized under SOP 97-2 when persuasive evidence of an arrangement exists and delivery has occurred, provided the fee is fixed and determinable, collectibility is probable and the arrangement does not require significant customization of the software. Under SOP 97-2, revenue on multiple element arrangements is allocated to the various elements based on fair values specific to the Company.

      Professional services, maintenance and other revenues relate primarily to consulting services, maintenance and training. Maintenance revenues are recognized ratably over the term of the maintenance contract, typically 12 months. Consulting and training revenues are recognized as the services are performed and are usually on a time and materials basis. Such services primarily consist of implementation services related to the installation of the Company's products and do not include significant customization to or development of the underlying software code.

      The Company's customer base includes a number of its suppliers (e.g., AT&T Corporation, BankBoston Robertson Stephens, Bank of America Corporation, Cabletron Systems, Inc., The Charles Schwab Corporation, Cigna Corporation, Cisco Systems, Inc., Compaq Computer Corporation, Dell Computer Corporation, Lucent Technologies, Inc., MCI WorldCom, Inc., Microsoft Corporation, NationsBanc Montgomery Securities, Inc., PeopleSoft, Inc., Siemens Corporation and Sun Microsystems, Inc.). On occasion, the Company has purchased goods or services for company operations from these vendors at or about the same time Siebel has licensed its software to these organizations. These transactions are separately negotiated and recorded at terms the Company considers to be arm's-length.

Cost of Revenues

Cost of software consists primarily of media, product packaging, documentation and other production costs, and third-party royalties. Cost of professional services, maintenance and other consists primarily of salaries, benefits and allocated overhead costs related to consulting, training and customer support personnel, including cost of services provided by third party consultants engaged by the Company.

Use of Estimates

      The preparation of consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Cash, Cash Equivalents, Short-Term Investments and Marketable Equity Securities

      The Company considers all highly liquid investments with a remaining maturity of 90 days or less to be cash equivalents. Short-term investments generally consist of highly liquid securities with original maturities in excess of 90 days. Marketable equity securities include an investment in a single publicly traded company. The Company has classified its short-term investments and marketable equity securities as "available for sale." Such investments are carried at fair value with unrealized gains and losses, net of related tax effects, reported within accumulated other comprehensive income (losses). Realized gains and losses on available for sale securities are computed using the specific identification method.

Property and Equipment

      Property and equipment are stated at cost less accumulated depreciation and amortization. Depreciation is calculated using the straight-line method over the estimated useful lives of the respective assets, generally three to five years. Leasehold improvements are amortized over the lesser of the lease term or the estimated useful lives of the improvements, generally seven years.

      Expenditures for maintenance and repairs are charged to expense as incurred. Costs and accumulated depreciation of assets sold or retired are removed from the respective property accounts, and gain or loss is reflected in the statement of operations.

Software Development Costs

      Software development costs associated with new products and enhancements to existing software products are expensed as incurred until technological feasibility in the form of a working model has been established. To date, the time period between the establishment of technological feasibility and completion of software development has been short, and no significant development costs have been incurred during that period. Accordingly, the Company has not capitalized any software development costs to date.

Intangible Assets

      Included in other assets are various intangible assets, primarily goodwill related to acquisitions. These amounts are generally being amortized over three to five years using the straight-line method. Gross intangible assets were $14,135,000 and $9,627,000 and related accumulated amortization was $3,656,000 and $2,503,000 at December 31, 1999 and 1998, respectively.

Other Assets

      Included in other assets is the Company's investment in Sales.com. In December 1999, the Company sold a controlling interest in Sales.com's voting equity to various outside investors. As a result, Sales.com is no longer being consolidated in the Company's financial statements, but is accounted for by the equity method. At December 31, 1999, the carrying value of the Company's investment in Sales.com was approximately $5,000,000.

      The Company had non-cash reductions in accounts receivable, prepaids and other, property equipment, other assets, accounts payable, accrued expenses and deferred revenue of $116,000, $602,000, $35,000, $505,000, $4,398,000, $5,275,000 and $149,000, respectively, attributable to the deconsolidation of Sales.com.

Advertising

      Advertising costs are expensed as incurred. Advertising expense is included in sales and marketing expense andamounted to $22,766,000, $12,126,000 and $7,245,000 in 1999, 1998 and 1997, respectively.

Income Taxes

      The Company uses the asset and liability method of accounting for income taxes. Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the consolidated financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets are recognized for deductible temporary differences, net operating loss carryforwards and credit carryforwards if it is more likely than not that the tax benefits will be realized. To the extent a deferred tax asset cannot be recognized under the preceding criteria, allowances must be established. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled.

      The pro forma provision for income taxes reflects income tax expense that would have been reported if OnTarget, Inc. (an S corporation for income-tax reporting purposes) had been a C corporation for each of the periods presented.

Pro Forma Net Income Per Share

      Basic pro forma net income per share is computed using the weighted average number of shares of common stock outstanding. Diluted pro forma earnings per share is computed using the weighted average number of shares of common stock and, when dilutive, potential common shares from options to purchase common stock and warrants outstanding using the treasury stock method. Dilutive pro forma net income per share also gives effect, when dilutive, to the conversion of the convertible notes and subordinated debentures using the if-converted method.

Employee Stock Option and Purchase Plans

      The Company accounts for its stock-based compensation plans using the intrinsic value method. As such, compensation expense is recorded on the date of grant if the current market price of the underlying stock exceeds the exercise price. The Company records and measures deferred compensation cost for options granted to non-employees at their fair value.

Foreign Currency Translation

      The Company considers the functional currency of its foreign subsidiaries to be the local currency, and accordingly, they are translated into U.S. dollars using exchange rates in effect at period end for assets and liabilities and average exchange rates during each reporting period for the results of operations. Adjustments resulting from translation of foreign subsidiary financial statements are reported within accumulated other comprehensive income (loss).

      The Company generally utilizes foreign currency forward contracts to hedge its exchange risk on foreign currency receivable and intercompany balances. While these forward contracts are subject to fluctuations in value, which are recorded in current results of operations, such fluctuations are generally offset by the changes in value of the underlying exposures being hedged. The Company does not hold or issue financial instruments for speculative or trading purposes.

Concentrations of Credit Risk

      Financial instruments that potentially subject the Company to a concentration of credit risk principally consist of trade accounts receivable. The Company performs ongoing credit evaluations of its customers and generally does not require collateral on accounts receivable, as the majority of the Company's customers are large, well established companies. The Company maintains reserves for potential credit losses, but historically has not experienced any significant losses related to any particular industry or geographic area since the Company's business is not concentrated on any one particular customer or customer base. No single customer accounts for more than 10% of revenues, and the Company's largest customer base, high technology, which accounted for approximately 24%of revenues during the year ended December 31, 1999, is sufficiently broad that the Company does not consider itself significantly exposed to concentrations of credit risk.

Fair Value of Financial Instruments

      The carrying amount of the Company's cash and cash equivalents, short-term investments, accounts receivable, and accounts payable approximate their respective fair values. Changes in the fair value of the Company's derivative financial instruments (foreign currency forward contracts) are generally offset by changes in the value of the underlying exposures being hedged. The unrealized loss of the Company's derivative financial instruments at December 31, 1999 was approximately $29,000.

      The fair value of the Company's convertible subordinated debentures was $580,140,000 at December 31, 1999, based on quoted market price.

Impairment of Long-Lived Assets

      The Company evaluates long-lived assets, including goodwill, for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable based on expected undiscounted cash flows attributable to that asset. The amount of any impairment is measured as the difference between the carrying value and the fair value of the impaired asset. The Company does not have any long-lived assets it considers to be impaired.

Recent Accounting Pronouncements

      In June 1998, the Financial Accounting Standards Board issued SFAS No. 133 "Accounting for Derivative Instruments and Hedging Activities". SFAS No. 133 establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, (collectively referred to as derivatives) and for hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. If certain conditions are met, a derivative may be specifically designated and accounted for as (a) a hedge of the exposure to changes in the fair value of a recognized asset or liability or an unrecognized firm commitment, (b) a hedge of the exposure to variable cash flows of a forecasted transaction, or (c) a hedge of the foreign currency exposure of a net investment in a foreign operation, an unrecognized firm commitment, an available-for-sale security, or a foreign-currency- denominated forecasted transaction. For a derivative not designated as a hedging instrument, changes in the fair value of the derivative are recognized in earnings in the period of change. This statement will be effective for all annual and interim periods beginning after June 15, 2000. Management does not believe the adoption of SFAS No. 133 will have a material effect on the Company's consolidated financial position or results of operations.

      In December 1998, the Accounting Standards Executive Committee (AcSEC) of the AICPA issued SOP 98-9, "Software Revenue Recognition with Respect to Certain Arrangements", which requires recognition of revenue using the "residual method" in a multiple element arrangement when fair value does not exist for one or more of the undelivered elements in the arrangement. Under the "residual method", the total fair value of the undelivered elements is deferred and subsequently recognized in accordance with SOP 97-2. Management does not believe the adoption of SOP 98-9 will have a material effect on the Company's consolidated financial position or results of operations. SOP 98-9 will be effective for all annual and interim periods beginning on or after January 1, 2000.

(2) Financial Statement Details

Cash, Cash Equivalents, Short-Term Investments and Marketable Equity Securities

      Cash equivalents consist of securities with remaining maturities of 90 days or less at the date of purchase. Short-term investments as of December 31, 1999 consisted of $58,481,000 of securities which mature in less than one year, $139,084,000 of securities which mature in one to five years and no securities which mature in over five years. Cash, cash equivalents and short- term investments and marketable securities consisted of the following as of December 31, 1999 (in thousands):

                                                    Unrealized
                                                -------------------
                                        Cost      Loss      Gain     Market
                                      --------- --------- --------- ---------
   Cash and cash equivalents:
     Cash............................  $35,039       $--       $--   $35,039
     Certificates of deposit.........    1,685        --        --     1,685
     Money market funds..............  401,162        --        --   401,162
     US treasury & agency securities.    6,628        --        --     6,628
     Corporate notes.................   21,292        (1)        5    21,296
                                      --------- --------- --------- ---------
                                      $465,806       ($1)       $5  $465,810
                                      ========= ========= ========= =========
   Short-term investments:
     US treasury securities..........  $34,436     ($551)       $1   $33,886
     Corporate notes..................  32,182      (261)       --    31,921
     Municipal securities............  133,071    (1,315)        2   131,758
                                      --------- --------- --------- ---------
                                      $199,689   ($2,127)       $3  $197,565
                                      ========= ========= ========= =========

   Marketable equity securities.......  $4,550       $--  $137,389  $141,939
                                      --------- --------- --------- ---------
                                        $4,550       $--  $137,389  $141,939
                                      ========= ========= ========= =========

      Short-term investments as of December 31, 1998 consisted of $46,187,000 of municipal securities which mature in less then one year, and $94,980,000 of municipal securities which mature in one to five years and $10,721,000 of securities which mature in over five years. As of December 31, 1998, cost approximated market for short-term investments; realized and unrealized gains and losses were not significant.

Accounts Receivable, Net

      Accounts receivable, net, consisted of the following (in thousands):

                                             December 31,
                                         -------------------
                                           1999      1998
                                         --------- --------- 
   Trade accounts receivable.........    $305,710  $136,411
   Less: allowances for doubtful
     accounts and returns............      12,700    10,330
                                         --------- ---------
                                         $293,010  $126,081
                                         ========= =========

Property and Equipment, Net

      Property and equipment, net, consisted of the following (in thousands):

                                             December 31,
                                         -------------------
                                           1999      1998
                                         --------- --------- 
   Computer equipment................     $33,150   $38,965
   Furniture and fixtures............      18,526    10,513
   Computer software.................      12,310     8,735
   Corporate aircraft................       6,963        --
   Leasehold improvements............      19,531     9,058
                                         --------- ---------
                                           90,480    67,271
   Less: accumulated depreciation....      33,605    20,887
                                         --------- ---------
                                          $56,875   $46,384
                                         ========= =========

Accrued Expenses

      Accrued expenses consisted of the following (in thousands):

                                             December 31,
                                         -------------------
                                           1999      1998
                                         --------- --------- 
   Bonuses...........................     $24,253   $23,091
   Commissions.......................      20,552    17,810
   Sales tax.........................       5,984     9,345
   Vacation..........................       8,306     3,967
   Acquisition-related...............       2,486     7,450
   Other.............................      63,504    26,522
                                         --------- ---------
                                         $125,085   $88,185
                                         ========= =========

Accumulated Other Comprehensive Income (Loss)

      Accumulated other comprehensive income (loss) consisted of the following (in thousands):

                                                       December 31,
                                                   -------------------
                                                     1999      1998
                                                   --------- ---------
   Foreign currency translation adjustments..         ($255)    ($870)
   Unrealized gains on securities............        83,867       201
                                                   --------- ---------
                                                    $83,612     ($669)
                                                   ========= =========

Other Income, Net

      Other income, net, consisted of the following (in thousands):

                                                   December 31,
                                         -----------------------------
                                           1999      1998      1997
                                         --------- --------- ---------
  Realized gains on disposition of
   marketable equity securities......     $12,343     $  --     $  --
  Charitable contributions...........      (6,000)       --        --
  Interest income....................      16,941     7,605     6,055
  Interest expense...................      (6,059)      (68)      (29)
  Other, net.........................      (3,257)   (1,279)     (641)
                                         --------- --------- ---------
                                          $13,968    $6,258    $5,385
                                         ========= ========= =========

(3) Convertible Subordinated Debentures

      The Company completed a private placement of $300,000,000 of convertible subordinated debentures in September 1999. The seven-year term notes bear interest at a rate of 5.50% and are convertible into approximately 6,432,000 shares of the Company's common stock at any time prior to maturity, at a conversion price of approximately $46.64 per share, subject to adjustment under certain conditions. The notes may be redeemed, in whole or in part, by the Company at any time on or after September 15, 2002. The redemption price will range from $309,420,000 to $302,370,000 if the notes are redeemed between September 15, 2002 through September 14, 2006. Any redemption made on or after September 15, 2006 will be redeemed at $300,000,000. Accrued interest to the redemption date will be paid by the Company in each redemption.

(4) Commitments and Contingencies

Letters of Credit

      In August 1996, the Company entered into a $1,325,000 secured letter of credit with a bank. This letter of credit, which expires July 2006, collaterizes the Company's obligations to a third party for lease payments.

      In March 1999, the Company entered into an $8,400,000 secured letter of credit with a bank. This letter of credit, which expires November 2000, collateralizes the Company's obligations to a third party for tenant improvement costs.

      In October 1999, the Company entered into two $8,400,000 secured letters of credit with a bank. These letters of credit, which expire October 2000 and January 2001, collateralize the Company's obligations to a third party for tenant improvement costs. The Company also entered into a $3,000,000 secured letter of credit with a bank. This letter of credit, which expires August 2000, collateralizes the Company's obligation to a third party for lease payments.

      The letters of credit are secured by cash, cash equivalents and short- term investments.

Lease Obligations

      As of December 31, 1999, the Company leased facilities under noncancelable operating leases expiring between 2000 and 2009. Future minimum lease payments are as follows (in thousands):

     Year Ending December 31,
     ------------------------            
  2000......................................        $33,501
  2001......................................         43,029
  2002......................................         41,306
  2003......................................         41,542
  2004 and thereafter.......................        281,443
                                                   ---------
                                                   $440,821
                                                   =========

      Rent expense for the years ended December 31, 1999, 1998 and 1997, was $15,644,000, $11,904,000 and $6,469,000, respectively.

Employee Benefit Plan

      The Company has a 401(k) plan that allows eligible employees to contribute up to 20% of their compensation, limited to $10,000 in 1999. Employee contributions and earnings thereon vest immediately. Although the Company may make discretionary contributions to the 401(k) plan, none have been made to date. A subsidiary made discretionary contributions of $244,000 and $154,000 to its 401(k) and profit-sharing plans in 1998 and 1997, respectively.

Legal Actions

      In October 1999, SAP America, Inc. filed a complaint against the Company in the Court of Common Pleas of Delaware County, Pennsylvania. The complaint alleges tortious interference with contractual relations, predatory hiring, misappropriation of trade secrets, and unfair competition in connection with its employment of individuals formerly employed by SAP America or its affiliated companies. The Company believes the claims are without merit, and intends to defend them vigorously. The Company believes that the ultimate outcome of the action will not have a material effect on the Company's financial position or results of operations, although there can be no assurance as to the outcome of such litigation.

      The Company is engaged in other legal actions arising in the ordinary course of business. The Company believes it has adequate legal defenses and believes that the ultimate outcome of these actions will not have a material effect on the Company's consolidated financial position or results of operations, although there can be no assurance as to the outcome of such litigation.

(5) Stockholders' Equity

Stock Split

      On August 24, 1999 and October 20, 1999, respectively, the Company's Board of Directors and stockholders approved a two-for-one stock split (to be effected in the form of a stock dividend) which was paid on November 12, 1999. The accompanying consolidated financial statements have been restated to give effect to the stock split.

Pro Forma Net Income per Share

      The following is a reconciliation of the number of shares used in the pro forma basic and proforma diluted earnings per share computations for the periods presented (in thousands):

                                             Year Ended December 31,
                                         -----------------------------
                                           1999      1998      1997
                                         --------- --------- ---------
 Shares used in basic pro forma net
   income per share computation.........  188,088   177,446   169,904
 Effect of dilutive potential common
   shares...............................   37,724    24,758    21,434
 Shares used in diluted pro forma net
   income...............................      467        --        --
                                         --------- --------- ---------
 Shares used in diluted pro forma net
   income per share computation.........  226,279   202,204   191,338
                                         ========= ========= =========

      The Company excludes potentially dilutive securities from its diluted net income (loss) per share computation when either the exercise price of the securities exceeds the average fair value of the Company's common stock or the Company reported net losses, because their effect would be anti-dilutive. For the year ended December 31, 1999, the Company excluded 2,108,370 employee stock options with a weighted average exercise price of $60.09 per share from the earnings per share computation as their exercise prices exceeded the average fair value of the Company's common stock during the year and, accordingly, their inclusion would have been anti-dilutive. The Company also excluded 6,432,000 shares relating to the convertible subordinated debentures (see note 3) from the earnings per share computation as the effect would be antidilutive. During 1998, the Company excluded a total of 6,619,882 employee stock options with a weighted average exercise price of $14.36 per share from the earnings per share computation as their inclusion would have been anti-dilutive.

Employee Stock Option and Purchase Plans

      The 1996 Equity Incentive Plan, which amended and restated the Company's 1994 Stock Option Plan and 1996 Supplemental Stock Option Plan and the 1998 Non-Officer Equity Incentive Plan (collectively, the "Plan"), provides for the issuance of up to an aggregate of 100,000,000 shares of common stock to employees, directors and consultants. The Plan provides for the issuance of incentive and nonstatutory stock options, restricted stock purchase awards, stock bonuses and stock appreciation rights.

      Under the Plan, the exercise price for incentive stock options is at least 100% of the fair market value on the date of the grant. Options generally expire in 10 years; however, incentive stock options may expire in 5 years if the optionee owns stock representing more than 10% of the voting power of all classes of stock. Vesting periods are determined by the Board of Directors and generally provide for shares to vest ratably over 5 years.

      The Plan also allows for the exercise of certain unvested options. Shares of common stock issued to employees upon exercise of unvested options are subject to repurchase by the Company at the original exercise price. The Company's ability to repurchase these shares expires at a rate equivalent to the current vesting schedule of each option. As of December 31, 1999, 7,177,200 shares of common stock had been issued to employees upon the exercise of unvested options, which are subject to repurchase, at a weighted average repurchase price of $0.12 per share. No compensation expense has resulted from repurchases of restricted shares since the amount of cash paid by the Company did not differ from the proceeds received from the employee from the sale of the restricted shares. The Company has not issued any other restricted stock purchase awards, stock bonuses or stock appreciation rights.

      During the period from October 1995 through April 1996, the Company granted options to purchase an aggregate of 32,610,000 shares of common stock at exercise prices ranging from $0.07 to $0.82 per share. Based in part on an independent appraisal obtained by the Company's Board of Directors, and other factors, the Company recorded $748,000 of deferred compensation expense in 1995 and an additional $893,000 of deferred compensation expense in 1996 relating to these options. These amounts are being amortized over the vesting period of the individual options, generally five years.

      During 1999, the Company granted options to a non-employee. As of December 31, 1999, there were 20,000 options outstanding pursuant to these grants which are included in the combined plan activity summary below. The Company records and measures deferred compensation cost for options granted to non-employees at their fair value.

      The Company has assumed certain options granted to former employees of acquired companies (the "Acquired Options"). The Acquired Options were assumed by the Company outside of the Plan, but all are administered as if issued under the Plan. All of the Acquired Options have been adjusted to give effect to the conversion under the terms of the Agreements and Plans of Reorganization between the Company and the companies acquired. The Acquired Options generally become exercisable over a four year period and generally expire either five or ten years from the date of grant. No additional options will be granted under any of the acquired companies' plans.

      Combined plan activity is summarized as follows:

                                                                    Weighted
                                                                    average
                                            Shares                  exercise
                                          Available    Number of     price
                                          for grant      shares    per share
                                         ------------ ------------ ---------- 
   Balances, December 31, 1996..........   2,496,034   42,352,594      $1.81
     Additional shares authorized.......  32,000,000         --
     Options granted.................... (26,660,548)  26,660,548      $8.28
     Options exercised..................         --    (4,134,606)     $1.13
     Options canceled...................  10,763,214  (10,763,214)     $8.35
                                         ------------ ------------   -------
   Balances, December 31, 1997..........  18,598,700   54,115,322      $3.74
     Additional shares authorized.......  20,000,000         --
     Options granted.................... (37,472,444)  37,472,444     $11.25
     Options exercised..................         --    (6,767,242)     $2.93
     Options canceled...................   7,845,368   (7,845,368)     $7.92
                                         ------------ ------------   -------
   Balances, December 31, 1998..........   8,971,624   76,975,156      $7.04
     Additional shares authorized.......  22,500,000         --
     Options granted.................... (26,511,903)  26,511,903     $39.37
     Options exercised..................         --   (10,353,928)     $5.76
     Options canceled...................   5,428,205   (5,428,205)    $13.54
                                         ------------ ------------   -------
   Balances, December 31, 1999..........  10,387,926   87,704,926     $16.58
                                         ============ ============   =======

      The following table summarizes information about fixed stock options outstanding as of December 31, 1999:

                          Options outstanding          Options exercisable
                   ---------------------------------- ----------------------
                                Weighted
                                 average
                                remaining   Weighted               Weighted
                               contractual  average                average
     Range of        Number       life      exercise    Number     exercise
 exercise prices    of shares  (in years)    price     of shares    price
- ------------------ ----------- ----------- ---------- ----------- ----------
  $0.01               194,100         5.0      $0.01     194,100      $0.01
  $0.03               100,728         5.3      $0.03     100,728      $0.03
  $0.06               250,050         5.8      $0.06     250,050      $0.06
  $0.22             1,448,350         6.1      $0.22   1,448,350      $0.22
  $0.33 -    0.37   4,173,802         6.2      $0.36   2,000,455      $0.36
  $0.69 -    0.92   8,471,854         6.3      $0.71   4,307,367      $0.70
  $1.44 -    2.13   2,693,643         6.3      $1.52   1,188,390      $1.51
  $2.91 -    4.22   1,828,822         5.8      $4.08     695,420      $4.06
  $5.49 -    8.11  10,996,446         6.9      $6.07   3,994,269      $6.08
  $8.28 -   12.39  26,639,978         8.4     $10.34   6,779,622     $10.35
 $12.44 -   18.51   9,602,056         8.7     $14.92   1,220,346     $13.79
 $18.88 -   26.81   8,285,777         9.2     $21.43     268,192     $19.65
 $29.22 -   42.30   5,079,400         9.6     $31.73       1,424     $29.56
 $50.04 -   62.81   1,839,070         9.9     $62.70         262     $62.81
 $81.06             6,100,850        10.0     $81.06           0     $81.06
- ------------------ ----------- ----------- ---------- ----------- ----------
  $0.01 -   81.06  87,704,926        8.00     $16.58  22,448,975      $5.58
                   ===========                        ===========

      In May 1996, the Company adopted the 1996 Employee Stock Purchase Plan (the "Purchase Plan") and reserved 2,800,000 shares for issuance thereunder. The Purchase Plan became effective upon the completion of the Company's initial public offering. In January 1997, the Board of Directors of the Company adopted an amendment to the Purchase Plan to increase the number of shares authorized for issuance under the Purchase Plan to 6,800,000 shares. The Purchase Plan permits eligible employees to purchase common stock, through payroll deductions of up to 15% of the employee's compensation, at a price equal to 85% of the fair market value of the common stock at either the beginning or the end of each offering period, whichever is lower. As of December 31, 1999, 3,901,000 shares had been purchased under the Purchase Plan.

Common Stock

      The Company has elected to continue to use the intrinsic value-based method to account for all of its employee stock-based compensation plans. The Company records deferred compensation costs related to employee stock options when the exercise price of each option equals or is less than the fair value of the underlying common stock as of the grant date for each stock option. The Company also recorded compensation expense for the estimated fair value of common stock transferred from the majority shareholders of OnTarget to two key employees in January 1998 and for options granted to one consultant in 1999.

      Pursuant to SFAS No. 123, the Company is required to disclose the pro forma effects on net income (loss) and net income (loss) per share data as if the Company had elected to use the fair value approach to account for all its employee stock-based compensation plans. Had compensation cost for the Company's plans been determined consistent with the fair value approach enumerated in SFAS No. 123, the Company's net income (loss) and net income (loss) per share for the years ended December 31, 1999, 1998 and 1997 would have been as indicated below (in thousands, except per share data):

                                              1999      1998      1997
                                            --------- --------- ---------
 Pro forma net income (loss):
   As reported............................  $121,727   $43,460       $55
   Pro forma giving effect to SFAS No 123.   $94,998   $23,203  ($12,697)

 Diluted pro forma net income (loss)
 per share:
   As reported............................     $0.54     $0.21     $0.00
   Pro forma giving effect to SFAS No 123.     $0.42     $0.11    ($0.07)

 Basic pro forma net income (loss)
 per share:
   As reported............................     $0.65     $0.24     $0.00
   Pro forma giving effect to SFAS No 123.     $0.51     $0.13    ($0.07)

      The fair value of options was estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted- average assumptions used for option grants:

                                              1999      1998      1997
                                            --------- --------- ---------
 Risk-free interest rate...................     5.44%     4.85%      6.1%
 Expected life (in years)..................      3.4       3.4       3.5
 Expected volatility.......................     69.0%     70.5%     83.9%

      The fair value of employees' stock purchase rights under the Purchase Plan was estimated using the Black-Scholes model with the following weighted average assumptions used for purchases:

                                              1999      1998      1997
                                            --------- --------- ---------
 Risk-free interest rate...................     4.66%      5.3%      5.3%
 Expected life (in years)..................      0.5       0.6       0.7
 Expected volatility.......................     69.0%     70.5%     83.9%

      Under SFAS No. 123, the weighted average estimated fair value of employee stock options granted at exercise prices equal to market price at grant date during 1999, 1998 and 1997 was $20.86, $5.94 and $4.30 per share, respectively.

      The Company determined the assumptions to be used in computing the fair value of stock options or stock purchase rights as follows. The risk-free rate is the U.S. treasury bill rate for the relevant expected life. The expected useful lives were estimated giving consideration to vesting and purchase periods, contractual lives, expected employee turnover and underlying stock volatility.

(6) Income Taxes

      Income before taxes includes income from foreign operations of approximately $5,413,000, $3,600,000 and $680,000 for the years ended December 31, 1999, 1998 and 1997, respectively.

Historical Information

      The components of income tax expense (benefit) for the years ended December 31, 1999, 1998 and 1997 are as follows (in thousands):

                                              1999      1998      1997
                                            --------- --------- ---------
 Current:
   Federal.................................  ($8,796)  $18,488    $7,694
   State...................................       --     4,559     2,684
   Foreign.................................    1,586     1,289       400
                                            --------- --------- ---------
     Total current.........................   (7,210)   24,336    10,778
 Deferred:
   Federal.................................   (5,359)   (6,432)   (1,345)
   State...................................   (4,280)   (1,409)     (219)
                                            --------- --------- ---------
     Total deferred........................   (9,639)   (7,841)   (1,564)

 Charge in lieu of taxes attributable
   to employer's stock option plans........   91,679    13,517     4,046
                                            --------- --------- ---------
     Total income taxes....................  $74,830   $30,012   $13,260
                                            ========= ========= =========

      The differences between the income tax expense computed at the federal statutory rate of 35% and the Company's actual income tax expense for the years ended December 31, 1999, 1998 and 1997 are as follows:

                                              1999      1998      1997
                                            --------- --------- ---------
  Expected income tax expense..............     35.0%     35.0%     35.0%
  State income taxes, net of federal
    tax benefit............................      4.7%      4.4%     13.4%
  In-process research and development......       --        --      57.2%
  Non-deductible merger costs..............       --       4.5%       --
  Research and experimentation credit......     (0.7%)    (1.1%)    (3.9%)
  Tax exempt interest......................     (1.0%)    (2.4)     (7.0%)
  Foreign sales corporation benefit........       --      (0.8%)      --
  S corporation benefit....................       --      (1.1%)    (4.2%)
  Other, net...............................       --       1.9%      4.9%
                                            --------- --------- ---------
    Total income taxes.....................     38.0%     40.4%     95.4%
                                            ========= ========= =========

      The tax effects of temporary differences that give rise to significant portions of deferred tax assets and liabilities as of December 31, 1999 and 1998 are as follows in thousands:

                                                        1999      1998
                                                      --------- ---------
 Deferred tax assets:
  Deferred state taxes..............................     $  --      $549
  Accruals and reserves, not currently taken
   for tax purposes.................................     4,679     8,048
  Allowance for doubtful accounts and returns.......     4,901     4,438
  Charitable contribution carryforward..............     2,451        --
  Research and development credit carryforward......     2,800        --
  Net operating loss carryforward...................     1,326       235
  Gain on investment................................     5,183        --
  Other.............................................     2,225        --
                                                      --------- ---------
   Deferred assets..................................    23,565    13,270

 Deferred tax liabilities:
  Unrealized gain on marketable securities..........   (51,397)       --
  Depreciation......................................    (1,439)     (783)
                                                      --------- ---------
   Deferred liabilities.............................   (52,836)     (783)
                                                      --------- ---------
   Net deferred assets (liabilities)................  ($29,271)  $12,487
                                                      ========= =========

      As of December 31, 1999, the Company had state net operating loss carryforwards of approximately $23,000,000 available to offset future state taxable income. In addition, the Company had federal and state research and devlopment credit carryforwards of $1,600,000 and $1,200,000, respectively available to offset future tax liabilities. The Company's state net operating loss carryforwards expire in 2004 if not utilized. The Company's federal research and development credit carryforward expires in 2019, if not utilized. The state research and development credit can be carried forward indefinitely.

      Management believes it is more likely than not that future operations will generate sufficient taxable income to realize any deferred tax assets.

Pro Forma Income Taxes

      The pro forma provision for income taxes reflects the income tax expense that would have been reported if OnTarget Inc. (an S corporation for income tax reporting purposes) had been a C corporation for each of the years in the three-year period ended December 31, 1999. The components of pro forma income tax expense are as follows (in thousands):

                                              1999      1998      1997
                                            --------- --------- ---------
 Current:
   Federal.................................  ($8,548)  $19,192    $8,211
   State...................................       --     4,660     2,755
   Foreign.................................    1,586     1,289       400
                                            --------- --------- ---------
     Total current.........................   (6,962)   25,141    11,366
 Deferred:
   Federal.................................   (5,288)   (6,432)   (1,345)
   State...................................   (4,234)   (1,409)     (219)
                                            --------- --------- ---------
     Total deferred........................   (9,522)   (7,841)   (1,564)

 Charge in lieu of taxes attributable
   to employer's stock option plans........   91,679    13,517     4,046
                                            --------- --------- ---------
     Total income taxes....................  $75,195   $30,817   $13,848
                                            ========= ========= =========

      The differences between the pro forma income tax expense computed at the federal statutory rate of 35% and the Company's actual pro forma income tax expense for the years ended December 31, 1997, 1998 and 1999 are as follows:

                                              1999      1998      1997
                                            --------- --------- ---------
  Expected income tax expense..............     35.0%     35.0%     35.0%
  State income taxes, net of federal
    tax benefit............................      4.7%      4.4%     13.4%
  In-process research and development......       --        --      57.2%
  Non-deductible merger costs..............       --       4.5%       --
  Research and experimentation credit......     (0.7%)    (1.1%)    (3.9%)
  Tax exempt interest......................     (1.0%)    (2.4%)    (7.0%)
  Foreign sales corporation benefit........       --      (0.8%)      --
  Other, net...............................       --       1.9%      4.9%
                                            --------- --------- ---------
    Total income taxes.....................     38.0%     41.5%     99.6%
                                            ========= ========= =========

      Deferred tax assets and liabilities on a pro forma basis do not differ materially from the historical information presented above.

(7) Related Party Transactions

      Certain members of the Company's Board of Directors serve as officers for customers of the Company. In 1999, aggregate license revenues associated with shipments to these customers were $1,382,000 and accounts receivable from these customers was $2,460,000. In 1998, aggregate revenues associated with shipments to these customers were $1,763,000 and accounts receivable from these customers was $1,335,000.

(8) Segment and Geographic Information

      The Company and its subsidiaries are principally engaged in the design, development, marketing and support of Siebel eBusiness Applications, its family of proprietary software applications. Substantially all revenues result from the licensing of the Company's software products and related consulting and customer support (maintenance) services. The Company's chief operating decision maker reviews financial information presented on a consolidated basis, accompanied by disaggregated information about revenues by geographic region for purposes of making operating decisions and assessing financial performance. Accordingly, the Company considers itself to be in a single industry segment, specifically the license, implementation and support of its software applications.

      The Company evaluates the performance of its geographic regions based on revenues and gross margin only. The Company does not assess the performance of its geographic regions on other measures of income or expense, such as depreciation and amortization, operating income or net income. In addition, as the Company's assets are primarily located in its corporate office in the United States and not allocated to any specific region, the Company does not produce reports for, or measure the performance of, its geographic regions based on any asset-based metrics. Therefore, geographic information is presented only for revenues and gross margin.

      While a majority of the Company's revenues are derived from the United States, the Company's export sales have been growing. Export sales for the years ended December 31, 1999, 1998 and 1997 were $157,300,000, $88,200,000 and $41,800,000, respectively. This represented 31%, 30% and 27% of total license revenues, respectively. The Company's export sales are principally in Europe and Asia/Pacific.

      The following geographic information is presented for the years ended December 31, 1999, 1998 and 1997 (in thousands):

                             North               Asia
                    Year    America   Europe    Pacific    Other    Totals
                   ------- --------- --------- --------- --------- ---------
   Revenues:
                     1999  $597,034  $158,948   $11,331   $23,607  $790,920
                     1998   293,872    75,364    24,424    16,226   409,886
                     1997   171,491    35,052    10,115     5,413   222,071

   Gross margin:
                     1999  $428,768  $148,109   $28,077    $5,048  $610,002
                     1998   241,529    62,699    20,824    13,847   338,899
                     1997   141,976    30,535     9,161     4,360   186,032

      No single customer has accounted for 10% or more of total revenues in 1999, 1998 or 1997.

(9) Acquisitions

OnTarget, Inc.

      In January and February 1999, OnTarget acquired Target Marketing Systems Worldwide Limited, Target Marketing Systems S.A., and The Sales Consultancy Inc. in exchange for convertible notes and OnTarget stock. OnTarget recorded goodwill of $9,745,000 in connection with these acquisitions. The goodwill is being amortized over a five-year period using the straight-line method. Pro forma information giving effect to these mergers has not been presented since it would not differ materially from the historical results of the Company.

      On December 1, 1999, the Company acquired OnTarget, Inc. OnTarget develops and implements advanced sales and marketing training and consulting programs for sales organizations competing in complex, multilevel sales campaigns. Primary customers include corporate clients and business owners who wish to provide for the development and training of their sales and marketing personnel.

      Under the terms of the agreement, each outstanding share of OnTarget common stock was exchanged for 0.3077516 newly issued shares of common stock of the Company. This resulted in the issuance of approximately 3,700,000 additional shares of the Company's common stock. In addition, all outstanding stock options of OnTarget were converted into the right to acquire the Company's common stock at the same exchange ratio with a corresponding adjustment to the exercise price.

      The acquisition of OnTarget has been accounted for as a pooling of interests. Accordingly, the financial position, results of operations and cashflows of OnTarget have been combined with those of the Company for the same dates and periods as if the entities had been combined from the earliest date presented. There were no adjustments to conform accounting methods. The Company did not incur any significant merger-related costs in connection with the acquisition of OnTarget.

      As a result of OnTarget's conversion from a Subchapter S Corporation to a Subchapter C subsidiary of the Company on December 1, 1999, all of OnTarget's retained earnings at that date were reclassified to additional paid-in-capital. In addition, the Company recorded an income tax benefit in the amount of OnTarget's net deferred tax assets at that date.

Scopus Technology, Inc.

      On May 18, 1998, the Company completed the acquisition of Scopus of Emeryville, California, a leading provider of customer service, field service, and call center software solutions. Under the terms of the agreement, each outstanding share of Scopus common stock was exchanged for newly issued shares of common stock of the Company. This resulted in the issuance of approximately 30,200,000 additional shares of the Company's common stock. In addition, all outstanding stock options of Scopus were converted into the right to acquire the Company's common stock at the same exchange ratio, with a corresponding adjustment to the exercise price. In connection with the merger, the Company incurred direct merger-related expenses of approximately $13,500,000, including fees for investment bankers, attorneys, accountants and other professional fees of $9,100,000, integration charges related to duplicate facilities and equipment of $3,100,000 and other miscellaneous expenses of $1,300,000.

      The transaction has been accounted for as a pooling of interests. Accordingly, the financial statements of Siebel have been restated to include the financial position and results of operations of Scopus for all periods presented. Prior to the merger with Siebel, Scopus ended its fiscal year on March 31. The restated financial statements as of December 31, 1997 and for prior periods include Siebel's results of operations for the calendar periods noted and Scopus' results of operations for the fiscal periods ending three months later. Beginning January 1, 1998, the restated financial statements combine the operating results of Siebel and Scopus for the calendar periods noted. As a result of conforming the reporting periods of Siebel and Scopus, the operating results of Scopus for the three month period ended March 31, 1998 are included in the restated financial statements for both 1997 and 1998. Scopus revenues and net income for the three-month period ended March 31, 1998 were $27,100,000 and $1,500,000, respectively. Net income for this period of approximately $1,500,000 is reflected as a reduction of opening retained earnings in the restated 1998 consolidated financial statements.

      The results of operations for the separate companies and the combined amounts presented in the consolidated financial statements follow (in thousands).

                                         Nine
                                        Months         Year         Year
                                         Ended        Ended        Ended
                                     September 30, December 31, December 31,
                                         1999          1998         1997
                                     ------------- ------------ ------------ 
                                      (unaudited)
 Total revenues:
   Siebel..........................      $493,783     $364,467     $118,775
   Scopus..........................          --         27,072       88,853
   On Target.......................        29,152       18,347       14,443
                                     ------------- ------------ ------------
                                         $522,935     $409,886     $222,071
                                     ============= ============ ============

 Net income (loss):
   Siebel..........................       $77,195      $41,411      ($2,427)
   Scopus..........................          --          1,464        1,240
   On Target.......................           (80)       1,390        1,830
                                     ------------- ------------ ------------
                                          $77,115      $44,265         $643
                                     ============= ============ ============

      In combining the financial statements of Siebel and Scopus, certain reclassifications, conforming changes and adjustments relating to revenue recognition were made to the historical financial statements of Scopus. These conforming changes and adjustments resulted in a reduction of previously reported net income of approximately $2,930,000 in fiscal 1997 and $580,000 in fiscal 1996. These adjustments will not reverse in future periods.

20*20 Group, Ltd.

      On December 17, 1998, the Company acquired all of the outstanding securities of the privately-held 20*20 Group, Ltd. ("20*20"), a provider of end-user training for the enterprise relationship management software market. The transaction was valued at approximately $6,000,000 and was accounted for by the purchase method of accounting. Accordingly, the operating results of 20*20 have been included in the accompanying consolidated financial statements of the Company from the date of acquisition. The purchase price was allocated to tangible net assets, including current assets, current liabilities and property, plant and equipment. The excess of the purchase price over the fair value of the tangible net assets acquired, $5,500,000, was allocated to goodwill. This amount is being amortized over three years.

      The results of operations of 20*20 prior to the acquisition date are not considered material to the consolidated results of operations of the Company and, accordingly, pro forma financial statement information has not been presented.

InterActive WorkPlace, Inc

      On October 1, 1997, the Company issued shares of common stock in exchange for all outstanding securities of privately-held InterActive WorkPlace, Inc. ("InterActive"), a developer of intranet- based business intelligence software technology. The transaction was valued at approximately $15,000,000 and was accounted for by the purchase method of accounting. Accordingly, the operating results of InterActive have been included in the accompanying consolidated financial statements of the Company from the date of acquisition. Under the terms of the agreement, InterActive's security holders received or will receive up to approximately 1,708,000 shares of the Company's common stock in exchange for all outstanding shares in InterActive. Additionally, InterActive optionees received options to purchase an aggregate of approximately 128,000 shares of the Company's common stock in exchange for their options to purchase InterActive common stock. The excess of the purchase price over the fair value of the net assets acquired was allocated to purchased in-process research and development and intangible assets of $14,017,000 and $104,000, respectively. The purchased in-process research and development was charged to operations in the fourth quarter of 1997. The amounts allocated to intangible assets are being amortized over three years.

      Purchased in-process research and development is related to the completion of InterActive's data integration, filtering and formatting technology and its integration into the Company's products. At the time of acquisition, a prototype of InterActive's product existed and was in limited trials, however, the prototype was not stable or sufficiently developed to be scalable on an enterprise-wide basis. InterActive's technology was completed, at a cost of approximately $400,000, and incorporated as a separate component of the Siebel 98 product suite which was released in June 1998. The Company estimated that the technology was approximately 75% complete as of the acquisition date. At that date, the only identifiable asset acquired was the technology under development. Accordingly, essentially all of the excess purchase price over net assets acquired, except for amounts assigned to net current assets, fixed assets and workforce-in-place, was assigned to in-process research and development.

      The results of operations of InterActive prior to the acquisition date are not considered material to the consolidated results of operations of the Company and, accordingly, pro forma financial information has not been presented.

Nomadic Systems, Inc

      On November 1, 1997, the Company issued shares of common stock in exchange for all outstanding securities of privately-held Nomadic Systems, Inc. ("Nomadic"), a provider of innovative business solutions to pharmaceutical sales forces. The transaction was valued at approximately $11,000,000 and was accounted for by the purchase method of accounting. Accordingly, the operating results of Nomadic have been included in the accompanying consolidated financial statements of the Company from the date of acquisition. Under the terms of the agreement, Nomadic's securityholders received approximately 1,200,000 shares of the Company's common stock in exchange for all outstanding shares of Nomadic. The purchase price was allocated to net current assets, fixed assets, purchased in-process research and development and intangible assets of $557,000, $186,000, $8,723,000 and $1,553,000, respectively. The purchased in-process research and development was charged to operations in the fourth quarter of 1997. The amounts allocated to intangible assets are being amortized over three years.

      The appraisal of the acquired research and development was based upon the present value of forecasted operating cash flows from the technology acquired, giving effect to the stage of completion at the acquisition date. These forecasted cash flows were then discounted at a rate which gave consideration to the risk involved in completing the acquired technology. The forecasted cash flows assumed inclusion of the product developed from acquired technology into the existing Siebel product suite.

      The purchased in-process research and development expense related to completion of Nomadic's second generation pharmaceutical sales force automation product. At the time of the acquisition, Nomadic had a first-generation product at a limited number of customers, with a very small user base. There were a considerable number of uncertainties as to increasing the product's scalability for deployment on an enterprise-wide basis, improving the stability of the application and identifying and fixing bugs. The Company allocated limited excess purchase price over net assets acquired to net current assets, fixed assets and workforce-in-place. The majority of the excess purchase price was allocated to in-process research and development and other intangible assets (goodwill) based upon the expected cash flows from Nomadic's existing product and the product under development, giving consideration to the stage of completion of the technology under development at the acquisition date. This technology was completed, at a cost of approximately $1,300,000, for enterprise-wide release in March 1998.

      The results of operations of Nomadic prior to the acquisition date are not considered material to the consolidated results of operations of the Company and, accordingly, pro forma financial statement information has not been presented.

Clear With Computers, Inc.

      The Company incurred merger costs of approximately $3,300,000 in the third quarter of 1997 in connection with Scopus' planned merger with Clear With Computers, Inc. The merger plan was terminated early in the fourth quarter of 1997.

(10) Subsequent Events

      On January 6, 2000, the Company acquired all of the outstanding securitites of Paragren Technologies, Inc. ("Paragren") , a leading provider of high-performance marketing automation software based in Reston, Virginia. Paragren was a previously wholly owned subsidiary of APAC Customer Services, Inc. The transaction was valued at approximately $18,000,000 and was accounted for by the purchase method of accounting. The purchase price was allocated to tangible net assets, including current assets, current liabilities and property, plant and equipment. The excess of the purchase price over the fair value of the tangible net assets acquired, $17,500,000, was allocated to intangible assets and will be amortized over five years.

(11) Selected Quarterly Financial Data (unaudited)

      The following table presents selected quarterly information for 1999 and 1998 (in thousands, except share data):

                                          First    Second     Third    Fourth
                                         quarter   quarter   quarter   quarter
                                        --------- --------- --------- --------- 
  1999:
  Net revenues......................... $141,708  $174,882  $206,345  $267,985
  Gross margin.........................  114,573   135,937   155,091   204,401
  Net income...........................   22,000    25,853    29,262    44,977
  Pro forma net income.................   21,756    25,816    29,572    44,583
  Pro forma net income per
    diluted share......................     0.10      0.12      0.13      0.19
  Pro forma net income per
    basic share........................     0.12      0.14      0.16      0.23


  1998:
  Net revenues.........................  $78,597   $93,868  $109,322  $128,099
  Gross margin.........................   65,978    75,422    90,449   107,050
  Net income (loss)....................   10,057      (511)   14,859    19,860
  Pro forma net income (loss)..........    9,881      (729)   14,539    19,769
  Pro forma net income (loss) per
    diluted share......................     0.05     (0.00)     0.07      0.10
  Pro forma net income (loss) per
    basic share........................     0.06     (0.00)     0.08      0.11

Schedule II

Valuation and Qualifying Accounts

                                     Balance   Charged              Balance
                                       at        to                   at
                                    Beginning Costs and             End of
                                     of Year  Expenses  Deductions   Year
                                    --------- --------- ---------- ---------
                                              (in thousands)                
Allowance For Doubtful Accounts:
  Year ended December 31, 1999.....  $10,330    $7,478     $5,108   $12,700
  Year ended December 31, 1998.....   $4,288    $6,230       $188   $10,330
  Year ended December 31, 1997.....   $1,940    $4,920     $2,572    $4,288

SIEBEL SYSTEMS, INC.

SIGNATURE

      Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

SIEBEL SYSTEMS, INC.

(Registrant)

Dated: March 28, 2000

By:  /s/ Howard H. Graham

Howard H. Graham

Senior Vice President Finance and
Administration and
Chief Financial Officer

(Principal Financial Officer)

POWER OF ATTORNEY

      KNOW ALL PERSONS BY THESE PRESENTS, that each of the persons whose signature appears below hereby constitutes and appoints Thomas M. Siebel and Howard H. Graham, each of them acting individually, as his or her attorney-in-fact, each with the full power of substitution, for him or her in any and all capacities, to sign any and all amendments to this Annual Report on Form 10-K, and to file the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming our signatures as they may be signed by ours said attorney-in-fact and any and all amendments to this Annual Report on Form 10-K.

      Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual Report on Form 10-K has been signed by the following persons in the capacities and on the dates indicated.

         Signature                         Title                      Date
- ---------------------------  ----------------------------------  ---------------
/s/ Thomas M. Siebel         Chairman, Chief Executive           March 28, 2000
__________________________    Officer and Director
Thomas M. Siebel              (Principal Executive Officer)


/s/ Howard H. Graham         Senior Vice President Finance       March 28, 2000
__________________________    and Administration and Chief
Howard H. Graham              Financial Officer (Principal
                              Financial and Accounting
                              Officer)


/s/ James C. Gaither         Director                            March 28, 2000
__________________________
James C. Gaither


/s/ Eric E. Schmidt, Ph.D.   Director                            March 28, 2000
__________________________
Eric E. Schmidt, Ph.D.


/s/ Charles R. Schwab        Director                            March 28, 2000
__________________________
Charles R. Schwab


/s/ George T. Shaheen        Director                            March 28, 2000
__________________________
George T. Shaheen


/s/ A. Michael Spence, Ph.D. Director                            March 28, 2000
__________________________
A. Michael Spence, Ph.D.

EX-3.2

CERTIFICATE OF AMENDMENT
OF THE
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
SIEBEL SYSTEMS, INC.

      SIEBEL SYSTEMS, INC., a corporation organized and existing under and by virtue of the General Corporation Law of the state of Delaware, does hereby certify:

      FIRST: The name of the corporation is Siebel Systems, Inc. The corporation was originally Incorporated under the name Siebel Acquisition Corporation.

      SECOND: The date on which the Certificate of Incorporation was filed with the Secretary of State of the State of Delaware was May 9, 1996. An Amended and Restated Certificate of Incorporation of the corporation was filed with the Secretary of State of the state of Delaware on July 9, 1996. A Certificate of Amendment to the Amended and Restated Certificate of Incorporation was filed with the Secretary of State of the State of Delaware on December 2, 1996. A Certificate of Amendment to the Amended and Restated Certificate of Incorporation as Amended was filed with the Secretary of State of the State of Delaware on February 27, 1998.

      THIRD: The Board of Directors of the corporation, acting in accordance with the provisions of Section 242 of the General Corporation Law of the State of Delaware, adopted resolutions to amend the Amended and Restated Certificate of Incorporation of the corporation by deleting the first paragraph of Article IV and substituting therefor a new first paragraph of Article IV in the following form:

      "This corporation is authorized to issue two classes of stock to be designated, respectively, 'Common Stock' and 'Preferred Stock'. The total number of shares which the corporation is authorized to issue is eight hundred two million (802,000,00) shares. Eight hundred million (800,000,000) shares shall be Common Stock, each having a par value of one- tenth of one cent ($.001). Two million (2,000,000) shares shall be Preferred Stock each having a par value of one-tenth of one cent ($.001)."

      FOURTH: Thereafter, pursuant to a resolution of the Board of Directors, this Certificate of Amendment was submitted to the stockholders of the corporation for their approval and was duly adopted in accordance with the provision of Section 242 of the general Corporation Law of the State of Delaware.

      IN WITNESS WHEREOF, Siebel Systems, Inc. has caused this Certificate of Amendment to be signed by its Senior Vice President, Finance and Administration Chief Financial Officer and attested to by its Secretary this 23rd day of November 1999.

SIEBEL SYSTEMS, INC.

By:  /s/ Howard H. Graham

Howard H. Graham

Senior Vice President Finance and
Administration and
Chief Financial Officer

ATTEST:

/s/ Jeffery T. Amann

Jeffery T. Amann
Secretary

EX-10.08

Exhibit 10.08

Lease between

Sobrato Interests III and Siebel Systems, Inc.

Building 2 - 2211 Bridgepointe Parkway, San Mateo

Section Page #

Parties *

Premises *

Definitions *

Description *

Use *

Permitted Uses *

Uses Prohibited *

Advertisements and Signs *

Covenants, Conditions and Restrictions *

Term and Rental *

Base Monthly Rent *

Rental Adjustment *

Late Charges *

Security Deposit *

Construction *

Building Shell Plans *

Tenant Improvement Plans *

Tenant Improvement Pricing *

Change Orders *

Building Shell Costs *

Tenant Improvement Costs *

Construction *

General Contractor Overhead & Profit *

Tenant Delays *

Insurance *

Punch List & Warranty *

Other Work by Tenant *

Acceptance of Possession and Covenants to Surrender *

Delivery and Acceptance *

Condition Upon Surrender *

Failure to Surrender *

Alterations and Additions *

Tenant's Alterations *

Free From Liens *

Compliance With Governmental Regulations *

Maintenance of Premises *

Landlord's Obligations *

Tenant's Obligations *

Landlord and Tenant's Obligations Regarding Reimbursable Operating Costs *

Reimbursable Operating Costs *

Tenant's Allocable Share *

Exclusions to Reimbursable Operating Costs *

Waiver of Liability *

Tenant's Right to Audit *

Hazard Insurance *

Tenant's Use *

Landlord's Insurance *

Tenant's Insurance *

Waiver *

Taxes *

Utilities *

Toxic Waste and Environmental Damage *

Tenant's Responsibility *

Tenant's Indemnity Regarding Hazardous Materials *

Landlord's Indemnity Regarding Hazardous Materials *

Actual Release by Tenant *

Environmental Monitoring *

Tenant's Default *

Remedies *

Right to Re-enter *

Abandonment *

No Termination *

Non-Waiver *

Performance by Landlord *

Landlord's Liability *

Limitation on Landlord's Liability *

Limitation on Tenant's Recourse *

Indemnification of Landlord *

Destruction of Premises *

Landlord's Obligation to Restore *

Limitations on Landlord's Restoration Obligation *

Tenant's Rights with Respect to a Destruction of the Premises *

Condemnation *

Assignment or Sublease *

Consent by Landlord *

Assignment or Subletting Consideration *

No Release *

Reorganization of Tenant *

Permitted Transfers *

Effect of Default *

Effects of Conveyance *

Successors and Assigns *

Option to Extend the Lease Term *

Grant and Exercise of Option *

Determination of Fair Market Rental *

Resolution of a Disagreement over the Fair Market Rental *

Personal to Tenant *

Extension Right in the Event the Building 3 Option is Not Exercised *

Option to Extend the Lease Term *

Grant and Exercise of Option *

Lease Commencement and Base Monthly Rent *

Right of First Offering to Lease *

Exclusions *

Right of First Offering to Purchase *

Grant and Exercise of Option *

Exclusions *

General Provisions *

Attorney's Fees *

Authority of Parties *

Brokers *

Choice of Law *

Dispute Resolution *

Entire Agreement *

Entry by Landlord *

Estoppel Certificates *

Exhibits *

Interest *

Modifications Required by Lender *

No Presumption Against Drafter *

Notices *

Property Management *

Rent *

Representations *

Rights and Remedies *

Severability *

Submission of Lease *

Subordination *

Survival of Indemnities *

Time *

Transportation Demand Management Programs *

EXHIBIT A - Premises and Project - Initial Buildout *

EXHIBIT B - Premises and Project - Full Buildout *

EXHIBIT C - Declaration of Covenants and Grant of Easements *

EXHIBIT D - Shell Plans and Specifications *

EXHIBIT E - Building Shell Definition *

EXHIBIT F - Tenant Improvement Plans and Specifications *

EXHIBIT G - Subordination, Nondisturbance and Attornment Agreement *

1. Parties: THIS LEASE, is entered into on this 11th day of March, 1999, ("Effective Date") between SOBRATO INTERESTS III, a California Limited Partnership, whose address is 10600 North De Anza Boulevard, Suite 200, Cupertino, CA 95014-2075 and SIEBEL SYSTEMS, INC., a Delaware Corporation, whose address is 1855 South Grant Street, San Mateo, California, CA 94402-2667, hereinafter called respectively Landlord and Tenant.

2. Premises:

A. Definitions.

i. Building. The term "Building" shall mean that five (5) story steel frame building containing approximately 141,496 rentable square feet and all Tenant Improvements installed therein to be constructed by Landlord and leased by Tenant pursuant to the terms of this Lease in the location labeled as Building 2 on Exhibit "A" attached hereto and commonly known as 2211 Bridgepointe Parkway.

ii. Building 1. The term "Building 1" shall mean that five (5) story steel frame building containing approximately 141,496 rentable square feet to be constructed by Landlord and leased by Tenant pursuant to a separate lease between the Parties of even date herewith ("Building 1 Lease") in the location labeled as Building 1 on Exhibit "A" and commonly known as 2215 Bridgepointe Parkway.

iii. Building 3. The term "Building 3" shall mean that five (5) story steel frame building containing approximately 167,505 rentable square feet to be constructed by Landlord and leased by Tenant or by a third party pursuant to the terms of Section 19 of this Lease in the location labeled as Building 3 on Exhibit "B" and commonly known as 2207 Bridgepointe Parkway.

iv. Common Area. The term "Common Area" shall mean that certain real property beneath and surrounding the Building, Building 1 and Building 3 consisting initially of an underground parking garage of approximately 455 parking spaces, on-grade parking lots consisting of approximately 255 parking spaces, the first two levels of the above grade parking structure consisting of approximately 280 cars, recreation areas and the adjacent landscaped site areas as shown on Exhibit "A". At the time of construction of Building 3 the Common Area will be modified by the completion of the above grade parking structure to total approximately 850 parking spaces and changes to portions of the landscaped sites areas resulting in total parking at full buildout of 1,560 spaces as shown in Exhibit "B" attached hereto.

Landlord shall have the power to allocate to each tenant in the Project, the number of parking spaces in the podium garage, above-grade parking structure or other portions of the Project as to which Tenant may have the use in connection with its Building; provided that (i) such allocation is requested by at least one (1) tenant in the Project, (ii) Landlord shall not allocate to Tenant materially less than the Tenant's prorata share of parking calculated on the basis of the square footage of the buildings in the Project, and (iii) Landlord shall allocate parking in a manner so as to maximize the adjacency of parking to each building. Landlord shall further retain the right to restrict an appropriate amount of the parking for visitors of the Project or for car pooling (as may be required by a TDM program). At the request of Tenant or any other tenant in the Project, Landlord further agrees to restrict up to ten (10) spaces per building for key employees of Tenant (or of other tenants in the Project) or for other reasonable uses. Tenant shall be responsible for seeing that the total number of vehicles parked in the Project by employees and invitees of Tenant does not exceed the number of total spaces allocated to the Building.

v. Project. The term "Project" shall be that certain real property consisting of approximately 10.8 acres at the corner of Bridgepointe Circle and Bridgepointe Parkway in San Mateo, California and all improvements constructed thereon consisting at full buildout of the Building, Building 1, Building 3 and the Common Area as shown in Exhibit "B".

vi. Premises. The term "Premises" shall mean the Building and a non-exclusive right to use the Common Area. Unless expressly provided otherwise, the term Premises as used herein shall include the Tenant Improvements (defined in Section 5.B) constructed by Tenant pursuant to Section 5.B.

B. Grant: Landlord hereby leases the Premises to Tenant, and Tenant hires the Premises from Landlord.

C. Recordation of Parcel Map and Declaration: Tenant consents to recordation by Landlord of a Parcel Map (Parcel Map") and a Declaration of Covenants, Conditions and Restrictions ("Declaration"). The Parcel Map and the Declaration shall be substantially in the form attached hereto as Exhibit "C" with such changes as may be may be desired by Landlord or Landlord's lenders to facilitate the operation, construction, financing, sale and/or leasing of the Project, provided such changes do not materially and adversely affect Tenant's use of the Premises, and with such changes as may be required by the city or other governmental authority having jurisdiction over the Project. Landlord is seeking approval of the Parcel Map and Declaration to subdivide the existing parcel into the four lots to facilitate Landlord's operation, construction, financing, lease and/or sale of the Project as individual buildings. Landlord's failure to obtain approval of the Parcel Map or Declaration shall in no way invalidate this Lease. In the event the Parcel Map and Declaration are recorded by Landlord, the Section 2.A.vi shall be replaced by following: The term "Premises" shall mean (i) the land area within Lot 1; (ii) the Building; and (iii) the nonexclusive right to use the Common Area in accordance with the terms and conditions of the Declaration and this Lease. This Lease shall be subject and subordinate in all respects to the Declaration, as the same may be amended from time to time. Tenant covenants and agrees to refrain from doing or causing to be done, or permitting any thing or act to be done, which would constitute a default under the Declaration or which would or might make Landlord liable for any damages, claims or penalty. All assessments charged to the Premises pursuant to the Declaration, (other than those assessments which represent: the costs required to be paid and borne by Landlord under the express terms of this Lease (such as Landlord's maintenance costs pursuant to Section 8.A; fines, penalties and costs of suit charged by the Association, to the extent not caused by Tenant's breach of this Lease or violation of the Declaration; reimbursements to the Association for diminution of the Association's insurance proceeds, to the extent not caused by Tenant's violation of the insurance provisions of the Declaration; and assessments levied against the Premises because of the nonpayment of assessments levied on other lots within the Project other than the Premises) shall constitute a part of Tenant's Allocable Share of Reimbursable Operating Costs pursuant to Article 8 of this Lease.

Following recordation of the Declaration, if owners and occupants of Building 1 or Building 3 are violating the terms and conditions of the Declaration and such violation materially and adversely affects Tenant's rights under this Lease, then within a reasonable time following Tenant's request, Landlord shall take reasonable steps to enforce the provisions of the Declaration relating to such violation, in accordance with the procedures established in the Declaration, the cost of which shall be a Reimbursable Operating Cost pursuant to Article 8 of this Lease.

3. Use:

A. Permitted Uses: Tenant shall use the Premises only for the following purposes and shall not change the use of the Premises without the prior written consent of Landlord: General office uses including research and development and other incidental uses (such incidental uses shall include without limitation, a gymnasium and/or a cafeteria for use of Tenant's employees). Tenant shall use only the number of parking spaces allocated to Tenant under this Lease. Following recordation of the Declaration, if occupants of Building 1 or Building 3 are using parking spaces in excess of the number of spaces to which they are entitled under the Declaration, then within a reasonable time following Tenant's request, Landlord shall seek to enforce the provisions of the Declaration relating to such excessive use, in accordance with the procedures established in the Declaration, the cost of which shall be a Reimbursable Operating Cost pursuant to Article 8 of this Lease. Prior to recording the Declaration, Landlord shall cause the Declarants of the Declaration to confirm in writing for the benefit of Tenant that the signs and window coverings to be installed pursuant to Section 3.C of this Lease are approved by the Declarants. Landlord shall promptly send to Tenant all notices received from the Association pertaining to the Association's entry onto the Premises and Common Area, insurance coverage affecting the Premises, and assessments levied against the Premises. All commercial trucks and delivery vehicles shall be (i) loaded and unloaded in a manner which does not interfere with the businesses of other occupants of the Project, and (ii) permitted to remain on the Project only so long as is reasonably necessary to complete the loading and unloading. Landlord makes no representation or warranty that any specific use of the Premises desired by Tenant is permitted pursuant to any Laws.

B. Uses Prohibited: Tenant shall not commit or suffer to be committed on the Premises any waste, nuisance, or other act or thing which may disturb the quiet enjoyment of any other tenant in or around the Premises, nor allow any sale by auction or any other use of the Premises for an unlawful purpose. Tenant shall not (i) damage or overload the electrical, mechanical or plumbing systems of the Premises, (ii) attach, hang or suspend anything from the ceiling, walls or columns of the building or set any load on the floor in excess of the load limits for which such items are designed, or (iii) generate dust, fumes or waste products which create a fire or health hazard or damage the Premises or in the soils surrounding the Building. No materials, supplies, equipment, finished products or semi-finished products, raw materials or articles of any nature, or any waste materials, refuse, scrap or debris, shall be stored upon or permitted to remain on any portion of the Premises outside of the Building without Landlord's prior approval, which approval may be withheld in its sole discretion.

C. Advertisements and Signs: Tenant shall be permitted to place two (2) signs mounted on the building, one monument sign within the Common Area, and any directional signs necessary within the Common Area, provided such signs are approved by the city or other governing authority. Tenant shall be entitled to additional signage on Building 1 and Building 3 (if leased) pursuant to the leases for these buildings. Any sign placed on the Premises shall be removed by Tenant, at its sole cost, prior to the Expiration Date or promptly following the earlier termination of the lease, and Tenant shall repair, at its sole cost, any damage or injury to the Premises caused thereby, and if not so removed, then Landlord may have same so removed at Tenant's expense.

D. Covenants, Conditions and Restrictions: This Lease is subject to the effect of (i) easements, mortgages or deeds of trust, ground leases, rights of way of record and any other matters or documents of record; and (ii) any zoning laws of the city, county and state where the Building is situated (collectively referred to herein as "Restrictions") and Tenant will conform to and will not violate the terms of any such Restrictions.

Tenant acknowledges that as to certain matters set forth in this Lease, the Association (defined in the Declaration) has or will have rights of approval or disapproval. If any matter requiring the Association's approval is submitted to Landlord by Tenant for Landlord's approval, Landlord shall respond to Tenant in a timely fashion. If Landlord approves such matter and such matter further requires the Association's approval, Landlord shall promptly submit the same to the Association, as applicable. In no event, however, shall Landlord's disapproval be deemed unreasonable if the Association has disapproved of such matter nor shall Landlord have any liability to Tenant by reason thereof.

4. Term and Rental:

A. Base Monthly Rent: The term ("Lease Term") shall be for one hundred forty four (144) months, commencing on substantial completion of construction as finally determined pursuant to Section 5.G (the "Commencement Date") estimated to occur on August 1, 2000, and ending one hundred forty four (144) months thereafter, ("Expiration Date"). Notwithstanding the fact that the Lease Term begins on the Commencement Date, this Lease and all of the obligations of Landlord and Tenant shall be binding and in full force and effect from and after the Effective Date except for those obligations which begin on the Commencement Date. In addition to all other sums payable by Tenant under this Lease, Tenant shall pay as base monthly rent ("Base Monthly Rent") for the Premises the amount of Three Hundred Twenty Thousand Sixty Four Dollars ($320,064.00). Base Monthly Rent and Tenant's payment of operating expenses and taxes pursuant to Section 8 shall be payable beginning on the Commencement Date in advance on or before the first day of each calendar month during the Lease Term. All sums payable by Tenant under this Lease shall be paid to Landlord in lawful money of the United States of America, without offset or deduction and without prior notice or demand, at the address specified in Section 1 of this Lease or at such place or places as may be designated in writing by Landlord during the Lease Term. Base Monthly Rent for any period less than a calendar month shall be a pro rata portion of the monthly installment.

B. Rental Adjustment:

(i) For Variation in Rentable Square Feet: Upon Substantial Completion of construction, the Building shall be measured (from outside wall to outside wall including all areas covered by a structural roof), and if the actual square footage differs from 141,496 square feet, the initial Base Monthly Rent hereunder shall be adjusted to the product of Two and 262/1000 Dollars ($2.262) and the actual rentable square feet of the Building.

(ii) Periodic Adjustment: Beginning thirty (30) months after the Commencement Date, and every thirty (30) months thereafter, the then-payable Base Monthly Rent shall be increased by seven and 50/100 percent (7.50%).

C. Late Charges: Tenant hereby acknowledges that late payment by Tenant to Landlord of Base Monthly Rent and other sums due hereunder will cause Landlord to incur costs not contemplated by this Lease, the exact amount of which is extremely difficult to ascertain. Such costs include but are not limited to: administrative, processing, accounting, and late charges which may be imposed on Landlord by the terms of any contract, revolving credit, mortgage, or trust deed covering the Premises. Accordingly, if any installment of Base Monthly Rent or other sum due from Tenant shall not be received by Landlord or its designee within ten (10) days after the rent is due, Tenant shall pay to Landlord a late charge equal to five (5%) percent of such overdue amount, which late charge shall be due and payable on the same date that the overdue amount was due. The parties agree that such late charge represents a fair and reasonable estimate of the costs Landlord will incur by reason of late payment by Tenant, excluding interest and attorneys fees and costs. If any rent or other sum due from Tenant remains delinquent for a period in excess of thirty (30) days then, in addition to such late charge, Tenant shall pay to Landlord interest on any rent that is not paid when due at the Agreed Interest Rate specified in Section 21.J following the date such amount became due until paid. Acceptance by Landlord of such late charge shall not constitute a waiver of Tenant's default with respect to such overdue amount nor prevent Landlord from exercising any of the other rights and remedies granted hereunder. In the event that a late charge is payable hereunder, whether or not collected, for three (3) consecutive installments of Base Monthly Rent, then the Base Monthly Rent shall automatically become due and payable quarterly in advance, rather than monthly, notwithstanding any provision of this Lease to the contrary. After four (4) quarterly installments have been paid on time, rent shall again be payable monthly.

D. Security Deposit:

(i) Amount: Within ten (10) days following the Effective Date, Tenant shall deposit with Landlord a letter of credit ("Letter of Credit") in a form reasonably acceptable to Landlord in the amount of Eight Million Four Hundred Thousand Dollars ($8,400,000.00) to secure Tenant's obligation to complete Tenant Improvements in the Building and in Building 1 pursuant to this Lease and the Building 1 Lease. Upon Landlord's receipt of evidence reasonably satisfactory to Landlord of lien free completion of the Tenant Improvements and that Tenant has fully paid for the cost of all of Tenant Improvements for the Building and for Building 1, the Letter of Credit shall be cancelled and returned to Tenant by Landlord. Notwithstanding the foregoing, in the event Tenant elects to defer construction on a portion of the non-core Tenant Improvements in Building 1 (as provided further and restricted in Section 5.B), Landlord shall not require Tenant to continue to post the Letter of Credit after payment in full for all other Tenant Improvements associated with the Building and Building 1.

(ii) Use by Landlord: Landlord shall be entitled to draw against the full amount of the Letter of Credit at any time provided only that Landlord certifies to the issuer of the Letter of Credit that Tenant has failed to make a payment for Tenant Improvement costs as provided in 5.F, that Tenant has failed to timely renew or extend the Letter of Credit as required by this subsection (ii), or that Tenant has failed to amend the Letter of Credit or obtain a new Letter of Credit as required by this subsection (ii) and such failure has not been cured within ten (10) days following Landlord's notice to Tenant. Tenant shall keep the Letter of Credit in effect at all times prior to payment in full for the Tenant Improvements for the Building and for Building 1. At least sixty (60) days prior to expiration of any Letter of Credit, the term thereof shall be renewed or extended for a period until Tenant has paid in full for the Tenant Improvements for Building 1. Subject to the notice requirement and cure period provided herein, Tenant's failure to so renew or extend the Letter of Credit shall be a material default of this Lease by Tenant entitling Landlord to draw down on the entire amount of the Letter of Credit. Any amounts drawn on the Letter of Credit shall be used to pay for the cost of the Tenant Improvements. In the event the Letter of Credit is drawn by Landlord, and the proceeds used to pay for the completion of the Tenant Improvements in the Building and Building 1, after Landlord's completion of the Tenant Improvements in the Building 1, Landlord shall refund to Tenant any excess proceeds from the Letter of Credit. In the event of termination of Landlord's interest in this Lease, Landlord may deliver the Letter of Credit to Landlord's successor in interest in the Premises and thereupon be relieved of further responsibility with respect to the Letter of Credit. Except as provided herein, no other security deposit shall be required by Tenant.

(iii) Letter of Credit Fee: Landlord and Tenant agree to share equally in the fee charged to provide the Letter of Credit. In no event, however, shall Landlord's share of the fee exceed the sum of Forty Two Thousand Dollars ($42,000.00) per annum.

5. Construction :

A. Building Shell Plans: The Building Shell shall be constructed in accordance with the Building Shell plans and guideline specifications prepared by Korth Sunseri Hagey ("Shell Architect"). The design development drawings for the Building Shell are attached hereto as Exhibit "D" ("Preliminary Shell Plans and Specifications"). The Parties have generally approved the Preliminary Shell Plans, however, Tenant reserves the right to work in a diligent manner with Landlord and his design team to refine the Preliminary Plans and Specifications to accommodate Tenant's requirements such that this activity does not delay the issuance of the working drawings for the Building Shell ("Shell Permit Drawings") on schedule. The current schedule anticipates completion of the Shell Permit Drawings on May 5, 1999. Such refinements shall be limited to the following areas: (i) structural issues relating to the support of the rooftop HVAC system and other framing for its distribution inside the Building; (ii) planning issues relating to the sizing and placement of the base building electrical system; (iii) planning and specification issues relating to the design of the Building security systems; (iv) utility services relating to communications entrances from the street to the Building; (v) design of the main electrical service and emergency power service to the Building; and (vi) definition of the work that will be completed as a part of the construction of the Building as it affects Tenant's ability to access the Building during the construction of the other Buildings in the Project. The Shell Permit Drawings (i) shall be consistent with the Preliminary Shell Plans in all material respects, and (ii) shall provide for materials to be of a quality consistent with a "Class A" office project the where materials are not currently specified in the Preliminary Shell Plans. Landlord shall contract for the installation of the pile foundation system and shall begin this work immediately following the Effective Date. Upon completion of the Shell Permit Drawings, Landlord shall select a general contractor ("General Contractor") on the basis of a competitive bid of both the cost to construct the Building Shell and the fee and general conditions bid to construct the Tenant Improvements. Thereafter, Landlord shall cause the General Contractor to complete construction of the Building Shell. The Building Shell shall include those items set forth in the attached Exhibit "E" ("Building Shell Definition") which scope includes the cost of the parking structures. In the event of a conflict between Exhibit "D" and Exhibit "E", Exhibit "E" shall govern.

B. Tenant Improvement Plans: Tenant, at Tenant's sole cost and expense, will hire an interior architect ("Interior Architect") to prepare plans and outline specifications to be attached as Exhibit "F" ("Tenant Improvement Plans and Specifications") with respect to the construction of improvements to the interior premises ("Tenant Improvements"). The Tenant Improvement Plans and Specifications plans shall be completed for all aspects of the work by October 1, 1999 with all detail necessary for submittal to the city and for construction and shall include any information required by the relevant agencies regarding Tenant's use of Hazardous Materials if applicable. The Tenant Improvements shall consist of all items not included within the scope of the Building Shell Definition. All Tenant Improvements affecting or otherwise related to the Building Core will be subject to Landlord's reasonable approval. The "Building Core" shall include those items typically associated in the industry with an office building core including elevators, restrooms, fire sprinklers, HVAC and electrical systems distributed to each floor, exiting stair finishes and a finished building lobby. As to the balance of the Tenant Improvements, Landlord shall not have rights of approval, however, Tenant Improvement Plans shall provide for the creation of finished office space ready for occupancy with a minimum buildout in all areas of the Premises consisting of: (i) fire sprinklers, (ii) floorcoverings, (iii) overhead ceiling system (iv) distribution of the HVAC system, (v) overhead florescent lighting, and (vi) any other work required by the City of San Mateo necessary to obtain a Certificate of Occupancy. Tenant shall have the right to defer installation of the Tenant Improvements not associated with the Building Core in up to twenty percent (20%) of the rentable square footage of the Building. Except as provided in the preceding sentence, Tenant shall have no rights or ability to delay installation of any of the Tenant Improvements. The Tenant Improvement Plans and Specifications shall be prepared in sufficient detail to allow General Contractor to construct the Tenant Improvements. The General Contractor shall construct the Tenant Improvements in accordance with all Tenant Improvement Plans and Specifications. The Tenant Improvements shall not be removed or altered by Tenant without the prior written consent of Landlord as provided in Section 7. Tenant shall have the right to depreciate and claim and collect any investment tax credits in the Tenant Improvements during the Lease Term. Tenant shall further retain the right to encumber its leasehold interest with a first priority security interest, provided such lienholder has no right to remove any Tenant Improvements installed by Tenant pursuant to this Lease in the event of a default by Tenant under such encumbrance. Upon expiration of the Lease Term or any earlier termination of the Lease, the Tenant Improvements shall become the property of Landlord and shall remain upon and be surrendered with the Premises, and title thereto shall automatically vest in Landlord without any payment therefore.

C. Tenant Improvement Pricing. Within ten (10) days after completion of the Tenant Improvements Plans and Specifications, Landlord shall cause the General Contractor to submit to Tenant competitive bids from at least three (3) subcontractors for each aspect of the work in excess of Fifty Thousand and No/100 Dollars ($50,000.00) related to the Tenant Improvements. Landlord shall cause the General Contractor to utilize the low bid in each case unless Tenant approves General Contractor's use of another subcontractor, and the cost of the Tenant Improvements shall be based upon construction expenses equal to (i) the bid amounts as approved by Tenant, (ii) a reasonable contingency approved by Tenant to protect the General Contractor against cost overruns, and (iii) the general contractor fee specified in Section 5.H below ("Tenant Improvement Budget"). Upon Tenant's written approval of the Tenant Improvement Budget, which approval shall not be unreasonably withheld or delayed, Landlord and Tenant shall be deemed to have given their respective approvals of the final Tenant Improvement Plans and Specifications on which the cost estimate was made, and General Contractor shall proceed with the construction of the Tenant Improvements in accordance with the terms of Section 5.G below. If Tenant does not specifically approve or disapprove the bids within ten (10) business days, Tenant shall be deemed to have approved the bids.

D. Change Orders: Tenant shall have the right to order changes in the manner and type of construction of the Tenant Improvements. Upon request and prior to Tenant's submitting any binding change order, Landlord shall cause the General Contractor to promptly provide Tenant with written statements of the cost to implement and the time delay and increased construction costs associated with any proposed change order, which statements shall be binding on General Contractor. If no time delay or increased construction cost amount is noted on the written statement, the parties agree that there shall be no adjustment to the construction cost or the Commencement Date associated with such change order. If ordered by Tenant, Landlord shall cause the General Contractor to implement such change order and the cost of constructing the Tenant Improvements shall be increased or decreased in accordance with the cost statement previously delivered by General Contractor to Tenant for any such change order. In no event, however, shall Tenant have the right to eliminate the minimum buildout requirements specified in Section 5.B above.

E. Building Shell Costs: Landlord shall pay all costs associated with the Building Shell.

F. Tenant Improvement Costs: Tenant shall pay all costs associated with the Tenant Improvements. The cost of Tenant Improvements shall consist of only the following to the extent actually incurred by General Contractor in connection with the construction of Tenant Improvements: construction costs, all permit fees, construction taxes or other costs imposed by governmental authorities related to the Tenant Improvements, and General Contractor overhead and profit as described in Section 5.H below. During the course of construction of Tenant Improvements, Landlord may deliver to Tenant not more than once each calendar month a written request for payment prepared by the General Contractor ("Progress Invoice") which shall include and be accompanied by General Contractor's certified statements setting forth the amount requested, certifying the percentage of completion of each item for which reimbursement is requested, and if requested by Tenant, a certificate from Landlord's Architect certifying the percentage completion. Tenant shall pay the amount due pursuant to the Progress Invoice less a ten percent (10%) retention directly to the General Contractor, within thirty (30) days after Tenant's receipt of the above items. All costs for Tenant Improvements shall be fully documented to and verified by Tenant.

G. Construction: The Building Shell and Tenant Improvements shall be deemed substantially complete ("Substantially Complete" or "Substantial Completion") when the Building Shell and Tenant Improvements have been substantially completed in accordance with the Shell Plans and Specifications and Tenant Improvement Plans and Specifications, as evidenced by the completion of a final inspection or the issuance of a certificate of occupancy or its equivalent by the appropriate governmental authority for the Building Shell and Tenant Improvements, and the issuance of a certificate by the Architect certifying that the Building Shell and Tenant Improvements have been completed in accordance with the plans. Installation of (i) Tenant's data and phone cabling, (ii) Tenant's furniture, or (iii) the exterior landscaping shall not be required in order to deem the Premises Substantially Complete. Any prevention, delay or stoppage due to strikes, lockouts, inclement weather unusual for the season it which it occurs, labor disputes, inability to obtain labor, materials, fuel or reasonable substitutes therefor, governmental restrictions, regulations, controls, civil commotion, fire or other act of God, and another causes beyond the reasonable control of Landlord (except financial inability) shall extend the dates contained in this Section 5.G by a period equal to the period of any said prevention, delay or stoppage.

If Landlord cannot obtain building permits or Substantially Complete construction by the dates set forth herein, this Lease shall not be void or voidable nor shall Landlord be liable for any loss or damage resulting therefrom. Notwithstanding anything to the contrary contained herein, if Landlord has not delivered the Premises substantially completed to Tenant on or before August, 1, 2001 ("Termination Date"), Tenant shall have the right to cancel this Lease by providing Landlord written notice within sixty (60) days following the Termination Date as Tenant's sole and exclusive remedy for such failure. In such event, Landlord shall return the Letter of Credit to Tenant and thereafter neither party shall have any further liability to the other under this Lease.

H. General Contractor Overhead & Profit: As compensation to General Contractor for its services related to construction of the Building Shell and Tenant Improvements, General Contractor shall receive a fee based upon the cost of construction determined and agreed upon by Landlord and Tenant at the time of the competitive bid of the Building Shell. Except as provided therein, Landlord or General Contractor shall not receive any other fee or payment from Tenant in connection with General Contractor's services.

I. Tenant Delays: A "Tenant Delay" shall mean any delay in Substantial Completion of the Building as a result of any of the following: (i) Tenant's failure to complete or approve the Tenant Improvement Plans by the dates set forth in Section 5.B, (ii) Tenant's failure to approve the bids for construction by the dates set forth in Section 5.C, (iii) changes to the plans requested by Tenant which delay the progress of the work, (iv) Tenant's request for materials components, or finishes which are not available in a commercially reasonable time given the anticipated Commencement Date, (v) Tenant's failure to make a progress payment for Tenant Improvements as provided in Section 5.F after notice from Landlord and expiration of the applicable cure period, (vi) Tenant's request for more than one (1) rebidding of the cost of all or a portion of the work, and (vii) any errors or omissions in the Tenant Improvement Plans provided by Tenant's architect unless caused by misinformation provided by Landlord, Landlord's Architect or the General Contractor. Notwithstanding anything to the contrary set forth in this Lease, and regardless of the actual date the Premises are Substantially Complete, the Commencement Date shall be deemed to be the date the Commencement Date would have occurred if no Tenant Delay had occurred as reasonable determined by Landlord. In addition, if a Tenant Delay results in an increase in the cost of the labor or materials, Tenant shall pay the cost of such increases.

J. Insurance: General Contractor shall procure (as a cost of the Building Shell) a "Broad Form" liability insurance policy in the amount of Three Million Dollars ($3,000,000.00). Landlord shall also procure (as a cost of the Building Shell) builder's risk insurance for the full replacement cost of the Building Shell and Tenant Improvements while the Building and Tenant Improvements are under construction, up until the date that the fire insurance policy described in Section 9 is in full force and effect.

K. Punch List & Warranty: After the Building Shell and Tenant Improvements are Substantially Complete, Landlord shall cause the General Contractor to immediately correct any construction defect or other "punch list" item which Tenant brings to General Contractor's attention. All such work shall be performed so as to reasonably minimize the interruption to Tenant and its activities on the Premises. General Contractor shall provide a standard contractor's warranty with respect to the Building Shell and the Tenant Improvements for one (1) year from the Commencement Date. Such warranty shall exclude routine maintenance, damage caused by Tenant's negligence or misuse, and acts of God. Notwithstanding anything to the contrary in this Lease, Landlord warrants that on the commencement of the term hereof, (i) the Premises shall comply with all laws, codes, ordinances and other governmental requirements then applicable to the Building Shell and the Common Area, (ii) all components of the Building Shell shall be in good working order, condition, and repair, and (iii) the Premises, the Project, and the land and groundwater thereunder, shall be free of contamination by any Hazardous Materials then regulated by any applicable local, state, or federal law not caused by Tenant. In the event of any breach of any of the foregoing warranties, Landlord shall promptly rectify the same at its sole cost and expense and shall indemnify, defend, and hold Tenant harmless from and against any damages, liability, suits, losses, claims, actions, costs or expenses (including attorneys' and consultants' fees and costs) suffered by Tenant in connection with any such breach.

L. Other Work by Tenant: All work not described in the Shell Plans and Specifications or Tenant Improvement Plans and Specifications, such as furniture, telephone equipment, telephone wiring and office equipment work, shall be furnished and installed by Tenant at Tenant's cost. Prior to Substantial Completion, Tenant shall be obligated to (i) provide active phone lines to any elevators, and (ii) contract with a firm to monitor the fire system. When the construction of the Tenant Improvements has proceeded to the point where Tenant's work of installing its fixtures and equipment in the Premises can be commenced, General Contractor shall notify Tenant and shall permit Tenant and its authorized representatives and contractors access to the Premises before the Commencement Date for the purpose of installing Tenant's trade fixtures and equipment.

6. Acceptance of Possession and Covenants to Surrender:

A. Delivery and Acceptance: On the Commencement Date, Landlord shall deliver and Tenant shall accept possession of the Premises and enter into occupancy of the Premises on the Commencement Date. Except as otherwise specifically provided herein, Tenant agrees to accept possession of the Premises in its then existing condition, subject to all Restrictions and without representation or warranty by Landlord except as provided in Section 5.K above. Tenant's taking possession of any part of the Premises shall be deemed to be an acceptance of any work of improvement done by Landlord in such part as complete and in accordance with the terms of this Lease except for (i) "Punch List" type items of which Tenant has given Landlord written notice prior to the time Tenant takes possession, and (ii) Landlord's warranties provided in Section 5.K above. Within thirty (30) days after the Commencement Date, Tenant agrees to occupy at least a one (1) floor of the Premises.

B. Condition Upon Surrender: Tenant further agrees on the Expiration Date or on the sooner termination of this Lease, to surrender the Premises to Landlord in good condition and repair, normal wear and tear excepted. In this regard, "normal wear and tear" shall be construed to mean wear and tear caused to the Premises by the natural aging process which occurs in spite of prudent application of the commercially reasonable standards for maintenance, repair replacement, and janitorial practices, and does not include items of neglected or deferred maintenance. In any event, Tenant shall cause the following to be done prior to the Expiration Date or sooner termination of this Lease: (i) all interior walls shall be free of holes and gouges, (ii) all tiled floors shall be cleaned and waxed, (iii) all carpets shall be cleaned and shampooed, (iv) all broken, marred, stained or nonconforming acoustical ceiling tiles shall be replaced, (v) all cabling placed above the ceiling by Tenant or Tenant's contractors shall be removed, (vi) all windows shall be washed; (vii) the HVAC system shall be serviced by a reputable and licensed service firm and left in "good operating condition and repair" as so certified by such firm, (viii) the plumbing and electrical systems and lighting shall be placed in good order and repair (including replacement of any burned out, discolored or broken light bulbs, ballasts, or lenses. On or before the Expiration Date or sooner termination of this Lease, Tenant shall remove all its personal property and trade fixtures from the Premises. All property and fixtures not so removed shall be deemed as abandoned by Tenant. Tenant shall ascertain from Landlord within ninety (90) days before the Expiration Date whether Landlord desires to have the Premises or any parts thereof restored to their condition as of the Commencement Date, or to cause Tenant to surrender all Alterations (as defined in Section 7) in place to Landlord. If Landlord shall so desire, and provided that at the time Landlord gave its consent to their installation, Landlord also notified Tenant that such removal would be required, Tenant shall, at Tenant's sole cost and expense, remove such Alterations as Landlord requires and shall repair and restore said Premises or such parts thereof before the Expiration Date. Such repair and restoration shall include causing the Premises to be brought into compliance with all applicable building codes and laws in effect at the time of the removal to the extent such compliance is necessitated by the repair and restoration work. In no event, however, shall Tenant be required to remove any portion of the initial Tenant Improvements installed in accordance with the terms of this Lease.

C. Failure to Surrender: If the Premises are not surrendered at the Expiration Date or sooner termination of this Lease, Tenant shall be deemed in a holdover tenancy pursuant to this Section 6.C and Tenant shall indemnify, defend, and hold Landlord harmless against loss or liability resulting from delay by Tenant in so surrendering the Premises including, without limitation, any claims made by any succeeding tenant founded on such delay and costs incurred by Landlord in returning the Premises to the required condition, plus interest at the Agreed Interest Rate. Any holding over after the termination or Expiration Date with Landlord's express written consent, shall be construed as month-to-month tenancy, terminable on thirty (30) days written notice from either party, and Tenant shall pay as Base Monthly Rent to Landlord a rate equal to one hundred twenty five percent (125%) of the Base Monthly Rent due in the month preceding the termination or Expiration Date, plus all other amounts payable by Tenant under this Lease. Any holding over shall otherwise be on the terms and conditions herein specified, except those provisions relating to the Lease Term and any options to extend or renew, which provisions shall be of no further force and effect following the expiration of the applicable exercise period. If Tenant remains in possession of the Premises after expiration or earlier termination of this Lease without Landlord's consent, Tenant's continued possession shall be on the basis of a tenancy at sufferance and Tenant shall pay as rent during the holdover period an amount equal to one hundred fifty percent (150%) of the Base Monthly Rent due in the month preceding the termination or Expiration Date, plus all other amounts payable by Tenant under this Lease. This provision shall survive the termination or expiration of the Lease.

7. Alterations and Additions:

A. Tenant's Alterations: Tenant shall not make, or suffer to be made, any alteration or addition to the Premises ("Alterations"), or any part thereof, without obtaining Landlord's prior written consent and delivering to Landlord the proposed architectural and structural plans for all such Alterations at least fifteen (15) days prior to the start of construction. If such Alterations affect the structure of the Building, Tenant additionally agrees to reimburse Landlord its reasonable out- of-pocket costs incurred in reviewing Tenant's plans. Notwithstanding anything to the contrary contained in this lease, Tenant shall be entitled to construct Alterations which cost Tenant less than One Hundred Thousand Dollars ($100,000.00) in the aggregate each year, without obtaining Landlord's consent, provided such Alterations do not affect the exterior of the Premises or adversely affect the structural integrity or life safety systems of the Premises. Tenant shall not proceed to make such Alterations until Tenant has obtained all required governmental approvals and permits, and provides Landlord reasonable security, in form reasonably approved by Landlord, to protect Landlord against mechanics' lien claims. Tenant agrees to provide Landlord (i) written notice of the anticipated and actual start-date of the work, (ii) a complete set of half-size (15" X 21") vellum as-built drawings, and (iii) a certificate of occupancy for the work upon completion of the Alterations if required by applicable law. All Alterations shall be constructed in compliance with all applicable building codes and laws including, without limitation, the Americans with Disabilities Act of 1990. Upon the Expiration Date, all Alterations, except movable furniture and trade fixtures, shall become a part of the realty and belong to Landlord but shall nevertheless be subject to removal by Tenant as provided in Section 6 above. Alterations which are not deemed as trade fixtures include heating, lighting, electrical systems, air conditioning, walls, carpeting, or any other installation which has become an integral part of the Premises. All Alterations shall be maintained, replaced or repaired by Tenant at its sole cost and expense.

B. Free From Liens: Tenant shall keep the Premises free from all liens arising out of work performed, materials furnished, or obligations incurred by Tenant or claimed to have been performed for Tenant. In the event Tenant fails to discharge any such lien within fifteen (15) days after receiving notice of the filing, Landlord shall be entitled to discharge the lien at Tenant's expense and all resulting reasonable costs incurred by Landlord, including reasonable attorney's fees shall be due from Tenant as additional rent.

C. Compliance With Governmental Regulations: The term Laws or Governmental Regulations shall include all federal, state, county, city or governmental agency laws, statutes, ordinances, standards, rules, requirements, or orders now in force or hereafter enacted, promulgated, or issued. The term also includes government measures regulating or enforcing public access, traffic mitigation, occupational, health, or safety standards for employers, employees, landlords, or tenants. Tenant, at Tenant's sole expense shall make all repairs, replacements, alterations, or improvements needed to comply with all Governmental Regulations except as otherwise expressly provided in this Lease. The judgment of any court of competent jurisdiction or the admission of Tenant in any action or proceeding against Tenant (whether Landlord be a party thereto or not) that Tenant has violated any such law, regulation or other requirement in its use of the Premises shall be conclusive of that fact as between Landlord and Tenant.

8. Maintenance of Premises:

A. Landlord's Obligations: Landlord at its sole cost and expense, shall maintain in good condition, order, and repair, and replace as and when necessary, the foundation, exterior load bearing walls glass curtainwall, and roof structure of the Building Shell. Landlord further agrees to perform repairs and replacements to the Common Area to maintain the Common Area in good condition, order and repair (subject to Tenant's reimbursement obligation). Tenant acknowledges and agrees that the Association formed pursuant to the Declaration may perform the maintenance, repair and restoration obligations of Landlord under this Section 8.A and other sections of this Lease on behalf of Landlord and other owners of any portion of the Project, in discharge of Landlord's maintenance, repair and restoration obligations under this Lease. As to increases in annual assessments or the imposition of a special assessment under the Declaration which would require the vote of the Owners (as defined in the Declaration), Landlord agrees to vote in favor or such assessments to the extent Landlord reasonably determines such sums are required to maintain the Premises in the condition required by this Lease. Notwithstanding the foregoing, in the event that Tenant leases from Landlord all of the space then developed within the Project, Tenant shall have the right to perform the repairs, replacements and maintenance of the Common Area and pay such costs directly.

B. Tenant's Obligations: Subject to Sections 15 and 16, Tenant shall clean, maintain, repair and replace when necessary the Building and every part thereof through regular inspections and servicing, including but not limited to: (i) all plumbing and sewage facilities, (ii) all heating ventilating and air conditioning facilities and equipment, (iii) all fixtures, interior walls floors, carpets and ceilings, (iv) all electrical facilities and equipment, (v) all automatic fire extinguisher equipment, (vi) all elevator equipment, and (vii) the roof membrane system. All wall surfaces and floor tile are to be maintained in an as good a condition as when Tenant took possession free of holes, gouges, or defacements. With respect to items (ii), (vi) and (vii) above, Tenant shall provide Landlord a copy of a service contract between Tenant and a licensed service contractor providing for periodic maintenance of all such systems or equipment in conformance with the manufacturer's recommendations. Tenant shall provide Landlord upon request, a copy of such preventive maintenance contracts and paid invoices for the recommended work if requested by Landlord.

C. Landlord and Tenant's Obligations Regarding Reimbursable Operating Costs: Notwithstanding the provisions of Sections 8, 9, 10 and 11 of this Lease, Tenant agrees to reimburse Landlord for Tenant's Allocable Share (as defined in Section 8.E below) of the expenses resulting from Landlord's payment of Reimbursable Operating Costs (as defined in Section 8.D below) in connection with the Premises or in connection with the Project which are not otherwise Landlord's obligation hereunder. Tenant agrees to pay its Allocable Share of the Reimbursable Operating Costs as additional rental within ten (10) business days of written invoice from Landlord.

D. Reimbursable Operating Costs: For purposes of calculating Tenant's Allocable Share of Building and Project Costs, the term "Reimbursable Operating Costs" is defined as all reasonable costs and expenses of the nature hereinafter described which are incurred by Landlord in connection with ownership and operation of the Building or the Project in which the Premises are located. All costs and expenses shall be determined in accordance with generally accepted accounting principles which shall be consistently applied, including but not limited to the following: (i) common area utilities, including water, power, telephone, heating, lighting, air conditioning, ventilating, and Building utilities to the extent not separately metered; (ii) common area maintenance and service agreements for the Building and/or Project and the equipment therein, including without limitation, common area janitorial services, alarm and security services, exterior window cleaning, and maintenance of the sidewalks, landscaping, waterscape, roof membrane, parking garages and parking areas, driveways, service areas, mechanical rooms, elevators, and the building exterior; (iii) insurance premiums and costs, including without limitation, the premiums and cost of fire, casualty and liability coverage and rental abatement and earthquake (if available at commercially reasonable rates) insurance applicable to the Building or Project; (iv) repairs, replacements and general maintenance (excluding repairs and general maintenance paid by proceeds of insurance or by Tenant or other third parties, and repairs or alterations attributable solely to tenants of the Building or Project other than Tenant); and (v) all real estate taxes and assessment installments or other impositions or charges which may be levied on the Building or Project, upon the occupancy of the Building or Project and including any substitute or additional charges which may be imposed during, or applicable to the Lease Term including real estate tax increases due to a sale, transfer or other change of ownership of the Building or Project, as such taxes are levied or appear on the City and County tax bills and assessment rolls. Landlord shall have no obligation to provide guard services or other security measures for the benefit of the Project. Tenant assumes all responsibility for the protection of Tenant and Tenant's Agents from acts of third parties; provided, however, that nothing contained herein shall prevent Landlord, at its sole option, from providing security measures for the Project. This is a "Net" Lease, meaning that Base Monthly Rent is paid to Landlord net of all costs and expenses, except as provided otherwise in this Lease. The provision for payment of Reimbursable Operating Costs by means of periodic payment of Tenant's Allocable Share of Building and/or Project Costs is intended to pass on to Tenant and reimburse Landlord for all costs of operating and managing the Building and/or Project.

E. Tenant's Allocable Share: For purposes of prorating Reimbursable Operating Costs which Tenant shall pay, Tenant's Allocable Share of Reimbursable Operating Costs shall be computed by multiplying the Reimbursable Operating Costs by a fraction, the numerator of which is the rentable square footage of the Premises and the denominator of which is either the total rentable square footage of the Building if the service or cost is allocable only to the Building, or the total square footage of the buildings completed within the Project if the service or cost is allocable to the entire Project. Tenant's obligation to share in Reimbursable Operating Costs shall be adjusted to reflect the Lease Commencement and Expiration dates and is subject to recalculation in the event of expansion of the Building or Project.

F. Exclusions to Reimbursable Operating Costs: Notwithstanding anything to the contrary contained in this Lease, the following costs and expenses shall not be included within Reimbursable Operating Costs: (i) Leasing commissions, attorneys' fees, costs, disbursements, and other expenses incurred in connection with negotiations or disputes with tenants, or in connection with leasing, renovating, or improving space for tenants or other occupants or prospective tenants or other occupants of the Project; (ii) The cost of any service sold to any tenant (including Tenant) or other occupant for which Landlord is entitled to be reimbursed as an additional charge or rental over and above the basic rent and escalations payable under the lease with that tenant; (iii) Any depreciation on the Project; (iv) Expenses in connection with services or other benefits of a type that are not provided to Tenant but which are provided another tenant or occupant of the Project; (v) Costs incurred due to Landlord's violation of any terms or conditions of the Declaration, this Lease or any other lease relating to the Project; (vi) Overhead profit increments paid to Landlord's subsidiaries or affiliates for services on or to the building or for supplies or other materials to the extent that the cost of the services, supplies, or materials exceeds the cost that would have been paid had the services, supplies, or materials been provided by unaffiliated parties on a competitive basis; (vii) All interest, loan fees, and other carrying costs related to any mortgage or deed of trust or related to any capital item, and all rental and other payable due under any ground or underlying lease, or any lease for any equipment ordinarily considered to be of a capital nature (except janitorial equipment which is not affixed to the Project.); (viii) Any compensation paid to clerks, attendants, or other persons in commercial concessions operated by Landlord; (ix) Advertising and promotional expenditures; (x) Costs of repairs and other work occasioned by fire, windstorm, or other casualty of a nature required to be insured against under this Lease in excess of the deductible; (xi) Any costs, fines, or penalties incurred due to violations by Landlord of any governmental rule or authority, this Lease or any other lease in the Project, or due to Landlord's negligence or willful misconduct; (xii) Property management fees; (xiii) Costs for sculpture, paintings, or other objects of art (and insurance thereon or extraordinary security in connection therewith); (xiv) The cost of correcting any building code or other violations which were violations prior to the Commencement Date of this Lease; (xv) The cost of containing, removing, or otherwise remediating any contamination of the Project (including the underlying land and ground water) by any Hazardous Materials where such contamination was not caused by Tenant.

F. Waiver of Liability: Failure by Landlord to perform any defined services, or any cessation thereof, when such failure is caused by accident, breakage, repairs, strikes, lockout or other labor disturbances or labor disputes of any character or by any other cause, similar or dissimilar, shall not render Landlord liable to Tenant in any respect, including damages to either person or property, nor be construed as an eviction of Tenant, nor cause an abatement of rent, nor relieve Tenant from fulfillment of any covenant or agreement hereof. Should any equipment or machinery utilized in supplying the services listed herein break down or for any cause cease to function properly, upon receipt of written notice from Tenant of any deficiency or failure of any services, Landlord shall use reasonable diligence to repair the same promptly, but Tenant shall have no right to terminate this Lease and shall have no claim for rebate of rent or damages on account of any interruptions in service occasioned thereby or resulting therefrom. Tenant waives the provisions of California Civil Code Sections 1941 and 1942 concerning the Landlord's obligation of tenantability and Tenant's right to make repairs and deduct the cost of such repairs from the rent. Landlord shall not be liable for a loss of or injury to person or property, however occurring, through or in connection with or incidental to furnishing, or its failure to furnish, any of the foregoing unless causes by its gross negligence or willful misconduct.

G. Tenant's Right to Audit: Tenant shall have the right to audit at Landlord's local offices, at Tenant's expense, Landlord's accounts and records relating to Reimbursable Operating Costs. Such audit shall be conducted by a certified public accountant approved by Landlord, which approval shall not be unreasonably withheld. If such audit reveals that Landlord has overcharged Tenant, the amount overcharged shall be paid to Tenant within 30 days after the audit is concluded, together with interest thereon at the rate of ten percent (10.0%) per annum, from the date paid by Tenant until payment of the overcharge is made to Tenant. In addition, if the amount paid by Tenant exceeds the Reimbursable Operating Costs which should have been charged to Tenant by more than five percent (5.0%), the cost of the audit shall be paid by Landlord.

9. Hazard Insurance:

A. Tenant's Use: Tenant shall not use or permit the Premises, or any part thereof, to be used for any purpose other than that for which the Premises are hereby leased; and no use of the Premises shall be made or permitted, nor acts done, which will cause an increase in premiums or a cancellation of any insurance policy covering the Project or any part thereof, nor shall Tenant sell or permit to be sold, kept, or used in or about the Premises, any article prohibited by the standard form of fire insurance policies. Tenant shall, at its sole cost, comply with all requirements of any insurance company or organization necessary for the maintenance of reasonable fire and public liability insurance covering the Premises and appurtenances.

B. Landlord's Insurance: Landlord agrees to purchase and keep in force fire, extended coverage insurance in an amount equal to the replacement cost of the Building as determined by Landlord's insurance company's appraisers. If required by the holder of the first deed of trust on the property, such fire and property damage insurance may be endorsed to cover loss caused by such additional perils against which Landlord may elect to insure, including earthquake and/or flood, and shall contain reasonable deductibles which, in the case of earthquake and flood insurance may be up to 15% of the replacement value of the property. Additionally Landlord may maintain a policy of (i) commercial general liability insurance insuring Landlord (and such others designated by Landlord) against liability for personal injury, bodily injury, death and damage to property occurring or resulting from an occurrence in, on or about the Premises or Project in an amount as Landlord determines is reasonably necessary for its protection, and (ii) rental lost insurance covering a twelve (12) month period. Tenant agrees to pay Landlord as additional rent, on demand, the full cost of said insurance and any insurance costs allocable to the Building pursuant to the Declaration as evidenced by insurance billings to Landlord, and in the event of damage covered by said insurance, the amount of any commercially reasonable deductible under such policy. Payment shall be due to Landlord within thirty (30) days after written invoice to Tenant. It is understood and agreed that Tenant's obligation under this Section will be prorated to reflect the Lease Commencement and Expiration Dates. Tenant acknowledges and agrees that the Association formed pursuant to the Declaration may procure all or any portion of the insurance required to be maintained by Landlord under this Lease on behalf of Landlord and in discharge of Landlord's obligation to procure such insurance under this Lease, under one or more policies procured by the Association from time to time for the benefit of Landlord and other owners of any portion of the Project, the cost of which shall be paid by Tenant pursuant to this section 9.B, provided that the cost to Tenant shall not be greater than that which Tenant would have had to pay if Landlord obtained such coverage directly.

C. Tenant's Insurance: Tenant agrees, at its sole cost, to insure its personal property, Tenant Improvements and Alterations for their full replacement value (without depreciation) and to obtain worker's compensation and public liability and property damage insurance for occurrences within the Premises with a combined single limit of not less than Five Million Dollars ($5,000,000.00). Tenant's liability insurance shall be primary insurance containing a cross-liability endorsement, and shall provide coverage on an "occurrence" rather than on a "claims made" basis. Tenant shall name Master Landlord, Landlord and their respective lenders as an additional insured and shall deliver evidence of insurance and renewal certificates to Landlord. All such policies shall provide for thirty (30) days' prior written notice to Landlord of any cancellation, termination, or reduction in coverage.

D. Waiver: Landlord and Tenant hereby waive all rights each may have against the other on account of any loss or damage sustained by Landlord or Tenant, as the case may be, or to the Premises or its contents, which may arise from any risk covered by their respective insurance policies (or which would have been covered had such insurance policies been maintained in accordance with this Lease) as set forth above. The parties shall use their reasonable efforts to obtain from their respective insurance companies a waiver of any right of subrogation which said insurance company may have against Landlord, Master Landlord or Tenant, as the case may be.

10. Taxes: Tenant shall be liable for and shall pay as additional rental, prior to delinquency, the following: (i) all taxes and assessments levied against Tenant's personal property and trade or business fixtures; (ii) all real estate taxes and assessment installments or other impositions or charges which may be levied on the Premises or upon the occupancy of the Premises, including any substitute or additional charges which may be imposed applicable to the Lease Term; and (iii) real estate tax increases due to an increase in assessed value resulting from a sale, transfer or other change of ownership of the Premises as it appears on the City and County tax bills during the Lease Term. Tenant's obligation under this Section shall be prorated to reflect the Lease Commencement and Expiration Dates. If, at any time during the Lease Term a tax, excise on rents, business license tax or any other tax, however described, is levied or assessed against Landlord as a substitute or addition, in whole or in part, for taxes assessed or imposed on land or Buildings, Tenant shall pay and discharge its pro rata share of such tax or excise on rents or other tax before it becomes delinquent; except that this provision is not intended to cover net income taxes, inheritance, gift or estate tax imposed upon Landlord. In the event that a tax is placed, levied, or assessed against Landlord and the taxing authority takes the position that Tenant cannot pay and discharge its pro rata share of such tax on behalf of Landlord, then at Landlord's sole election, Landlord may increase the Base Monthly Rent by the exact amount of such tax and Tenant shall pay such increase. If by virtue of any application or proceeding brought by or on behalf of Landlord, there results a reduction in the assessed value of the Premises during the Lease Term, Tenant agrees to reimburse Landlord for all costs incurred by Landlord in connection with such application or proceeding, not to exceed the amount of any savings realized by Tenant. In the event the Project is not subdivided as provided in Section 2.C and the tax bill covers the entire Project, the real estate taxes and assessments shall be prorated as provided in Section 8.E.

11. Utilities: Tenant shall pay directly to the providing utility all water, gas, electric, telephone, and other utilities supplied to the Premises. Landlord shall not be liable for loss of or injury to person or property, however occurring, through or in connection with or incidental to furnishing or the utility company's failure to furnish utilities to the Premises unless caused by Landlord's gross negligence of willful misconduct, and Tenant shall not be entitled to abatement or reduction of any portion of Base Monthly Rent or any other amount payable under this Lease.

12. Toxic Waste and Environmental Damage:

A. Tenant's Responsibility: Without the prior written consent of Landlord, Tenant shall not bring, use, or permit upon the Premises, or generate, create, release, emit, or dispose (nor permit any of the same) from the Premises any chemicals, toxic or hazardous gaseous, liquid or solid materials or waste, including without limitation, material or substance having characteristics of ignitability, corrosivity, reactivity, or toxicity or substances or materials which are listed on any of the Environmental Protection Agency's lists of hazardous wastes or which are identified in Division 22 Title 26 of the California Code of Regulations as the same may be amended from time to time or any wastes, materials or substances which are or may become regulated by or under the authority of any applicable local, state or federal laws, judgments, ordinances, orders, rules, regulations, codes or other governmental restrictions, guidelines or requirements. ("Hazardous Materials") except for those substances customary in typical office uses for which no consent shall be required. In order to obtain consent, Tenant shall deliver to Landlord its written proposal describing the toxic material to be brought onto the Premises, measures to be taken for storage and disposal thereof, safety measures to be employed to prevent pollution of the air, ground, surface and ground water. Landlord's approval may be withheld in its reasonable judgment. In the event Landlord consents to Tenant's use of Hazardous Materials on the Premises or such consent is not required, Tenant represents and warrants that it shall comply with all Governmental Regulations applicable to Hazardous Materials including doing the following: (i) adhere to all reporting and inspection requirements imposed by Federal, State, County or Municipal laws, ordinances or regulations and will provide Landlord a copy of any such reports or agency inspections; (ii) obtain and provide Landlord copies of all necessary permits required for the use and handling of Hazardous Materials on the Premises; (iii) enforce Hazardous Materials handling and disposal practices consistent with industry standards; (iv) surrender the Premises free from any Hazardous Materials arising from Tenant's bringing, using, permitting, generating, creating, releasing, emitting or disposing of Hazardous Materials; and (v) properly close the facility with regard to Hazardous Materials including the removal or decontamination of any process piping, mechanical ducting, storage tanks, containers, or trenches which have come into contact with Hazardous Materials and obtain a closure certificate from the local administering agency prior to the Expiration Date.

B. Tenant's Indemnity Regarding Hazardous Materials: Tenant shall, at its sole cost and expense, comply with all laws pertaining to, and shall with counsel reasonably acceptable to Landlord, indemnify, defend and hold harmless Landlord, Master Landlord and their trustees, shareholders, directors, officers, employees, partners, affiliates, and agents from, any claims, liabilities, costs or expenses incurred or suffered by Landlord arising from the bringing, using, permitting, generating, emitting or disposing of Hazardous Materials by Tenant or a third party through the surface soils of the Premises during the Lease Term or the violation of any Governmental Regulation or environmental law, by Tenant or Tenant's Agents. Tenant's indemnification and hold harmless obligations include, without limitation, the following arising from the bringing, using, permitting, generating, emitting or disposing of Hazardous Materials by Tenant or a third party through the surface soils of the Premises during the Lease Term or the violation of any Governmental Regulation or environmental law, by Tenant or Tenant's Agents.: (i) claims, liability, costs or expenses resulting from or based upon administrative, judicial (civil or criminal) or other action, legal or equitable, brought by any private or public person under common law or under the Comprehensive Environmental Response, Compensation and Liability Act of 1980 ("CERCLA"), the Resource Conservation and Recovery Act of 1980 ("RCRA") or any other Federal, State, County or Municipal law, ordinance or regulation; (ii) claims, liabilities, costs or expenses pertaining to the identification, monitoring, cleanup, containment, or removal of Hazardous Materials from soils, riverbeds or aquifers including the provision of an alternative public drinking water source; (iii) all costs of defending such claims; (iv) losses attributable to diminution in the value of the Premises or the Building; (v) loss or restriction of use of rentable space in the Building; (vi) Adverse effect on the marketing of any space in the Building; and (vi) all other liabilities, obligations, penalties, fines, claims, actions (including remedial or enforcement actions of any kind and administrative or judicial proceedings, orders or judgments), damages (including consequential and punitive damages), and costs (including attorney, consultant, and expert fees and expenses) resulting from the release or violation. This indemnification shall survive the expiration or termination o this Lease.

C. Landlord's Indemnity Regarding Hazardous Materials: Landlord shall with counsel reasonably acceptable to Tenant, indemnify, defend and hold harmless Tenant and Tenant's shareholders, directors, officers, employees, partners, affiliates, and agents from, any claims, liabilities, costs or expenses incurred or suffered by Tenant arising from the bringing, using, permitting, generating, emitting or disposing of Hazardous Materials by Landlord or the violation of any Governmental Regulation or environmental law, by Landlord or Landlord's Agents. Landlord's indemnification and hold harmless obligations include, without limitation, the following: (i) claims, liability, costs or expenses resulting from or based upon administrative, judicial (civil or criminal) or other action, legal or equitable, brought by any private or public person under common law or under the Comprehensive Environmental Response, Compensation and Liability Act of 1980 ("CERCLA"), the Resource Conservation and Recovery Act of 1980 ("RCRA") or any other Federal, State, County or Municipal law, ordinance or regulation; (ii) claims, liabilities, costs or expenses pertaining to the identification, monitoring, cleanup, containment, or removal of Hazardous Materials from soils, riverbeds or aquifers including the provision of an alternative public drinking water source; (iii) all costs of defending such claims; and (iv) all other liabilities, obligations, penalties, fines, claims, actions (including remedial or enforcement actions of any kind and administrative or judicial proceedings, orders or judgments), damages (including consequential and punitive damages), and costs (including attorney, consultant, and expert fees and expenses) resulting from the release or violation. This indemnification shall survive the expiration or termination o this Lease.

C. Actual Release by Tenant: Tenant agrees to notify Landlord of any lawsuits or orders which relate to the remedying of or actual release of Hazardous Materials on or into the soils or ground water at or under the Premises. Tenant shall also provide Landlord all notices required by Section 25359.7(b) of the Health and Safety Code and all other notices required by law to be given to Landlord in connection with Hazardous Materials. Without limiting the foregoing, each party shall also deliver to the other party, within twenty (20) days after receipt thereof, any written notices from any governmental agency alleging a material violation of, or material failure to comply with, any federal, state or local laws, regulations, ordinances or orders, the violation of which or failure to comply with poses a foreseeable and material risk of contamination of the ground water or injury to humans (other than injury solely to Tenant, Tenant's Agents and employees within the Building).

In the event of any release on or into the Premises or into the soil or ground water under the Premises, the Building or the Project of any Hazardous Materials used, treated, stored or disposed of by Tenant or Tenant's Agents, Tenant agrees to comply, at its sole cost, with all laws, regulations, ordinances and orders of any federal, state or local agency relating to the monitoring or remediation of such Hazardous Materials. In the event of any such release of Hazardous Materials Tenant shall immediately give verbal and follow-up written notice of the release to Landlord, and Tenant agrees to meet and confer with Landlord and its Lender to attempt to eliminate and mitigate any financial exposure to such Lender and resultant exposure to Landlord under California Code of Civil Procedure Section 736(b) as a result of such release, and promptly to take reasonable monitoring, cleanup and remedial steps given, inter alia, the historical uses to which the Property has and continues to be used, the risks to public health posed by the release, the then available technology and the costs of remediation, cleanup and monitoring, consistent with acceptable customary practices for the type and severity of such contamination and all applicable laws. Nothing in the preceding sentence shall eliminate, modify or reduce the obligation of Tenant under 12.B of this Lease to indemnify and hold Landlord and Master Landlord harmless from any claims liabilities, costs or expenses incurred or suffered by them rising from the bringing, using, permitting, generating, emitting or disposing of Hazardous Materials by Tenant or a third party through the surface soils of the Premises during the Lease Term or the violation of any Governmental Regulation or environmental law, by Tenant or Tenant's Agents. Tenant shall provide Landlord prompt written notice of Tenant's monitoring, cleanup and remedial steps.

In the absence of an order of any federal, state or local governmental or quasi-governmental agency relating to the cleanup, remediation or other response action required by applicable law, any dispute arising between Landlord and Tenant concerning Tenant's obligation to Landlord under this Section 12.C concerning the level, method, and manner of cleanup, remediation or response action required in connection with such a release of Hazardous Materials shall be resolved by mediation and/or arbitration pursuant to the provisions of Section 21.E of this Lease.

D. Environmental Monitoring: Landlord and its agents shall have the right to inspect, investigate, sample and monitor the Premises including any air, soil, water, ground water or other sampling or any other testing, digging, drilling or analysis to determine whether Tenant is complying with the terms of this Section 12 provided reasonable grounds to suspect a violation exist. If Landlord discovers that Tenant is not in compliance with the terms of this Section 12, any such reasonable costs incurred by Landlord, including attorneys' and consultants' fees, shall be due and payable by Tenant to Landlord within thirty (30) days following Landlord's written demand therefore.

13. Tenant's Default: The occurrence of any of the following shall constitute a material default and breach of this Lease by Tenant: (i) Tenant's failure to pay any rent including additional rent or any other payment due under this Lease within ten (10) days following Landlord's notice of nonpayment, (ii) the abandonment of the Premises by Tenant; (iii) Tenant's failure to observe and perform any other required provision of this Lease, where such failure continues for thirty (30) days after written notice from Landlord, provided, however, that if the nature of the default is such that it cannot reasonably be cured within the 30-day period, Tenant shall not be deemed in default if it commences within such period to cure, and thereafter diligently prosecutes the same to completion; (iv) Tenant's making of any general assignment for the benefit of creditors; (v) the filing by or against Tenant of a petition to have Tenant adjudged a bankrupt or of a petition for reorganization or arrangement under any law relating to bankruptcy (unless, in the case of a petition filed against Tenant, the same is dismissed after the filing); (vi) the appointment of a trustee or receiver to take possession of substantially all of Tenant's assets located at the Premises or of Tenant's interest in this Lease, where possession is not restored to Tenant within sixty (60) days; (vii) the attachment, execution or other judicial seizure of substantially all of Tenant's assets located at the Premises or of Tenant's interest in this Lease, where such seizure is not discharged within sixty (60) days; (viii) a default by Tenant under the Building 1 Lease (if then leased by Tenant from Landlord), or (ix) a default by Tenant under the Building 3 Lease (if leased by Tenant from Landlord).

A. Remedies: In the event of any such default by Tenant, then in addition to other remedies available to Landlord at law or in equity, Landlord shall have the immediate option to terminate this Lease and all rights of Tenant hereunder by giving written notice of such intention to terminate. In the event Landlord elects to so terminate this Lease, Landlord may recover from Tenant all the following: (i) the worth at time of award of any unpaid rent which had been earned at the time of such termination; (ii) the worth at time of award of the amount by which the unpaid rent which would have been earned after termination until the time of award exceeds the amount of such rental loss for the same period that Tenant proves could have been reasonably avoided; (iii) the worth at time of award of the amount by which the unpaid rent for the balance of the Lease Term after the time of award exceeds the amount of such rental loss that Tenant proves could be reasonably avoided; (iv) any other amount necessary to compensate Landlord for all detriment proximately caused by Tenant's failure to perform its obligations under this Lease, or which in the ordinary course of things would be likely to result therefrom; including the following: (x) reasonable expenses for repairing, altering or remodeling the Premises if such expenses are necessary to relet the Premises, (y) reasonable broker's fees, advertising costs or other expenses of reletting the Premises, and (z) costs of carrying the Premises such as taxes, insurance premiums, utilities and security precautions and assessments due under the Declaration, and (v) at Landlord's election, such other reasonable amounts in addition to or in lieu of the foregoing as may be permitted by applicable California law. The term "rent", as used herein, is defined as the minimum monthly installments of Base Monthly Rent and all other sums required to be paid by Tenant pursuant to this Lease, all such other sums being deemed as additional rent due hereunder. As used in (i) and (ii) above, "worth at the time of award" shall be computed by allowing interest at a rate equal to the discount rate of the Federal Reserve Bank of San Francisco plus five (5%) percent per annum. As used in (iii) above, "worth at the time of award" shall be computed by discounting such amount at the discount rate of the Federal Reserve Bank of San Francisco at the time of award plus one (1%) percent.

B. Right to Re-enter: In the event of any such default by Tenant, Landlord shall have the right, after terminating this Lease, to re-enter the Premises and remove all persons and property. Such property may be removed and stored in a public warehouse or elsewhere at the cost of and for the account of Tenant, and disposed of by Landlord in any manner permitted by law.

C. Abandonment: If Landlord does not elect to terminate this Lease as provided in Section 13.A or 13.B above, then the provisions of California Civil Code Section 1951.4, (Landlord may continue the lease in effect after Tenant's breach and abandonment and recover rent as it becomes due if Tenant has a right to sublet and assign, subject only to reasonable limitations) as amended from time to time, shall apply and Landlord may from time to time, without terminating this Lease, either recover all rental as it becomes due or relet the Premises or any part thereof for such term or terms and at such rental or rentals and upon such other terms and conditions as Landlord in its sole discretion may deem advisable, with the right to make alterations and repairs to the Premises. In the event that Landlord elects to so relet, rentals received by Landlord from such reletting shall be applied in the following order to: (i) the payment of any indebtedness other than Base Monthly Rent due hereunder from Tenant to Landlord; (ii) the payment of any cost of such reletting; (iii) the payment of the cost of any alterations and repairs to the Premises; and (iv) the payment of Base Monthly Rent due and unpaid hereunder. The residual rentals, if any, shall be held by Landlord and applied in payment of future Base Monthly Rent as the same may become due and payable hereunder. Landlord shall the obligation to market the space but shall have no obligation to relet the Premises following a default if Landlord has other comparable available space within the Building or Project. In the event the portion of rentals received from such reletting which is applied to the payment of rent hereunder during any month be less than the rent payable during that month by Tenant hereunder, then Tenant shall pay such deficiency to Landlord immediately upon demand. Such deficiency shall be calculated and paid monthly. Tenant shall also pay to Landlord, as soon as ascertained, any reasonable costs and expenses incurred by Landlord in such reletting or in making such alterations and repairs not covered by the rentals received from such reletting.

D. No Termination: Landlord's re-entry or taking possession of the Premises pursuant to 13.B or 13.C shall not be construed as an election to terminate this Lease unless written notice of such intention is given to Tenant or unless the termination is decreed by a court of competent jurisdiction. Notwithstanding any reletting without termination by Landlord because of any default by Tenant, Landlord may at any time after such reletting elect to terminate this Lease for any such default.

E. Non-Waiver: Landlord may accept Tenant's payments without waiving any rights under this Lease, including rights under a previously served notice of default. No payment by Tenant or receipt by Landlord of a lesser amount than any installment of rent due shall be deemed as other than payment on account of the amount due. If Landlord accepts payments after serving a notice of default, Landlord may nevertheless commence and pursue an action to enforce rights and remedies under the previously served notice of default without giving Tenant any further notice or demand. Furthermore, the Landlord's acceptance of rent from the Tenant when the Tenant is holding over without express written consent does not convert Tenant's Tenancy from a tenancy at sufferance to a month to month tenancy. No waiver of any provision of this Lease shall be implied by any failure of Landlord to enforce any remedy for the violation of that provision, even if that violation continues or is repeated. Any waiver by Landlord of any provision of this Lease must be in writing. Such waiver shall affect only the provision specified and only for the time and in the manner stated in the writing. No delay or omission in the exercise of any right or remedy by Landlord shall impair such right or remedy or be construed as a waiver thereof by Landlord. No act or conduct of Landlord, including, without limitation, the acceptance of keys to the Premises, shall constitute acceptance of the surrender of the Premises by Tenant before the Expiration Date. Only written notice from Landlord to Tenant of acceptance shall constitute such acceptance of surrender of the Premises. Landlord's consent to or approval of any act by Tenant which requires Landlord's consent or approvals shall not be deemed to waive or render unnecessary Landlord's consent to or approval of any subsequent act by Tenant.

F. Performance by Landlord: If Tenant fails to perform any obligation required under this Lease or by law or governmental regulation, Landlord in its sole discretion may, following notice and expiration of the applicable cure period, without waiving any rights or remedies and without releasing Tenant from its obligations hereunder, perform such obligation, in which event Tenant shall pay Landlord as additional rent all sums paid by Landlord in connection with such substitute performance, including interest at the Agreed Interest Rate within thirty (30) days of Landlord's written notice for such payment.

14. Landlord's Liability:

A. Limitation on Landlord's Liability: In the event of Landlord's failure to perform any of its covenants or agreements under this Lease, Tenant shall give Landlord written notice of such failure and shall give Landlord thirty (30) days to cure or commence to cure such failure prior to any claim for breach or resultant damages, provided, however, that if the nature of the default is such that it cannot reasonably be cured within the 30-day period, Landlord shall not be deemed in default if it commences within such period to cure, and thereafter diligently prosecutes the same to completion. In addition, upon any such failure by Landlord, Tenant shall give notice by registered or certified mail to any person or entity with a security interest in the Premises ("Mortgagee") that has provided Tenant with notice of its interest in the Premises, and shall provide Mortgagee a reasonable opportunity to cure such failure, including such time to obtain possession of the Premises by power of sale or judicial foreclosure, if such should prove necessary to effectuate a cure. Tenant agrees that each of the Mortgagees to whom this Lease has been assigned is an expressed third-party beneficiary hereof. Tenant waives any right under California Civil Code Section 1950.7 or any other present or future law to the collection of any payment or deposit from Mortgagee or any purchaser at a foreclosure sale of Mortgagee's interest unless Mortgagee or such purchaser shall have actually received and not refunded the applicable payment or deposit. Tenant Further waives any right to terminate this Lease and to vacate the Premises on Landlord's default under this Lease. Tenant's sole remedy on Landlord's default is an action for damages or injunctive or declaratory relief.

B. Limitation on Tenant's Recourse: If Landlord is a corporation trust, partnership, joint venture, unincorporated association or other form of business entity: (i) the obligations of Landlord shall not constitute personal obligations of the officers, directors, trustees, partners, joint venturers, members, owners, stockholders, or other principals or representatives except to the extent of their interest in the Premises. Tenant shall have recourse only to the interest of Landlord in the Premises or for the satisfaction of the obligations of Landlord and shall not have recourse to any other assets of Landlord for the satisfaction of such obligations.

C. Indemnification of Landlord: As a material part of the consideration rendered to Landlord, Tenant hereby waives all claims against Landlord except to the extent caused by Landlord's gross negligence, willful misconduct or a breach of this Lease for damages to goods, wares and merchandise, and all other personal property in, upon or about said Premises and for injuries to persons in or about said Premises, from any cause arising at any time to the fullest extent permitted by law, and Tenant shall indemnify and hold Landlord, Master Landlord and their shareholders, directors, officers, trustees, employees, partners, affiliates and agents exempt and harmless from any damage or injury to any person, or to the goods, wares and merchandise and all other personal property of any person, arising from the use of the Premises, Building, and/or Project by Tenant and Tenant's Agents or from the failure of Tenant to keep the Premises in good condition and repair as herein provided, except to the extent due to the gross negligence or willful misconduct of Landlord. Further, in the event Landlord is made party to any litigation due to the acts or omission of Tenant and Tenant's Agents, Tenant will indemnify, defend (with counsel reasonably acceptable to Landlord) and hold Landlord harmless from any such claim or liability including Landlord's costs and expenses and reasonable attorney's fees incurred in defending such claims except to the extent due to the gross negligence or willful misconduct of Landlord.

15. Destruction of Premises:

A. Landlord's Obligation to Restore: In the event of a destruction of the Premises during the Lease Term Landlord shall repair the same to the approximate condition which existed prior to such destruction. Such destruction shall not annul or void this Lease; however, Tenant shall be entitled to a proportionate reduction of Base Monthly Rent while repairs are being made, such proportionate reduction to be based upon the extent to which the repairs interfere with Tenant's business in the Premises, as reasonably determined by the Parties. In no event shall Landlord be required to replace or restore Alterations, Tenant Improvements, Tenant's fixtures or personal property. With respect to a destruction which Landlord is obligated to repair or may elect to repair under the terms of this Section, Tenant waives the provisions of Section 1932, and Section 1933, Subdivision 4, of the Civil Code of the State of California, and any other similarly enacted statute, and the provisions of this Section 15 shall govern in the case of such destruction. If Landlord is required to repair the Premises in the event of destruction pursuant to this Lease, Landlord agrees that it will not vote under the Declaration in favor or not repairing the Premises or Common Area.

B. Limitations on Landlord's Restoration Obligation: Notwithstanding the provisions of Section 15.A, Landlord shall have no obligation to repair, or restore the Premises if any of the following occur: (i) if the repairs cannot be made in three hundred sixty five (365) days from the date of receipt of all governmental approvals necessary under the laws and regulations of State, Federal, County or Municipal authorities, as reasonably determined by Landlord, (ii) if the holder of the first deed of trust or mortgage encumbering the Building elects not to permit the insurance proceeds payable upon damage or destruction to be used for such repair or restoration, (iii) the damage or destruction is not fully covered by the insurance maintained by Landlord, (iv) the damage or destruction occurs in the last twenty four (24) months of the Lease Term (unless Tenant commits to exercise any available option to extend the Lease Term pursuant to Section 18 of this Lease), (v) Tenant is in default pursuant to the provisions of Section 13 beyond expiration of the applicable cure period, (vi) Tenant has vacated the Premises for more than ninety (90) days, or (vii) if repair of the Common Area is necessary before repairs to the Premises can be

performed and Landlord reasonably determines that repairs to the Common Area will not be made within one hundred eighty (180) days after the date of the damage and destruction. In any such event Landlord may elect either to (i) complete the repair or restoration, or (ii) terminate this Lease by providing Tenant written notice of its election within sixty (60) days following the damage or destruction.

C. Tenant's Rights with Respect to a Destruction of the Premises: Notwithstanding anything to the contrary contained in this Lease: Landlord shall give notice to Tenant of its election to rebuild or not to rebuild the Premises within thirty (30) days of casualty to the Premises and such notice shall specify Landlord's architect's or engineer's reasonable estimate as to the time required to rebuild or restore the Premises. If, in the reasonable opinion of Landlord's architect or engineer, the Premises will take longer than three hundred sixty five (365) days to rebuild or restore and Landlord has elected to perform such rebuilding or restoration, Tenant may, notwithstanding Landlord's election, terminate this Lease by written notice to Landlord of such termination within five (5) days after its receipt of Landlord's notice. Such termination shall be effective thirty (30) days after the giving of Tenant's notice. If Landlord fails to restore the Premises (including reasonable means of access thereto) within a period which is sixty (60) days longer than the period stated in Landlord's notice to Tenant as the estimated rebuilding period, 'Tenant, at any time thereafter until such rebuilding is completed, may terminate this Lease by delivering written notice to Landlord of such termination, in which event this Lease shall terminate as of the date of the giving of such notice. If casualty to the Premises occurs within the last twenty-four months of the term and the period in which Tenant is obligated to exercise its option to renew the term pursuant to Section 18 has not expired, Tenant shall have thirty (30) days after the date of casualty in which to notify Landlord of its election to exercise such renewal option. If Tenant elects to renew the term as provided above, Landlord shall have no right to terminate the Lease pursuant to this Section 15.

16. Condemnation: If any part of the Premises shall be taken for any public or quasi-public use, under any statute or by right of eminent domain or private purchase in lieu thereof, and only a part thereof remains which is susceptible of occupation hereunder, this Lease shall, as to the part so taken, terminate as of the day before title vests in the condemnor or purchaser ("Vesting Date") and Base Monthly Rent payable hereunder shall be adjusted so that Tenant is required to pay for the remainder of the Lease Term only such portion of Base Monthly Rent as the value of the part remaining after such taking bears to the value of the entire Premises prior to such taking. If all of the Premises or such part thereof be taken so that there does not remain a portion susceptible for occupation hereunder, this Lease shall terminate on the Vesting Date. If part or all of the Premises be taken, all compensation awarded upon such taking shall go to Landlord, and Tenant shall have no claim thereto; but Landlord shall cooperate with Tenant, without cost to Landlord, to recover compensation for damage to or taking of any Alterations, Tenant Improvements, or for Tenant's moving costs. Tenant hereby waives the provisions of California Code of Civil Procedures Section 1265.130 and any other similarly enacted statue, and the provisions of this Section 16 shall govern in the case of such taking.

17. Assignment or Sublease:

A. Consent by Landlord: Except as specifically provided in this Section 17.E, Tenant may not assign, sublet, hypothecate, or allow a third party to use the Premises without the express written consent of Landlord which shall not be unreasonably withheld, conditioned or delayed. Except in connection with a Permitted Transfer, in the event Tenant desires to assign this Lease or any interest herein including, without limitation, a pledge, mortgage or other hypothecation, or sublet the Premises or any part thereof, Tenant shall deliver to Landlord (i) executed counterparts of any agreement and of all ancillary agreements with the proposed assignee/subtenant, (ii) current financial statements of the transferee covering the preceding three years if available, (iii) the nature of the proposed transferee's business to be carried on in the Premises, (iv) a statement outlining all consideration to be given on account of the Transfer, and (v) a current financial statement of Tenant. Landlord may condition its approval of any Transfer to a certification from both Tenant and the proposed transferee of all consideration to be paid to Tenant in connection with such Transfer. At Landlord's request, Tenant shall also provide additional information reasonably required by Landlord to determine whether it will consent to the proposed assignment or sublease. Landlord shall have a fifteen business (15) day period following receipt of all the foregoing within which to notify Tenant in writing that Landlord elects to: (i) terminate this Lease in the event of an assignment only; (ii) permit Tenant to assign or sublet such space to the named assignee/subtenant on the terms and conditions set forth in the notice; or (iii) refuse consent. If Landlord should fail to notify Tenant in writing of such election within the 15-day period, Landlord shall be deemed to have elected option (ii) above. In the event Landlord elects option (i) above, this Lease shall expire with respect to such part of the Premises on the date upon which the proposed sublease was to commence, and from such date forward, Base Monthly Rent and Tenant's Allocable Share of all other costs and charges shall be adjusted based upon the proportion that the rentable area of the Premises remaining bears to the total rentable area of the Premises. In the event Landlord elects option (ii) above, Landlord's written consent to the proposed assignment or sublease shall not be unreasonably withheld, provided and upon the condition that: (i) the proposed assignee or subtenant is engaged in a business that is limited to the use expressly permitted under this Lease; (ii) the proposed assignee or subtenant is a company with sufficient financial worth and management ability to undertake the financial obligation of this Lease and Landlord has been furnished with reasonable proof thereof; (iii) the proposed assignment or sublease is in form reasonably satisfactory to Landlord; (iv) Tenant reimburses Landlord on demand for any reasonable costs that may be incurred by Landlord in connection with said assignment or sublease, including the costs of making investigations as to the acceptability of the proposed assignee or subtenant and legal costs incurred in connection with the granting of any requested consent; and (vi) Tenant shall not have advertised or publicized in any way the availability of the Premises without prior notice to Landlord. In the event all or any one of the foregoing conditions are not satisfied, Landlord shall be considered to have acted reasonably if it withholds its consent.

B. Assignment or Subletting Consideration: Any rent or other economic consideration realized by Tenant under any sublease and assignment, in excess of the rent payable hereunder after deducting (i) reasonable subletting and assignment costs (ii) the Monthly Amortized Cost (defined below) of the Tenant Improvements paid by Tenant, and (iii) any economic consideration received by Tenant for services rendered or personal property sold or leased, shall be divided and paid fifty percent (50%) to Landlord and fifty percent (50%) to Tenant. Monthly Amortized Cost shall be determined by taking sum paid by Tenant for the Tenant Improvements installed in the Building and dividing this sum by one hundred forty four (144) months. Tenant's obligation to pay over Landlord's portion of the consideration constitutes an obligation for additional rent hereunder. The above provisions relating to Landlord's right to terminate the Lease and relating to the allocation of bonus rent are independently negotiated terms of the Lease which constitute a material inducement for the Landlord to enter into the Lease, and are agreed by the parties to be commercially reasonable. No assignment or subletting by Tenant shall relieve it of any obligation under this Lease. Any assignment or subletting except in connection with a Permitted Transfer which conflicts with the provisions hereof shall be void.

C. No Release: Any assignment or sublease except in connection with a Permitted Transfer shall be made only if and shall not be effective until the assignee or subtenant shall execute, acknowledge, and deliver to Landlord an agreement, in form and substance satisfactory to Landlord, whereby the assignee or subtenant shall assume all the obligations of this Lease on the part of Tenant to be performed or observed and shall be subject to all the covenants, agreements, terms, provisions and conditions in this Lease. Notwithstanding any such sublease or assignment and the acceptance of rent by Landlord from any subtenant or assignee, Tenant and any guarantor shall remain fully liable for the payment of Base Monthly Rent and additional rent due, and to become due hereunder, for the performance of all the covenants, agreements, terms, provisions and conditions contained in this Lease on the part of Tenant to be performed and for all acts and omissions of any licensee, subtenant, assignee or any other person claiming under or through any subtenant or assignee that shall be in violation of any of the terms and conditions of this Lease, and any such violation shall be deemed a violation by Tenant. Tenant shall indemnify, defend and hold Landlord harmless from and against all losses, liabilities, damages, costs and expenses (including reasonable attorney fees) resulting from any claims that may be made against Landlord by the proposed assignee or subtenant or by any real estate brokers or other persons claiming compensation in connection with the proposed assignment or sublease, unless caused by Landlord's breach of this Lease.

D. Reorganization of Tenant: The provisions of this Section 17.D shall apply if Tenant is a corporation and: (i) there is a dissolution, merger, consolidation, or other reorganization of or affecting Tenant, where Tenant is not the surviving corporation, or (ii) there is a sale or transfer to one person or entity (or to any group of related persons or entities) of stock possessing more than 50% of the total combined voting power of all classes of Tenant's capital stock issued, outstanding and entitled to vote for the election of directors, and after such sale or transfer of stock Tenant's stock is no longer publicly traded. In a transaction under clause (i) the surviving corporation shall promptly execute and deliver to Landlord an agreement in form reasonably satisfactory to Landlord under which such corporation assumes the obligations of Tenant hereunder, and in a transaction under clause (ii) the transferee shall promptly execute and deliver to Landlord an agreement in form reasonably satisfactory to Landlord under which such transferee assumes the obligations of Tenant to the extent accruing after such transferee's acquisition of Tenant's stock possessing more than 50% of the total combined voting of all classes of Tenant's capital stock issued, outstanding and entitled to vote for the election of directors.

E. Permitted Transfers: Notwithstanding anything contained in this Section 17, Tenant may enter into any of the following transfers (a "Permitted Transfer") without Landlord's prior consent, and Landlord shall not be entitled to terminate the Lease or to receive any part of any subrent resulting therefrom that would otherwise be due pursuant to Sections 17.A and 17.B. Tenant may sublease all or part of the Premises or assign its interest in this Lease to (i) any person or entity which controls, is controlled by, or is under common control with the original Tenant to this Lease by means of an ownership interest of more than 50%; (ii) any person or entity which results from a merger, consolidation or other reorganization in which Tenant is not the survivor, so long as the survivor has a net worth at the time of such transfer sufficient to enable it to meet its obligations under this Lease; and (iii) any person or entity which purchases or otherwise acquires all or substantially all of the assets of Tenant so long as such acquiring person or entity has a net worth at the time of such transfer that is sufficient at the time of such transfer to enable it to meet its obligations under this Lease.

F. Effect of Default: In the event of Tenant's default, Tenant hereby assigns all rents due from any assignment or subletting to Landlord as security for performance of its obligations under this Lease, and Landlord may collect such rents as Tenant's Attorney-in-Fact, except that Tenant may collect such rents unless a default occurs as described in Section 13 above. A Lease termination due to Tenant's default shall not automatically terminate an assignment or sublease then in existence; rather at Landlord's election, such assignment or sublease shall survive the Lease termination, the assignee or subtenant shall attorn to Landlord, and Landlord shall undertake the obligations of Tenant under the sublease or assignment; except that Landlord shall not be liable for prepaid rent, security deposits or other defaults of Tenant to the subtenant or assignee, or for any acts or omissions of Tenant and Tenant's Agents.

G. Conveyance by Landlord: As used in this Lease, the term "Landlord" is defined only as the owner for the time being of the Premises, so that in the event of any sale or other conveyance of the Premises or in the event of a master lease of the Premises, Landlord shall be entirely freed and relieved of all its covenants and obligations hereunder, and it shall be deemed and construed, without further agreement between the parties and the purchaser at any such sale or the master tenant of the Premises, that the purchaser or master tenant of the Premises has assumed and agreed to carry out any and all covenants and obligations of Landlord hereunder. Such transferor shall transfer and deliver Tenant's security deposit to the purchaser at any such sale or the master tenant of the Premises, and thereupon the transferor shall be discharged from any further liability in reference thereto.

F. Successors and Assigns: Subject to the provisions this Section 17, the covenants and conditions of this Lease shall apply to and bind the heirs, successors, executors, administrators and assigns of all parties hereto; and all parties hereto shall be jointly and severally liable hereunder.

18. Option to Extend the Lease Term:

A. Grant and Exercise of Option: Landlord grants to Tenant, subject to the terms and conditions set forth in this Section 18.A, two (2) options (the "Options") to extend the Lease Term for an additional term (the "Option Term"). Each Option Term shall be for a period of sixty (60) months and shall be exercised, if at all, by written notice to Landlord no earlier than eighteen (18) months prior to the date the Lease Term would expire but for such exercise but no later than twelve (12) months prior to the date the Lease Term would expire but for such exercise, time being of the essence for the giving of such notice. If Tenant exercises the first Option or both of the Options, all of the terms, covenants and conditions of this Lease except this Section shall apply during the Option Term as though the expiration date of the Option Term was the date originally set forth herein as the Expiration Date, provided that Base Monthly Rent for the Premises payable by Tenant during the Option Term shall be the greater of (i) the average amount of Base Monthly Rent paid during the initial Lease Term, and (ii) ninety five percent (95%) of the Fair Market Rental as hereinafter defined. Notwithstanding anything herein to the contrary, if Tenant is in monetary or material non- monetary default after expiration of any applicable cure period under any of the terms, covenants or conditions of this Lease either at the time Tenant exercises the Option or at any time thereafter prior to the commencement date of the Option Term, Landlord shall have, in addition to all of Landlord's other rights and remedies provided in this Lease, the right to terminate the Option upon notice to Tenant, in which event the expiration date of this Lease shall be and remain the Expiration Date. As used herein, the term "Fair Market Rental" is defined as the rental and all other monetary payments, including any escalations and adjustments thereto (including without limitation Consumer Price Indexing) that Landlord could obtain during the Option Term from a third party desiring to lease the Premises, based upon the current use and other potential uses of the Premises, as determined by the rents then being obtained for new leases of space comparable in age and quality to the Premises in the locality of the Building. The appraisers shall be instructed that the foregoing five percent (5%) discount is intended to reduce comparable rents which include (i) brokerage commissions, (ii) tenant improvement allowances, and (iii) vacancy costs, to account for the fact that Landlord will not suffer such costs in the event Tenant exercises its Option.

B. Determination of Fair Market Rental: If Tenant exercises the Option, Landlord shall send Tenant a notice setting forth the Fair Market Rental for the Option Term within thirty (30) days following the Exercise Date. If Tenant disputes Landlord's determination of Fair Market Rental for the Option Term, Tenant shall, within thirty (30) days after the date of Landlord's notice setting forth Fair Market Rental for the Option Term, send to Landlord a notice stating that Tenant either elects to terminate its exercise of the Option, in which event the Option shall lapse and this Lease shall terminate on the Expiration Date, or that Tenant disagrees with Landlord's determination of Fair Market Rental for the Option Term and elects to resolve the disagreement as provided in Section 18.C below. If Tenant elects to resolve the disagreement as provided in Section 18.C and such procedures are not concluded prior to the commencement date of the Option Term, Tenant shall pay to Landlord as Base Monthly Rent the Fair Market Rental as determined by Landlord in the manner provided above. If the Fair Market Rental as finally determined pursuant to Section 18.C is greater than Landlord's determination, Tenant shall pay Landlord the difference between the amount paid by Tenant and the Fair Market Rental as so determined in Section 18.C within thirty (30) days after such determination. If the Fair Market Rental as finally determined in Section 18.C is less than Landlord's determination, the difference between the amount paid by Tenant and the Fair Market Rental as so determined in Section 18.C shall be credited against the next installments of rent due from Tenant to Landlord hereunder.

C. Resolution of a Disagreement over the Fair Market Rental: Any disagreement regarding Fair Market Rental shall be resolved as follows:

1. Within thirty (30) days after Tenant's response to Landlord's notice setting forth the Fair Market Rental, Landlord and Tenant shall meet at least two (2) times at a mutually agreeable time and place, in an attempt to resolve the disagreement.

2. If within the 30-day period referred to above, Landlord and Tenant cannot reach agreement as to Fair Market Rental, each party shall select one appraiser to determine Fair Market Rental. Each such appraiser shall arrive at a determination of Fair Market Rental and submit their conclusions to Landlord and Tenant within thirty (30) days after the expiration of the 30-day consultation period described above.

3. If only one appraisal is submitted within the requisite time period, it shall be deemed as Fair Market Rental. If both appraisals are submitted within such time period and the two appraisals so submitted differ by less than ten percent (10%), the average of the two shall be deemed as Fair Market Rental. If the two appraisals differ by more than 10%, the appraisers shall immediately select a third appraiser who shall, within thirty (30) days after his selection, make and submit to Landlord and Tenant a determination of Fair Market Rental. This third appraisal will then be averaged with the closer of the two previous appraisals and the result shall be Fair Market Rental.

4. All appraisers specified pursuant to this Section shall be members of the American Institute of Real Estate Appraisers with not less than ten (10) years experience appraising office and industrial properties in the Santa Clara Valley. Each party shall pay the cost of the appraiser selected by such party and one-half of the cost of the third appraiser.

D. Personal to Tenant: All Options provided to Tenant in this Lease are personal and granted to Siebel Systems, Inc. and any Permitted Transferee and are not exercisable by any third party should Tenant assign or sublet all or a portion of its rights under this Lease, unless Landlord consents to permit exercise of any option by any assignee or subtenant, in Landlord's sole and absolute discretion. In the event Tenant has multiple options to extend this Lease, a later option to extend the Lease cannot be exercised unless the prior option has been so exercised.

E. Extension Right in the Event the Building 3 Option is Not Exercised: In the event that the Building 3 Option is not exercised, Tenant shall have the right to extend the initial term of this Lease to be co- terminus with the Building 1 Lease. The exercise of such option shall not affect Tenant's option to extend the Lease under Section 18.A above. Base Monthly Rent during such extended term shall be equal to the Base Monthly Rent payable immediately prior to such extension subject to adjustment pursuant to Section 4.B.ii.

19. Option to Lease:

A. Grant and Exercise of Option: Landlord grants to Tenant an option to lease Building 3 ("Expansion Option"). As a part of the construction of the Building 3 Landlord shall also complete the final three (3) levels of the above-grade parking structure within the Common Area so as to maintain a parking ratio of 3.45 spaces per 1,000 square feet.. In order to exercise the Expansion Option, Tenant shall give Landlord written notice no later than twelve (12) months following the Lease Commencement Date for Building 1, which commencement date is currently estimated at August 1, 2001 ("Option Expiration Date"). Tenant shall not be required to make any option payments prior to the Lease Commencement Date for Building 1, thereafter Tenant shall pay Landlord concurrently with and in addition to the Base Monthly Rent, the sum of Fifty Thousand and No/100 Dollars ($50,000.00) each month to preserve the Expansion Option. If Tenant fails to (i) exercise the Expansion Option by the Option Expiration Date, or (ii) make any option payment required hereunder, the Expansion Option shall terminate and Landlord shall be free any time thereafter to construct Building 3 for a third party, subject only to Tenant's right of first offering provided in 19.C below. In the event Tenant exercises this Expansion Option, the Parties shall enter into a written lease agreement with a lease term of (12) twelve years on substantially the same terms and conditions of this Lease except as provided in Section 19.B below. Further, in the event that Tenant leases Building 3, this Lease and the lease for Building 1 shall be extended so as to be coterminous with the lease for Building 3. Base Monthly Rent under this Lease during such an extended term shall be equal to the Base Monthly Rent payable immediately preceding the extended term, subject to continued adjustment pursuant to Section 4.B of this Lease.

B. Lease Commencement and Base Monthly Rent: The Lease Commencement Date for the Building 3 shall occur upon completion of the Building Shell for Building 3, parking structure and Tenant Improvements for Building 3 estimated to occur eighteen (18) months following Tenant's exercise of this option. The initial Base Monthly Rent shall be equal to the sum of Four Hundred Twelve Thousand Seven Hundred Thirty Two and 32/00 Dollars ($412,732.32) [$2.464 per square foot], subject to increase as follows. Immediately following Tenant's exercise Landlord shall seek a permanent loan commitment to construct Building 3. If that at the time the loan commitment is obtained for Building 3, the interest rate exceeds seven and 25/100 percent (7.25%) on the best available non-recourse 25-year amortizing loan, then the initial Base Monthly Rent for Building 3 shall be increased by Five Thousand Eight Hundred Sixty Dollars ($5,860.00) [$.035 per square foot ] for every one quarter percent increase in the interest rate above seven and 25/100 percent (7.25%). For example, if the best obtainable interest rate was eight and No/100 percent (8.00%), then the initial Base Monthly Rent would be $430,312.32 [(3 x $5,860) + $412,732.32]

C. Right of First Offering to Lease: Beginning on the date that the Expansion Option lapses or terminates and terminating twelve (12) months thereafter ("First Offering Period"), Landlord hereby grants Tenant a right of first offering to lease Building 3. Prior to Landlord offering to lease Building 3 to a third party during the First Offering Period, Landlord shall give Tenant written notice of such desire and the terms and other information under which Landlord intends to lease Building 3. Provided at the time of exercise, Tenant is not in default beyond the expiration of any applicable cure period, Tenant shall have the option, which must be exercised, if at all, by written notice to Landlord within ten (10) days after Tenant's receipt of Landlord's notice, to lease Building 3 at the rent and terms of lease specified in the notice. In the event Tenant timely exercises such option to lease Building 3, Tenant shall lease Building 3 from Landlord in accordance with the rent and terms specified in Landlord's notice. To the extent not specified in Landlord's notice, the terms of lease shall be otherwise consistent with this Lease. In the event Tenant fails to exercise Tenant's option within said ten (10) day period, Landlord shall have one hundred eighty (180) days thereafter to lease Building 3 at no less than ninety five percent (95%) of the rental rate and upon the terms of lease no more favorable than those specified in the notice to Tenant. In the event Landlord fails to lease Building 3 within said one hundred eighty (180) day period or in the event Landlord proposes to lease Building 3 at less than ninety five percent (95%) of the rental rate or on other material terms which are more favorable to the prospective tenant than those proposed to Tenant, Landlord shall be required to resubmit such offer to Tenant in accordance with this Right of First Offering, provided further that such resubmittal would occur during the First Offering Period.

D. Exclusions: Notwithstanding the foregoing, this Expansion Option shall automatically terminate, (i) upon the expiration or sooner termination of the Lease, or (ii) in the event of a foreclosure or other involuntary transfer of Landlord's interest in the Building.

20. Right Of First Offering To Purchase:

A. Grant and Exercise of Option: In the event either or both Master Landlord and Landlord elect to sell their respective interests in the Building, Master Landlord and Landlord hereby grants Tenant a right of first offering to purchase their respective interests in the Building (Master Landlord and Landlord are individually and collectively referred to in this Section as "Seller"). Prior to Seller offering to sell its interest in the Building to a third party, Seller shall give Tenant written notice of such desire and the terms and other information under which Seller intends to sell the Building. Provided at the time of exercise, Tenant is not in default beyond the expiration of any applicable cure period, Tenant shall have the option, which must be exercised, if at all, by written notice to Seller within thirty (30) days after Tenant's receipt of Seller's notice, to purchase its interest in the Building at the sales price and terms of sale specified in the notice. In the event Tenant timely exercises such option to purchase its interest in the Building, Seller shall sell its interest in the Building to Tenant, and Tenant shall purchase its interest in the Building from Seller in accordance with the price and terms specified in Seller's notice. Seller and Tenant shall, in good faith, attempt to reach agreement on the terms of a mutually acceptable purchase agreement consistent with the terms set forth in Seller's notice within thirty (30) days of Seller's notice. In the event (i) Seller and Tenant are unable to reach agreement on a mutually acceptable purchase agreement within such thirty (30) day period or (ii) Tenant fails to exercise Tenant's option within said thirty (30) day period, Seller shall have one hundred eighty (180) days thereafter to sell its interest in the Building at no less than ninety five percent (95%) of the sales price and upon the same or substantially the same other terms of sale as specified in the notice to Tenant. In the event Seller fails to sell its interest in the Building within said one hundred eighty (180) day period or in the event Seller proposes to sell its interest in the Building at less than ninety five percent (95%) of the sales price or on other material terms which are more favorable to the prospective buyer than that proposed to Tenant, Seller shall be required to resubmit such offer to Tenant in accordance with this Right of First Offering except that Tenant shall be required to respond to any resubmission within a seven (7) day period.

B. Exclusions: This Right of First Offering shall automatically terminate, (i) upon the expiration or sooner termination of the Lease, or (ii) in the event of a foreclosure or other involuntary transfer of Landlord's interest in the Building. Notwithstanding the forgoing, this Right of First Offering shall not apply to transfers (but shall survive such transfers ) of all or a portion of the Building or Project to (i) John A. Sobrato and/or John M. Sobrato (individually and collectively "Sobrato"), and (ii) any immediate family member of Sobrato, and (iii) any trust established, in whole or in art, for the benefit of Sobrato and/or any immediate family member of Sobrato, (iv) any partnership in which Sobrato or any immediate family member, either directly or indirectly (e.g., through a partnership or corporate entity or a trust) retains a general partner interest, and/or (v) any corporation under the control, either directly or indirectly, by Sobrato or any immediate family member of Sobrato.

21. General Provisions:

A. Attorney's Fees: In the event a suit or alternative form of dispute resolution is brought for the possession of the Premises, for the recovery of any sum due hereunder, to interpret the Lease, or because of the breach of any other covenant herein; then the losing party shall pay to the prevailing party reasonable attorney's fees including the expense of expert witnesses, depositions and court testimony as part of its costs which shall be deemed to have accrued on the commencement of such action. The prevailing party shall also be entitled to recover all costs and expenses including reasonable attorney's fees incurred in enforcing any judgment or award against the other party. The foregoing provision relating to post-judgment costs is severable from all other provisions of this Lease.

B. Authority of Parties: Tenant represents and warrants that it is duly formed and in good standing, and is duly authorized to execute and deliver this Lease on behalf of said corporation, in accordance with a duly adopted resolution of the Board of Directors of said corporation or in accordance with the by-laws of said corporation, and that this Lease is binding upon said corporation in accordance with its terms. At Landlord's request, Tenant shall provide Landlord with corporate resolutions or other proof in a form acceptable to Landlord, authorizing the execution of the Lease.

C. Brokers: Tenant represents it has not utilized or contacted a real estate broker or finder with respect to this Lease other than Chris Allen, d/b/a Resource Real Estate Group, which fee shall be payable by Landlord pursuant to a written agreement and the Parties agree to indemnify, defend and hold each other harmless against any claim, cost, liability or cause of action asserted by any other broker or finder.

D. Choice of Law: This Lease shall be governed by and construed in accordance with California law. Except as provided in Section 21.E, venue shall be Santa Clara County.

E. Dispute Resolution: Landlord and Tenant and any other party that may become a party to this Lease or be deemed a party to this Lease including any subtenants agree that, except for any claim by Landlord for unlawful detainer or any claim within the jurisdiction of the small claims court (which small claims court shall be the sole court of competent jurisdiction), any controversy, dispute, or claim of whatever nature arising out of, in connection with or in relation to the interpretation, performance or breach of this Lease, including any claim based on contract, tort, or statute, shall be resolved at the request of any party to this agreement through a two- step dispute resolution process administered by J.A.M.S. or another judicial mediation service mutually acceptable to the parties located in Santa Clara County, California. The dispute resolution process shall involve first, mediation, followed, if necessary, by final and binding arbitration administered by and in accordance with the then existing rules and practices of J.A.M.S. or other judicial mediation service selected. In the event of any dispute subject to this provision, either party may initiate a request for mediation and the parties shall use reasonable efforts to promptly select a J.A.M.S. mediator and commence the mediation. In the event the parties are not able to agree on a mediator within thirty (30) days, J. A. M. S. or another judicial mediation service mutually acceptable to the parties shall appoint a mediator. The mediation shall be confidential and in accordance with California Evidence Code 1119 et. seq. The mediation shall be held in Santa Clara County, California and in accordance with the existing rules and practice of J. A. M. S. (or other judicial and mediation service selected). The parties shall use reasonable efforts to conclude the mediation within sixty (60) days of the date of either party's request for mediation. The mediation shall be held prior to any arbitration or court action (other than a claim by Landlord for unlawful detainer or any claim within the jurisdiction of the small claims court which are not subject to this mediation/arbitration provision and may be filed directly with a court of competent jurisdiction). Should the prevailing party in any dispute subject to this Section 19.E attempt an arbitration or a court action before attempting to mediate, the prevailing party shall not be entitled to attorney's fees that might otherwise be available to them in a court action or arbitration and in addition thereto, the party who is determined by the arbitrator to have resisted mediation, shall be sanctioned by the arbitrator or judge.

If a mediation is conducted but is unsuccessful, it shall be followed by final and binding arbitration administered by and in accordance with the then existing rules and practices of J.A.M.S. or the other judicial and mediation service selected, and judgment upon any award rendered by the arbitrator(s) may be entered by any state or federal court having jurisdiction thereof AS PROVIDED BY CALIFORNIA CODE OF CIVIL PROCEDURE SECTION 1280 ET. SEQ, AS SAID STATUTES THEN APPEAR, INCLUDING ANY AMENDMENTS TO SAID STATUTES OR SUCCESSORS TO SAID STATUTES OR AMENDED STATUTES, EXCEPT THAT in no event shall the parties be entitled to propound interrogatories or request for admissions during the arbitration process. The arbitrator shall be a retired judge or a licensed California attorney. The venue for any such arbitration or mediation shall be in Santa Clara County, California.

NOTICE: BY INITIALING IN THE SPACE BELOW YOU ARE AGREEING TO HAVE ANY DISPUTE ARISING OUT OF THE MATTERS INCLUDED IN THE "MEDIATION AND ARBITRATION OF DISPUTES" PROVISION DECIDED BY NEUTRAL ARBITRATION AS PROVIDED BY CALIFORNIA LAW AND YOU ARE GIVING UP ANY RIGHTS YOU MIGHT POSSESS TO HAVE THE DISPUTE LITIGATED IN A COURT OR fURY TRIAL. BY INITIALING IN THE SPACE BELOW YOU ARE GIVING UP YOUR JUDICIAL RIGHTS TO DISCOVERY AND APPEAL, UNLESS THOSE RIGHTS ARE SPECIFICALLY INCLUDED IN THE "MEDIATION AND ARBITRATION OF DISPUTES" PROVISION. IF YOU REFUSE TO SUBMIT TO ARBITRATION AFTER AGREEING TO THIS PROVISION, YOU MAY BE COMPELLED TO ARBITRATE UNDER THE AUTHORITY OF THE CALIFORNIA CODE OF CIVIL PROCEDURE. YOUR AGREEMENT TO THIS ARBITRATION PROVISION IS VOLUNTARY.

WE HAVE READ AND UNDERSTAND THE FOREGOING AND AGREE TO SUBMIT DISPUTES ARISING OUT OF THE MATTERS INCLUDED IN THE "MEDIATION AND ARBITRATION OF DISPUTES" PROVISION TO NEUTRAL ARBITRATION.

LANDLORD: ______ TENANT: _______

F. Entire Agreement: This Lease and the exhibits attached hereto contains all of the agreements and conditions made between the parties hereto and may not be modified orally or in any other manner other than by written agreement signed by all parties hereto or their respective successors in interest. This Lease supersedes and revokes all previous negotiations, letters of intent, lease proposals, brochures, agreements, representations, promises, warranties, and understandings, whether oral or in writing, between the parties or their respective representatives or any other person purporting to represent Landlord or Tenant.

G. Entry by Landlord: Upon prior notice to Tenant and subject to Tenant's reasonable security regulations, Tenant shall permit Landlord and his agents to enter into and upon the Premises at all reasonable times, and without any rent abatement or reduction or any liability to Tenant for any loss of occupation or quiet enjoyment of the Premises thereby occasioned, unless caused by Landlord's negligence or willful misconduct, for the following purposes: (i) inspecting and maintaining the Premises; (ii) making repairs, alterations or additions (only if agreed by Tenant) to the Premises; (iii) erecting additional building(s) and improvements on the land where the Premises are situated or on adjacent land owned by Landlord; and (iv) performing any obligations of Landlord under the Lease including remediation of hazardous materials if determined to be the responsibility of Landlord provided that Landlord agrees to use reasonable efforts to minimize interference with Tenant's use. Tenant shall permit Landlord and his agents, at any time within one hundred eighty (180) days prior to the Expiration Date (or at any time during the Lease if Tenant is in default hereunder), to place upon the Premises "For Lease" signs and exhibit the Premises to real estate brokers and prospective tenants at reasonable hours.

H. Estoppel Certificates: At any time during the Lease Term, each party (the "Responding Party") shall, within ten (10) days following written notice from the other party (the "Requesting Party"), execute and deliver to the Requesting Party a written statement certifying, if true, the following: (i) that this Lease is unmodified and in full force and effect (or, if modified, stating the nature of such modification); (ii) the date to which rent and other charges are paid in advance, if any; (iii) acknowledging that there are not, to Responding Party's knowledge, any uncured defaults on Requesting Party's part hereunder (or specifying such defaults if they are claimed); and (iv) such other information as Requesting Party may reasonably request. Any such statement may be conclusively relied upon by any prospective purchaser or encumbrancer of Requesting Party's interest in the Premises. The Responding Party's failure to deliver such statement within such time shall be conclusive upon the Responding Party that this Lease is in full force and effect without modification, except as may be represented by the Requesting Party, and that there are no uncured defaults in Requesting Party's performance. Tenant agrees to provide, within five (5) days of Landlord's request, Tenant's most recent three (3) years of audited financial statements for Landlord's use in financing the Premises or Landlord's interest therein.

I. Exhibits: All exhibits referred to are attached to this Lease and incorporated by reference.

J. Interest: All rent due hereunder, if not paid when due, shall bear interest at the rate of the Reference Rate published by Bank of America, San Francisco Branch, plus two percent (2%) per annum from that date until paid in full ("Agreed Interest Rate"). This provision shall survive the expiration or sooner termination of the Lease. Despite any other provision of this Lease, the total liability for interest payments shall not exceed the limits, if any, imposed by the usury laws of the State of California. Any interest paid in excess of those limits shall be refunded to Tenant by application of the amount of excess interest paid against any sums outstanding in any order that Landlord requires. If the amount of excess interest paid exceeds the sums outstanding, the portion exceeding those sums shall be refunded in cash to Tenant by Landlord. To ascertain whether any interest payable exceeds the limits imposed, any non-principal payment(including late charges) shall be considered to the extent permitted by law to be an expense or a fee, premium, or penalty rather than interest.

K. Modifications Required by Lender: If any Lender of Landlord or ground lessor of the Real Property Requires a modification of this Lease that will not increase Tenant's cost or expense or materially or adversely change Tenant's rights and obligations, this Lease shall be so modified and Tenant shall execute whatever documents are required and deliver them to Landlord within ten (10) days after the request.

L. No Presumption Against Drafter: Landlord and Tenant understand, agree and acknowledge that this Lease has been freely negotiated by both parties; and that in any controversy, dispute, or contest over the meaning, interpretation, validity, or enforceability of this Lease or any of its terms or conditions, there shall be no inference, presumption, or conclusion drawn whatsoever against either party by virtue of that party having drafted this Lease or any portion thereof.

M. Notices: All notices, demands, requests, or consents required to be given under this Lease shall be sent in writing by U.S. certified mail, return receipt requested, or by personal delivery or by a nationally recognized overnight courier addressed to the party to be notified at the address for such party specified in Section 1 of this Lease, or to such other place as the party to be notified may from time to time designate by at least fifteen (15) days prior notice to the notifying party. When this Lease requires service of a notice, that notice shall replace rather than supplement any equivalent or similar statutory notice, including any notices required by Code of Civil Procedure Section 1161 or any similar or successor statute. when a statute requires service of a notice in a particular manner, service of that notice (or a similar notice required by this lease) shall replace and satisfy the statutory service-of-notice procedures, including those required by Code of Civil Procedure Section 1162 or any similar or successor statute.

N. Property Management: No property management fee shall be payable to Landlord.

O. Rent: All monetary sums due from Tenant to Landlord under this Lease, including, without limitation those referred to as "additional rent", shall be deemed as rent.

P. Representations: Tenant acknowledges that neither Landlord nor any of its employees or agents have made any agreements, representations, warranties or promises with respect to the Premises or with respect to present or future rents, expenses, operations, tenancies or any other matter. Except as herein expressly set forth herein, Tenant relied on no statement of Landlord or its employees or agents for that purpose.

Q. Rights and Remedies: All rights and remedies hereunder are cumulative and not alternative to the extent permitted by law, and are in addition to all other rights and remedies in law and in equity.

R. Severability: If any term or provision of this Lease is held unenforceable or invalid by a court of competent jurisdiction, the remainder of the Lease shall not be invalidated thereby but shall be enforceable in accordance with its terms, omitting the invalid or unenforceable term.

S. Submission of Lease: Submission of this document for examination or signature by the parties does not constitute an option or offer to lease the Premises on the terms in this document or a reservation of the Premises in favor of Tenant. This document is not effective as a lease or otherwise until executed and delivered by both Landlord and Tenant.

T. Subordination: This Lease is subject and subordinate to ground and underlying leases, mortgages and deeds of trust (collectively "Encumbrances") which may now affect the Premises, to any covenants, conditions or restrictions of record, and to all renewals, modifications, consolidations, replacements and extensions thereof; provided, however, if the holder or holders of any such Encumbrance ("Holder") require that this Lease be prior and superior thereto, within seven (7) days after written request of Landlord to Tenant, Tenant shall execute, have acknowledged and deliver all documents or instruments, in the form presented to Tenant, which Landlord or Holder deems necessary or desirable for such purposes. Landlord shall have the right to cause this Lease to be and become and remain subject and subordinate to any and all Encumbrances which are now or may hereafter be executed covering the Premises or any renewals, modifications, consolidations, replacements or extensions thereof, for the full amount of all advances made or to be made thereunder and without regard to the time or character of such advances, together with interest thereon and subject to all the terms and provisions thereof; provided only, that in the event of termination of any such lease or upon the foreclosure of any such mortgage or deed of trust, Holder agrees to recognize Tenant's rights under this Lease as long as Tenant is not then in default beyond the expiration of any applicable cure period and continues to pay Base Monthly Rent and additional rent and observes and performs all required provisions of this Lease. Within ten (10) days after Landlord's written request, Tenant shall execute any documents required by Landlord or the Holder to make this Lease subordinate to any lien of the Encumbrance. If Tenant fails to do so, then in addition to such failure constituting a default by Tenant, it shall be deemed that this Lease is so subordinated to such Encumbrance. Notwithstanding anything to the contrary in this Section, Tenant hereby attorns and agrees to attorn to any entity purchasing or otherwise acquiring the Premises at any sale or other proceeding or pursuant to the exercise of any other rights, powers or remedies under such encumbrance.

This Lease constitutes a sublease under that certain Ground Lease dated March 5, 1999 (the "Existing Ground Lease") between The Sobrato 1979 Revocable Trust, As Amended ("Master Landlord"), as landlord and Landlord, as tenant, covering all of the real property within the Project, a copy which has been provided to Tenant, and under the Parcel Lease described in the next sentence. In connection with the subdivision of the Project as contemplated by Section 2.C above, it is anticipated that a separate Parcel Lease (as defined in the Existing Ground Lease) will be entered into between Master Landlord, as landlord, and Landlord, as tenant, for the lot within which the Building will be constructed. As used in this Lease, "Master Lease" shall mean the Existing Ground Lease, until such time as the Parcel Lease is entered into, and thereafter shall mean the Parcel Lease. Notwithstanding this Section 21.T above, concurrently with the execution of this Lease by Landlord and Tenant, Landlord and Tenant shall execute in recordable form, and Landlord shall cause Master Landlord to execute in recordable form, the Subordination, Nondisturbance and Attornment Agreement attached hereto as Exhibit "G" (the "SNDA"). Landlord shall cause the SNDA to be recorded at Landlord's cost in the Official Records of San Mateo County, California within five (5) days after this Lease is executed by Landlord and Tenant. Similarly, in connection with the Parcel Lease, within ten (10) days after Landlord's request, Landlord and Tenant shall execute in recordable form, and Landlord shall cause Master Landlord to execute in recordable form, a Subordination, Nondisturbance and Attornment Agreement substantially in the form of the SNDA (the "Revised SNDA"), modified to refer to the Parcel Lease, Memorandum of Parcel Lease to be recorded in connection with the Parcel Lease and the revised Premises description, rather than the Original Ground Lease, the Memorandum of Ground Lease referenced in the SNDA and the original Premises described in this Lease. Landlord shall cause the Revised SNDA to be recorded at Landlord's cost in the Official Records of San Mateo County, California immediately after recordation of the Memorandum of Lease recorded for the Parcel Lease.

Notwithstanding the foregoing, Tenant shall not be required to subordinate its interest under this Lease unless (i) such subordination' does not materially increase Tenant's obligations, or materially decrease its rights under this Lease, and (ii) Landlord first obtains from the holder of the mortgage, deed of trust, or other instrument of security to which this Lease is to become subordinated a written agreement that provides substantially that as long as Tenant performs its obligations under this Lease, no foreclosure of, deed given in lieu of foreclosure of, or sale under the encumbrance, and no steps or procedures taken under the encumbrance, shall affect Tenant's rights hereunder.

U. Survival of Indemnities: All indemnification, defense, and hold harmless obligations of Landlord and Tenant under this Lease shall survive the expiration or sooner termination of the Lease.

V. Time: Time is of the essence hereunder.

W. Transportation Demand Management Programs: Should a government agency or municipality require Landlord to institute TDM (Transportation Demand Management) facilities and/or program, Tenant agrees that the cost of TDM imposed facilities required on the Premises, including but not limited to employee showers, lockers, cafeteria, or lunchroom facilities, shall be paid by Tenant. Further, any ongoing costs or expenses associated with a TDM program which are required for the Premises and not provided by Tenant, such as an on-site TDM coordinator, shall be provided by Landlord with such reasonable costs being included as additional rent and reimbursed to Landlord by Tenant within thirty (30) days after demand. If TDM facilities and programs are instituted on a Project wide basis, Tenant shall pay its proportionate share of such costs in accordance with Section 8 above.

IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease on the day and year first above written.

Landlord: SOBRATO INTERESTS III Tenant: SIEBEL SYSTEMS, INC.

a California Limited Partnership a Delaware Corporation

By: _____________________________ By: _____________________________

Its: General Partner Its: _____________________________

Master Landlord: THE SOBRATO 1979 REVOCABLE TRUST

By: _____________________________

Its: Trustee

EXHIBIT "A" - Building and Project - Initial Buildout

(being finalized by architect - to be attached)

Exhibit "B" - Building and Project - Full Buildout

EXHIBIT "C" - Parcel Map & Declaration of Covenants and Grant of Easements

EXHIBIT "D" - Shell Plans and Specifications

(sheet references to be attached)

EXHIBIT "E" - Building Shell Definition

1. Building Structure

(a) All foundations to include footings, piling, grade beams, foundation walls or other building foundation components required to support the building structure.

(b) Concrete slab supported on beams and columns above the parking podium and any other reinforcing or structural connections that may be necessary or required as specified by structural engineer.

(c) Complete structural framing system comprised of rolled steel beams, columns, and braced-frame steel construction with corrugated metal deck and concrete fill, all members required by code to be fireproofed. Upper floor systems provide a minimum of 3" concrete over metal deck and are designed for an 80 lb. live load plus 20 lb. partition load. Structural framing will include intermediate beams for HVAC units at the roof, and for major shafts on each floor. A roof screen consistent with the design of the building and acceptable to the local Building and Planning Departments is included.

(d) Tinted high performance glass including required caulking and sealants. Tinted reflective glass window wall system with granite and stainless steel accents. Two (2) pair of lobby doors, and two (2) exit doors per building. All shell doors will be fitted with electric locks and conduit to J-boxes ready for connection to the Tenant's security system.

(e) Four (4) ply built up roofing by Owens-Corning, John Manville, or equal and all flashings over a light weight concrete on corrugated metal deck roof system. Title 24 code required roof insulation is included.

(f) Exterior painting where required with Texcoat textural paint and all caulking of exterior concrete joints in preparation for painting.

(g) One (1) steel fire stair at perimeter of building, and two (2) interior fire stairs which will extent to the roof.

(h) At grade loading area with screening and scissors lift external of building.

(i) Riser for Building sprinkler system (no sprinkler grid or drops).

2. Podium Garage Structure

(a) Podium garage structure with access ramps, fire sprinkler system, emergency exit stairways, and mechanical venting (if required).

(b) Lighting in podium parking to a minimum level per code.

3. Sitework

(a) All work outside the building perimeter walls shall be considered site work for the Building Shell and shall include asphalt concrete paving, landscaping, landscape irrigation, storm drainage, utility service laterals, curbs, gutters, sidewalks, specialty paving (if required), retaining walls, planters, trash enclosure, parking lot and landscape lighting and other exterior lighting per code. All fountains and podium landscaping shall also be considered site work for the Building Shell.

(b) Paving sections for automobile and truck access shall be according to the Geologic Soils Report.

(c) All parking lot striping to include handicap spaces and signage.

(d) Underground site storm drainage system shall be connected to the city storm system main.

4. Plumbing

(a) Underground sanitary sewer lateral connected to the city sewer main in the street and stubbed to the core of the building.

(b) Domestic water mains connected to the city water main in the street and stubbed to the building.

(c) Roof drain leaders and downspouts piped and connected to the site storm drainage system.

(d) Gas lines connected to the city or public utility mains and run to gas meters adjacent to, and in close proximity to the building. Meter supplied by utility company.

5. Electrical

(a) A primary and secondary electrical service from the street to the building electrical room in the garage podium including underground conduit, wire feeders, and transformer pads. Transformer supplied by utility company.

(b) Two 4" Underground conduit from the street to the building for telephone trunk lines by Pacific Telephone.

(c) Two 4" conduit from the building to each of the adjacent buildings for future data connections.

(d) An electrically operated landscape irrigation system, with controller, that is a complete and functioning system.

(e) Underground conduit from the building to the main fire protection system post indicated valve (PIV) for installation of supervisory alarm wiring.

6. General

(a) All construction shall conform to State and Local Building Codes, Title 24 Regulations, and shall be ADA Compliant.

(b) All building shell work shall be constructed as described above and as show on the drawings listed in the attached Exhibit (TBD).

(c) All other costs shall be deemed Tenant Improvements.

EXHIBIT "F" - Tenant Improvement Plans and Specifications

(sheet references to be attached)

EXHIBIT "G" - Subordination, Nondisturbance and Attornment Agreement

EX-10.09

Exhibit 10.09

Lease between

Sobrato Interests III and Siebel Systems, Inc.

Building 1 - 2215 Bridgepointe Parkway, San Mateo

Section Page #

Parties *

Premises *

Definitions *

Description *

Use *

Permitted Uses *

Uses Prohibited *

Advertisements and Signs *

Covenants, Conditions and Restrictions *

Term and Rental *

Base Monthly Rent *

Rental Adjustment *

Late Charges *

Security Deposit *

Construction *

Building Shell Plans *

Tenant Improvement Plans *

Tenant Improvement Pricing *

Change Orders *

Building Shell Costs *

Tenant Improvement Costs *

Construction *

General Contractor Overhead & Profit *

Tenant Delays *

Insurance *

Punch List & Warranty *

Other Work by Tenant *

Acceptance of Possession and Covenants to Surrender *

Delivery and Acceptance *

Condition Upon Surrender *

Failure to Surrender *

Alterations and Additions *

Tenant's Alterations *

Free From Liens *

Compliance With Governmental Regulations *

Maintenance of Premises *

Landlord's Obligations *

Tenant's Obligations *

Landlord and Tenant's Obligations Regarding Reimbursable Operating Costs *

Reimbursable Operating Costs *

Tenant's Allocable Share *

Exclusions to Reimbursable Operating Costs *

Waiver of Liability *

Tenant's Right to Audit *

Hazard Insurance *

Tenant's Use *

Landlord's Insurance *

Tenant's Insurance *

Waiver *

Taxes *

Utilities *

Toxic Waste and Environmental Damage *

Tenant's Responsibility *

Tenant's Indemnity Regarding Hazardous Materials *

Landlord's Indemnity Regarding Hazardous Materials *

Actual Release by Tenant *

Environmental Monitoring *

Tenant's Default *

Remedies *

Right to Re-enter *

Abandonment *

No Termination *

Non-Waiver *

Performance by Landlord *

Landlord's Liability *

Limitation on Landlord's Liability *

Limitation on Tenant's Recourse *

Indemnification of Landlord *

Destruction of Premises *

Landlord's Obligation to Restore *

Limitations on Landlord's Restoration Obligation *

Tenant's Rights with Respect to a Destruction of the Premises *

Condemnation *

Assignment or Sublease *

Consent by Landlord *

Assignment or Subletting Consideration *

No Release *

Reorganization of Tenant *

Permitted Transfers *

Effect of Default *

Effects of Conveyance *

Successors and Assigns *

Option to Extend the Lease Term *

Grant and Exercise of Option *

Determination of Fair Market Rental *

Resolution of a Disagreement over the Fair Market Rental *

Personal to Tenant *

Option to Extend the Lease Term *

Grant and Exercise of Option *

Right of First Offering to Purchase *

Grant and Exercise of Option *

Exclusions *

General Provisions *

Attorney's Fees *

Authority of Parties *

Brokers *

Choice of Law *

Dispute Resolution *

Entire Agreement *

Entry by Landlord *

Estoppel Certificates *

Exhibits *

Interest *

Modifications Required by Lender *

No Presumption Against Drafter *

Notices *

Property Management *

Rent *

Representations *

Rights and Remedies *

Severability *

Submission of Lease *

Subordination *

Survival of Indemnities *

Time *

Transportation Demand Management Programs *

EXHIBIT A - Premises and Project - Initial Buildout *

EXHIBIT B - Premises and Project - Full Buildout *

EXHIBIT C - Declaration of Covenants and Grant of Easements *

EXHIBIT D - Shell Plans and Specifications *

EXHIBIT E - Building Shell Definition *

EXHIBIT F - Tenant Improvement Plans and Specifications *

EXHIBIT G - Subordination, Nondisturbance and Attornment Agreement *

1. Parties: THIS LEASE, is entered into on this 11th day of March, 1999, ("Effective Date") between SOBRATO INTERESTS III, a California Limited Partnership, whose address is 10600 North De Anza Boulevard, Suite 200, Cupertino, CA 95014-2075 and SIEBEL SYSTEMS, INC., a Delaware Corporation, whose address is 1855 South Grant Street, San Mateo, California, CA 94402-2667, hereinafter called respectively Landlord and Tenant.

2. Premises:

A. Definitions.

i. Building. The term "Building" shall mean that five (5) story steel frame building containing approximately 141,496 rentable square feet and all Tenant Improvements installed therein to be constructed by Landlord and leased by Tenant pursuant to the terms of this Lease in the location labeled as Building 1 on Exhibit "A" attached hereto and commonly known as 2215 Bridgepointe Parkway.

ii. Building 2. The term "Building 2" shall mean that five (5) story steel frame building containing approximately 141,496 rentable square feet to be constructed by Landlord and leased by Tenant pursuant to a separate lease between the Parties of even date herewith ("Building 2 Lease") in the location labeled as Building 2 on Exhibit "A" and commonly known as 2211 Bridgepointe Parkway.

iii. Building 3. The term "Building 3" shall mean that five (5) story steel frame building containing approximately 167,505 rentable square feet to be constructed by Landlord and leased by Tenant or by a third party pursuant to the terms of Section 19 of this Lease in the location labeled as Building 3 on Exhibit "B" and commonly known as 2207 Bridgepointe Parkway.

iv. Common Area. The term "Common Area" shall mean that certain real property beneath and surrounding the Building, Building 2 and Building 3 consisting initially of an underground parking garage of approximately 455 parking spaces, on-grade parking lots consisting of approximately 255 parking spaces, the first two levels of the above grade parking structure consisting of approximately 280 cars, recreation areas and the adjacent landscaped site areas as shown on Exhibit "A". At the time of construction of Building 3 the Common Area will be modified by the completion of the above grade parking structure to total approximately 850 parking spaces and changes to portions of the landscaped sites areas resulting in total parking at full buildout of 1,560 spaces as shown in Exhibit "B" attached hereto.

Landlord shall have the power to allocate to each tenant in the Project, the number of parking spaces in the podium garage, above-grade parking structure or other portions of the Project as to which Tenant may have the use in connection with its Building; provided that (i) such allocation is requested by at least one (1) tenant in the Project, (ii) Landlord shall not allocate to Tenant materially less than the Tenant's prorata share of parking calculated on the basis of the square footage of the buildings in the Project, and (iii) Landlord shall allocate parking in a manner so as to maximize the adjacency of parking to each building. Landlord shall further retain the right to restrict an appropriate amount of the parking for visitors of the Project or for car pooling (as may be required by a TDM program). At the request of Tenant or any other tenant in the Project, Landlord further agrees to restrict up to ten (10) spaces per building for key employees of Tenant (or of other tenants in the Project) or for other reasonable uses. Tenant shall be responsible for seeing that the total number of vehicles parked in the Project by employees and invitees of Tenant does not exceed the number of total spaces allocated to the Building.

v. Project. The term "Project" shall be that certain real property consisting of approximately 10.8 acres at the corner of Bridgepointe Circle and Bridgepointe Parkway in San Mateo, California and all improvements constructed thereon consisting at full buildout of the Building, Building 2, Building 3 and the Common Area as shown in Exhibit "B".

vi. Premises. The term "Premises" shall mean the Building and a non-exclusive right to use the Common Area. Unless expressly provided otherwise, the term Premises as used herein shall include the Tenant Improvements (defined in Section 5.B) constructed by Tenant pursuant to Section 5.B.

B. Grant: Landlord hereby leases the Premises to Tenant, and Tenant hires the Premises from Landlord.

C. Recordation of Parcel Map and Declaration: Tenant consents to recordation by Landlord of a Parcel Map (Parcel Map") and a Declaration of Covenants, Conditions and Restrictions ("Declaration"). The Parcel Map and the Declaration shall be substantially in the form attached hereto as Exhibit "C" with such changes as may be may be desired by Landlord or Landlord's lenders to facilitate the operation, construction, financing, sale and/or leasing of the Project, provided such changes do not materially and adversely affect Tenant's use of the Premises, and with such changes as may be required by the city or other governmental authority having jurisdiction over the Project. Landlord is seeking approval of the Parcel Map and Declaration to subdivide the existing parcel into the four lots to facilitate Landlord's operation, construction, financing, lease and/or sale of the Project as individual buildings. Landlord's failure to obtain approval of the Parcel Map or Declaration shall in no way invalidate this Lease. In the event the Parcel Map and Declaration are recorded by Landlord, the Section 2.A.vi shall be replaced by following: The term "Premises" shall mean (i) the land area within Lot 2; (ii) the Building; and (iii) the nonexclusive right to use the Common Area in accordance with the terms and conditions of the Declaration and this Lease. This Lease shall be subject and subordinate in all respects to the Declaration, as the same may be amended from time to time. Tenant covenants and agrees to refrain from doing or causing to be done, or permitting any thing or act to be done, which would constitute a default under the Declaration or which would or might make Landlord liable for any damages, claims or penalty. All assessments charged to the Premises pursuant to the Declaration, (other than those assessments which represent: the costs required to be paid and borne by Landlord under the express terms of this Lease (such as Landlord's maintenance costs pursuant to Section 8.A; fines, penalties and costs of suit charged by the Association, to the extent not caused by Tenant's breach of this Lease or violation of the Declaration; reimbursements to the Association for diminution of the Association's insurance proceeds, to the extent not caused by Tenant's violation of the insurance provisions of the Declaration; and assessments levied against the Premises because of the nonpayment of assessments levied on other lots within the Project other than the Premises) shall constitute a part of Tenant's Allocable Share of Reimbursable Operating Costs pursuant to Article 8 of this Lease.

Following recordation of the Declaration, if owners and occupants of Building 2 or Building 3 are violating the terms and conditions of the Declaration and such violation materially and adversely affects Tenant's rights under this Lease, then within a reasonable time following Tenant's request, Landlord shall take reasonable steps to enforce the provisions of the Declaration relating to such violation, in accordance with the procedures established in the Declaration, the cost of which shall be a Reimbursable Operating Cost pursuant to Article 8 of this Lease.

3. Use:

A. Permitted Uses: Tenant shall use the Premises only for the following purposes and shall not change the use of the Premises without the prior written consent of Landlord: General office uses including research and development and other incidental uses (such incidental uses shall include without limitation, a gymnasium and/or a cafeteria for use of Tenant's employees). Tenant shall use only the number of parking spaces allocated to Tenant under this Lease. Following recordation of the Declaration, if occupants of Building 2 or Building 3 are using parking spaces in excess of the number of spaces to which they are entitled under the Declaration, then within a reasonable time following Tenant's request, Landlord shall seek to enforce the provisions of the Declaration relating to such excessive use, in accordance with the procedures established in the Declaration, the cost of which shall be a Reimbursable Operating Cost pursuant to Article 8 of this Lease. Prior to recording the Declaration, Landlord shall cause the Declarants of the Declaration to confirm in writing for the benefit of Tenant that the signs and window coverings to be installed pursuant to Section 3.C of this Lease are approved by the Declarants. Landlord shall promptly send to Tenant all notices received from the Association pertaining to the Association's entry onto the Premises and Common Area, insurance coverage affecting the Premises, and assessments levied against the Premises. All commercial trucks and delivery vehicles shall be (i) loaded and unloaded in a manner which does not interfere with the businesses of other occupants of the Project, and (ii) permitted to remain on the Project only so long as is reasonably necessary to complete the loading and unloading. Landlord makes no representation or warranty that any specific use of the Premises desired by Tenant is permitted pursuant to any Laws.

B. Uses Prohibited: Tenant shall not commit or suffer to be committed on the Premises any waste, nuisance, or other act or thing which may disturb the quiet enjoyment of any other tenant in or around the Premises, nor allow any sale by auction or any other use of the Premises for an unlawful purpose. Tenant shall not (i) damage or overload the electrical, mechanical or plumbing systems of the Premises, (ii) attach, hang or suspend anything from the ceiling, walls or columns of the building or set any load on the floor in excess of the load limits for which such items are designed, or (iii) generate dust, fumes or waste products which create a fire or health hazard or damage the Premises or in the soils surrounding the Building. No materials, supplies, equipment, finished products or semi-finished products, raw materials or articles of any nature, or any waste materials, refuse, scrap or debris, shall be stored upon or permitted to remain on any portion of the Premises outside of the Building without Landlord's prior approval, which approval may be withheld in its sole discretion.

C. Advertisements and Signs: Tenant shall be permitted to place two (2) signs mounted on the building, one monument sign within the Common Area, and any directional signs necessary within the Common Area, provided such signs are approved by the city or other governing authority. Tenant shall be entitled to additional signage on Building 2 and Building 3 (if leased) pursuant to the leases for these buildings. Any sign placed on the Premises shall be removed by Tenant, at its sole cost, prior to the Expiration Date or promptly following the earlier termination of the lease, and Tenant shall repair, at its sole cost, any damage or injury to the Premises caused thereby, and if not so removed, then Landlord may have same so removed at Tenant's expense.

D. Covenants, Conditions and Restrictions: This Lease is subject to the effect of (i) easements, mortgages or deeds of trust, ground leases, rights of way of record and any other matters or documents of record; and (ii) any zoning laws of the city, county and state where the Building is situated (collectively referred to herein as "Restrictions") and Tenant will conform to and will not violate the terms of any such Restrictions.

Tenant acknowledges that as to certain matters set forth in this Lease, the Association (defined in the Declaration) has or will have rights of approval or disapproval. If any matter requiring the Association's approval is submitted to Landlord by Tenant for Landlord's approval, Landlord shall respond to Tenant in a timely fashion. If Landlord approves such matter and such matter further requires the Association's approval, Landlord shall promptly submit the same to the Association, as applicable. In no event, however, shall Landlord's disapproval be deemed unreasonable if the Association has disapproved of such matter nor shall Landlord have any liability to Tenant by reason thereof.

4. Term and Rental:

A. Base Monthly Rent: The term ("Lease Term") shall be for one hundred forty four (144) months, commencing on substantial completion of construction as finally determined pursuant to Section 5.G (the "Commencement Date") estimated to occur on August 1, 2001, and ending one hundred forty four (144) months thereafter, ("Expiration Date"). Notwithstanding the foregoing, Tenant shall have the right to accelerate the commencement of construction of the Building by giving notice to Landlord that Tenant wishes Landlord to commence construction of the Building (the "Acceleration Notice") no later than thirteen (13) months prior to the desired Commencement Date. Notwithstanding the fact that the Lease Term begins on the Commencement Date, this Lease and all of the obligations of Landlord and Tenant shall be binding and in full force and effect from and after the Effective Date except for those obligations which begin on the Commencement Date. In addition to all other sums payable by Tenant under this Lease, Tenant shall pay as base monthly rent ("Base Monthly Rent") for the Premises the amount of Three Hundred Thirty Four Thousand Three Hundred Fifty Five Dollars ($334,355.00). Base Monthly Rent and Tenant's payment of operating expenses and taxes pursuant to Section 8 shall be payable beginning on the Commencement Date in advance on or before the first day of each calendar month during the Lease Term. All sums payable by Tenant under this Lease shall be paid to Landlord in lawful money of the United States of America, without offset or deduction and without prior notice or demand, at the address specified in Section 1 of this Lease or at such place or places as may be designated in writing by Landlord during the Lease Term. Base Monthly Rent for any period less than a calendar month shall be a pro rata portion of the monthly installment.

B. Rental Adjustment:

(i) For Variation in Rentable Square Feet: Upon Substantial Completion of construction, the Building shall be measured (from outside wall to outside wall including all areas covered by a structural roof), and if the actual square footage differs from 141,496 square feet, the initial Base Monthly Rent hereunder shall be adjusted to the product of Two and 363/1000 Dollars ($2.363) and the actual rentable square feet of the Building.

(ii) Periodic Adjustment: Beginning thirty (30) months after the Commencement Date, and every thirty (30) months thereafter, the then-payable Base Monthly Rent shall be increased by seven and 50/100 percent (7.50%).

C. Late Charges: Tenant hereby acknowledges that late payment by Tenant to Landlord of Base Monthly Rent and other sums due hereunder will cause Landlord to incur costs not contemplated by this Lease, the exact amount of which is extremely difficult to ascertain. Such costs include but are not limited to: administrative, processing, accounting, and late charges which may be imposed on Landlord by the terms of any contract, revolving credit, mortgage, or trust deed covering the Premises. Accordingly, if any installment of Base Monthly Rent or other sum due from Tenant shall not be received by Landlord or its designee within ten (10) days after the rent is due, Tenant shall pay to Landlord a late charge equal to five (5%) percent of such overdue amount, which late charge shall be due and payable on the same date that the overdue amount was due. The parties agree that such late charge represents a fair and reasonable estimate of the costs Landlord will incur by reason of late payment by Tenant, excluding interest and attorneys fees and costs. If any rent or other sum due from Tenant remains delinquent for a period in excess of thirty (30) days then, in addition to such late charge, Tenant shall pay to Landlord interest on any rent that is not paid when due at the Agreed Interest Rate specified in Section 21.J following the date such amount became due until paid. Acceptance by Landlord of such late charge shall not constitute a waiver of Tenant's default with respect to such overdue amount nor prevent Landlord from exercising any of the other rights and remedies granted hereunder. In the event that a late charge is payable hereunder, whether or not collected, for three (3) consecutive installments of Base Monthly Rent, then the Base Monthly Rent shall automatically become due and payable quarterly in advance, rather than monthly, notwithstanding any provision of this Lease to the contrary. After four (4) quarterly installments have been paid on time, rent shall again be payable monthly.

D. Security Deposit:

(i) Amount: Pursuant to the Building 2 Lease, Tenant will deposit with Landlord a letter of credit ("Letter of Credit") in a form reasonably acceptable to Landlord in the amount of Eight Million Four Hundred Thousand Dollars ($8,400,000.00) to secure Tenant's obligation to complete Tenant Improvements in the Building and in Building 2. Upon Landlord's receipt of evidence reasonably satisfactory to Landlord of lien free completion of the Tenant Improvements and that Tenant has fully paid for the cost of all of Tenant Improvements for the Building and for Building 2, the Letter of Credit shall be cancelled and returned to Tenant by Landlord. Notwithstanding the foregoing, in the event Tenant elects to defer construction on a portion of the non-core Tenant Improvements in the Building (as provided further and restricted in Section 5.B), Landlord shall not require Tenant to continue to post the Letter of Credit after payment in full for all other Tenant Improvements associated with the Building and Building 2.

(ii) Use by Landlord: Landlord shall be entitled to draw against the full amount of the Letter of Credit at any time provided only that Landlord certifies to the issuer of the Letter of Credit that Tenant has failed to make a payment for Tenant Improvement costs as provided in 5.F, that Tenant has failed to timely renew or extend the Letter of Credit as required by this subsection (ii), or that Tenant has failed to amend the Letter of Credit or obtain a new Letter of Credit as required by this subsection (ii) and such failure has not been cured within ten (10) days following Landlord's notice to Tenant. Tenant shall keep the Letter of Credit in effect at all times prior to payment in full for the Tenant Improvements for the Building and for Building 2. At least sixty (60) days prior to expiration of any Letter of Credit, the term thereof shall be renewed or extended for a period until Tenant has paid in full for the Tenant Improvements for the Building. Subject to the notice requirement and cure period provided herein, Tenant's failure to so renew or extend the Letter of Credit shall be a material default of this Lease by Tenant entitling Landlord to draw down on the entire amount of the Letter of Credit. Any amounts drawn on the Letter of Credit shall be used to pay for the cost of the Tenant Improvements. In the event the Letter of Credit is drawn by Landlord, and the proceeds used to pay for the completion of the Tenant Improvements in the Building and Building 2, after Landlord's completion of the Tenant Improvements in the Building, Landlord shall refund to Tenant any excess proceeds from the Letter of Credit. In the event of termination of Landlord's interest in this Lease, Landlord may deliver the Letter of Credit to Landlord's successor in interest in the Premises and thereupon be relieved of further responsibility with respect to the Letter of Credit. Except as provided herein, no other security deposit shall be required by Tenant.

(iii) Letter of Credit Fee: Landlord and Tenant agree to share equally in the fee charged to provide the Letter of Credit. In no event, however, shall Landlord's share of the fee exceed the sum of Forty Two Thousand Dollars ($42,000.00) per annum.

5. Construction :

A. Building Shell Plans: The Building Shell shall be constructed in accordance with the Building Shell plans and guideline specifications prepared by Korth Sunseri Hagey ("Shell Architect"). The design development drawings for the Building Shell are attached hereto as Exhibit "D" ("Preliminary Shell Plans and Specifications"). The Parties have generally approved the Preliminary Shell Plans, however, Tenant reserves the right to work in a diligent manner with Landlord and his design team to refine the Preliminary Plans and Specifications to accommodate Tenant's requirements such that this activity does not delay the issuance of the working drawings for the Building Shell ("Shell Permit Drawings") on schedule. The current schedule anticipates completion of the Shell Permit Drawings on May 5, 1999. Such refinements shall be limited to the following areas: (i) structural issues relating to the support of the rooftop HVAC system and other framing for its distribution inside the Building; (ii) planning issues relating to the sizing and placement of the base building electrical system; (iii) planning and specification issues relating to the design of the Building security systems; (iv) utility services relating to communications entrances from the street to the Building; (v) design of the main electrical service and emergency power service to the Building; and (vi) definition of the work that will be completed as a part of the construction of the Building as it affects Tenant's ability to access the Building during the construction of the other Buildings in the Project. The Shell Permit Drawings (i) shall be consistent with the Preliminary Shell Plans in all material respects, and (ii) shall provide for materials to be of a quality consistent with a "Class A" office project the where materials are not currently specified in the Preliminary Shell Plans. Landlord shall contract for the installation of the pile foundation system and shall begin this work immediately following the Effective Date. Upon completion of the Shell Permit Drawings, Landlord shall select a general contractor ("General Contractor") on the basis of a competitive bid of both the cost to construct the Building Shell and the fee and general conditions bid to construct the Tenant Improvements. Thereafter, Landlord shall cause the General Contractor to complete construction of the Building Shell. The Building Shell shall include those items set forth in the attached Exhibit "E" ("Building Shell Definition") which scope includes the cost of the parking structures. In the event of a conflict between Exhibit "D" and Exhibit "E", Exhibit "E" shall govern.

B. Tenant Improvement Plans: Tenant, at Tenant's sole cost and expense, will hire an interior architect ("Interior Architect") to prepare plans and outline specifications to be attached as Exhibit "F" ("Tenant Improvement Plans and Specifications") with respect to the construction of improvements to the interior premises ("Tenant Improvements"). The Tenant Improvement Plans and Specifications plans shall be completed for all aspects of the work by October 1, 2000, or three (3) months following the Acceleration Notice with all detail necessary for submittal to the city and for construction and shall include any information required by the relevant agencies regarding Tenant's use of Hazardous Materials if applicable. The Tenant Improvements shall consist of all items not included within the scope of the Building Shell Definition. All Tenant Improvements affecting or otherwise related to the Building Core will be subject to Landlord's reasonable approval. The "Building Core" shall include those items typically associated in the industry with an office building core including elevators, restrooms, fire sprinklers, HVAC and electrical systems distributed to each floor, exiting stair finishes and a finished building lobby. As to the balance of the Tenant Improvements, Landlord shall not have rights of approval, however, Tenant Improvement Plans shall provide for the creation of finished office space ready for occupancy with a minimum buildout in all areas of the Premises consisting of: (i) fire sprinklers, (ii) floorcoverings, (iii) overhead ceiling system (iv) distribution of the HVAC system, (v) overhead florescent lighting, and (vi) any other work required by the City of San Mateo necessary to obtain a Certificate of Occupancy. Tenant shall have the right to defer installation of the Tenant Improvements not associated with the Building Core in up to twenty percent (20%) of the rentable square footage of the Building. Except as provided in the preceding sentence, Tenant shall have no rights or ability to delay installation of any of the Tenant Improvements. The Tenant Improvement Plans and Specifications shall be prepared in sufficient detail to allow General Contractor to construct the Tenant Improvements. The General Contractor shall construct the Tenant Improvements in accordance with all Tenant Improvement Plans and Specifications. The Tenant Improvements shall not be removed or altered by Tenant without the prior written consent of Landlord as provided in Section 7. Tenant shall have the right to depreciate and claim and collect any investment tax credits in the Tenant Improvements during the Lease Term. Tenant shall further retain the right to encumber its leasehold interest with a first priority security interest, provided such lienholder has no right to remove any Tenant Improvements installed by Tenant pursuant to this Lease in the event of a default by Tenant under such encumbrance. Upon expiration of the Lease Term or any earlier termination of the Lease, the Tenant Improvements shall become the property of Landlord and shall remain upon and be surrendered with the Premises, and title thereto shall automatically vest in Landlord without any payment therefore.

C. Tenant Improvement Pricing. Within ten (10) days after completion of the Tenant Improvements Plans and Specifications, Landlord shall cause the General Contractor to submit to Tenant competitive bids from at least three (3) subcontractors for each aspect of the work in excess of Fifty Thousand and No/100 Dollars ($50,000.00) related to the Tenant Improvements. Landlord shall cause the General Contractor to utilize the low bid in each case unless Tenant approves General Contractor's use of another subcontractor, and the cost of the Tenant Improvements shall be based upon construction expenses equal to (i) the bid amounts as approved by Tenant, (ii) a reasonable contingency approved by Tenant to protect the General Contractor against cost overruns, and (iii) the general contractor fee specified in Section 5.H below ("Tenant Improvement Budget"). Upon Tenant's written approval of the Tenant Improvement Budget, which approval shall not be unreasonably withheld or delayed, Landlord and Tenant shall be deemed to have given their respective approvals of the final Tenant Improvement Plans and Specifications on which the cost estimate was made, and General Contractor shall proceed with the construction of the Tenant Improvements in accordance with the terms of Section 5.G below. If Tenant does not specifically approve or disapprove the bids within ten (10) business days, Tenant shall be deemed to have approved the bids.

D. Change Orders: Tenant shall have the right to order changes in the manner and type of construction of the Tenant Improvements. Upon request and prior to Tenant's submitting any binding change order, Landlord shall cause the General Contractor to promptly provide Tenant with written statements of the cost to implement and the time delay and increased construction costs associated with any proposed change order, which statements shall be binding on General Contractor. If no time delay or increased construction cost amount is noted on the written statement, the parties agree that there shall be no adjustment to the construction cost or the Commencement Date associated with such change order. If ordered by Tenant, Landlord shall cause the General Contractor to implement such change order and the cost of constructing the Tenant Improvements shall be increased or decreased in accordance with the cost statement previously delivered by General Contractor to Tenant for any such change order. In no event, however, shall Tenant have the right to eliminate the minimum buildout requirements specified in Section 5.B above.

E. Building Shell Costs: Landlord shall pay all costs associated with the Building Shell.

F. Tenant Improvement Costs: Tenant shall pay all costs associated with the Tenant Improvements. The cost of Tenant Improvements shall consist of only the following to the extent actually incurred by General Contractor in connection with the construction of Tenant Improvements: construction costs, all permit fees, construction taxes or other costs imposed by governmental authorities related to the Tenant Improvements, and General Contractor overhead and profit as described in Section 5.H below. During the course of construction of Tenant Improvements, Landlord may deliver to Tenant not more than once each calendar month a written request for payment prepared by the General Contractor ("Progress Invoice") which shall include and be accompanied by General Contractor's certified statements setting forth the amount requested, certifying the percentage of completion of each item for which reimbursement is requested, and if requested by Tenant, a certificate from Landlord's Architect certifying the percentage completion. Tenant shall pay the amount due pursuant to the Progress Invoice less a ten percent (10%) retention directly to the General Contractor, within thirty (30) days after Tenant's receipt of the above items. All costs for Tenant Improvements shall be fully documented to and verified by Tenant.

G. Construction: The Building Shell and Tenant Improvements shall be deemed substantially complete ("Substantially Complete" or "Substantial Completion") when the Building Shell and Tenant Improvements have been substantially completed in accordance with the Shell Plans and Specifications and Tenant Improvement Plans and Specifications, as evidenced by the completion of a final inspection or the issuance of a certificate of occupancy or its equivalent by the appropriate governmental authority for the Building Shell and Tenant Improvements, and the issuance of a certificate by the Architect certifying that the Building Shell and Tenant Improvements have been completed in accordance with the plans. Installation of (i) Tenant's data and phone cabling, (ii) Tenant's furniture, or (iii) the exterior landscaping shall not be required in order to deem the Premises Substantially Complete. Any prevention, delay or stoppage due to strikes, lockouts, inclement weather unusual for the season it which it occurs, labor disputes, inability to obtain labor, materials, fuel or reasonable substitutes therefor, governmental restrictions, regulations, controls, civil commotion, fire or other act of God, and another causes beyond the reasonable control of Landlord (except financial inability) shall extend the dates contained in this Section 5.G by a period equal to the period of any said prevention, delay or stoppage.

If Landlord cannot obtain building permits or Substantially Complete construction by the dates set forth herein, this Lease shall not be void or voidable nor shall Landlord be liable for any loss or damage resulting therefrom. Notwithstanding anything to the contrary contained herein, if Landlord has not delivered the Premises substantially completed to Tenant on or before August, 1, 2002 ("Termination Date"), Tenant shall have the right to cancel this Lease by providing Landlord written notice within sixty (60) days following the Termination Date as Tenant's sole and exclusive remedy for such failure. In such event, Landlord shall return the Letter of Credit to Tenant and thereafter neither party shall have any further liability to the other under this Lease.

H. General Contractor Overhead & Profit: As compensation to General Contractor for its services related to construction of the Building Shell and Tenant Improvements, General Contractor shall receive a fee based upon the cost of construction determined and agreed upon by Landlord and Tenant at the time of the competitive bid of the Building Shell. Except as provided therein, Landlord or General Contractor shall not receive any other fee or payment from Tenant in connection with General Contractor's services.

I. Tenant Delays: A "Tenant Delay" shall mean any delay in Substantial Completion of the Building as a result of any of the following: (i) Tenant's failure to complete or approve the Tenant Improvement Plans by the dates set forth in Section 5.B, (ii) Tenant's failure to approve the bids for construction by the dates set forth in Section 5.C, (iii) changes to the plans requested by Tenant which delay the progress of the work, (iv) Tenant's request for materials components, or finishes which are not available in a commercially reasonable time given the anticipated Commencement Date, (v) Tenant's failure to make a progress payment for Tenant Improvements as provided in Section 5.F after notice from Landlord and expiration of the applicable cure period, (vi) Tenant's request for more than one (1) rebidding of the cost of all or a portion of the work, and (vii) any errors or omissions in the Tenant Improvement Plans provided by Tenant's architect unless caused by misinformation provided by Landlord, Landlord's Architect or the General Contractor. Notwithstanding anything to the contrary set forth in this Lease, and regardless of the actual date the Premises are Substantially Complete, the Commencement Date shall be deemed to be the date the Commencement Date would have occurred if no Tenant Delay had occurred as reasonable determined by Landlord. In addition, if a Tenant Delay results in an increase in the cost of the labor or materials, Tenant shall pay the cost of such increases.

J. Insurance: General Contractor shall procure (as a cost of the Building Shell) a "Broad Form" liability insurance policy in the amount of Three Million Dollars ($3,000,000.00). Landlord shall also procure (as a cost of the Building Shell) builder's risk insurance for the full replacement cost of the Building Shell and Tenant Improvements while the Building and Tenant Improvements are under construction, up until the date that the fire insurance policy described in Section 9 is in full force and effect.

K. Punch List & Warranty: After the Building Shell and Tenant Improvements are Substantially Complete, Landlord shall cause the General Contractor to immediately correct any construction defect or other "punch list" item which Tenant brings to General Contractor's attention. All such work shall be performed so as to reasonably minimize the interruption to Tenant and its activities on the Premises. General Contractor shall provide a standard contractor's warranty with respect to the Building Shell and the Tenant Improvements for one (1) year from the Commencement Date. Such warranty shall exclude routine maintenance, damage caused by Tenant's negligence or misuse, and acts of God. Notwithstanding anything to the contrary in this Lease, Landlord warrants that on the commencement of the term hereof, (i) the Premises shall comply with all laws, codes, ordinances and other governmental requirements then applicable to the Building Shell and the Common Area, (ii) all components of the Building Shell shall be in good working order, condition, and repair, and (iii) the Premises, the Project, and the land and groundwater thereunder, shall be free of contamination by any Hazardous Materials then regulated by any applicable local, state, or federal law not caused by Tenant. In the event of any breach of any of the foregoing warranties, Landlord shall promptly rectify the same at its sole cost and expense and shall indemnify, defend, and hold Tenant harmless from and against any damages, liability, suits, losses, claims, actions, costs or expenses (including attorneys' and consultants' fees and costs) suffered by Tenant in connection with any such breach.

L. Other Work by Tenant: All work not described in the Shell Plans and Specifications or Tenant Improvement Plans and Specifications, such as furniture, telephone equipment, telephone wiring and office equipment work, shall be furnished and installed by Tenant at Tenant's cost. Prior to Substantial Completion, Tenant shall be obligated to (i) provide active phone lines to any elevators, and (ii) contract with a firm to monitor the fire system. When the construction of the Tenant Improvements has proceeded to the point where Tenant's work of installing its fixtures and equipment in the Premises can be commenced, General Contractor shall notify Tenant and shall permit Tenant and its authorized representatives and contractors access to the Premises before the Commencement Date for the purpose of installing Tenant's trade fixtures and equipment.

6. Acceptance of Possession and Covenants to Surrender:

A. Delivery and Acceptance: On the Commencement Date, Landlord shall deliver and Tenant shall accept possession of the Premises and enter into occupancy of the Premises on the Commencement Date. Except as otherwise specifically provided herein, Tenant agrees to accept possession of the Premises in its then existing condition, subject to all Restrictions and without representation or warranty by Landlord except as provided in Section 5.K above. Tenant's taking possession of any part of the Premises shall be deemed to be an acceptance of any work of improvement done by Landlord in such part as complete and in accordance with the terms of this Lease except for (i) "Punch List" type items of which Tenant has given Landlord written notice prior to the time Tenant takes possession, and (ii) Landlord's warranties provided in Section 5.K above. Within thirty (30) days after the Commencement Date, Tenant agrees to occupy at least a one (1) floor of the Premises.

B. Condition Upon Surrender: Tenant further agrees on the Expiration Date or on the sooner termination of this Lease, to surrender the Premises to Landlord in good condition and repair, normal wear and tear excepted. In this regard, "normal wear and tear" shall be construed to mean wear and tear caused to the Premises by the natural aging process which occurs in spite of prudent application of the commercially reasonable standards for maintenance, repair replacement, and janitorial practices, and does not include items of neglected or deferred maintenance. In any event, Tenant shall cause the following to be done prior to the Expiration Date or sooner termination of this Lease: (i) all interior walls shall be free of holes and gouges, (ii) all tiled floors shall be cleaned and waxed, (iii) all carpets shall be cleaned and shampooed, (iv) all broken, marred, stained or nonconforming acoustical ceiling tiles shall be replaced, (v) all cabling placed above the ceiling by Tenant or Tenant's contractors shall be removed, (vi) all windows shall be washed; (vii) the HVAC system shall be serviced by a reputable and licensed service firm and left in "good operating condition and repair" as so certified by such firm, (viii) the plumbing and electrical systems and lighting shall be placed in good order and repair (including replacement of any burned out, discolored or broken light bulbs, ballasts, or lenses. On or before the Expiration Date or sooner termination of this Lease, Tenant shall remove all its personal property and trade fixtures from the Premises. All property and fixtures not so removed shall be deemed as abandoned by Tenant. Tenant shall ascertain from Landlord within ninety (90) days before the Expiration Date whether Landlord desires to have the Premises or any parts thereof restored to their condition as of the Commencement Date, or to cause Tenant to surrender all Alterations (as defined in Section 7) in place to Landlord. If Landlord shall so desire, and provided that at the time Landlord gave its consent to their installation, Landlord also notified Tenant that such removal would be required, Tenant shall, at Tenant's sole cost and expense, remove such Alterations as Landlord requires and shall repair and restore said Premises or such parts thereof before the Expiration Date. Such repair and restoration shall include causing the Premises to be brought into compliance with all applicable building codes and laws in effect at the time of the removal to the extent such compliance is necessitated by the repair and restoration work. In no event, however, shall Tenant be required to remove any portion of the initial Tenant Improvements installed in accordance with the terms of this Lease.

C. Failure to Surrender: If the Premises are not surrendered at the Expiration Date or sooner termination of this Lease, Tenant shall be deemed in a holdover tenancy pursuant to this Section 6.C and Tenant shall indemnify, defend, and hold Landlord harmless against loss or liability resulting from delay by Tenant in so surrendering the Premises including, without limitation, any claims made by any succeeding tenant founded on such delay and costs incurred by Landlord in returning the Premises to the required condition, plus interest at the Agreed Interest Rate. Any holding over after the termination or Expiration Date with Landlord's express written consent, shall be construed as month-to-month tenancy, terminable on thirty (30) days written notice from either party, and Tenant shall pay as Base Monthly Rent to Landlord a rate equal to one hundred twenty five percent (125%) of the Base Monthly Rent due in the month preceding the termination or Expiration Date, plus all other amounts payable by Tenant under this Lease. Any holding over shall otherwise be on the terms and conditions herein specified, except those provisions relating to the Lease Term and any options to extend or renew, which provisions shall be of no further force and effect following the expiration of the applicable exercise period. If Tenant remains in possession of the Premises after expiration or earlier termination of this Lease without Landlord's consent, Tenant's continued possession shall be on the basis of a tenancy at sufferance and Tenant shall pay as rent during the holdover period an amount equal to one hundred fifty percent (150%) of the Base Monthly Rent due in the month preceding the termination or Expiration Date, plus all other amounts payable by Tenant under this Lease. This provision shall survive the termination or expiration of the Lease.

7. Alterations and Additions:

A. Tenant's Alterations: Tenant shall not make, or suffer to be made, any alteration or addition to the Premises ("Alterations"), or any part thereof, without obtaining Landlord's prior written consent and delivering to Landlord the proposed architectural and structural plans for all such Alterations at least fifteen (15) days prior to the start of construction. If such Alterations affect the structure of the Building, Tenant additionally agrees to reimburse Landlord its reasonable out- of-pocket costs incurred in reviewing Tenant's plans. Notwithstanding anything to the contrary contained in this lease, Tenant shall be entitled to construct Alterations which cost Tenant less than One Hundred Thousand Dollars ($100,000.00) in the aggregate each year, without obtaining Landlord's consent, provided such Alterations do not affect the exterior of the Premises or adversely affect the structural integrity or life safety systems of the Premises. Tenant shall not proceed to make such Alterations until Tenant has obtained all required governmental approvals and permits, and provides Landlord reasonable security, in form reasonably approved by Landlord, to protect Landlord against mechanics' lien claims. Tenant agrees to provide Landlord (i) written notice of the anticipated and actual start-date of the work, (ii) a complete set of half-size (15" X 21") vellum as-built drawings, and (iii) a certificate of occupancy for the work upon completion of the Alterations if required by applicable law. All Alterations shall be constructed in compliance with all applicable building codes and laws including, without limitation, the Americans with Disabilities Act of 1990. Upon the Expiration Date, all Alterations, except movable furniture and trade fixtures, shall become a part of the realty and belong to Landlord but shall nevertheless be subject to removal by Tenant as provided in Section 6 above. Alterations which are not deemed as trade fixtures include heating, lighting, electrical systems, air conditioning, walls, carpeting, or any other installation which has become an integral part of the Premises. All Alterations shall be maintained, replaced or repaired by Tenant at its sole cost and expense.

B. Free From Liens: Tenant shall keep the Premises free from all liens arising out of work performed, materials furnished, or obligations incurred by Tenant or claimed to have been performed for Tenant. In the event Tenant fails to discharge any such lien within fifteen (15) days after receiving notice of the filing, Landlord shall be entitled to discharge the lien at Tenant's expense and all resulting reasonable costs incurred by Landlord, including reasonable attorney's fees shall be due from Tenant as additional rent.

C. Compliance With Governmental Regulations: The term Laws or Governmental Regulations shall include all federal, state, county, city or governmental agency laws, statutes, ordinances, standards, rules, requirements, or orders now in force or hereafter enacted, promulgated, or issued. The term also includes government measures regulating or enforcing public access, traffic mitigation, occupational, health, or safety standards for employers, employees, landlords, or tenants. Tenant, at Tenant's sole expense shall make all repairs, replacements, alterations, or improvements needed to comply with all Governmental Regulations except as otherwise expressly provided in this Lease. The judgment of any court of competent jurisdiction or the admission of Tenant in any action or proceeding against Tenant (whether Landlord be a party thereto or not) that Tenant has violated any such law, regulation or other requirement in its use of the Premises shall be conclusive of that fact as between Landlord and Tenant.

8. Maintenance of Premises:

A. Landlord's Obligations: Landlord at its sole cost and expense, shall maintain in good condition, order, and repair, and replace as and when necessary, the foundation, exterior load bearing walls glass curtainwall, and roof structure of the Building Shell. Landlord further agrees to perform repairs and replacements to the Common Area to maintain the Common Area in good condition, order and repair (subject to Tenant's reimbursement obligation). Tenant acknowledges and agrees that the Association formed pursuant to the Declaration may perform the maintenance, repair and restoration obligations of Landlord under this Section 8.A and other sections of this Lease on behalf of Landlord and other owners of any portion of the Project, in discharge of Landlord's maintenance, repair and restoration obligations under this Lease. As to increases in annual assessments or the imposition of a special assessment under the Declaration which would require the vote of the Owners (as defined in the Declaration), Landlord agrees to vote in favor or such assessments to the extent Landlord reasonably determines such sums are required to maintain the Premises in the condition required by this Lease. Notwithstanding the foregoing, in the event that Tenant leases from Landlord all of the space then developed within the Project, Tenant shall have the right to perform the repairs, replacements and maintenance of the Common Area and pay such costs directly.

B. Tenant's Obligations: Subject to Sections 15 and 16, Tenant shall clean, maintain, repair and replace when necessary the Building and every part thereof through regular inspections and servicing, including but not limited to: (i) all plumbing and sewage facilities, (ii) all heating ventilating and air conditioning facilities and equipment, (iii) all fixtures, interior walls floors, carpets and ceilings, (iv) all electrical facilities and equipment, (v) all automatic fire extinguisher equipment, (vi) all elevator equipment, and (vii) the roof membrane system. All wall surfaces and floor tile are to be maintained in an as good a condition as when Tenant took possession free of holes, gouges, or defacements. With respect to items (ii), (vi) and (vii) above, Tenant shall provide Landlord a copy of a service contract between Tenant and a licensed service contractor providing for periodic maintenance of all such systems or equipment in conformance with the manufacturer's recommendations. Tenant shall provide Landlord upon request, a copy of such preventive maintenance contracts and paid invoices for the recommended work if requested by Landlord.

C. Landlord and Tenant's Obligations Regarding Reimbursable Operating Costs: Notwithstanding the provisions of Sections 8, 9, 10 and 11 of this Lease, Tenant agrees to reimburse Landlord for Tenant's Allocable Share (as defined in Section 8.E below) of the expenses resulting from Landlord's payment of Reimbursable Operating Costs (as defined in Section 8.D below) in connection with the Premises or in connection with the Project which are not otherwise Landlord's obligation hereunder. Tenant agrees to pay its Allocable Share of the Reimbursable Operating Costs as additional rental within ten (10) business days of written invoice from Landlord.

D. Reimbursable Operating Costs: For purposes of calculating Tenant's Allocable Share of Building and Project Costs, the term "Reimbursable Operating Costs" is defined as all reasonable costs and expenses of the nature hereinafter described which are incurred by Landlord in connection with ownership and operation of the Building or the Project in which the Premises are located. All costs and expenses shall be determined in accordance with generally accepted accounting principles which shall be consistently applied, including but not limited to the following: (i) common area utilities, including water, power, telephone, heating, lighting, air conditioning, ventilating, and Building utilities to the extent not separately metered; (ii) common area maintenance and service agreements for the Building and/or Project and the equipment therein, including without limitation, common area janitorial services, alarm and security services, exterior window cleaning, and maintenance of the sidewalks, landscaping, waterscape, roof membrane, parking garages and parking areas, driveways, service areas, mechanical rooms, elevators, and the building exterior; (iii) insurance premiums and costs, including without limitation, the premiums and cost of fire, casualty and liability coverage and rental abatement and earthquake (if available at commercially reasonable rates) insurance applicable to the Building or Project; (iv) repairs, replacements and general maintenance (excluding repairs and general maintenance paid by proceeds of insurance or by Tenant or other third parties, and repairs or alterations attributable solely to tenants of the Building or Project other than Tenant); and (v) all real estate taxes and assessment installments or other impositions or charges which may be levied on the Building or Project, upon the occupancy of the Building or Project and including any substitute or additional charges which may be imposed during, or applicable to the Lease Term including real estate tax increases due to a sale, transfer or other change of ownership of the Building or Project, as such taxes are levied or appear on the City and County tax bills and assessment rolls. Landlord shall have no obligation to provide guard services or other security measures for the benefit of the Project. Tenant assumes all responsibility for the protection of Tenant and Tenant's Agents from acts of third parties; provided, however, that nothing contained herein shall prevent Landlord, at its sole option, from providing security measures for the Project. This is a "Net" Lease, meaning that Base Monthly Rent is paid to Landlord net of all costs and expenses, except as provided otherwise in this Lease. The provision for payment of Reimbursable Operating Costs by means of periodic payment of Tenant's Allocable Share of Building and/or Project Costs is intended to pass on to Tenant and reimburse Landlord for all costs of operating and managing the Building and/or Project.

E. Tenant's Allocable Share: For purposes of prorating Reimbursable Operating Costs which Tenant shall pay, Tenant's Allocable Share of Reimbursable Operating Costs shall be computed by multiplying the Reimbursable Operating Costs by a fraction, the numerator of which is the rentable square footage of the Premises and the denominator of which is either the total rentable square footage of the Building if the service or cost is allocable only to the Building, or the total square footage of the buildings completed within the Project if the service or cost is allocable to the entire Project. Tenant's obligation to share in Reimbursable Operating Costs shall be adjusted to reflect the Lease Commencement and Expiration dates and is subject to recalculation in the event of expansion of the Building or Project.

F. Exclusions to Reimbursable Operating Costs: Notwithstanding anything to the contrary contained in this Lease, the following costs and expenses shall not be included within Reimbursable Operating Costs: (i) Leasing commissions, attorneys' fees, costs, disbursements, and other expenses incurred in connection with negotiations or disputes with tenants, or in connection with leasing, renovating, or improving space for tenants or other occupants or prospective tenants or other occupants of the Project; (ii) The cost of any service sold to any tenant (including Tenant) or other occupant for which Landlord is entitled to be reimbursed as an additional charge or rental over and above the basic rent and escalations payable under the lease with that tenant; (iii) Any depreciation on the Project; (iv) Expenses in connection with services or other benefits of a type that are not provided to Tenant but which are provided another tenant or occupant of the Project; (v) Costs incurred due to Landlord's violation of any terms or conditions of the Declaration, this Lease or any other lease relating to the Project; (vi) Overhead profit increments paid to Landlord's subsidiaries or affiliates for services on or to the building or for supplies or other materials to the extent that the cost of the services, supplies, or materials exceeds the cost that would have been paid had the services, supplies, or materials been provided by unaffiliated parties on a competitive basis; (vii) All interest, loan fees, and other carrying costs related to any mortgage or deed of trust or related to any capital item, and all rental and other payable due under any ground or underlying lease, or any lease for any equipment ordinarily considered to be of a capital nature (except janitorial equipment which is not affixed to the Project.); (viii) Any compensation paid to clerks, attendants, or other persons in commercial concessions operated by Landlord; (ix) Advertising and promotional expenditures; (x) Costs of repairs and other work occasioned by fire, windstorm, or other casualty of a nature required to be insured against under this Lease in excess of the deductible; (xi) Any costs, fines, or penalties incurred due to violations by Landlord of any governmental rule or authority, this Lease or any other lease in the Project, or due to Landlord's negligence or willful misconduct; (xii) Property management fees; (xiii) Costs for sculpture, paintings, or other objects of art (and insurance thereon or extraordinary security in connection therewith); (xiv) The cost of correcting any building code or other violations which were violations prior to the Commencement Date of this Lease; (xv) The cost of containing, removing, or otherwise remediating any contamination of the Project (including the underlying land and ground water) by any Hazardous Materials where such contamination was not caused by Tenant.

F. Waiver of Liability: Failure by Landlord to perform any defined services, or any cessation thereof, when such failure is caused by accident, breakage, repairs, strikes, lockout or other labor disturbances or labor disputes of any character or by any other cause, similar or dissimilar, shall not render Landlord liable to Tenant in any respect, including damages to either person or property, nor be construed as an eviction of Tenant, nor cause an abatement of rent, nor relieve Tenant from fulfillment of any covenant or agreement hereof. Should any equipment or machinery utilized in supplying the services listed herein break down or for any cause cease to function properly, upon receipt of written notice from Tenant of any deficiency or failure of any services, Landlord shall use reasonable diligence to repair the same promptly, but Tenant shall have no right to terminate this Lease and shall have no claim for rebate of rent or damages on account of any interruptions in service occasioned thereby or resulting therefrom. Tenant waives the provisions of California Civil Code Sections 1941 and 1942 concerning the Landlord's obligation of tenantability and Tenant's right to make repairs and deduct the cost of such repairs from the rent. Landlord shall not be liable for a loss of or injury to person or property, however occurring, through or in connection with or incidental to furnishing, or its failure to furnish, any of the foregoing unless causes by its gross negligence or willful misconduct.

G. Tenant's Right to Audit: Tenant shall have the right to audit at Landlord's local offices, at Tenant's expense, Landlord's accounts and records relating to Reimbursable Operating Costs. Such audit shall be conducted by a certified public accountant approved by Landlord, which approval shall not be unreasonably withheld. If such audit reveals that Landlord has overcharged Tenant, the amount overcharged shall be paid to Tenant within 30 days after the audit is concluded, together with interest thereon at the rate of ten percent (10.0%) per annum, from the date paid by Tenant until payment of the overcharge is made to Tenant. In addition, if the amount paid by Tenant exceeds the Reimbursable Operating Costs which should have been charged to Tenant by more than five percent (5.0%), the cost of the audit shall be paid by Landlord.

9. Hazard Insurance:

A. Tenant's Use: Tenant shall not use or permit the Premises, or any part thereof, to be used for any purpose other than that for which the Premises are hereby leased; and no use of the Premises shall be made or permitted, nor acts done, which will cause an increase in premiums or a cancellation of any insurance policy covering the Project or any part thereof, nor shall Tenant sell or permit to be sold, kept, or used in or about the Premises, any article prohibited by the standard form of fire insurance policies. Tenant shall, at its sole cost, comply with all requirements of any insurance company or organization necessary for the maintenance of reasonable fire and public liability insurance covering the Premises and appurtenances.

B. Landlord's Insurance: Landlord agrees to purchase and keep in force fire, extended coverage insurance in an amount equal to the replacement cost of the Building as determined by Landlord's insurance company's appraisers. If required by the holder of the first deed of trust on the property, such fire and property damage insurance may be endorsed to cover loss caused by such additional perils against which Landlord may elect to insure, including earthquake and/or flood, and shall contain reasonable deductibles which, in the case of earthquake and flood insurance may be up to 15% of the replacement value of the property. Additionally Landlord may maintain a policy of (i) commercial general liability insurance insuring Landlord (and such others designated by Landlord) against liability for personal injury, bodily injury, death and damage to property occurring or resulting from an occurrence in, on or about the Premises or Project in an amount as Landlord determines is reasonably necessary for its protection, and (ii) rental lost insurance covering a twelve (12) month period. Tenant agrees to pay Landlord as additional rent, on demand, the full cost of said insurance and any insurance costs allocable to the Building pursuant to the Declaration as evidenced by insurance billings to Landlord, and in the event of damage covered by said insurance, the amount of any commercially reasonable deductible under such policy. Payment shall be due to Landlord within thirty (30) days after written invoice to Tenant. It is understood and agreed that Tenant's obligation under this Section will be prorated to reflect the Lease Commencement and Expiration Dates. Tenant acknowledges and agrees that the Association formed pursuant to the Declaration may procure all or any portion of the insurance required to be maintained by Landlord under this Lease on behalf of Landlord and in discharge of Landlord's obligation to procure such insurance under this Lease, under one or more policies procured by the Association from time to time for the benefit of Landlord and other owners of any portion of the Project, the cost of which shall be paid by Tenant pursuant to this section 9.B, provided that the cost to Tenant shall not be greater than that which Tenant would have had to pay if Landlord obtained such coverage directly.

C. Tenant's Insurance: Tenant agrees, at its sole cost, to insure its personal property, Tenant Improvements and Alterations for their full replacement value (without depreciation) and to obtain worker's compensation and public liability and property damage insurance for occurrences within the Premises with a combined single limit of not less than Five Million Dollars ($5,000,000.00). Tenant's liability insurance shall be primary insurance containing a cross-liability endorsement, and shall provide coverage on an "occurrence" rather than on a "claims made" basis. Tenant shall name Master Landlord, Landlord and their respective lenders as an additional insured and shall deliver evidence of insurance and renewal certificates to Landlord. All such policies shall provide for thirty (30) days' prior written notice to Landlord of any cancellation, termination, or reduction in coverage.

D. Waiver: Landlord and Tenant hereby waive all rights each may have against the other on account of any loss or damage sustained by Landlord or Tenant, as the case may be, or to the Premises or its contents, which may arise from any risk covered by their respective insurance policies (or which would have been covered had such insurance policies been maintained in accordance with this Lease) as set forth above. The parties shall use their reasonable efforts to obtain from their respective insurance companies a waiver of any right of subrogation which said insurance company may have against Landlord, Master Landlord or Tenant, as the case may be.

10. Taxes: Tenant shall be liable for and shall pay as additional rental, prior to delinquency, the following: (i) all taxes and assessments levied against Tenant's personal property and trade or business fixtures; (ii) all real estate taxes and assessment installments or other impositions or charges which may be levied on the Premises or upon the occupancy of the Premises, including any substitute or additional charges which may be imposed applicable to the Lease Term; and (iii) real estate tax increases due to an increase in assessed value resulting from a sale, transfer or other change of ownership of the Premises as it appears on the City and County tax bills during the Lease Term. Tenant's obligation under this Section shall be prorated to reflect the Lease Commencement and Expiration Dates. If, at any time during the Lease Term a tax, excise on rents, business license tax or any other tax, however described, is levied or assessed against Landlord as a substitute or addition, in whole or in part, for taxes assessed or imposed on land or Buildings, Tenant shall pay and discharge its pro rata share of such tax or excise on rents or other tax before it becomes delinquent; except that this provision is not intended to cover net income taxes, inheritance, gift or estate tax imposed upon Landlord. In the event that a tax is placed, levied, or assessed against Landlord and the taxing authority takes the position that Tenant cannot pay and discharge its pro rata share of such tax on behalf of Landlord, then at Landlord's sole election, Landlord may increase the Base Monthly Rent by the exact amount of such tax and Tenant shall pay such increase. If by virtue of any application or proceeding brought by or on behalf of Landlord, there results a reduction in the assessed value of the Premises during the Lease Term, Tenant agrees to reimburse Landlord for all costs incurred by Landlord in connection with such application or proceeding, not to exceed the amount of any savings realized by Tenant. In the event the Project is not subdivided as provided in Section 2.C and the tax bill covers the entire Project, the real estate taxes and assessments shall be prorated as provided in Section 8.E.

11. Utilities: Tenant shall pay directly to the providing utility all water, gas, electric, telephone, and other utilities supplied to the Premises. Landlord shall not be liable for loss of or injury to person or property, however occurring, through or in connection with or incidental to furnishing or the utility company's failure to furnish utilities to the Premises unless caused by Landlord's gross negligence of willful misconduct, and Tenant shall not be entitled to abatement or reduction of any portion of Base Monthly Rent or any other amount payable under this Lease.

12. Toxic Waste and Environmental Damage:

A. Tenant's Responsibility: Without the prior written consent of Landlord, Tenant shall not bring, use, or permit upon the Premises, or generate, create, release, emit, or dispose (nor permit any of the same) from the Premises any chemicals, toxic or hazardous gaseous, liquid or solid materials or waste, including without limitation, material or substance having characteristics of ignitability, corrosivity, reactivity, or toxicity or substances or materials which are listed on any of the Environmental Protection Agency's lists of hazardous wastes or which are identified in Division 22 Title 26 of the California Code of Regulations as the same may be amended from time to time or any wastes, materials or substances which are or may become regulated by or under the authority of any applicable local, state or federal laws, judgments, ordinances, orders, rules, regulations, codes or other governmental restrictions, guidelines or requirements. ("Hazardous Materials") except for those substances customary in typical office uses for which no consent shall be required. In order to obtain consent, Tenant shall deliver to Landlord its written proposal describing the toxic material to be brought onto the Premises, measures to be taken for storage and disposal thereof, safety measures to be employed to prevent pollution of the air, ground, surface and ground water. Landlord's approval may be withheld in its reasonable judgment. In the event Landlord consents to Tenant's use of Hazardous Materials on the Premises or such consent is not required, Tenant represents and warrants that it shall comply with all Governmental Regulations applicable to Hazardous Materials including doing the following: (i) adhere to all reporting and inspection requirements imposed by Federal, State, County or Municipal laws, ordinances or regulations and will provide Landlord a copy of any such reports or agency inspections; (ii) obtain and provide Landlord copies of all necessary permits required for the use and handling of Hazardous Materials on the Premises; (iii) enforce Hazardous Materials handling and disposal practices consistent with industry standards; (iv) surrender the Premises free from any Hazardous Materials arising from Tenant's bringing, using, permitting, generating, creating, releasing, emitting or disposing of Hazardous Materials; and (v) properly close the facility with regard to Hazardous Materials including the removal or decontamination of any process piping, mechanical ducting, storage tanks, containers, or trenches which have come into contact with Hazardous Materials and obtain a closure certificate from the local administering agency prior to the Expiration Date.

B. Tenant's Indemnity Regarding Hazardous Materials: Tenant shall, at its sole cost and expense, comply with all laws pertaining to, and shall with counsel reasonably acceptable to Landlord, indemnify, defend and hold harmless Landlord, Master Landlord and their trustees, shareholders, directors, officers, employees, partners, affiliates, and agents from, any claims, liabilities, costs or expenses incurred or suffered by Landlord arising from the bringing, using, permitting, generating, emitting or disposing of Hazardous Materials by Tenant or a third party through the surface soils of the Premises during the Lease Term or the violation of any Governmental Regulation or environmental law, by Tenant or Tenant's Agents. Tenant's indemnification and hold harmless obligations include, without limitation, the following arising from the bringing, using, permitting, generating, emitting or disposing of Hazardous Materials by Tenant or a third party through the surface soils of the Premises during the Lease Term or the violation of any Governmental Regulation or environmental law, by Tenant or Tenant's Agents.: (i) claims, liability, costs or expenses resulting from or based upon administrative, judicial (civil or criminal) or other action, legal or equitable, brought by any private or public person under common law or under the Comprehensive Environmental Response, Compensation and Liability Act of 1980 ("CERCLA"), the Resource Conservation and Recovery Act of 1980 ("RCRA") or any other Federal, State, County or Municipal law, ordinance or regulation; (ii) claims, liabilities, costs or expenses pertaining to the identification, monitoring, cleanup, containment, or removal of Hazardous Materials from soils, riverbeds or aquifers including the provision of an alternative public drinking water source; (iii) all costs of defending such claims; (iv) losses attributable to diminution in the value of the Premises or the Building; (v) loss or restriction of use of rentable space in the Building; (vi) Adverse effect on the marketing of any space in the Building; and (vi) all other liabilities, obligations, penalties, fines, claims, actions (including remedial or enforcement actions of any kind and administrative or judicial proceedings, orders or judgments), damages (including consequential and punitive damages), and costs (including attorney, consultant, and expert fees and expenses) resulting from the release or violation. This indemnification shall survive the expiration or termination o this Lease.

C. Landlord's Indemnity Regarding Hazardous Materials: Landlord shall with counsel reasonably acceptable to Tenant, indemnify, defend and hold harmless Tenant and Tenant's shareholders, directors, officers, employees, partners, affiliates, and agents from, any claims, liabilities, costs or expenses incurred or suffered by Tenant arising from the bringing, using, permitting, generating, emitting or disposing of Hazardous Materials by Landlord or the violation of any Governmental Regulation or environmental law, by Landlord or Landlord's Agents. Landlord's indemnification and hold harmless obligations include, without limitation, the following: (i) claims, liability, costs or expenses resulting from or based upon administrative, judicial (civil or criminal) or other action, legal or equitable, brought by any private or public person under common law or under the Comprehensive Environmental Response, Compensation and Liability Act of 1980 ("CERCLA"), the Resource Conservation and Recovery Act of 1980 ("RCRA") or any other Federal, State, County or Municipal law, ordinance or regulation; (ii) claims, liabilities, costs or expenses pertaining to the identification, monitoring, cleanup, containment, or removal of Hazardous Materials from soils, riverbeds or aquifers including the provision of an alternative public drinking water source; (iii) all costs of defending such claims; and (iv) all other liabilities, obligations, penalties, fines, claims, actions (including remedial or enforcement actions of any kind and administrative or judicial proceedings, orders or judgments), damages (including consequential and punitive damages), and costs (including attorney, consultant, and expert fees and expenses) resulting from the release or violation. This indemnification shall survive the expiration or termination o this Lease.

C. Actual Release by Tenant: Tenant agrees to notify Landlord of any lawsuits or orders which relate to the remedying of or actual release of Hazardous Materials on or into the soils or ground water at or under the Premises. Tenant shall also provide Landlord all notices required by Section 25359.7(b) of the Health and Safety Code and all other notices required by law to be given to Landlord in connection with Hazardous Materials. Without limiting the foregoing, each party shall also deliver to the other party, within twenty (20) days after receipt thereof, any written notices from any governmental agency alleging a material violation of, or material failure to comply with, any federal, state or local laws, regulations, ordinances or orders, the violation of which or failure to comply with poses a foreseeable and material risk of contamination of the ground water or injury to humans (other than injury solely to Tenant, Tenant's Agents and employees within the Building).

In the event of any release on or into the Premises or into the soil or ground water under the Premises, the Building or the Project of any Hazardous Materials used, treated, stored or disposed of by Tenant or Tenant's Agents, Tenant agrees to comply, at its sole cost, with all laws, regulations, ordinances and orders of any federal, state or local agency relating to the monitoring or remediation of such Hazardous Materials. In the event of any such release of Hazardous Materials Tenant shall immediately give verbal and follow-up written notice of the release to Landlord, and Tenant agrees to meet and confer with Landlord and its Lender to attempt to eliminate and mitigate any financial exposure to such Lender and resultant exposure to Landlord under California Code of Civil Procedure Section 736(b) as a result of such release, and promptly to take reasonable monitoring, cleanup and remedial steps given, inter alia, the historical uses to which the Property has and continues to be used, the risks to public health posed by the release, the then available technology and the costs of remediation, cleanup and monitoring, consistent with acceptable customary practices for the type and severity of such contamination and all applicable laws. Nothing in the preceding sentence shall eliminate, modify or reduce the obligation of Tenant under 12.B of this Lease to indemnify and hold Landlord and Master Landlord harmless from any claims liabilities, costs or expenses incurred or suffered by them rising from the bringing, using, permitting, generating, emitting or disposing of Hazardous Materials by Tenant or a third party through the surface soils of the Premises during the Lease Term or the violation of any Governmental Regulation or environmental law, by Tenant or Tenant's Agents. Tenant shall provide Landlord prompt written notice of Tenant's monitoring, cleanup and remedial steps.

In the absence of an order of any federal, state or local governmental or quasi-governmental agency relating to the cleanup, remediation or other response action required by applicable law, any dispute arising between Landlord and Tenant concerning Tenant's obligation to Landlord under this Section 12.C concerning the level, method, and manner of cleanup, remediation or response action required in connection with such a release of Hazardous Materials shall be resolved by mediation and/or arbitration pursuant to the provisions of Section 21.E of this Lease.

D. Environmental Monitoring: Landlord and its agents shall have the right to inspect, investigate, sample and monitor the Premises including any air, soil, water, ground water or other sampling or any other testing, digging, drilling or analysis to determine whether Tenant is complying with the terms of this Section 12 provided reasonable grounds to suspect a violation exist. If Landlord discovers that Tenant is not in compliance with the terms of this Section 12, any such reasonable costs incurred by Landlord, including attorneys' and consultants' fees, shall be due and payable by Tenant to Landlord within thirty (30) days following Landlord's written demand therefore.

13. Tenant's Default: The occurrence of any of the following shall constitute a material default and breach of this Lease by Tenant: (i) Tenant's failure to pay any rent including additional rent or any other payment due under this Lease within ten (10) days following Landlord's notice of nonpayment, (ii) the abandonment of the Premises by Tenant; (iii) Tenant's failure to observe and perform any other required provision of this Lease, where such failure continues for thirty (30) days after written notice from Landlord, provided, however, that if the nature of the default is such that it cannot reasonably be cured within the 30-day period, Tenant shall not be deemed in default if it commences within such period to cure, and thereafter diligently prosecutes the same to completion; (iv) Tenant's making of any general assignment for the benefit of creditors; (v) the filing by or against Tenant of a petition to have Tenant adjudged a bankrupt or of a petition for reorganization or arrangement under any law relating to bankruptcy (unless, in the case of a petition filed against Tenant, the same is dismissed after the filing); (vi) the appointment of a trustee or receiver to take possession of substantially all of Tenant's assets located at the Premises or of Tenant's interest in this Lease, where possession is not restored to Tenant within sixty (60) days; (vii) the attachment, execution or other judicial seizure of substantially all of Tenant's assets located at the Premises or of Tenant's interest in this Lease, where such seizure is not discharged within sixty (60) days; (viii) a default by Tenant under the Building 2 Lease (if then leased by Tenant from Landlord), or (ix) a default by Tenant under the Building 3 Lease (if leased by Tenant from Landlord).

A. Remedies: In the event of any such default by Tenant, then in addition to other remedies available to Landlord at law or in equity, Landlord shall have the immediate option to terminate this Lease and all rights of Tenant hereunder by giving written notice of such intention to terminate. In the event Landlord elects to so terminate this Lease, Landlord may recover from Tenant all the following: (i) the worth at time of award of any unpaid rent which had been earned at the time of such termination; (ii) the worth at time of award of the amount by which the unpaid rent which would have been earned after termination until the time of award exceeds the amount of such rental loss for the same period that Tenant proves could have been reasonably avoided; (iii) the worth at time of award of the amount by which the unpaid rent for the balance of the Lease Term after the time of award exceeds the amount of such rental loss that Tenant proves could be reasonably avoided; (iv) any other amount necessary to compensate Landlord for all detriment proximately caused by Tenant's failure to perform its obligations under this Lease, or which in the ordinary course of things would be likely to result therefrom; including the following: (x) reasonable expenses for repairing, altering or remodeling the Premises if such expenses are necessary to relet the Premises, (y) reasonable broker's fees, advertising costs or other expenses of reletting the Premises, and (z) costs of carrying the Premises such as taxes, insurance premiums, utilities and security precautions and assessments due under the Declaration, and (v) at Landlord's election, such other reasonable amounts in addition to or in lieu of the foregoing as may be permitted by applicable California law. The term "rent", as used herein, is defined as the minimum monthly installments of Base Monthly Rent and all other sums required to be paid by Tenant pursuant to this Lease, all such other sums being deemed as additional rent due hereunder. As used in (i) and (ii) above, "worth at the time of award" shall be computed by allowing interest at a rate equal to the discount rate of the Federal Reserve Bank of San Francisco plus five (5%) percent per annum. As used in (iii) above, "worth at the time of award" shall be computed by discounting such amount at the discount rate of the Federal Reserve Bank of San Francisco at the time of award plus one (1%) percent.

B. Right to Re-enter: In the event of any such default by Tenant, Landlord shall have the right, after terminating this Lease, to re-enter the Premises and remove all persons and property. Such property may be removed and stored in a public warehouse or elsewhere at the cost of and for the account of Tenant, and disposed of by Landlord in any manner permitted by law.

C. Abandonment: If Landlord does not elect to terminate this Lease as provided in Section 13.A or 13.B above, then the provisions of California Civil Code Section 1951.4, (Landlord may continue the lease in effect after Tenant's breach and abandonment and recover rent as it becomes due if Tenant has a right to sublet and assign, subject only to reasonable limitations) as amended from time to time, shall apply and Landlord may from time to time, without terminating this Lease, either recover all rental as it becomes due or relet the Premises or any part thereof for such term or terms and at such rental or rentals and upon such other terms and conditions as Landlord in its sole discretion may deem advisable, with the right to make alterations and repairs to the Premises. In the event that Landlord elects to so relet, rentals received by Landlord from such reletting shall be applied in the following order to: (i) the payment of any indebtedness other than Base Monthly Rent due hereunder from Tenant to Landlord; (ii) the payment of any cost of such reletting; (iii) the payment of the cost of any alterations and repairs to the Premises; and (iv) the payment of Base Monthly Rent due and unpaid hereunder. The residual rentals, if any, shall be held by Landlord and applied in payment of future Base Monthly Rent as the same may become due and payable hereunder. Landlord shall the obligation to market the space but shall have no obligation to relet the Premises following a default if Landlord has other comparable available space within the Building or Project. In the event the portion of rentals received from such reletting which is applied to the payment of rent hereunder during any month be less than the rent payable during that month by Tenant hereunder, then Tenant shall pay such deficiency to Landlord immediately upon demand. Such deficiency shall be calculated and paid monthly. Tenant shall also pay to Landlord, as soon as ascertained, any reasonable costs and expenses incurred by Landlord in such reletting or in making such alterations and repairs not covered by the rentals received from such reletting.

D. No Termination: Landlord's re-entry or taking possession of the Premises pursuant to 13.B or 13.C shall not be construed as an election to terminate this Lease unless written notice of such intention is given to Tenant or unless the termination is decreed by a court of competent jurisdiction. Notwithstanding any reletting without termination by Landlord because of any default by Tenant, Landlord may at any time after such reletting elect to terminate this Lease for any such default.

E. Non-Waiver: Landlord may accept Tenant's payments without waiving any rights under this Lease, including rights under a previously served notice of default. No payment by Tenant or receipt by Landlord of a lesser amount than any installment of rent due shall be deemed as other than payment on account of the amount due. If Landlord accepts payments after serving a notice of default, Landlord may nevertheless commence and pursue an action to enforce rights and remedies under the previously served notice of default without giving Tenant any further notice or demand. Furthermore, the Landlord's acceptance of rent from the Tenant when the Tenant is holding over without express written consent does not convert Tenant's Tenancy from a tenancy at sufferance to a month to month tenancy. No waiver of any provision of this Lease shall be implied by any failure of Landlord to enforce any remedy for the violation of that provision, even if that violation continues or is repeated. Any waiver by Landlord of any provision of this Lease must be in writing. Such waiver shall affect only the provision specified and only for the time and in the manner stated in the writing. No delay or omission in the exercise of any right or remedy by Landlord shall impair such right or remedy or be construed as a waiver thereof by Landlord. No act or conduct of Landlord, including, without limitation, the acceptance of keys to the Premises, shall constitute acceptance of the surrender of the Premises by Tenant before the Expiration Date. Only written notice from Landlord to Tenant of acceptance shall constitute such acceptance of surrender of the Premises. Landlord's consent to or approval of any act by Tenant which requires Landlord's consent or approvals shall not be deemed to waive or render unnecessary Landlord's consent to or approval of any subsequent act by Tenant.

F. Performance by Landlord: If Tenant fails to perform any obligation required under this Lease or by law or governmental regulation, Landlord in its sole discretion may, following notice and expiration of the applicable cure period, without waiving any rights or remedies and without releasing Tenant from its obligations hereunder, perform such obligation, in which event Tenant shall pay Landlord as additional rent all sums paid by Landlord in connection with such substitute performance, including interest at the Agreed Interest Rate within thirty (30) days of Landlord's written notice for such payment.

14. Landlord's Liability:

A. Limitation on Landlord's Liability: In the event of Landlord's failure to perform any of its covenants or agreements under this Lease, Tenant shall give Landlord written notice of such failure and shall give Landlord thirty (30) days to cure or commence to cure such failure prior to any claim for breach or resultant damages, provided, however, that if the nature of the default is such that it cannot reasonably be cured within the 30-day period, Landlord shall not be deemed in default if it commences within such period to cure, and thereafter diligently prosecutes the same to completion. In addition, upon any such failure by Landlord, Tenant shall give notice by registered or certified mail to any person or entity with a security interest in the Premises ("Mortgagee") that has provided Tenant with notice of its interest in the Premises, and shall provide Mortgagee a reasonable opportunity to cure such failure, including such time to obtain possession of the Premises by power of sale or judicial foreclosure, if such should prove necessary to effectuate a cure. Tenant agrees that each of the Mortgagees to whom this Lease has been assigned is an expressed third-party beneficiary hereof. Tenant waives any right under California Civil Code Section 1950.7 or any other present or future law to the collection of any payment or deposit from Mortgagee or any purchaser at a foreclosure sale of Mortgagee's interest unless Mortgagee or such purchaser shall have actually received and not refunded the applicable payment or deposit. Tenant Further waives any right to terminate this Lease and to vacate the Premises on Landlord's default under this Lease. Tenant's sole remedy on Landlord's default is an action for damages or injunctive or declaratory relief.

B. Limitation on Tenant's Recourse: If Landlord is a corporation trust, partnership, joint venture, unincorporated association or other form of business entity: (i) the obligations of Landlord shall not constitute personal obligations of the officers, directors, trustees, partners, joint venturers, members, owners, stockholders, or other principals or representatives except to the extent of their interest in the Premises. Tenant shall have recourse only to the interest of Landlord in the Premises or for the satisfaction of the obligations of Landlord and shall not have recourse to any other assets of Landlord for the satisfaction of such obligations.

C. Indemnification of Landlord: As a material part of the consideration rendered to Landlord, Tenant hereby waives all claims against Landlord except to the extent caused by Landlord's gross negligence, willful misconduct or a breach of this Lease for damages to goods, wares and merchandise, and all other personal property in, upon or about said Premises and for injuries to persons in or about said Premises, from any cause arising at any time to the fullest extent permitted by law, and Tenant shall indemnify and hold Landlord, Master Landlord and their shareholders, directors, officers, trustees, employees, partners, affiliates and agents exempt and harmless from any damage or injury to any person, or to the goods, wares and merchandise and all other personal property of any person, arising from the use of the Premises, Building, and/or Project by Tenant and Tenant's Agents or from the failure of Tenant to keep the Premises in good condition and repair as herein provided, except to the extent due to the gross negligence or willful misconduct of Landlord. Further, in the event Landlord is made party to any litigation due to the acts or omission of Tenant and Tenant's Agents, Tenant will indemnify, defend (with counsel reasonably acceptable to Landlord) and hold Landlord harmless from any such claim or liability including Landlord's costs and expenses and reasonable attorney's fees incurred in defending such claims except to the extent due to the gross negligence or willful misconduct of Landlord.

15. Destruction of Premises:

A. Landlord's Obligation to Restore: In the event of a destruction of the Premises during the Lease Term Landlord shall repair the same to the approximate condition which existed prior to such destruction. Such destruction shall not annul or void this Lease; however, Tenant shall be entitled to a proportionate reduction of Base Monthly Rent while repairs are being made, such proportionate reduction to be based upon the extent to which the repairs interfere with Tenant's business in the Premises, as reasonably determined by the Parties. In no event shall Landlord be required to replace or restore Alterations, Tenant Improvements, Tenant's fixtures or personal property. With respect to a destruction which Landlord is obligated to repair or may elect to repair under the terms of this Section, Tenant waives the provisions of Section 1932, and Section 1933, Subdivision 4, of the Civil Code of the State of California, and any other similarly enacted statute, and the provisions of this Section 15 shall govern in the case of such destruction. If Landlord is required to repair the Premises in the event of destruction pursuant to this Lease, Landlord agrees that it will not vote under the Declaration in favor or not repairing the Premises or Common Area.

B. Limitations on Landlord's Restoration Obligation: Notwithstanding the provisions of Section 15.A, Landlord shall have no obligation to repair, or restore the Premises if any of the following occur: (i) if the repairs cannot be made in three hundred sixty five (365) days from the date of receipt of all governmental approvals necessary under the laws and regulations of State, Federal, County or Municipal authorities, as reasonably determined by Landlord, (ii) if the holder of the first deed of trust or mortgage encumbering the Building elects not to permit the insurance proceeds payable upon damage or destruction to be used for such repair or restoration, (iii) the damage or destruction is not fully covered by the insurance maintained by Landlord, (iv) the damage or destruction occurs in the last twenty four (24) months of the Lease Term (unless Tenant commits to exercise any available option to extend the Lease Term pursuant to Section 18 of this Lease), (v) Tenant is in default pursuant to the provisions of Section 13 beyond expiration of the applicable cure period, (vi) Tenant has vacated the Premises for more than ninety (90) days, or (vii) if repair of the Common Area is necessary before repairs to the Premises can be

performed and Landlord reasonably determines that repairs to the Common Area will not be made within one hundred eighty (180) days after the date of the damage and destruction. In any such event Landlord may elect either to (i) complete the repair or restoration, or (ii) terminate this Lease by providing Tenant written notice of its election within sixty (60) days following the damage or destruction.

C. Tenant's Rights with Respect to a Destruction of the Premises: Notwithstanding anything to the contrary contained in this Lease: Landlord shall give notice to Tenant of its election to rebuild or not to rebuild the Premises within thirty (30) days of casualty to the Premises and such notice shall specify Landlord's architect's or engineer's reasonable estimate as to the time required to rebuild or restore the Premises. If, in the reasonable opinion of Landlord's architect or engineer, the Premises will take longer than three hundred sixty five (365) days to rebuild or restore and Landlord has elected to perform such rebuilding or restoration, Tenant may, notwithstanding Landlord's election, terminate this Lease by written notice to Landlord of such termination within five (5) days after its receipt of Landlord's notice. Such termination shall be effective thirty (30) days after the giving of Tenant's notice. If Landlord fails to restore the Premises (including reasonable means of access thereto) within a period which is sixty (60) days longer than the period stated in Landlord's notice to Tenant as the estimated rebuilding period, 'Tenant, at any time thereafter until such rebuilding is completed, may terminate this Lease by delivering written notice to Landlord of such termination, in which event this Lease shall terminate as of the date of the giving of such notice. If casualty to the Premises occurs within the last twenty-four months of the term and the period in which Tenant is obligated to exercise its option to renew the term pursuant to Section 18 has not expired, Tenant shall have thirty (30) days after the date of casualty in which to notify Landlord of its election to exercise such renewal option. If Tenant elects to renew the term as provided above, Landlord shall have no right to terminate the Lease pursuant to this Section 15.

16. Condemnation: If any part of the Premises shall be taken for any public or quasi-public use, under any statute or by right of eminent domain or private purchase in lieu thereof, and only a part thereof remains which is susceptible of occupation hereunder, this Lease shall, as to the part so taken, terminate as of the day before title vests in the condemnor or purchaser ("Vesting Date") and Base Monthly Rent payable hereunder shall be adjusted so that Tenant is required to pay for the remainder of the Lease Term only such portion of Base Monthly Rent as the value of the part remaining after such taking bears to the value of the entire Premises prior to such taking. If all of the Premises or such part thereof be taken so that there does not remain a portion susceptible for occupation hereunder, this Lease shall terminate on the Vesting Date. If part or all of the Premises be taken, all compensation awarded upon such taking shall go to Landlord, and Tenant shall have no claim thereto; but Landlord shall cooperate with Tenant, without cost to Landlord, to recover compensation for damage to or taking of any Alterations, Tenant Improvements, or for Tenant's moving costs. Tenant hereby waives the provisions of California Code of Civil Procedures Section 1265.130 and any other similarly enacted statue, and the provisions of this Section 16 shall govern in the case of such taking.

17. Assignment or Sublease:

A. Consent by Landlord: Except as specifically provided in this Section 17.E, Tenant may not assign, sublet, hypothecate, or allow a third party to use the Premises without the express written consent of Landlord which shall not be unreasonably withheld, conditioned or delayed. Except in connection with a Permitted Transfer, in the event Tenant desires to assign this Lease or any interest herein including, without limitation, a pledge, mortgage or other hypothecation, or sublet the Premises or any part thereof, Tenant shall deliver to Landlord (i) executed counterparts of any agreement and of all ancillary agreements with the proposed assignee/subtenant, (ii) current financial statements of the transferee covering the preceding three years if available, (iii) the nature of the proposed transferee's business to be carried on in the Premises, (iv) a statement outlining all consideration to be given on account of the Transfer, and (v) a current financial statement of Tenant. Landlord may condition its approval of any Transfer to a certification from both Tenant and the proposed transferee of all consideration to be paid to Tenant in connection with such Transfer. At Landlord's request, Tenant shall also provide additional information reasonably required by Landlord to determine whether it will consent to the proposed assignment or sublease. Landlord shall have a fifteen business (15) day period following receipt of all the foregoing within which to notify Tenant in writing that Landlord elects to: (i) terminate this Lease in the event of an assignment only; (ii) permit Tenant to assign or sublet such space to the named assignee/subtenant on the terms and conditions set forth in the notice; or (iii) refuse consent. If Landlord should fail to notify Tenant in writing of such election within the 15-day period, Landlord shall be deemed to have elected option (ii) above. In the event Landlord elects option (i) above, this Lease shall expire with respect to such part of the Premises on the date upon which the proposed sublease was to commence, and from such date forward, Base Monthly Rent and Tenant's Allocable Share of all other costs and charges shall be adjusted based upon the proportion that the rentable area of the Premises remaining bears to the total rentable area of the Premises. In the event Landlord elects option (ii) above, Landlord's written consent to the proposed assignment or sublease shall not be unreasonably withheld, provided and upon the condition that: (i) the proposed assignee or subtenant is engaged in a business that is limited to the use expressly permitted under this Lease; (ii) the proposed assignee or subtenant is a company with sufficient financial worth and management ability to undertake the financial obligation of this Lease and Landlord has been furnished with reasonable proof thereof; (iii) the proposed assignment or sublease is in form reasonably satisfactory to Landlord; (iv) Tenant reimburses Landlord on demand for any reasonable costs that may be incurred by Landlord in connection with said assignment or sublease, including the costs of making investigations as to the acceptability of the proposed assignee or subtenant and legal costs incurred in connection with the granting of any requested consent; and (vi) Tenant shall not have advertised or publicized in any way the availability of the Premises without prior notice to Landlord. In the event all or any one of the foregoing conditions are not satisfied, Landlord shall be considered to have acted reasonably if it withholds its consent.

B. Assignment or Subletting Consideration: Any rent or other economic consideration realized by Tenant under any sublease and assignment, in excess of the rent payable hereunder after deducting (i) reasonable subletting and assignment costs (ii) the Monthly Amortized Cost (defined below) of the Tenant Improvements paid by Tenant, and (iii) any economic consideration received by Tenant for services rendered or personal property sold or leased, shall be divided and paid fifty percent (50%) to Landlord and fifty percent (50%) to Tenant. Monthly Amortized Cost shall be determined by taking sum paid by Tenant for the Tenant Improvements installed in the Building and dividing this sum by one hundred forty four (144) months. Tenant's obligation to pay over Landlord's portion of the consideration constitutes an obligation for additional rent hereunder. The above provisions relating to Landlord's right to terminate the Lease and relating to the allocation of bonus rent are independently negotiated terms of the Lease which constitute a material inducement for the Landlord to enter into the Lease, and are agreed by the parties to be commercially reasonable. No assignment or subletting by Tenant shall relieve it of any obligation under this Lease. Any assignment or subletting except in connection with a Permitted Transfer which conflicts with the provisions hereof shall be void.

C. No Release: Any assignment or sublease except in connection with a Permitted Transfer shall be made only if and shall not be effective until the assignee or subtenant shall execute, acknowledge, and deliver to Landlord an agreement, in form and substance satisfactory to Landlord, whereby the assignee or subtenant shall assume all the obligations of this Lease on the part of Tenant to be performed or observed and shall be subject to all the covenants, agreements, terms, provisions and conditions in this Lease. Notwithstanding any such sublease or assignment and the acceptance of rent by Landlord from any subtenant or assignee, Tenant and any guarantor shall remain fully liable for the payment of Base Monthly Rent and additional rent due, and to become due hereunder, for the performance of all the covenants, agreements, terms, provisions and conditions contained in this Lease on the part of Tenant to be performed and for all acts and omissions of any licensee, subtenant, assignee or any other person claiming under or through any subtenant or assignee that shall be in violation of any of the terms and conditions of this Lease, and any such violation shall be deemed a violation by Tenant. Tenant shall indemnify, defend and hold Landlord harmless from and against all losses, liabilities, damages, costs and expenses (including reasonable attorney fees) resulting from any claims that may be made against Landlord by the proposed assignee or subtenant or by any real estate brokers or other persons claiming compensation in connection with the proposed assignment or sublease, unless caused by Landlord's breach of this Lease.

D. Reorganization of Tenant: The provisions of this Section 17.D shall apply if Tenant is a corporation and: (i) there is a dissolution, merger, consolidation, or other reorganization of or affecting Tenant, where Tenant is not the surviving corporation, or (ii) there is a sale or transfer to one person or entity (or to any group of related persons or entities) of stock possessing more than 50% of the total combined voting power of all classes of Tenant's capital stock issued, outstanding and entitled to vote for the election of directors, and after such sale or transfer of stock Tenant's stock is no longer publicly traded. In a transaction under clause (i) the surviving corporation shall promptly execute and deliver to Landlord an agreement in form reasonably satisfactory to Landlord under which such corporation assumes the obligations of Tenant hereunder, and in a transaction under clause (ii) the transferee shall promptly execute and deliver to Landlord an agreement in form reasonably satisfactory to Landlord under which such transferee assumes the obligations of Tenant to the extent accruing after such transferee's acquisition of Tenant's stock possessing more than 50% of the total combined voting of all classes of Tenant's capital stock issued, outstanding and entitled to vote for the election of directors.

E. Permitted Transfers: Notwithstanding anything contained in this Section 17, Tenant may enter into any of the following transfers (a "Permitted Transfer") without Landlord's prior consent, and Landlord shall not be entitled to terminate the Lease or to receive any part of any subrent resulting therefrom that would otherwise be due pursuant to Sections 17.A and 17.B. Tenant may sublease all or part of the Premises or assign its interest in this Lease to (i) any person or entity which controls, is controlled by, or is under common control with the original Tenant to this Lease by means of an ownership interest of more than 50%; (ii) any person or entity which results from a merger, consolidation or other reorganization in which Tenant is not the survivor, so long as the survivor has a net worth at the time of such transfer sufficient to enable it to meet its obligations under this Lease; and (iii) any person or entity which purchases or otherwise acquires all or substantially all of the assets of Tenant so long as such acquiring person or entity has a net worth at the time of such transfer that is sufficient at the time of such transfer to enable it to meet its obligations under this Lease.

F. Effect of Default: In the event of Tenant's default, Tenant hereby assigns all rents due from any assignment or subletting to Landlord as security for performance of its obligations under this Lease, and Landlord may collect such rents as Tenant's Attorney-in-Fact, except that Tenant may collect such rents unless a default occurs as described in Section 13 above. A Lease termination due to Tenant's default shall not automatically terminate an assignment or sublease then in existence; rather at Landlord's election, such assignment or sublease shall survive the Lease termination, the assignee or subtenant shall attorn to Landlord, and Landlord shall undertake the obligations of Tenant under the sublease or assignment; except that Landlord shall not be liable for prepaid rent, security deposits or other defaults of Tenant to the subtenant or assignee, or for any acts or omissions of Tenant and Tenant's Agents.

G. Conveyance by Landlord: As used in this Lease, the term "Landlord" is defined only as the owner for the time being of the Premises, so that in the event of any sale or other conveyance of the Premises or in the event of a master lease of the Premises, Landlord shall be entirely freed and relieved of all its covenants and obligations hereunder, and it shall be deemed and construed, without further agreement between the parties and the purchaser at any such sale or the master tenant of the Premises, that the purchaser or master tenant of the Premises has assumed and agreed to carry out any and all covenants and obligations of Landlord hereunder. Such transferor shall transfer and deliver Tenant's security deposit to the purchaser at any such sale or the master tenant of the Premises, and thereupon the transferor shall be discharged from any further liability in reference thereto.

F. Successors and Assigns: Subject to the provisions this Section 17, the covenants and conditions of this Lease shall apply to and bind the heirs, successors, executors, administrators and assigns of all parties hereto; and all parties hereto shall be jointly and severally liable hereunder.

18. Option to Extend the Lease Term:

A. Grant and Exercise of Option: Landlord grants to Tenant, subject to the terms and conditions set forth in this Section 18.A, two (2) options (the "Options") to extend the Lease Term for an additional term (the "Option Term"). Each Option Term shall be for a period of sixty (60) months and shall be exercised, if at all, by written notice to Landlord no earlier than eighteen (18) months prior to the date the Lease Term would expire but for such exercise but no later than twelve (12) months prior to the date the Lease Term would expire but for such exercise, time being of the essence for the giving of such notice. If Tenant exercises the first Option or both of the Options, all of the terms, covenants and conditions of this Lease except this Section shall apply during the Option Term as though the expiration date of the Option Term was the date originally set forth herein as the Expiration Date, provided that Base Monthly Rent for the Premises payable by Tenant during the Option Term shall be the greater of (i) the average amount of Base Monthly Rent paid during the initial Lease Term, and (ii) ninety five percent (95%) of the Fair Market Rental as hereinafter defined. Notwithstanding anything herein to the contrary, if Tenant is in monetary or material non- monetary default after expiration of any applicable cure period under any of the terms, covenants or conditions of this Lease either at the time Tenant exercises the Option or at any time thereafter prior to the commencement date of the Option Term, Landlord shall have, in addition to all of Landlord's other rights and remedies provided in this Lease, the right to terminate the Option upon notice to Tenant, in which event the expiration date of this Lease shall be and remain the Expiration Date. As used herein, the term "Fair Market Rental" is defined as the rental and all other monetary payments, including any escalations and adjustments thereto (including without limitation Consumer Price Indexing) that Landlord could obtain during the Option Term from a third party desiring to lease the Premises, based upon the current use and other potential uses of the Premises, as determined by the rents then being obtained for new leases of space comparable in age and quality to the Premises in the locality of the Building. The appraisers shall be instructed that the foregoing five percent (5%) discount is intended to reduce comparable rents which include (i) brokerage commissions, (ii) tenant improvement allowances, and (iii) vacancy costs, to account for the fact that Landlord will not suffer such costs in the event Tenant exercises its Option.

B. Determination of Fair Market Rental: If Tenant exercises the Option, Landlord shall send Tenant a notice setting forth the Fair Market Rental for the Option Term within thirty (30) days following the Exercise Date. If Tenant disputes Landlord's determination of Fair Market Rental for the Option Term, Tenant shall, within thirty (30) days after the date of Landlord's notice setting forth Fair Market Rental for the Option Term, send to Landlord a notice stating that Tenant either elects to terminate its exercise of the Option, in which event the Option shall lapse and this Lease shall terminate on the Expiration Date, or that Tenant disagrees with Landlord's determination of Fair Market Rental for the Option Term and elects to resolve the disagreement as provided in Section 18.C below. If Tenant elects to resolve the disagreement as provided in Section 18.C and such procedures are not concluded prior to the commencement date of the Option Term, Tenant shall pay to Landlord as Base Monthly Rent the Fair Market Rental as determined by Landlord in the manner provided above. If the Fair Market Rental as finally determined pursuant to Section 18.C is greater than Landlord's determination, Tenant shall pay Landlord the difference between the amount paid by Tenant and the Fair Market Rental as so determined in Section 18.C within thirty (30) days after such determination. If the Fair Market Rental as finally determined in Section 18.C is less than Landlord's determination, the difference between the amount paid by Tenant and the Fair Market Rental as so determined in Section 18.C shall be credited against the next installments of rent due from Tenant to Landlord hereunder.

C. Resolution of a Disagreement over the Fair Market Rental: Any disagreement regarding Fair Market Rental shall be resolved as follows:

1. Within thirty (30) days after Tenant's response to Landlord's notice setting forth the Fair Market Rental, Landlord and Tenant shall meet at least two (2) times at a mutually agreeable time and place, in an attempt to resolve the disagreement.

2. If within the 30-day period referred to above, Landlord and Tenant cannot reach agreement as to Fair Market Rental, each party shall select one appraiser to determine Fair Market Rental. Each such appraiser shall arrive at a determination of Fair Market Rental and submit their conclusions to Landlord and Tenant within thirty (30) days after the expiration of the 30-day consultation period described above.

3. If only one appraisal is submitted within the requisite time period, it shall be deemed as Fair Market Rental. If both appraisals are submitted within such time period and the two appraisals so submitted differ by less than ten percent (10%), the average of the two shall be deemed as Fair Market Rental. If the two appraisals differ by more than 10%, the appraisers shall immediately select a third appraiser who shall, within thirty (30) days after his selection, make and submit to Landlord and Tenant a determination of Fair Market Rental. This third appraisal will then be averaged with the closer of the two previous appraisals and the result shall be Fair Market Rental.

4. All appraisers specified pursuant to this Section shall be members of the American Institute of Real Estate Appraisers with not less than ten (10) years experience appraising office and industrial properties in the Santa Clara Valley. Each party shall pay the cost of the appraiser selected by such party and one-half of the cost of the third appraiser.

D. Personal to Tenant: All Options provided to Tenant in this Lease are personal and granted to Siebel Systems, Inc. and any Permitted Transferee and are not exercisable by any third party should Tenant assign or sublet all or a portion of its rights under this Lease, unless Landlord consents to permit exercise of any option by any assignee or subtenant, in Landlord's sole and absolute discretion. In the event Tenant has multiple options to extend this Lease, a later option to extend the Lease cannot be exercised unless the prior option has been so exercised.

19. Option to Lease:

A. Grant and Exercise of Option: Landlord grants to Tenant an option to lease Building 3 under the terms and conditions specified in the Building 2 Lease.

20. Right Of First Offering To Purchase:

A. Grant and Exercise of Option: In the event either or both Master Landlord and Landlord elect to sell their respective interests in the Building, Master Landlord and Landlord hereby grants Tenant a right of first offering to purchase their respective interests in the Building (Master Landlord and Landlord are individually and collectively referred to in this Section as "Seller"). Prior to Seller offering to sell its interest in the Building to a third party, Seller shall give Tenant written notice of such desire and the terms and other information under which Seller intends to sell the Building. Provided at the time of exercise, Tenant is not in default beyond the expiration of any applicable cure period, Tenant shall have the option, which must be exercised, if at all, by written notice to Seller within thirty (30) days after Tenant's receipt of Seller's notice, to purchase its interest in the Building at the sales price and terms of sale specified in the notice. In the event Tenant timely exercises such option to purchase its interest in the Building, Seller shall sell its interest in the Building to Tenant, and Tenant shall purchase its interest in the Building from Seller in accordance with the price and terms specified in Seller's notice. Seller and Tenant shall, in good faith, attempt to reach agreement on the terms of a mutually acceptable purchase agreement consistent with the terms set forth in Seller's notice within thirty (30) days of Seller's notice. In the event (i) Seller and Tenant are unable to reach agreement on a mutually acceptable purchase agreement within such thirty (30) day period or (ii) Tenant fails to exercise Tenant's option within said thirty (30) day period, Seller shall have one hundred eighty (180) days thereafter to sell its interest in the Building at no less than ninety five percent (95%) of the sales price and upon the same or substantially the same other terms of sale as specified in the notice to Tenant. In the event Seller fails to sell its interest in the Building within said one hundred eighty (180) day period or in the event Seller proposes to sell its interest in the Building at less than ninety five percent (95%) of the sales price or on other material terms which are more favorable to the prospective buyer than that proposed to Tenant, Seller shall be required to resubmit such offer to Tenant in accordance with this Right of First Offering except that Tenant shall be required to respond to any resubmission within a seven (7) day period.

B. Exclusions: This Right of First Offering shall automatically terminate, (i) upon the expiration or sooner termination of the Lease, or (ii) in the event of a foreclosure or other involuntary transfer of Landlord's interest in the Building. Notwithstanding the forgoing, this Right of First Offering shall not apply to transfers (but shall survive such transfers ) of all or a portion of the Building or Project to (i) John A. Sobrato and/or John M. Sobrato (individually and collectively "Sobrato"), and (ii) any immediate family member of Sobrato, and (iii) any trust established, in whole or in art, for the benefit of Sobrato and/or any immediate family member of Sobrato, (iv) any partnership in which Sobrato or any immediate family member, either directly or indirectly (e.g., through a partnership or corporate entity or a trust) retains a general partner interest, and/or (v) any corporation under the control, either directly or indirectly, by Sobrato or any immediate family member of Sobrato.

21. General Provisions:

A. Attorney's Fees: In the event a suit or alternative form of dispute resolution is brought for the possession of the Premises, for the recovery of any sum due hereunder, to interpret the Lease, or because of the breach of any other covenant herein; then the losing party shall pay to the prevailing party reasonable attorney's fees including the expense of expert witnesses, depositions and court testimony as part of its costs which shall be deemed to have accrued on the commencement of such action. The prevailing party shall also be entitled to recover all costs and expenses including reasonable attorney's fees incurred in enforcing any judgment or award against the other party. The foregoing provision relating to post-judgment costs is severable from all other provisions of this Lease.

B. Authority of Parties: Tenant represents and warrants that it is duly formed and in good standing, and is duly authorized to execute and deliver this Lease on behalf of said corporation, in accordance with a duly adopted resolution of the Board of Directors of said corporation or in accordance with the by-laws of said corporation, and that this Lease is binding upon said corporation in accordance with its terms. At Landlord's request, Tenant shall provide Landlord with corporate resolutions or other proof in a form acceptable to Landlord, authorizing the execution of the Lease.

C. Brokers: Tenant represents it has not utilized or contacted a real estate broker or finder with respect to this Lease other than Chris Allen, d/b/a Resource Real Estate Group, which fee shall be payable by Landlord pursuant to a written agreement and the Parties agree to indemnify, defend and hold each other harmless against any claim, cost, liability or cause of action asserted by any other broker or finder.

D. Choice of Law: This Lease shall be governed by and construed in accordance with California law. Except as provided in Section 21.E, venue shall be Santa Clara County.

E. Dispute Resolution: Landlord and Tenant and any other party that may become a party to this Lease or be deemed a party to this Lease including any subtenants agree that, except for any claim by Landlord for unlawful detainer or any claim within the jurisdiction of the small claims court (which small claims court shall be the sole court of competent jurisdiction), any controversy, dispute, or claim of whatever nature arising out of, in connection with or in relation to the interpretation, performance or breach of this Lease, including any claim based on contract, tort, or statute, shall be resolved at the request of any party to this agreement through a two- step dispute resolution process administered by J.A.M.S. or another judicial mediation service mutually acceptable to the parties located in Santa Clara County, California. The dispute resolution process shall involve first, mediation, followed, if necessary, by final and binding arbitration administered by and in accordance with the then existing rules and practices of J.A.M.S. or other judicial mediation service selected. In the event of any dispute subject to this provision, either party may initiate a request for mediation and the parties shall use reasonable efforts to promptly select a J.A.M.S. mediator and commence the mediation. In the event the parties are not able to agree on a mediator within thirty (30) days, J. A. M. S. or another judicial mediation service mutually acceptable to the parties shall appoint a mediator. The mediation shall be confidential and in accordance with California Evidence Code 1119 et. seq. The mediation shall be held in Santa Clara County, California and in accordance with the existing rules and practice of J. A. M. S. (or other judicial and mediation service selected). The parties shall use reasonable efforts to conclude the mediation within sixty (60) days of the date of either party's request for mediation. The mediation shall be held prior to any arbitration or court action (other than a claim by Landlord for unlawful detainer or any claim within the jurisdiction of the small claims court which are not subject to this mediation/arbitration provision and may be filed directly with a court of competent jurisdiction). Should the prevailing party in any dispute subject to this Section 19.E attempt an arbitration or a court action before attempting to mediate, the prevailing party shall not be entitled to attorney's fees that might otherwise be available to them in a court action or arbitration and in addition thereto, the party who is determined by the arbitrator to have resisted mediation, shall be sanctioned by the arbitrator or judge.

If a mediation is conducted but is unsuccessful, it shall be followed by final and binding arbitration administered by and in accordance with the then existing rules and practices of J.A.M.S. or the other judicial and mediation service selected, and judgment upon any award rendered by the arbitrator(s) may be entered by any state or federal court having jurisdiction thereof AS PROVIDED BY CALIFORNIA CODE OF CIVIL PROCEDURE SECTION 1280 ET. SEQ, AS SAID STATUTES THEN APPEAR, INCLUDING ANY AMENDMENTS TO SAID STATUTES OR SUCCESSORS TO SAID STATUTES OR AMENDED STATUTES, EXCEPT THAT in no event shall the parties be entitled to propound interrogatories or request for admissions during the arbitration process. The arbitrator shall be a retired judge or a licensed California attorney. The venue for any such arbitration or mediation shall be in Santa Clara County, California.

NOTICE: BY INITIALING IN THE SPACE BELOW YOU ARE AGREEING TO HAVE ANY DISPUTE ARISING OUT OF THE MATTERS INCLUDED IN THE "MEDIATION AND ARBITRATION OF DISPUTES" PROVISION DECIDED BY NEUTRAL ARBITRATION AS PROVIDED BY CALIFORNIA LAW AND YOU ARE GIVING UP ANY RIGHTS YOU MIGHT POSSESS TO HAVE THE DISPUTE LITIGATED IN A COURT OR fURY TRIAL. BY INITIALING IN THE SPACE BELOW YOU ARE GIVING UP YOUR JUDICIAL RIGHTS TO DISCOVERY AND APPEAL, UNLESS THOSE RIGHTS ARE SPECIFICALLY INCLUDED IN THE "MEDIATION AND ARBITRATION OF DISPUTES" PROVISION. IF YOU REFUSE TO SUBMIT TO ARBITRATION AFTER AGREEING TO THIS PROVISION, YOU MAY BE COMPELLED TO ARBITRATE UNDER THE AUTHORITY OF THE CALIFORNIA CODE OF CIVIL PROCEDURE. YOUR AGREEMENT TO THIS ARBITRATION PROVISION IS VOLUNTARY.

WE HAVE READ AND UNDERSTAND THE FOREGOING AND AGREE TO SUBMIT DISPUTES ARISING OUT OF THE MATTERS INCLUDED IN THE "MEDIATION AND ARBITRATION OF DISPUTES" PROVISION TO NEUTRAL ARBITRATION.

LANDLORD: ______ TENANT: _______

F. Entire Agreement: This Lease and the exhibits attached hereto contains all of the agreements and conditions made between the parties hereto and may not be modified orally or in any other manner other than by written agreement signed by all parties hereto or their respective successors in interest. This Lease supersedes and revokes all previous negotiations, letters of intent, lease proposals, brochures, agreements, representations, promises, warranties, and understandings, whether oral or in writing, between the parties or their respective representatives or any other person purporting to represent Landlord or Tenant.

G. Entry by Landlord: Upon prior notice to Tenant and subject to Tenant's reasonable security regulations, Tenant shall permit Landlord and his agents to enter into and upon the Premises at all reasonable times, and without any rent abatement or reduction or any liability to Tenant for any loss of occupation or quiet enjoyment of the Premises thereby occasioned, unless caused by Landlord's negligence or willful misconduct, for the following purposes: (i) inspecting and maintaining the Premises; (ii) making repairs, alterations or additions (only if agreed by Tenant) to the Premises; (iii) erecting additional building(s) and improvements on the land where the Premises are situated or on adjacent land owned by Landlord; and (iv) performing any obligations of Landlord under the Lease including remediation of hazardous materials if determined to be the responsibility of Landlord provided that Landlord agrees to use reasonable efforts to minimize interference with Tenant's use. Tenant shall permit Landlord and his agents, at any time within one hundred eighty (180) days prior to the Expiration Date (or at any time during the Lease if Tenant is in default hereunder), to place upon the Premises "For Lease" signs and exhibit the Premises to real estate brokers and prospective tenants at reasonable hours.

H. Estoppel Certificates: At any time during the Lease Term, each party (the "Responding Party") shall, within ten (10) days following written notice from the other party (the "Requesting Party"), execute and deliver to the Requesting Party a written statement certifying, if true, the following: (i) that this Lease is unmodified and in full force and effect (or, if modified, stating the nature of such modification); (ii) the date to which rent and other charges are paid in advance, if any; (iii) acknowledging that there are not, to Responding Party's knowledge, any uncured defaults on Requesting Party's part hereunder (or specifying such defaults if they are claimed); and (iv) such other information as Requesting Party may reasonably request. Any such statement may be conclusively relied upon by any prospective purchaser or encumbrancer of Requesting Party's interest in the Premises. The Responding Party's failure to deliver such statement within such time shall be conclusive upon the Responding Party that this Lease is in full force and effect without modification, except as may be represented by the Requesting Party, and that there are no uncured defaults in Requesting Party's performance. Tenant agrees to provide, within five (5) days of Landlord's request, Tenant's most recent three (3) years of audited financial statements for Landlord's use in financing the Premises or Landlord's interest therein.

I. Exhibits: All exhibits referred to are attached to this Lease and incorporated by reference.

J. Interest: All rent due hereunder, if not paid when due, shall bear interest at the rate of the Reference Rate published by Bank of America, San Francisco Branch, plus two percent (2%) per annum from that date until paid in full ("Agreed Interest Rate"). This provision shall survive the expiration or sooner termination of the Lease. Despite any other provision of this Lease, the total liability for interest payments shall not exceed the limits, if any, imposed by the usury laws of the State of California. Any interest paid in excess of those limits shall be refunded to Tenant by application of the amount of excess interest paid against any sums outstanding in any order that Landlord requires. If the amount of excess interest paid exceeds the sums outstanding, the portion exceeding those sums shall be refunded in cash to Tenant by Landlord. To ascertain whether any interest payable exceeds the limits imposed, any non-principal payment(including late charges) shall be considered to the extent permitted by law to be an expense or a fee, premium, or penalty rather than interest.

K. Modifications Required by Lender: If any Lender of Landlord or ground lessor of the Real Property Requires a modification of this Lease that will not increase Tenant's cost or expense or materially or adversely change Tenant's rights and obligations, this Lease shall be so modified and Tenant shall execute whatever documents are required and deliver them to Landlord within ten (10) days after the request.

L. No Presumption Against Drafter: Landlord and Tenant understand, agree and acknowledge that this Lease has been freely negotiated by both parties; and that in any controversy, dispute, or contest over the meaning, interpretation, validity, or enforceability of this Lease or any of its terms or conditions, there shall be no inference, presumption, or conclusion drawn whatsoever against either party by virtue of that party having drafted this Lease or any portion thereof.

M. Notices: All notices, demands, requests, or consents required to be given under this Lease shall be sent in writing by U.S. certified mail, return receipt requested, or by personal delivery or by a nationally recognized overnight courier addressed to the party to be notified at the address for such party specified in Section 1 of this Lease, or to such other place as the party to be notified may from time to time designate by at least fifteen (15) days prior notice to the notifying party. When this Lease requires service of a notice, that notice shall replace rather than supplement any equivalent or similar statutory notice, including any notices required by Code of Civil Procedure Section 1161 or any similar or successor statute. when a statute requires service of a notice in a particular manner, service of that notice (or a similar notice required by this lease) shall replace and satisfy the statutory service-of-notice procedures, including those required by Code of Civil Procedure Section 1162 or any similar or successor statute.

N. Property Management: No property management fee shall be payable to Landlord.

O. Rent: All monetary sums due from Tenant to Landlord under this Lease, including, without limitation those referred to as "additional rent", shall be deemed as rent.

P. Representations: Tenant acknowledges that neither Landlord nor any of its employees or agents have made any agreements, representations, warranties or promises with respect to the Premises or with respect to present or future rents, expenses, operations, tenancies or any other matter. Except as herein expressly set forth herein, Tenant relied on no statement of Landlord or its employees or agents for that purpose.

Q. Rights and Remedies: All rights and remedies hereunder are cumulative and not alternative to the extent permitted by law, and are in addition to all other rights and remedies in law and in equity.

R. Severability: If any term or provision of this Lease is held unenforceable or invalid by a court of competent jurisdiction, the remainder of the Lease shall not be invalidated thereby but shall be enforceable in accordance with its terms, omitting the invalid or unenforceable term.

S. Submission of Lease: Submission of this document for examination or signature by the parties does not constitute an option or offer to lease the Premises on the terms in this document or a reservation of the Premises in favor of Tenant. This document is not effective as a lease or otherwise until executed and delivered by both Landlord and Tenant.

T. Subordination: This Lease is subject and subordinate to ground and underlying leases, mortgages and deeds of trust (collectively "Encumbrances") which may now affect the Premises, to any covenants, conditions or restrictions of record, and to all renewals, modifications, consolidations, replacements and extensions thereof; provided, however, if the holder or holders of any such Encumbrance ("Holder") require that this Lease be prior and superior thereto, within seven (7) days after written request of Landlord to Tenant, Tenant shall execute, have acknowledged and deliver all documents or instruments, in the form presented to Tenant, which Landlord or Holder deems necessary or desirable for such purposes. Landlord shall have the right to cause this Lease to be and become and remain subject and subordinate to any and all Encumbrances which are now or may hereafter be executed covering the Premises or any renewals, modifications, consolidations, replacements or extensions thereof, for the full amount of all advances made or to be made thereunder and without regard to the time or character of such advances, together with interest thereon and subject to all the terms and provisions thereof; provided only, that in the event of termination of any such lease or upon the foreclosure of any such mortgage or deed of trust, Holder agrees to recognize Tenant's rights under this Lease as long as Tenant is not then in default beyond the expiration of any applicable cure period and continues to pay Base Monthly Rent and additional rent and observes and performs all required provisions of this Lease. Within ten (10) days after Landlord's written request, Tenant shall execute any documents required by Landlord or the Holder to make this Lease subordinate to any lien of the Encumbrance. If Tenant fails to do so, then in addition to such failure constituting a default by Tenant, it shall be deemed that this Lease is so subordinated to such Encumbrance. Notwithstanding anything to the contrary in this Section, Tenant hereby attorns and agrees to attorn to any entity purchasing or otherwise acquiring the Premises at any sale or other proceeding or pursuant to the exercise of any other rights, powers or remedies under such encumbrance.

This Lease constitutes a sublease under that certain Ground Lease dated March 5, 1999 (the "Existing Ground Lease") between The Sobrato 1979 Revocable Trust, As Amended ("Master Landlord"), as landlord and Landlord, as tenant, covering all of the real property within the Project, a copy which has been provided to Tenant, and under the Parcel Lease described in the next sentence. In connection with the subdivision of the Project as contemplated by Section 2.C above, it is anticipated that a separate Parcel Lease (as defined in the Existing Ground Lease) will be entered into between Master Landlord, as landlord, and Landlord, as tenant, for the lot within which the Building will be constructed. As used in this Lease, "Master Lease" shall mean the Existing Ground Lease, until such time as the Parcel Lease is entered into, and thereafter shall mean the Parcel Lease. Notwithstanding this Section 21.T above, concurrently with the execution of this Lease by Landlord and Tenant, Landlord and Tenant shall execute in recordable form, and Landlord shall cause Master Landlord to execute in recordable form, the Subordination, Nondisturbance and Attornment Agreement attached hereto as Exhibit "G" (the "SNDA"). Landlord shall cause the SNDA to be recorded at Landlord's cost in the Official Records of San Mateo County, California within five (5) days after this Lease is executed by Landlord and Tenant. Similarly, in connection with the Parcel Lease, within ten (10) days after Landlord's request, Landlord and Tenant shall execute in recordable form, and Landlord shall cause Master Landlord to execute in recordable form, a Subordination, Nondisturbance and Attornment Agreement substantially in the form of the SNDA (the "Revised SNDA"), modified to refer to the Parcel Lease, Memorandum of Parcel Lease to be recorded in connection with the Parcel Lease and the revised Premises description, rather than the Original Ground Lease, the Memorandum of Ground Lease referenced in the SNDA and the original Premises described in this Lease. Landlord shall cause the Revised SNDA to be recorded at Landlord's cost in the Official Records of San Mateo County, California immediately after recordation of the Memorandum of Lease recorded for the Parcel Lease.

Notwithstanding the foregoing, Tenant shall not be required to subordinate its interest under this Lease unless (i) such subordination' does not materially increase Tenant's obligations, or materially decrease its rights under this Lease, and (ii) Landlord first obtains from the holder of the mortgage, deed of trust, or other instrument of security to which this Lease is to become subordinated a written agreement that provides substantially that as long as Tenant performs its obligations under this Lease, no foreclosure of, deed given in lieu of foreclosure of, or sale under the encumbrance, and no steps or procedures taken under the encumbrance, shall affect Tenant's rights hereunder.

U. Survival of Indemnities: All indemnification, defense, and hold harmless obligations of Landlord and Tenant under this Lease shall survive the expiration or sooner termination of the Lease.

V. Time: Time is of the essence hereunder.

W. Transportation Demand Management Programs: Should a government agency or municipality require Landlord to institute TDM (Transportation Demand Management) facilities and/or program, Tenant agrees that the cost of TDM imposed facilities required on the Premises, including but not limited to employee showers, lockers, cafeteria, or lunchroom facilities, shall be paid by Tenant. Further, any ongoing costs or expenses associated with a TDM program which are required for the Premises and not provided by Tenant, such as an on-site TDM coordinator, shall be provided by Landlord with such reasonable costs being included as additional rent and reimbursed to Landlord by Tenant within thirty (30) days after demand. If TDM facilities and programs are instituted on a Project wide basis, Tenant shall pay its proportionate share of such costs in accordance with Section 8 above.

IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease on the day and year first above written.

Landlord: SOBRATO INTERESTS III Tenant: SIEBEL SYSTEMS, INC.

a California Limited Partnership a Delaware Corporation

By: _____________________________ By: _____________________________

Its: General Partner Its: _____________________________

Master Landlord: THE SOBRATO 1979 REVOCABLE TRUST

By: _____________________________

Its: Trustee

EXHIBIT "A" - Building and Project - Initial Buildout

(being finalized by architect - to be attached)

Exhibit "B" - Building and Project - Full Buildout

EXHIBIT "C" - Parcel Map & Declaration of Covenants and Grant of Easements

EXHIBIT "D" - Shell Plans and Specifications

(sheet references to be attached)

EXHIBIT "E" - Building Shell Definition

1. Building Structure

(a) All foundations to include footings, piling, grade beams, foundation walls or other building foundation components required to support the building structure.

(b) Concrete slab supported on beams and columns above the parking podium and any other reinforcing or structural connections that may be necessary or required as specified by structural engineer.

(c) Complete structural framing system comprised of rolled steel beams, columns, and braced-frame steel construction with corrugated metal deck and concrete fill, all members required by code to be fireproofed. Upper floor systems provide a minimum of 3" concrete over metal deck and are designed for an 80 lb. live load plus 20 lb. partition load. Structural framing will include intermediate beams for HVAC units at the roof, and for major shafts on each floor. A roof screen consistent with the design of the building and acceptable to the local Building and Planning Departments is included.

(d) Tinted high performance glass including required caulking and sealants. Tinted reflective glass window wall system with granite and stainless steel accents. Two (2) pair of lobby doors, and two (2) exit doors per building. All shell doors will be fitted with electric locks and conduit to J-boxes ready for connection to the Tenant's security system.

(e) Four (4) ply built up roofing by Owens-Corning, John Manville, or equal and all flashings over a light weight concrete on corrugated metal deck roof system. Title 24 code required roof insulation is included.

(f) Exterior painting where required with Texcoat textural paint and all caulking of exterior concrete joints in preparation for painting.

(g) One (1) steel fire stair at perimeter of building, and two (2) interior fire stairs which will extent to the roof.

(h) At grade loading area with screening and scissors lift external of building.

(i) Riser for Building sprinkler system (no sprinkler grid or drops).

2. Podium Garage Structure

(a) Podium garage structure with access ramps, fire sprinkler system, emergency exit stairways, and mechanical venting (if required).

(b) Lighting in podium parking to a minimum level per code.

3. Sitework

(a) All work outside the building perimeter walls shall be considered site work for the Building Shell and shall include asphalt concrete paving, landscaping, landscape irrigation, storm drainage, utility service laterals, curbs, gutters, sidewalks, specialty paving (if required), retaining walls, planters, trash enclosure, parking lot and landscape lighting and other exterior lighting per code. All fountains and podium landscaping shall also be considered site work for the Building Shell.

(b) Paving sections for automobile and truck access shall be according to the Geologic Soils Report.

(c) All parking lot striping to include handicap spaces and signage.

(d) Underground site storm drainage system shall be connected to the city storm system main.

4. Plumbing

(a) Underground sanitary sewer lateral connected to the city sewer main in the street and stubbed to the core of the building.

(b) Domestic water mains connected to the city water main in the street and stubbed to the building.

(c) Roof drain leaders and downspouts piped and connected to the site storm drainage system.

(d) Gas lines connected to the city or public utility mains and run to gas meters adjacent to, and in close proximity to the building. Meter supplied by utility company.

5. Electrical

(a) A primary and secondary electrical service from the street to the building electrical room in the garage podium including underground conduit, wire feeders, and transformer pads. Transformer supplied by utility company.

(b) Two 4" Underground conduit from the street to the building for telephone trunk lines by Pacific Telephone.

(c) Two 4" conduit from the building to each of the adjacent buildings for future data connections.

(d) An electrically operated landscape irrigation system, with controller, that is a complete and functioning system.

(e) Underground conduit from the building to the main fire protection system post indicated valve (PIV) for installation of supervisory alarm wiring.

6. General

(a) All construction shall conform to State and Local Building Codes, Title 24 Regulations, and shall be ADA Compliant.

(b) All building shell work shall be constructed as described above and as show on the drawings listed in the attached Exhibit (TBD).

(c) All other costs shall be deemed Tenant Improvements.

EXHIBIT "F" - Tenant Improvement Plans and Specifications

(sheet references to be attached)

EXHIBIT "G" - Subordination, Nondisturbance and Attornment Agreement

EX-10.10

Exhibit 10.10

Lease between

Sobrato Interests III and Siebel Systems, Inc.

Building 3 - 2207 Bridgepointe Parkway, San Mateo

Section Page #

Parties *

Premises *

Definitions *

Description *

Use *

Permitted Uses *

Uses Prohibited *

Advertisements and Signs *

Covenants, Conditions and Restrictions *

Term and Rental *

Base Monthly Rent *

Rental Adjustment *

Late Charges *

Security Deposit *

Construction *

Building Shell Plans *

Tenant Improvement Plans *

Tenant Improvement Pricing *

Change Orders *

Building Shell Costs *

Tenant Improvement Costs *

Construction *

General Contractor Overhead & Profit *

Tenant Delays *

Insurance *

Punch List & Warranty *

Other Work by Tenant *

Acceptance of Possession and Covenants to Surrender *

Delivery and Acceptance *

Condition Upon Surrender *

Failure to Surrender *

Alterations and Additions *

Tenant's Alterations *

Free From Liens *

Compliance With Governmental Regulations *

Maintenance of Premises *

Landlord's Obligations *

Tenant's Obligations *

Landlord and Tenant's Obligations Regarding Reimbursable Operating Costs *

Reimbursable Operating Costs *

Tenant's Allocable Share *

Exclusions to Reimbursable Operating Costs *

Waiver of Liability *

Tenant's Right to Audit *

Hazard Insurance *

Tenant's Use *

Landlord's Insurance *

Tenant's Insurance *

Waiver *

Taxes *

Utilities *

Toxic Waste and Environmental Damage *

Tenant's Responsibility *

Tenant's Indemnity Regarding Hazardous Materials *

Landlord's Indemnity Regarding Hazardous Materials *

Actual Release by Tenant *

Environmental Monitoring *

Tenant's Default *

Remedies *

Right to Re-enter *

Abandonment *

No Termination *

Non-Waiver *

Performance by Landlord *

Landlord's Liability *

Limitation on Landlord's Liability *

Limitation on Tenant's Recourse *

Indemnification of Landlord *

Destruction of Premises *

Landlord's Obligation to Restore *

Limitations on Landlord's Restoration Obligation *

Tenant's Rights with Respect to a Destruction of the Premises *

Condemnation *

Assignment or Sublease *

Consent by Landlord *

Assignment or Subletting Consideration *

No Release *

Reorganization of Tenant *

Permitted Transfers *

Effect of Default *

Effects of Conveyance *

Successors and Assigns *

Option to Extend the Lease Term *

Grant and Exercise of Option *

Determination of Fair Market Rental *

Resolution of a Disagreement over the Fair Market Rental *

Personal to Tenant *

Option to Extend the Lease Term *

Right of First Offering to Purchase *

Grant and Exercise of Option *

Exclusions *

General Provisions *

Attorney's Fees *

Authority of Parties *

Brokers *

Choice of Law *

Dispute Resolution *

Entire Agreement *

Entry by Landlord *

Estoppel Certificates *

Exhibits *

Interest *

Modifications Required by Lender *

No Presumption Against Drafter *

Notices *

Property Management *

Rent *

Representations *

Rights and Remedies *

Severability *

Submission of Lease *

Subordination *

Survival of Indemnities *

Time *

Transportation Demand Management Programs *

EXHIBIT A - Premises and Project - Initial Buildout *

EXHIBIT B - Not Applicable *

EXHIBIT C - Declaration of Covenants and Grant of Easements *

EXHIBIT D - Shell Plans and Specifications *

EXHIBIT E - Building Shell Definition *

EXHIBIT F - Tenant Improvement Plans and Specifications *

EXHIBIT G - Subordination, Nondisturbance and Attornment Agreement *

1. Parties: THIS LEASE, is entered into on this 11th day of June, 1999, ("Effective Date") between SOBRATO INTERESTS III, a California Limited Partnership, whose address is 10600 North De Anza Boulevard, Suite 200, Cupertino, CA 95014-2075 and SIEBEL SYSTEMS, INC., a Delaware Corporation, whose address is 1855 South Grant Street, San Mateo, California, CA 94402-2667, hereinafter called respectively Landlord and Tenant.

2. Premises:

A. Definitions.

i. Building. The term "Building" shall mean that five (5) story steel frame building containing approximately 167,505 rentable square feet and all Tenant Improvements installed therein to be constructed by Landlord and leased by Tenant pursuant to the terms of this Lease in the location labeled as Building 3 on Exhibit "A" and commonly known as 2207 Bridgepointe Parkway.

ii. Building 1. The term "Building 1" shall mean that five (5) story steel frame building containing approximately 141,496 rentable square feet to be constructed by Landlord and leased by Tenant pursuant to a separate lease between the Parties dated March 11, 1999 ("Building 1 Lease") in the location labeled as Building 1 on Exhibit "A" attached hereto and commonly known as 2215 Bridgepointe Parkway

iii. Building 2. The term "Building 2" shall mean that five (5) story steel frame building containing approximately 141,496 rentable square feet to be constructed by Landlord and leased by Tenant pursuant to a separate lease between the Parties dated March 11, 1999 ("Building 2 Lease") in the location labeled as Building 2 on Exhibit "A" and commonly known as 2211 Bridgepointe Parkway.

iv. Common Area. The term "Common Area" shall mean that certain real property beneath and surrounding the Building, Building 1 and Building 2 consisting of an underground parking garage of approximately 455 parking spaces, on-grade parking lots consisting of approximately 255 parking spaces, an above grade parking structure to total approximately 850 parking spaces, and the recreation areas and the adjacent landscaped site areas as shown on Exhibit "A"..

Landlord shall have the power to allocate to each tenant in the Project, the number of parking spaces in the podium garage, above-grade parking structure or other portions of the Project as to which Tenant may have the use in connection with its Building; provided that (i) such allocation is requested by at least one (1) tenant in the Project, (ii) Landlord shall not allocate to Tenant materially less than the Tenant's prorata share of parking calculated on the basis of the square footage of the buildings in the Project, and (iii) Landlord shall allocate parking in a manner so as to maximize the adjacency of parking to each building. Landlord shall further retain the right to restrict an appropriate amount of the parking for visitors of the Project or for car pooling (as may be required by a TDM program). At the request of Tenant or any other tenant in the Project, Landlord further agrees to restrict up to ten (10) spaces per building for key employees of Tenant (or of other tenants in the Project) or for other reasonable uses. Tenant shall be responsible for seeing that the total number of vehicles parked in the Project by employees and invitees of Tenant does not exceed the number of total spaces allocated to the Building.

v. Project. The term "Project" shall be that certain real property consisting of approximately 10.8 acres at the corner of Bridgepointe Circle and Bridgepointe Parkway in San Mateo, California and all improvements constructed thereon consisting at full buildout of the Building, Building 2, Building 3 and the Common Area as shown in Exhibit "B".

vi. Premises. The term "Premises" shall mean the Building and a non-exclusive right to use the Common Area. Unless expressly provided otherwise, the term Premises as used herein shall include the Tenant Improvements (defined in Section 5.B) constructed by Tenant pursuant to Section 5.B.

B. Grant: Landlord hereby leases the Premises to Tenant, and Tenant hires the Premises from Landlord.

C. Recordation of Parcel Map and Declaration: Tenant consents to recordation by Landlord of a Parcel Map (Parcel Map") and a Declaration of Covenants, Conditions and Restrictions ("Declaration"). The Parcel Map and the Declaration shall be substantially in the form attached hereto as Exhibit "C" with such changes as may be may be desired by Landlord or Landlord's lenders to facilitate the operation, construction, financing, sale and/or leasing of the Project, provided such changes do not materially and adversely affect Tenant's use of the Premises, and with such changes as may be required by the city or other governmental authority having jurisdiction over the Project. Landlord is seeking approval of the Parcel Map and Declaration to subdivide the existing parcel into the four lots to facilitate Landlord's operation, construction, financing, lease and/or sale of the Project as individual buildings. Landlord's failure to obtain approval of the Parcel Map or Declaration shall in no way invalidate this Lease. In the event the Parcel Map and Declaration are recorded by Landlord, the Section 2.A.vi shall be replaced by following: The term "Premises" shall mean (i) the land area within Lot 3; (ii) the Building; and (iii) the nonexclusive right to use the Common Area in accordance with the terms and conditions of the Declaration and this Lease. This Lease shall be subject and subordinate in all respects to the Declaration, as the same may be amended from time to time. Tenant covenants and agrees to refrain from doing or causing to be done, or permitting any thing or act to be done, which would constitute a default under the Declaration or which would or might make Landlord liable for any damages, claims or penalty. All assessments charged to the Premises pursuant to the Declaration, (other than those assessments which represent: the costs required to be paid and borne by Landlord under the express terms of this Lease (such as Landlord's maintenance costs pursuant to Section 8.A; fines, penalties and costs of suit charged by the Association, to the extent not caused by Tenant's breach of this Lease or violation of the Declaration; reimbursements to the Association for diminution of the Association's insurance proceeds, to the extent not caused by Tenant's violation of the insurance provisions of the Declaration; and assessments levied against the Premises because of the nonpayment of assessments levied on other lots within the Project other than the Premises) shall constitute a part of Tenant's Allocable Share of Reimbursable Operating Costs pursuant to Article 8 of this Lease.

Following recordation of the Declaration, if owners and occupants of Building 1 or Building 2 are violating the terms and conditions of the Declaration and such violation materially and adversely affects Tenant's rights under this Lease, then within a reasonable time following Tenant's request, Landlord shall take reasonable steps to enforce the provisions of the Declaration relating to such violation, in accordance with the procedures established in the Declaration, the cost of which shall be a Reimbursable Operating Cost pursuant to Article 8 of this Lease.

3. Use:

A. Permitted Uses: Tenant shall use the Premises only for the following purposes and shall not change the use of the Premises without the prior written consent of Landlord: General office uses including research and development and other incidental uses (such incidental uses shall include without limitation, a gymnasium and/or a cafeteria for use of Tenant's employees). Tenant shall use only the number of parking spaces allocated to Tenant under this Lease. Following recordation of the Declaration, if occupants of Building 1 or Building 2 are using parking spaces in excess of the number of spaces to which they are entitled under the Declaration, then within a reasonable time following Tenant's request, Landlord shall seek to enforce the provisions of the Declaration relating to such excessive use, in accordance with the procedures established in the Declaration, the cost of which shall be a Reimbursable Operating Cost pursuant to Article 8 of this Lease. Prior to recording the Declaration, Landlord shall cause the Declarants of the Declaration to confirm in writing for the benefit of Tenant that the signs and window coverings to be installed pursuant to Section 3.C of this Lease are approved by the Declarants. Landlord shall promptly send to Tenant all notices received from the Association pertaining to the Association's entry onto the Premises and Common Area, insurance coverage affecting the Premises, and assessments levied against the Premises. All commercial trucks and delivery vehicles shall be (i) loaded and unloaded in a manner which does not interfere with the businesses of other occupants of the Project, and (ii) permitted to remain on the Project only so long as is reasonably necessary to complete the loading and unloading. Landlord makes no representation or warranty that any specific use of the Premises desired by Tenant is permitted pursuant to any Laws.

B. Uses Prohibited: Tenant shall not commit or suffer to be committed on the Premises any waste, nuisance, or other act or thing which may disturb the quiet enjoyment of any other tenant in or around the Premises, nor allow any sale by auction or any other use of the Premises for an unlawful purpose. Tenant shall not (i) damage or overload the electrical, mechanical or plumbing systems of the Premises, (ii) attach, hang or suspend anything from the ceiling, walls or columns of the building or set any load on the floor in excess of the load limits for which such items are designed, or (iii) generate dust, fumes or waste products which create a fire or health hazard or damage the Premises or in the soils surrounding the Building. No materials, supplies, equipment, finished products or semi-finished products, raw materials or articles of any nature, or any waste materials, refuse, scrap or debris, shall be stored upon or permitted to remain on any portion of the Premises outside of the Building without Landlord's prior approval, which approval may be withheld in its sole discretion.

C. Advertisements and Signs: Tenant shall be permitted to place two (2) signs mounted on the building, one monument sign within the Common Area, and any directional signs necessary within the Common Area, provided such signs are approved by the city or other governing authority. Tenant shall be entitled to additional signage on Building 1 and Building 2 pursuant to the leases for these buildings. Any sign placed on the Premises shall be removed by Tenant, at its sole cost, prior to the Expiration Date or promptly following the earlier termination of the lease, and Tenant shall repair, at its sole cost, any damage or injury to the Premises caused thereby, and if not so removed, then Landlord may have same so removed at Tenant's expense.

D. Covenants, Conditions and Restrictions: This Lease is subject to the effect of (i) easements, mortgages or deeds of trust, ground leases, rights of way of record and any other matters or documents of record; and (ii) any zoning laws of the city, county and state where the Building is situated (collectively referred to herein as "Restrictions") and Tenant will conform to and will not violate the terms of any such Restrictions.

Tenant acknowledges that as to certain matters set forth in this Lease, the Association (defined in the Declaration) has or will have rights of approval or disapproval. If any matter requiring the Association's approval is submitted to Landlord by Tenant for Landlord's approval, Landlord shall respond to Tenant in a timely fashion. If Landlord approves such matter and such matter further requires the Association's approval, Landlord shall promptly submit the same to the Association, as applicable. In no event, however, shall Landlord's disapproval be deemed unreasonable if the Association has disapproved of such matter nor shall Landlord have any liability to Tenant by reason thereof.

4. Term and Rental:

A. Base Monthly Rent: The term ("Lease Term") shall be for one hundred forty four (144) months, commencing on substantial completion of construction as finally determined pursuant to Section 5.G (the "Commencement Date") estimated to occur on November 1, 2000, and ending one hundred forty four (144) months thereafter, ("Expiration Date"). Notwithstanding the foregoing, (i) in no event shall the Commencement Date be less than forty five (45) days following the Commencement Date for Building 1; and (ii) in the event Sobrato Construction acts as general contractor for the Tenant Improvements, should substantial completion of the Premises occur between November 2, 2000 and December 31, 2000, the Commencement Date of the Lease shall be deemed to be January 1, 2001. Notwithstanding the fact that the Lease Term begins on the Commencement Date, this Lease and all of the obligations of Landlord and Tenant shall be binding and in full force and effect from and after the Effective Date except for those obligations which begin on the Commencement Date. In addition to all other sums payable by Tenant under this Lease, Tenant shall pay as base monthly rent ("Base Monthly Rent") for the Premises the amount of Three Hundred Seventy Eight Thousand Eight Hundred Ninety Six Dollars ($378,896.00). Base Monthly Rent and Tenant's payment of operating expenses and taxes pursuant to Section 8 shall be payable beginning on the Commencement Date in advance on or before the first day of each calendar month during the Lease Term. All sums payable by Tenant under this Lease shall be paid to Landlord in lawful money of the United States of America, without offset or deduction and without prior notice or demand, at the address specified in Section 1 of this Lease or at such place or places as may be designated in writing by Landlord during the Lease Term. Base Monthly Rent for any period less than a calendar month shall be a pro rata portion of the monthly installment.

B. Rental Adjustment:

(i) For Variation in Rentable Square Feet: Upon Substantial Completion of construction, the Building shall be measured (from outside wall to outside wall including all areas covered by a structural roof), and if the actual square footage differs from 167,505 square feet, the initial Base Monthly Rent hereunder shall be adjusted to the product of Two and 262/1000 Dollars ($2.262) and the actual rentable square feet of the Building.

(ii) Periodic Adjustment: Beginning thirty (30) months after the Commencement Date for Building 1, and every thirty (30) months thereafter, the then-payable Base Monthly Rent shall be increased by seven and 50/100 percent (7.50%).

C. Late Charges: Tenant hereby acknowledges that late payment by Tenant to Landlord of Base Monthly Rent and other sums due hereunder will cause Landlord to incur costs not contemplated by this Lease, the exact amount of which is extremely difficult to ascertain. Such costs include but are not limited to: administrative, processing, accounting, and late charges which may be imposed on Landlord by the terms of any contract, revolving credit, mortgage, or trust deed covering the Premises. Accordingly, if any installment of Base Monthly Rent or other sum due from Tenant shall not be received by Landlord or its designee within ten (10) days after the rent is due, Tenant shall pay to Landlord a late charge equal to five (5%) percent of such overdue amount, which late charge shall be due and payable on the same date that the overdue amount was due. The parties agree that such late charge represents a fair and reasonable estimate of the costs Landlord will incur by reason of late payment by Tenant, excluding interest and attorneys fees and costs. If any rent or other sum due from Tenant remains delinquent for a period in excess of thirty (30) days then, in addition to such late charge, Tenant shall pay to Landlord interest on any rent that is not paid when due at the Agreed Interest Rate specified in Section 21.J following the date such amount became due until paid. Acceptance by Landlord of such late charge shall not constitute a waiver of Tenant's default with respect to such overdue amount nor prevent Landlord from exercising any of the other rights and remedies granted hereunder. In the event that a late charge is payable hereunder, whether or not collected, for three (3) consecutive installments of Base Monthly Rent, then the Base Monthly Rent shall automatically become due and payable quarterly in advance, rather than monthly, notwithstanding any provision of this Lease to the contrary. After four (4) quarterly installments have been paid on time, rent shall again be payable monthly.

D. Security Deposit:

(i) Amount: Tenant shall deposit with Landlord a letter of credit ("Letter of Credit") in a form reasonably acceptable to Landlord in the amount of Eight Million Four Hundred Thousand Dollars ($8,400,000.00) to secure Tenant's obligation to complete Tenant Improvements in the Building pursuant to this Lease. Upon Landlord's receipt of evidence reasonably satisfactory to Landlord of lien free completion of the Tenant Improvements and that Tenant has fully paid for the cost of all of Tenant Improvements for the Building, the Letter of Credit shall be cancelled and returned to Tenant by Landlord. Notwithstanding the foregoing, in the event Tenant elects to defer construction on a portion of the non-core Tenant Improvements in the Building (as provided further and restricted in Section 5.B), Landlord shall not require Tenant to continue to post the Letter of Credit after payment in full for all other Tenant Improvements associated with the Building.

(ii) Use by Landlord: Landlord shall be entitled to draw against the full amount of the Letter of Credit at any time provided only that Landlord certifies to the issuer of the Letter of Credit that Tenant has failed to make a payment for Tenant Improvement costs as provided in 5.F, that Tenant has failed to timely renew or extend the Letter of Credit as required by this subsection (ii), or that Tenant has failed to amend the Letter of Credit or obtain a new Letter of Credit as required by this subsection (ii) and such failure has not been cured within ten (10) days following Landlord's notice to Tenant. Tenant shall keep the Letter of Credit in effect at all times prior to payment in full for the Tenant Improvements for the Building. At least sixty (60) days prior to expiration of any Letter of Credit, the term thereof shall be renewed or extended for a period until Tenant has paid in full for the Tenant Improvements for the Building. Subject to the notice requirement and cure period provided herein, Tenant's failure to so renew or extend the Letter of Credit shall be a material default of this Lease by Tenant entitling Landlord to draw down on the entire amount of the Letter of Credit. Any amounts drawn on the Letter of Credit shall be used to pay for the cost of the Tenant Improvements. In the event the Letter of Credit is drawn by Landlord, and the proceeds used to pay for the completion of the Tenant Improvements in the Building, after Landlord's completion of the Tenant Improvements in the Building, Landlord shall refund to Tenant any excess proceeds from the Letter of Credit. In the event of termination of Landlord's interest in this Lease, Landlord may deliver the Letter of Credit to Landlord's successor in interest in the Premises and thereupon be relieved of further responsibility with respect to the Letter of Credit. Except as provided herein, no other security deposit shall be required by Tenant.

(iii) Letter of Credit Fee: Landlord and Tenant agree to share equally in the fee charged to provide the Letter of Credit. In no event, however, shall Landlord's share of the fee exceed the sum of Forty Two Thousand Dollars ($42,000.00) per annum.

5. Construction :

A. Building Shell Plans: The Building Shell shall be constructed in accordance with the Building Shell plans and guideline specifications prepared by Korth Sunseri Hagey ("Shell Architect"). The design development drawings for the Building Shell are attached hereto as Exhibit "D" ("Preliminary Shell Plans and Specifications"). The Shell Permit Drawings (i) shall be consistent with the Preliminary Shell Plans in all material respects, and (ii) shall provide for materials to be of a quality consistent with a "Class A" office project the where materials are not currently specified in the Preliminary Shell Plans. Landlord's affiliated construction company, Sobrato Construction Corporation shall act as the general contractor on the Building Shell and shall contract for the installation of the pile foundation system and shall begin this work immediately following the Effective Date. Upon completion of the Tenant Improvement Plans, Landlord and Tenant shall select a general contractor ("General Contractor") on the basis of a competitive bid of the cost to construct the Tenant Improvements. Landlord and Sobrato Construction shall use commercially reasonable efforts to ensure effective coordination between the General Contractor selected to construct the Tenant Improvements and Sobrato Construction Corporation. Landlord shall cause Sobrato Construction and the General Contractor to complete construction of the Building Shell and the Tenant Improvements. The Building Shell shall include those items set forth in the attached Exhibit "E" ("Building Shell Definition") which scope includes the cost of the parking structures. In the event of a conflict between Exhibit "D" and Exhibit "E", Exhibit "E" shall govern.

B. Tenant Improvement Plans: Tenant, at Tenant's sole cost and expense, will hire an interior architect ("Interior Architect") to prepare plans and outline specifications to be attached as Exhibit "F" ("Tenant Improvement Plans and Specifications") with respect to the construction of improvements to the interior premises ("Tenant Improvements"). The Tenant Improvement Plans and Specifications plans shall be completed for all aspects of the work by January 1, 2000, with all detail necessary for submittal to the city and for construction and shall include any information required by the relevant agencies regarding Tenant's use of Hazardous Materials if applicable. The Tenant Improvements shall consist of all items not included within the scope of the Building Shell Definition. All Tenant Improvements affecting or otherwise related to the Building Core will be subject to Landlord's reasonable approval. The "Building Core" shall include those items typically associated in the industry with an office building core including elevators, restrooms, fire sprinklers, HVAC and electrical systems distributed to each floor, exiting stair finishes and a finished building lobby. As to the balance of the Tenant Improvements, Landlord shall not have rights of approval, however, Tenant Improvement Plans shall provide for the creation of finished office space ready for occupancy with a minimum buildout in all areas of the Premises consisting of: (i) fire sprinklers, (ii) floorcoverings, (iii) overhead ceiling system (iv) distribution of the HVAC system, (v) overhead florescent lighting, and (vi) any other work required by the City of San Mateo necessary to obtain a Certificate of Occupancy. Tenant shall have the right to defer installation of the Tenant Improvements not associated with the Building Core in up to twenty percent (20%) of the rentable square footage of the Building. Except as provided in the preceding sentence, Tenant shall have no rights or ability to delay installation of any of the Tenant Improvements. The Tenant Improvement Plans and Specifications shall be prepared in sufficient detail to allow General Contractor to construct the Tenant Improvements. The General Contractor shall construct the Tenant Improvements in accordance with all Tenant Improvement Plans and Specifications. The Tenant Improvements shall not be removed or altered by Tenant without the prior written consent of Landlord as provided in Section 7. Tenant shall have the right to depreciate and claim and collect any investment tax credits in the Tenant Improvements during the Lease Term. Tenant shall further retain the right to encumber its leasehold interest with a first priority security interest, provided such lienholder has no right to remove any Tenant Improvements installed by Tenant pursuant to this Lease in the event of a default by Tenant under such encumbrance. Upon expiration of the Lease Term or any earlier termination of the Lease, the Tenant Improvements shall become the property of Landlord and shall remain upon and be surrendered with the Premises, and title thereto shall automatically vest in Landlord without any payment therefore.

C. Tenant Improvement Pricing. Within ten (10) days after completion of the Tenant Improvements Plans and Specifications, Landlord shall cause the General Contractor to submit to Tenant competitive bids from at least three (3) subcontractors for each aspect of the work in excess of Fifty Thousand and No/100 Dollars ($50,000.00) related to the Tenant Improvements. Landlord shall cause the General Contractor to utilize the low bid in each case unless Tenant approves General Contractor's use of another subcontractor, and the cost of the Tenant Improvements shall be based upon construction expenses equal to (i) the bid amounts as approved by Tenant, (ii) a reasonable contingency approved by Tenant to protect the General Contractor against cost overruns, and (iii) the general contractor fee specified in Section 5.H below ("Tenant Improvement Budget"). Upon Tenant's written approval of the Tenant Improvement Budget, which approval shall not be unreasonably withheld or delayed, Landlord and Tenant shall be deemed to have given their respective approvals of the final Tenant Improvement Plans and Specifications on which the cost estimate was made, and General Contractor shall proceed with the construction of the Tenant Improvements in accordance with the terms of Section 5.G below. If Tenant does not specifically approve or disapprove the bids within ten (10) business days, Tenant shall be deemed to have approved the bids.

D. Change Orders: Tenant shall have the right to order changes in the manner and type of construction of the Tenant Improvements. Upon request and prior to Tenant's submitting any binding change order, Landlord shall cause the General Contractor to promptly provide Tenant with written statements of the cost to implement and the time delay and increased construction costs associated with any proposed change order, which statements shall be binding on General Contractor. If no time delay or increased construction cost amount is noted on the written statement, the parties agree that there shall be no adjustment to the construction cost or the Commencement Date associated with such change order. If ordered by Tenant, Landlord shall cause the General Contractor to implement such change order and the cost of constructing the Tenant Improvements shall be increased or decreased in accordance with the cost statement previously delivered by General Contractor to Tenant for any such change order. In no event, however, shall Tenant have the right to eliminate the minimum buildout requirements specified in Section 5.B above.

E. Building Shell Costs: Landlord shall pay all costs associated with the Building Shell.

F. Tenant Improvement Costs: Tenant shall pay all costs associated with the Tenant Improvements. The cost of Tenant Improvements shall consist of only the following to the extent actually incurred by General Contractor in connection with the construction of Tenant Improvements: construction costs, all permit fees, construction taxes or other costs imposed by governmental authorities related to the Tenant Improvements, and General Contractor overhead and profit as described in Section 5.H below. During the course of construction of Tenant Improvements, Landlord may deliver to Tenant not more than once each calendar month a written request for payment prepared by the General Contractor ("Progress Invoice") which shall include and be accompanied by General Contractor's certified statements setting forth the amount requested, certifying the percentage of completion of each item for which reimbursement is requested, and if requested by Tenant, a certificate from Landlord's Architect certifying the percentage completion. Tenant shall pay the amount due pursuant to the Progress Invoice less a ten percent (10%) retention directly to the General Contractor, within thirty (30) days after Tenant's receipt of the above items. All costs for Tenant Improvements shall be fully documented to and verified by Tenant.

G. Construction: The Building Shell and Tenant Improvements shall be deemed substantially complete ("Substantially Complete" or "Substantial Completion") when the Building Shell and Tenant Improvements have been substantially completed in accordance with the Shell Plans and Specifications and Tenant Improvement Plans and Specifications, as evidenced by the completion of a final inspection or the issuance of a certificate of occupancy or its equivalent by the appropriate governmental authority for the Building Shell and Tenant Improvements, and the issuance of a certificate by the Architect certifying that the Building Shell and Tenant Improvements have been completed in accordance with the plans. Installation of (i) Tenant's data and phone cabling, (ii) Tenant's furniture, or (iii) the exterior landscaping shall not be required in order to deem the Premises Substantially Complete. Any prevention, delay or stoppage due to strikes, lockouts, inclement weather unusual for the season it which it occurs, labor disputes, inability to obtain labor, materials, fuel or reasonable substitutes therefor, governmental restrictions, regulations, controls, civil commotion, fire or other act of God, and another causes beyond the reasonable control of Landlord (except financial inability) shall extend the dates contained in this Section 5.G by a period equal to the period of any said prevention, delay or stoppage.

If Landlord cannot obtain building permits or Substantially Complete construction by the dates set forth herein, this Lease shall not be void or voidable nor shall Landlord be liable for any loss or damage resulting therefrom. Notwithstanding anything to the contrary contained herein, if Landlord has not delivered the Premises substantially completed to Tenant on or before November, 1, 2001 ("Termination Date"), Tenant shall have the right to cancel this Lease by providing Landlord written notice within sixty (60) days following the Termination Date as Tenant's sole and exclusive remedy for such failure. In such event, Landlord shall return the Letter of Credit to Tenant and thereafter neither party shall have any further liability to the other under this Lease.

H. General Contractor Overhead & Profit: As compensation to General Contractor for its services related to construction of the Building Shell and Tenant Improvements, General Contractor shall receive a fee based upon the cost of construction determined and agreed upon by Landlord and Tenant at the time of the competitive bid of the Tenant Improvements. Except as provided therein, Landlord or General Contractor shall not receive any other fee or payment from Tenant in connection with General Contractor's services.

I. Tenant Delays: A "Tenant Delay" shall mean any delay in Substantial Completion of the Building as a result of any of the following: (i) Tenant's failure to complete or approve the Tenant Improvement Plans by the dates set forth in Section 5.B, (ii) Tenant's failure to approve the bids for construction by the dates set forth in Section 5.C, (iii) changes to the plans requested by Tenant which delay the progress of the work, (iv) Tenant's request for materials components, or finishes which are not available in a commercially reasonable time given the anticipated Commencement Date, (v) Tenant's failure to make a progress payment for Tenant Improvements as provided in Section 5.F after notice from Landlord and expiration of the applicable cure period, (vi) Tenant's request for more than one (1) rebidding of the cost of all or a portion of the work, and (vii) any errors or omissions in the Tenant Improvement Plans provided by Tenant's architect unless caused by misinformation provided by Landlord, Landlord's Architect or the General Contractor. Notwithstanding anything to the contrary set forth in this Lease, and regardless of the actual date the Premises are Substantially Complete, the Commencement Date shall be deemed to be the date the Commencement Date would have occurred if no Tenant Delay had occurred as reasonable determined by Landlord. In addition, if a Tenant Delay results in an increase in the cost of the labor or materials, Tenant shall pay the cost of such increases.

J. Insurance: Sobrato Construction Corporation and General Contractor shall each procure (as a cost of the Building Shell or the Tenant Improvements as applicable) a "Broad Form" liability insurance policies in the amount of Three Million Dollars ($3,000,000.00). Landlord shall also procure (as a cost of the Building Shell) builder's risk insurance for the full replacement cost of the Building Shell and Tenant Improvements while the Building and Tenant Improvements are under construction, up until the date that the fire insurance policy described in Section 9 is in full force and effect.

K. Punch List & Warranty: After the Building Shell and Tenant Improvements are Substantially Complete, Landlord shall cause Sobrato Construction Corporation and/or the General Contractor to immediately correct any construction defect or other "punch list" item which Tenant brings to Landlord's attention. All such work shall be performed so as to reasonably minimize the interruption to Tenant and its activities on the Premises. Sobrato Construction Corporation shall provide a standard contractor's warranty with respect to the Building Shell for one (1) year from the Commencement Date. The General Contractor shall provide a standard contractor's warranty with respect to the Tenant Improvements for one (1) year from the Commencement Date. Such warranties shall exclude routine maintenance, damage caused by Tenant's negligence or misuse, and acts of God. Notwithstanding anything to the contrary in this Lease, Landlord warrants that on the commencement of the term hereof, (i) the Premises shall comply with all laws, codes, ordinances and other governmental requirements then applicable to the Building Shell and the Common Area, (ii) all components of the Building Shell shall be in good working order, condition, and repair, and (iii) the Premises, the Project, and the land and groundwater thereunder, shall be free of contamination by any Hazardous Materials then regulated by any applicable local, state, or federal law not caused by Tenant. In the event of any breach of any of the foregoing warranties, Landlord shall promptly rectify the same at its sole cost and expense and shall indemnify, defend, and hold Tenant harmless from and against any damages, liability, suits, losses, claims, actions, costs or expenses (including attorneys' and consultants' fees and costs) suffered by Tenant in connection with any such breach.

L. Other Work by Tenant: All work not described in the Shell Plans and Specifications or Tenant Improvement Plans and Specifications, such as furniture, telephone equipment, telephone wiring and office equipment work, shall be furnished and installed by Tenant at Tenant's cost. Prior to Substantial Completion, Tenant shall be obligated to (i) provide active phone lines to any elevators, and (ii) contract with a firm to monitor the fire system. When the construction of the Tenant Improvements has proceeded to the point where Tenant's work of installing its fixtures and equipment in the Premises can be commenced, General Contractor shall notify Tenant and shall permit Tenant and its authorized representatives and contractors access to the Premises before the Commencement Date for the purpose of installing Tenant's trade fixtures and equipment.

6. Acceptance of Possession and Covenants to Surrender:

A. Delivery and Acceptance: On the Commencement Date, Landlord shall deliver and Tenant shall accept possession of the Premises and enter into occupancy of the Premises on the Commencement Date. Except as otherwise specifically provided herein, Tenant agrees to accept possession of the Premises in its then existing condition, subject to all Restrictions and without representation or warranty by Landlord except as provided in Section 5.K above. Tenant's taking possession of any part of the Premises shall be deemed to be an acceptance of any work of improvement done by Landlord in such part as complete and in accordance with the terms of this Lease except for (i) "Punch List" type items of which Tenant has given Landlord written notice prior to the time Tenant takes possession, and (ii) Landlord's warranties provided in Section 5.K above. Within thirty (30) days after the Commencement Date, Tenant agrees to occupy at least a one (1) floor of the Premises.

B. Condition Upon Surrender: Tenant further agrees on the Expiration Date or on the sooner termination of this Lease, to surrender the Premises to Landlord in good condition and repair, normal wear and tear excepted. In this regard, "normal wear and tear" shall be construed to mean wear and tear caused to the Premises by the natural aging process which occurs in spite of prudent application of the commercially reasonable standards for maintenance, repair replacement, and janitorial practices, and does not include items of neglected or deferred maintenance. In any event, Tenant shall cause the following to be done prior to the Expiration Date or sooner termination of this Lease: (i) all interior walls shall be free of holes and gouges, (ii) all tiled floors shall be cleaned and waxed, (iii) all carpets shall be cleaned and shampooed, (iv) all broken, marred, stained or nonconforming acoustical ceiling tiles shall be replaced, (v) all cabling placed above the ceiling by Tenant or Tenant's contractors shall be removed, (vi) all windows shall be washed; (vii) the HVAC system shall be serviced by a reputable and licensed service firm and left in "good operating condition and repair" as so certified by such firm, (viii) the plumbing and electrical systems and lighting shall be placed in good order and repair (including replacement of any burned out, discolored or broken light bulbs, ballasts, or lenses. On or before the Expiration Date or sooner termination of this Lease, Tenant shall remove all its personal property and trade fixtures from the Premises. All property and fixtures not so removed shall be deemed as abandoned by Tenant. Tenant shall ascertain from Landlord within ninety (90) days before the Expiration Date whether Landlord desires to have the Premises or any parts thereof restored to their condition as of the Commencement Date, or to cause Tenant to surrender all Alterations (as defined in Section 7) in place to Landlord. If Landlord shall so desire, and provided that at the time Landlord gave its consent to their installation, Landlord also notified Tenant that such removal would be required, Tenant shall, at Tenant's sole cost and expense, remove such Alterations as Landlord requires and shall repair and restore said Premises or such parts thereof before the Expiration Date. Such repair and restoration shall include causing the Premises to be brought into compliance with all applicable building codes and laws in effect at the time of the removal to the extent such compliance is necessitated by the repair and restoration work. In no event, however, shall Tenant be required to remove any portion of the initial Tenant Improvements installed in accordance with the terms of this Lease.

C. Failure to Surrender: If the Premises are not surrendered at the Expiration Date or sooner termination of this Lease, Tenant shall be deemed in a holdover tenancy pursuant to this Section 6.C and Tenant shall indemnify, defend, and hold Landlord harmless against loss or liability resulting from delay by Tenant in so surrendering the Premises including, without limitation, any claims made by any succeeding tenant founded on such delay and costs incurred by Landlord in returning the Premises to the required condition, plus interest at the Agreed Interest Rate. Any holding over after the termination or Expiration Date with Landlord's express written consent, shall be construed as month-to-month tenancy, terminable on thirty (30) days written notice from either party, and Tenant shall pay as Base Monthly Rent to Landlord a rate equal to one hundred twenty five percent (125%) of the Base Monthly Rent due in the month preceding the termination or Expiration Date, plus all other amounts payable by Tenant under this Lease. Any holding over shall otherwise be on the terms and conditions herein specified, except those provisions relating to the Lease Term and any options to extend or renew, which provisions shall be of no further force and effect following the expiration of the applicable exercise period. If Tenant remains in possession of the Premises after expiration or earlier termination of this Lease without Landlord's consent, Tenant's continued possession shall be on the basis of a tenancy at sufferance and Tenant shall pay as rent during the holdover period an amount equal to one hundred fifty percent (150%) of the Base Monthly Rent due in the month preceding the termination or Expiration Date, plus all other amounts payable by Tenant under this Lease. This provision shall survive the termination or expiration of the Lease.

7. Alterations and Additions:

A. Tenant's Alterations: Tenant shall not make, or suffer to be made, any alteration or addition to the Premises ("Alterations"), or any part thereof, without obtaining Landlord's prior written consent and delivering to Landlord the proposed architectural and structural plans for all such Alterations at least fifteen (15) days prior to the start of construction. If such Alterations affect the structure of the Building, Tenant additionally agrees to reimburse Landlord its reasonable out- of-pocket costs incurred in reviewing Tenant's plans. Notwithstanding anything to the contrary contained in this lease, Tenant shall be entitled to construct Alterations which cost Tenant less than One Hundred Thousand Dollars ($100,000.00) in the aggregate each year, without obtaining Landlord's consent, provided such Alterations do not affect the exterior of the Premises or adversely affect the structural integrity or life safety systems of the Premises. Tenant shall not proceed to make such Alterations until Tenant has obtained all required governmental approvals and permits, and provides Landlord reasonable security, in form reasonably approved by Landlord, to protect Landlord against mechanics' lien claims. Tenant agrees to provide Landlord (i) written notice of the anticipated and actual start-date of the work, (ii) a complete set of half-size (15" X 21") vellum as-built drawings, and (iii) a certificate of occupancy for the work upon completion of the Alterations if required by applicable law. All Alterations shall be constructed in compliance with all applicable building codes and laws including, without limitation, the Americans with Disabilities Act of 1990. Upon the Expiration Date, all Alterations, except movable furniture and trade fixtures, shall become a part of the realty and belong to Landlord but shall nevertheless be subject to removal by Tenant as provided in Section 6 above. Alterations which are not deemed as trade fixtures include heating, lighting, electrical systems, air conditioning, walls, carpeting, or any other installation which has become an integral part of the Premises. All Alterations shall be maintained, replaced or repaired by Tenant at its sole cost and expense.

B. Free From Liens: Tenant shall keep the Premises free from all liens arising out of work performed, materials furnished, or obligations incurred by Tenant or claimed to have been performed for Tenant. In the event Tenant fails to discharge any such lien within fifteen (15) days after receiving notice of the filing, Landlord shall be entitled to discharge the lien at Tenant's expense and all resulting reasonable costs incurred by Landlord, including reasonable attorney's fees shall be due from Tenant as additional rent.

C. Compliance With Governmental Regulations: The term Laws or Governmental Regulations shall include all federal, state, county, city or governmental agency laws, statutes, ordinances, standards, rules, requirements, or orders now in force or hereafter enacted, promulgated, or issued. The term also includes government measures regulating or enforcing public access, traffic mitigation, occupational, health, or safety standards for employers, employees, landlords, or tenants. Tenant, at Tenant's sole expense shall make all repairs, replacements, alterations, or improvements needed to comply with all Governmental Regulations except as otherwise expressly provided in this Lease. The judgment of any court of competent jurisdiction or the admission of Tenant in any action or proceeding against Tenant (whether Landlord be a party thereto or not) that Tenant has violated any such law, regulation or other requirement in its use of the Premises shall be conclusive of that fact as between Landlord and Tenant.

8. Maintenance of Premises:

A. Landlord's Obligations: Landlord at its sole cost and expense, shall maintain in good condition, order, and repair, and replace as and when necessary, the foundation, exterior load bearing walls glass curtainwall, and roof structure of the Building Shell. Landlord further agrees to perform repairs and replacements to the Common Area to maintain the Common Area in good condition, order and repair (subject to Tenant's reimbursement obligation). Tenant acknowledges and agrees that the Association formed pursuant to the Declaration may perform the maintenance, repair and restoration obligations of Landlord under this Section 8.A and other sections of this Lease on behalf of Landlord and other owners of any portion of the Project, in discharge of Landlord's maintenance, repair and restoration obligations under this Lease. As to increases in annual assessments or the imposition of a special assessment under the Declaration which would require the vote of the Owners (as defined in the Declaration), Landlord agrees to vote in favor or such assessments to the extent Landlord reasonably determines such sums are required to maintain the Premises in the condition required by this Lease. Notwithstanding the foregoing, in the event that Tenant leases from Landlord all of the space then developed within the Project, Tenant shall have the right to perform the repairs, replacements and maintenance of the Common Area and pay such costs directly.

B. Tenant's Obligations: Subject to Sections 15 and 16, Tenant shall clean, maintain, repair and replace when necessary the Building and every part thereof through regular inspections and servicing, including but not limited to: (i) all plumbing and sewage facilities, (ii) all heating ventilating and air conditioning facilities and equipment, (iii) all fixtures, interior walls floors, carpets and ceilings, (iv) all electrical facilities and equipment, (v) all automatic fire extinguisher equipment, (vi) all elevator equipment, and (vii) the roof membrane system. All wall surfaces and floor tile are to be maintained in an as good a condition as when Tenant took possession free of holes, gouges, or defacements. With respect to items (ii), (vi) and (vii) above, Tenant shall provide Landlord a copy of a service contract between Tenant and a licensed service contractor providing for periodic maintenance of all such systems or equipment in conformance with the manufacturer's recommendations. Tenant shall provide Landlord upon request, a copy of such preventive maintenance contracts and paid invoices for the recommended work if requested by Landlord.

C. Landlord and Tenant's Obligations Regarding Reimbursable Operating Costs: Notwithstanding the provisions of Sections 8, 9, 10 and 11 of this Lease, Tenant agrees to reimburse Landlord for Tenant's Allocable Share (as defined in Section 8.E below) of the expenses resulting from Landlord's payment of Reimbursable Operating Costs (as defined in Section 8.D below) in connection with the Premises or in connection with the Project which are not otherwise Landlord's obligation hereunder. Tenant agrees to pay its Allocable Share of the Reimbursable Operating Costs as additional rental within ten (10) business days of written invoice from Landlord.

D. Reimbursable Operating Costs: For purposes of calculating Tenant's Allocable Share of Building and Project Costs, the term "Reimbursable Operating Costs" is defined as all reasonable costs and expenses of the nature hereinafter described which are incurred by Landlord in connection with ownership and operation of the Building or the Project in which the Premises are located. All costs and expenses shall be determined in accordance with generally accepted accounting principles which shall be consistently applied, including but not limited to the following: (i) common area utilities, including water, power, telephone, heating, lighting, air conditioning, ventilating, and Building utilities to the extent not separately metered; (ii) common area maintenance and service agreements for the Building and/or Project and the equipment therein, including without limitation, common area janitorial services, alarm and security services, exterior window cleaning, and maintenance of the sidewalks, landscaping, waterscape, roof membrane, parking garages and parking areas, driveways, service areas, mechanical rooms, elevators, and the building exterior; (iii) insurance premiums and costs, including without limitation, the premiums and cost of fire, casualty and liability coverage and rental abatement and earthquake (if available at commercially reasonable rates) insurance applicable to the Building or Project; (iv) repairs, replacements and general maintenance (excluding repairs and general maintenance paid by proceeds of insurance or by Tenant or other third parties, and repairs or alterations attributable solely to tenants of the Building or Project other than Tenant); and (v) all real estate taxes and assessment installments or other impositions or charges which may be levied on the Building or Project, upon the occupancy of the Building or Project and including any substitute or additional charges which may be imposed during, or applicable to the Lease Term including real estate tax increases due to a sale, transfer or other change of ownership of the Building or Project, as such taxes are levied or appear on the City and County tax bills and assessment rolls. Landlord shall have no obligation to provide guard services or other security measures for the benefit of the Project. Tenant assumes all responsibility for the protection of Tenant and Tenant's Agents from acts of third parties; provided, however, that nothing contained herein shall prevent Landlord, at its sole option, from providing security measures for the Project. This is a "Net" Lease, meaning that Base Monthly Rent is paid to Landlord net of all costs and expenses, except as provided otherwise in this Lease. The provision for payment of Reimbursable Operating Costs by means of periodic payment of Tenant's Allocable Share of Building and/or Project Costs is intended to pass on to Tenant and reimburse Landlord for all costs of operating and managing the Building and/or Project.

E. Tenant's Allocable Share: For purposes of prorating Reimbursable Operating Costs which Tenant shall pay, Tenant's Allocable Share of Reimbursable Operating Costs shall be computed by multiplying the Reimbursable Operating Costs by a fraction, the numerator of which is the rentable square footage of the Premises and the denominator of which is either the total rentable square footage of the Building if the service or cost is allocable only to the Building, or the total square footage of the buildings completed within the Project if the service or cost is allocable to the entire Project. Tenant's obligation to share in Reimbursable Operating Costs shall be adjusted to reflect the Lease Commencement and Expiration dates and is subject to recalculation in the event of expansion of the Building or Project.

F. Exclusions to Reimbursable Operating Costs: Notwithstanding anything to the contrary contained in this Lease, the following costs and expenses shall not be included within Reimbursable Operating Costs: (i) Leasing commissions, attorneys' fees, costs, disbursements, and other expenses incurred in connection with negotiations or disputes with tenants, or in connection with leasing, renovating, or improving space for tenants or other occupants or prospective tenants or other occupants of the Project; (ii) The cost of any service sold to any tenant (including Tenant) or other occupant for which Landlord is entitled to be reimbursed as an additional charge or rental over and above the basic rent and escalations payable under the lease with that tenant; (iii) Any depreciation on the Project; (iv) Expenses in connection with services or other benefits of a type that are not provided to Tenant but which are provided another tenant or occupant of the Project; (v) Costs incurred due to Landlord's violation of any terms or conditions of the Declaration, this Lease or any other lease relating to the Project; (vi) Overhead profit increments paid to Landlord's subsidiaries or affiliates for services on or to the building or for supplies or other materials to the extent that the cost of the services, supplies, or materials exceeds the cost that would have been paid had the services, supplies, or materials been provided by unaffiliated parties on a competitive basis; (vii) All interest, loan fees, and other carrying costs related to any mortgage or deed of trust or related to any capital item, and all rental and other payable due under any ground or underlying lease, or any lease for any equipment ordinarily considered to be of a capital nature (except janitorial equipment which is not affixed to the Project.); (viii) Any compensation paid to clerks, attendants, or other persons in commercial concessions operated by Landlord; (ix) Advertising and promotional expenditures; (x) Costs of repairs and other work occasioned by fire, windstorm, or other casualty of a nature required to be insured against under this Lease in excess of the deductible; (xi) Any costs, fines, or penalties incurred due to violations by Landlord of any governmental rule or authority, this Lease or any other lease in the Project, or due to Landlord's negligence or willful misconduct; (xii) Property management fees; (xiii) Costs for sculpture, paintings, or other objects of art (and insurance thereon or extraordinary security in connection therewith); (xiv) The cost of correcting any building code or other violations which were violations prior to the Commencement Date of this Lease; (xv) The cost of containing, removing, or otherwise remediating any contamination of the Project (including the underlying land and ground water) by any Hazardous Materials where such contamination was not caused by Tenant.

F. Waiver of Liability: Failure by Landlord to perform any defined services, or any cessation thereof, when such failure is caused by accident, breakage, repairs, strikes, lockout or other labor disturbances or labor disputes of any character or by any other cause, similar or dissimilar, shall not render Landlord liable to Tenant in any respect, including damages to either person or property, nor be construed as an eviction of Tenant, nor cause an abatement of rent, nor relieve Tenant from fulfillment of any covenant or agreement hereof. Should any equipment or machinery utilized in supplying the services listed herein break down or for any cause cease to function properly, upon receipt of written notice from Tenant of any deficiency or failure of any services, Landlord shall use reasonable diligence to repair the same promptly, but Tenant shall have no right to terminate this Lease and shall have no claim for rebate of rent or damages on account of any interruptions in service occasioned thereby or resulting therefrom. Tenant waives the provisions of California Civil Code Sections 1941 and 1942 concerning the Landlord's obligation of tenantability and Tenant's right to make repairs and deduct the cost of such repairs from the rent. Landlord shall not be liable for a loss of or injury to person or property, however occurring, through or in connection with or incidental to furnishing, or its failure to furnish, any of the foregoing unless causes by its gross negligence or willful misconduct.

G. Tenant's Right to Audit: Tenant shall have the right to audit at Landlord's local offices, at Tenant's expense, Landlord's accounts and records relating to Reimbursable Operating Costs. Such audit shall be conducted by a certified public accountant approved by Landlord, which approval shall not be unreasonably withheld. If such audit reveals that Landlord has overcharged Tenant, the amount overcharged shall be paid to Tenant within 30 days after the audit is concluded, together with interest thereon at the rate of ten percent (10.0%) per annum, from the date paid by Tenant until payment of the overcharge is made to Tenant. In addition, if the amount paid by Tenant exceeds the Reimbursable Operating Costs which should have been charged to Tenant by more than five percent (5.0%), the cost of the audit shall be paid by Landlord.

9. Hazard Insurance:

A. Tenant's Use: Tenant shall not use or permit the Premises, or any part thereof, to be used for any purpose other than that for which the Premises are hereby leased; and no use of the Premises shall be made or permitted, nor acts done, which will cause an increase in premiums or a cancellation of any insurance policy covering the Project or any part thereof, nor shall Tenant sell or permit to be sold, kept, or used in or about the Premises, any article prohibited by the standard form of fire insurance policies. Tenant shall, at its sole cost, comply with all requirements of any insurance company or organization necessary for the maintenance of reasonable fire and public liability insurance covering the Premises and appurtenances.

B. Landlord's Insurance: Landlord agrees to purchase and keep in force fire, extended coverage insurance in an amount equal to the replacement cost of the Building as determined by Landlord's insurance company's appraisers. If required by the holder of the first deed of trust on the property, such fire and property damage insurance may be endorsed to cover loss caused by such additional perils against which Landlord may elect to insure, including earthquake and/or flood, and shall contain reasonable deductibles which, in the case of earthquake and flood insurance may be up to 15% of the replacement value of the property. Additionally Landlord may maintain a policy of (i) commercial general liability insurance insuring Landlord (and such others designated by Landlord) against liability for personal injury, bodily injury, death and damage to property occurring or resulting from an occurrence in, on or about the Premises or Project in an amount as Landlord determines is reasonably necessary for its protection, and (ii) rental lost insurance covering a twelve (12) month period. Tenant agrees to pay Landlord as additional rent, on demand, the full cost of said insurance and any insurance costs allocable to the Building pursuant to the Declaration as evidenced by insurance billings to Landlord, and in the event of damage covered by said insurance, the amount of any commercially reasonable deductible under such policy. Payment shall be due to Landlord within thirty (30) days after written invoice to Tenant. It is understood and agreed that Tenant's obligation under this Section will be prorated to reflect the Lease Commencement and Expiration Dates. Tenant acknowledges and agrees that the Association formed pursuant to the Declaration may procure all or any portion of the insurance required to be maintained by Landlord under this Lease on behalf of Landlord and in discharge of Landlord's obligation to procure such insurance under this Lease, under one or more policies procured by the Association from time to time for the benefit of Landlord and other owners of any portion of the Project, the cost of which shall be paid by Tenant pursuant to this section 9.B, provided that the cost to Tenant shall not be greater than that which Tenant would have had to pay if Landlord obtained such coverage directly.

C. Tenant's Insurance: Tenant agrees, at its sole cost, to insure its personal property, Tenant Improvements and Alterations for their full replacement value (without depreciation) and to obtain worker's compensation and public liability and property damage insurance for occurrences within the Premises with a combined single limit of not less than Five Million Dollars ($5,000,000.00). Tenant's liability insurance shall be primary insurance containing a cross-liability endorsement, and shall provide coverage on an "occurrence" rather than on a "claims made" basis. Tenant shall name Master Landlord, Landlord and their respective lenders as an additional insured and shall deliver evidence of insurance and renewal certificates to Landlord. All such policies shall provide for thirty (30) days' prior written notice to Landlord of any cancellation, termination, or reduction in coverage.

D. Waiver: Landlord and Tenant hereby waive all rights each may have against the other on account of any loss or damage sustained by Landlord or Tenant, as the case may be, or to the Premises or its contents, which may arise from any risk covered by their respective insurance policies (or which would have been covered had such insurance policies been maintained in accordance with this Lease) as set forth above. The parties shall use their reasonable efforts to obtain from their respective insurance companies a waiver of any right of subrogation which said insurance company may have against Landlord, Master Landlord or Tenant, as the case may be.

10. Taxes: Tenant shall be liable for and shall pay as additional rental, prior to delinquency, the following: (i) all taxes and assessments levied against Tenant's personal property and trade or business fixtures; (ii) all real estate taxes and assessment installments or other impositions or charges which may be levied on the Premises or upon the occupancy of the Premises, including any substitute or additional charges which may be imposed applicable to the Lease Term; and (iii) real estate tax increases due to an increase in assessed value resulting from a sale, transfer or other change of ownership of the Premises as it appears on the City and County tax bills during the Lease Term. Tenant's obligation under this Section shall be prorated to reflect the Lease Commencement and Expiration Dates. If, at any time during the Lease Term a tax, excise on rents, business license tax or any other tax, however described, is levied or assessed against Landlord as a substitute or addition, in whole or in part, for taxes assessed or imposed on land or Buildings, Tenant shall pay and discharge its pro rata share of such tax or excise on rents or other tax before it becomes delinquent; except that this provision is not intended to cover net income taxes, inheritance, gift or estate tax imposed upon Landlord. In the event that a tax is placed, levied, or assessed against Landlord and the taxing authority takes the position that Tenant cannot pay and discharge its pro rata share of such tax on behalf of Landlord, then at Landlord's sole election, Landlord may increase the Base Monthly Rent by the exact amount of such tax and Tenant shall pay such increase. If by virtue of any application or proceeding brought by or on behalf of Landlord, there results a reduction in the assessed value of the Premises during the Lease Term, Tenant agrees to reimburse Landlord for all costs incurred by Landlord in connection with such application or proceeding, not to exceed the amount of any savings realized by Tenant. In the event the Project is not subdivided as provided in Section 2.C and the tax bill covers the entire Project, the real estate taxes and assessments shall be prorated as provided in Section 8.E.

11. Utilities: Tenant shall pay directly to the providing utility all water, gas, electric, telephone, and other utilities supplied to the Premises. Landlord shall not be liable for loss of or injury to person or property, however occurring, through or in connection with or incidental to furnishing or the utility company's failure to furnish utilities to the Premises unless caused by Landlord's gross negligence of willful misconduct, and Tenant shall not be entitled to abatement or reduction of any portion of Base Monthly Rent or any other amount payable under this Lease.

12. Toxic Waste and Environmental Damage:

A. Tenant's Responsibility: Without the prior written consent of Landlord, Tenant shall not bring, use, or permit upon the Premises, or generate, create, release, emit, or dispose (nor permit any of the same) from the Premises any chemicals, toxic or hazardous gaseous, liquid or solid materials or waste, including without limitation, material or substance having characteristics of ignitability, corrosivity, reactivity, or toxicity or substances or materials which are listed on any of the Environmental Protection Agency's lists of hazardous wastes or which are identified in Division 22 Title 26 of the California Code of Regulations as the same may be amended from time to time or any wastes, materials or substances which are or may become regulated by or under the authority of any applicable local, state or federal laws, judgments, ordinances, orders, rules, regulations, codes or other governmental restrictions, guidelines or requirements. ("Hazardous Materials") except for those substances customary in typical office uses for which no consent shall be required. In order to obtain consent, Tenant shall deliver to Landlord its written proposal describing the toxic material to be brought onto the Premises, measures to be taken for storage and disposal thereof, safety measures to be employed to prevent pollution of the air, ground, surface and ground water. Landlord's approval may be withheld in its reasonable judgment. In the event Landlord consents to Tenant's use of Hazardous Materials on the Premises or such consent is not required, Tenant represents and warrants that it shall comply with all Governmental Regulations applicable to Hazardous Materials including doing the following: (i) adhere to all reporting and inspection requirements imposed by Federal, State, County or Municipal laws, ordinances or regulations and will provide Landlord a copy of any such reports or agency inspections; (ii) obtain and provide Landlord copies of all necessary permits required for the use and handling of Hazardous Materials on the Premises; (iii) enforce Hazardous Materials handling and disposal practices consistent with industry standards; (iv) surrender the Premises free from any Hazardous Materials arising from Tenant's bringing, using, permitting, generating, creating, releasing, emitting or disposing of Hazardous Materials; and (v) properly close the facility with regard to Hazardous Materials including the removal or decontamination of any process piping, mechanical ducting, storage tanks, containers, or trenches which have come into contact with Hazardous Materials and obtain a closure certificate from the local administering agency prior to the Expiration Date.

B. Tenant's Indemnity Regarding Hazardous Materials: Tenant shall, at its sole cost and expense, comply with all laws pertaining to, and shall with counsel reasonably acceptable to Landlord, indemnify, defend and hold harmless Landlord, Master Landlord and their trustees, shareholders, directors, officers, employees, partners, affiliates, and agents from, any claims, liabilities, costs or expenses incurred or suffered by Landlord arising from the bringing, using, permitting, generating, emitting or disposing of Hazardous Materials by Tenant or a third party through the surface soils of the Premises during the Lease Term or the violation of any Governmental Regulation or environmental law, by Tenant or Tenant's Agents. Tenant's indemnification and hold harmless obligations include, without limitation, the following arising from the bringing, using, permitting, generating, emitting or disposing of Hazardous Materials by Tenant or a third party through the surface soils of the Premises during the Lease Term or the violation of any Governmental Regulation or environmental law, by Tenant or Tenant's Agents.: (i) claims, liability, costs or expenses resulting from or based upon administrative, judicial (civil or criminal) or other action, legal or equitable, brought by any private or public person under common law or under the Comprehensive Environmental Response, Compensation and Liability Act of 1980 ("CERCLA"), the Resource Conservation and Recovery Act of 1980 ("RCRA") or any other Federal, State, County or Municipal law, ordinance or regulation; (ii) claims, liabilities, costs or expenses pertaining to the identification, monitoring, cleanup, containment, or removal of Hazardous Materials from soils, riverbeds or aquifers including the provision of an alternative public drinking water source; (iii) all costs of defending such claims; (iv) losses attributable to diminution in the value of the Premises or the Building; (v) loss or restriction of use of rentable space in the Building; (vi) Adverse effect on the marketing of any space in the Building; and (vi) all other liabilities, obligations, penalties, fines, claims, actions (including remedial or enforcement actions of any kind and administrative or judicial proceedings, orders or judgments), damages (including consequential and punitive damages), and costs (including attorney, consultant, and expert fees and expenses) resulting from the release or violation. This indemnification shall survive the expiration or termination o this Lease.

C. Landlord's Indemnity Regarding Hazardous Materials: Landlord shall with counsel reasonably acceptable to Tenant, indemnify, defend and hold harmless Tenant and Tenant's shareholders, directors, officers, employees, partners, affiliates, and agents from, any claims, liabilities, costs or expenses incurred or suffered by Tenant arising from the bringing, using, permitting, generating, emitting or disposing of Hazardous Materials by Landlord or the violation of any Governmental Regulation or environmental law, by Landlord or Landlord's Agents. Landlord's indemnification and hold harmless obligations include, without limitation, the following: (i) claims, liability, costs or expenses resulting from or based upon administrative, judicial (civil or criminal) or other action, legal or equitable, brought by any private or public person under common law or under the Comprehensive Environmental Response, Compensation and Liability Act of 1980 ("CERCLA"), the Resource Conservation and Recovery Act of 1980 ("RCRA") or any other Federal, State, County or Municipal law, ordinance or regulation; (ii) claims, liabilities, costs or expenses pertaining to the identification, monitoring, cleanup, containment, or removal of Hazardous Materials from soils, riverbeds or aquifers including the provision of an alternative public drinking water source; (iii) all costs of defending such claims; and (iv) all other liabilities, obligations, penalties, fines, claims, actions (including remedial or enforcement actions of any kind and administrative or judicial proceedings, orders or judgments), damages (including consequential and punitive damages), and costs (including attorney, consultant, and expert fees and expenses) resulting from the release or violation. This indemnification shall survive the expiration or termination o this Lease.

C. Actual Release by Tenant: Tenant agrees to notify Landlord of any lawsuits or orders which relate to the remedying of or actual release of Hazardous Materials on or into the soils or ground water at or under the Premises. Tenant shall also provide Landlord all notices required by Section 25359.7(b) of the Health and Safety Code and all other notices required by law to be given to Landlord in connection with Hazardous Materials. Without limiting the foregoing, each party shall also deliver to the other party, within twenty (20) days after receipt thereof, any written notices from any governmental agency alleging a material violation of, or material failure to comply with, any federal, state or local laws, regulations, ordinances or orders, the violation of which or failure to comply with poses a foreseeable and material risk of contamination of the ground water or injury to humans (other than injury solely to Tenant, Tenant's Agents and employees within the Building).

In the event of any release on or into the Premises or into the soil or ground water under the Premises, the Building or the Project of any Hazardous Materials used, treated, stored or disposed of by Tenant or Tenant's Agents, Tenant agrees to comply, at its sole cost, with all laws, regulations, ordinances and orders of any federal, state or local agency relating to the monitoring or remediation of such Hazardous Materials. In the event of any such release of Hazardous Materials Tenant shall immediately give verbal and follow-up written notice of the release to Landlord, and Tenant agrees to meet and confer with Landlord and its Lender to attempt to eliminate and mitigate any financial exposure to such Lender and resultant exposure to Landlord under California Code of Civil Procedure Section 736(b) as a result of such release, and promptly to take reasonable monitoring, cleanup and remedial steps given, inter alia, the historical uses to which the Property has and continues to be used, the risks to public health posed by the release, the then available technology and the costs of remediation, cleanup and monitoring, consistent with acceptable customary practices for the type and severity of such contamination and all applicable laws. Nothing in the preceding sentence shall eliminate, modify or reduce the obligation of Tenant under 12.B of this Lease to indemnify and hold Landlord and Master Landlord harmless from any claims liabilities, costs or expenses incurred or suffered by them rising from the bringing, using, permitting, generating, emitting or disposing of Hazardous Materials by Tenant or a third party through the surface soils of the Premises during the Lease Term or the violation of any Governmental Regulation or environmental law, by Tenant or Tenant's Agents. Tenant shall provide Landlord prompt written notice of Tenant's monitoring, cleanup and remedial steps.

In the absence of an order of any federal, state or local governmental or quasi-governmental agency relating to the cleanup, remediation or other response action required by applicable law, any dispute arising between Landlord and Tenant concerning Tenant's obligation to Landlord under this Section 12.C concerning the level, method, and manner of cleanup, remediation or response action required in connection with such a release of Hazardous Materials shall be resolved by mediation and/or arbitration pursuant to the provisions of Section 21.E of this Lease.

D. Environmental Monitoring: Landlord and its agents shall have the right to inspect, investigate, sample and monitor the Premises including any air, soil, water, ground water or other sampling or any other testing, digging, drilling or analysis to determine whether Tenant is complying with the terms of this Section 12 provided reasonable grounds to suspect a violation exist. If Landlord discovers that Tenant is not in compliance with the terms of this Section 12, any such reasonable costs incurred by Landlord, including attorneys' and consultants' fees, shall be due and payable by Tenant to Landlord within thirty (30) days following Landlord's written demand therefore.

13. Tenant's Default: The occurrence of any of the following shall constitute a material default and breach of this Lease by Tenant: (i) Tenant's failure to pay any rent including additional rent or any other payment due under this Lease within ten (10) days following Landlord's notice of nonpayment, (ii) the abandonment of the Premises by Tenant; (iii) Tenant's failure to observe and perform any other required provision of this Lease, where such failure continues for thirty (30) days after written notice from Landlord, provided, however, that if the nature of the default is such that it cannot reasonably be cured within the 30-day period, Tenant shall not be deemed in default if it commences within such period to cure, and thereafter diligently prosecutes the same to completion; (iv) Tenant's making of any general assignment for the benefit of creditors; (v) the filing by or against Tenant of a petition to have Tenant adjudged a bankrupt or of a petition for reorganization or arrangement under any law relating to bankruptcy (unless, in the case of a petition filed against Tenant, the same is dismissed after the filing); (vi) the appointment of a trustee or receiver to take possession of substantially all of Tenant's assets located at the Premises or of Tenant's interest in this Lease, where possession is not restored to Tenant within sixty (60) days; (vii) the attachment, execution or other judicial seizure of substantially all of Tenant's assets located at the Premises or of Tenant's interest in this Lease, where such seizure is not discharged within sixty (60) days; (viii) a default by Tenant under the Building 2 Lease (if then leased by Tenant from Landlord), or (ix) a default by Tenant under the Building 1 Lease (if leased by Tenant from Landlord).

A. Remedies: In the event of any such default by Tenant, then in addition to other remedies available to Landlord at law or in equity, Landlord shall have the immediate option to terminate this Lease and all rights of Tenant hereunder by giving written notice of such intention to terminate. In the event Landlord elects to so terminate this Lease, Landlord may recover from Tenant all the following: (i) the worth at time of award of any unpaid rent which had been earned at the time of such termination; (ii) the worth at time of award of the amount by which the unpaid rent which would have been earned after termination until the time of award exceeds the amount of such rental loss for the same period that Tenant proves could have been reasonably avoided; (iii) the worth at time of award of the amount by which the unpaid rent for the balance of the Lease Term after the time of award exceeds the amount of such rental loss that Tenant proves could be reasonably avoided; (iv) any other amount necessary to compensate Landlord for all detriment proximately caused by Tenant's failure to perform its obligations under this Lease, or which in the ordinary course of things would be likely to result therefrom; including the following: (x) reasonable expenses for repairing, altering or remodeling the Premises if such expenses are necessary to relet the Premises, (y) reasonable broker's fees, advertising costs or other expenses of reletting the Premises, and (z) costs of carrying the Premises such as taxes, insurance premiums, utilities and security precautions and assessments due under the Declaration, and (v) at Landlord's election, such other reasonable amounts in addition to or in lieu of the foregoing as may be permitted by applicable California law. The term "rent", as used herein, is defined as the minimum monthly installments of Base Monthly Rent and all other sums required to be paid by Tenant pursuant to this Lease, all such other sums being deemed as additional rent due hereunder. As used in (i) and (ii) above, "worth at the time of award" shall be computed by allowing interest at a rate equal to the discount rate of the Federal Reserve Bank of San Francisco plus five (5%) percent per annum. As used in (iii) above, "worth at the time of award" shall be computed by discounting such amount at the discount rate of the Federal Reserve Bank of San Francisco at the time of award plus one (1%) percent.

B. Right to Re-enter: In the event of any such default by Tenant, Landlord shall have the right, after terminating this Lease, to re-enter the Premises and remove all persons and property. Such property may be removed and stored in a public warehouse or elsewhere at the cost of and for the account of Tenant, and disposed of by Landlord in any manner permitted by law.

C. Abandonment: If Landlord does not elect to terminate this Lease as provided in Section 13.A or 13.B above, then the provisions of California Civil Code Section 1951.4, (Landlord may continue the lease in effect after Tenant's breach and abandonment and recover rent as it becomes due if Tenant has a right to sublet and assign, subject only to reasonable limitations) as amended from time to time, shall apply and Landlord may from time to time, without terminating this Lease, either recover all rental as it becomes due or relet the Premises or any part thereof for such term or terms and at such rental or rentals and upon such other terms and conditions as Landlord in its sole discretion may deem advisable, with the right to make alterations and repairs to the Premises. In the event that Landlord elects to so relet, rentals received by Landlord from such reletting shall be applied in the following order to: (i) the payment of any indebtedness other than Base Monthly Rent due hereunder from Tenant to Landlord; (ii) the payment of any cost of such reletting; (iii) the payment of the cost of any alterations and repairs to the Premises; and (iv) the payment of Base Monthly Rent due and unpaid hereunder. The residual rentals, if any, shall be held by Landlord and applied in payment of future Base Monthly Rent as the same may become due and payable hereunder. Landlord shall the obligation to market the space but shall have no obligation to relet the Premises following a default if Landlord has other comparable available space within the Building or Project. In the event the portion of rentals received from such reletting which is applied to the payment of rent hereunder during any month be less than the rent payable during that month by Tenant hereunder, then Tenant shall pay such deficiency to Landlord immediately upon demand. Such deficiency shall be calculated and paid monthly. Tenant shall also pay to Landlord, as soon as ascertained, any reasonable costs and expenses incurred by Landlord in such reletting or in making such alterations and repairs not covered by the rentals received from such reletting.

D. No Termination: Landlord's re-entry or taking possession of the Premises pursuant to 13.B or 13.C shall not be construed as an election to terminate this Lease unless written notice of such intention is given to Tenant or unless the termination is decreed by a court of competent jurisdiction. Notwithstanding any reletting without termination by Landlord because of any default by Tenant, Landlord may at any time after such reletting elect to terminate this Lease for any such default.

E. Non-Waiver: Landlord may accept Tenant's payments without waiving any rights under this Lease, including rights under a previously served notice of default. No payment by Tenant or receipt by Landlord of a lesser amount than any installment of rent due shall be deemed as other than payment on account of the amount due. If Landlord accepts payments after serving a notice of default, Landlord may nevertheless commence and pursue an action to enforce rights and remedies under the previously served notice of default without giving Tenant any further notice or demand. Furthermore, the Landlord's acceptance of rent from the Tenant when the Tenant is holding over without express written consent does not convert Tenant's Tenancy from a tenancy at sufferance to a month to month tenancy. No waiver of any provision of this Lease shall be implied by any failure of Landlord to enforce any remedy for the violation of that provision, even if that violation continues or is repeated. Any waiver by Landlord of any provision of this Lease must be in writing. Such waiver shall affect only the provision specified and only for the time and in the manner stated in the writing. No delay or omission in the exercise of any right or remedy by Landlord shall impair such right or remedy or be construed as a waiver thereof by Landlord. No act or conduct of Landlord, including, without limitation, the acceptance of keys to the Premises, shall constitute acceptance of the surrender of the Premises by Tenant before the Expiration Date. Only written notice from Landlord to Tenant of acceptance shall constitute such acceptance of surrender of the Premises. Landlord's consent to or approval of any act by Tenant which requires Landlord's consent or approvals shall not be deemed to waive or render unnecessary Landlord's consent to or approval of any subsequent act by Tenant.

F. Performance by Landlord: If Tenant fails to perform any obligation required under this Lease or by law or governmental regulation, Landlord in its sole discretion may, following notice and expiration of the applicable cure period, without waiving any rights or remedies and without releasing Tenant from its obligations hereunder, perform such obligation, in which event Tenant shall pay Landlord as additional rent all sums paid by Landlord in connection with such substitute performance, including interest at the Agreed Interest Rate within thirty (30) days of Landlord's written notice for such payment.

14. Landlord's Liability:

A. Limitation on Landlord's Liability: In the event of Landlord's failure to perform any of its covenants or agreements under this Lease, Tenant shall give Landlord written notice of such failure and shall give Landlord thirty (30) days to cure or commence to cure such failure prior to any claim for breach or resultant damages, provided, however, that if the nature of the default is such that it cannot reasonably be cured within the 30-day period, Landlord shall not be deemed in default if it commences within such period to cure, and thereafter diligently prosecutes the same to completion. In addition, upon any such failure by Landlord, Tenant shall give notice by registered or certified mail to any person or entity with a security interest in the Premises ("Mortgagee") that has provided Tenant with notice of its interest in the Premises, and shall provide Mortgagee a reasonable opportunity to cure such failure, including such time to obtain possession of the Premises by power of sale or judicial foreclosure, if such should prove necessary to effectuate a cure. Tenant agrees that each of the Mortgagees to whom this Lease has been assigned is an expressed third-party beneficiary hereof. Tenant waives any right under California Civil Code Section 1950.7 or any other present or future law to the collection of any payment or deposit from Mortgagee or any purchaser at a foreclosure sale of Mortgagee's interest unless Mortgagee or such purchaser shall have actually received and not refunded the applicable payment or deposit. Tenant Further waives any right to terminate this Lease and to vacate the Premises on Landlord's default under this Lease. Tenant's sole remedy on Landlord's default is an action for damages or injunctive or declaratory relief.

B. Limitation on Tenant's Recourse: If Landlord is a corporation trust, partnership, joint venture, unincorporated association or other form of business entity: (i) the obligations of Landlord shall not constitute personal obligations of the officers, directors, trustees, partners, joint venturers, members, owners, stockholders, or other principals or representatives except to the extent of their interest in the Premises. Tenant shall have recourse only to the interest of Landlord in the Premises or for the satisfaction of the obligations of Landlord and shall not have recourse to any other assets of Landlord for the satisfaction of such obligations.

C. Indemnification of Landlord: As a material part of the consideration rendered to Landlord, Tenant hereby waives all claims against Landlord except to the extent caused by Landlord's gross negligence, willful misconduct or a breach of this Lease for damages to goods, wares and merchandise, and all other personal property in, upon or about said Premises and for injuries to persons in or about said Premises, from any cause arising at any time to the fullest extent permitted by law, and Tenant shall indemnify and hold Landlord, Master Landlord and their shareholders, directors, officers, trustees, employees, partners, affiliates and agents exempt and harmless from any damage or injury to any person, or to the goods, wares and merchandise and all other personal property of any person, arising from the use of the Premises, Building, and/or Project by Tenant and Tenant's Agents or from the failure of Tenant to keep the Premises in good condition and repair as herein provided, except to the extent due to the gross negligence or willful misconduct of Landlord. Further, in the event Landlord is made party to any litigation due to the acts or omission of Tenant and Tenant's Agents, Tenant will indemnify, defend (with counsel reasonably acceptable to Landlord) and hold Landlord harmless from any such claim or liability including Landlord's costs and expenses and reasonable attorney's fees incurred in defending such claims except to the extent due to the gross negligence or willful misconduct of Landlord.

15. Destruction of Premises:

A. Landlord's Obligation to Restore: In the event of a destruction of the Premises during the Lease Term Landlord shall repair the same to the approximate condition which existed prior to such destruction. Such destruction shall not annul or void this Lease; however, Tenant shall be entitled to a proportionate reduction of Base Monthly Rent while repairs are being made, such proportionate reduction to be based upon the extent to which the repairs interfere with Tenant's business in the Premises, as reasonably determined by the Parties. In no event shall Landlord be required to replace or restore Alterations, Tenant Improvements, Tenant's fixtures or personal property. With respect to a destruction which Landlord is obligated to repair or may elect to repair under the terms of this Section, Tenant waives the provisions of Section 1932, and Section 1933, Subdivision 4, of the Civil Code of the State of California, and any other similarly enacted statute, and the provisions of this Section 15 shall govern in the case of such destruction. If Landlord is required to repair the Premises in the event of destruction pursuant to this Lease, Landlord agrees that it will not vote under the Declaration in favor or not repairing the Premises or Common Area.

B. Limitations on Landlord's Restoration Obligation: Notwithstanding the provisions of Section 15.A, Landlord shall have no obligation to repair, or restore the Premises if any of the following occur: (i) if the repairs cannot be made in three hundred sixty five (365) days from the date of receipt of all governmental approvals necessary under the laws and regulations of State, Federal, County or Municipal authorities, as reasonably determined by Landlord, (ii) if the holder of the first deed of trust or mortgage encumbering the Building elects not to permit the insurance proceeds payable upon damage or destruction to be used for such repair or restoration, (iii) the damage or destruction is not fully covered by the insurance maintained by Landlord, (iv) the damage or destruction occurs in the last twenty four (24) months of the Lease Term (unless Tenant commits to exercise any available option to extend the Lease Term pursuant to Section 18 of this Lease), (v) Tenant is in default pursuant to the provisions of Section 13 beyond expiration of the applicable cure period, (vi) Tenant has vacated the Premises for more than ninety (90) days, or (vii) if repair of the Common Area is necessary before repairs to the Premises can be

performed and Landlord reasonably determines that repairs to the Common Area will not be made within one hundred eighty (180) days after the date of the damage and destruction. In any such event Landlord may elect either to (i) complete the repair or restoration, or (ii) terminate this Lease by providing Tenant written notice of its election within sixty (60) days following the damage or destruction.

C. Tenant's Rights with Respect to a Destruction of the Premises: Notwithstanding anything to the contrary contained in this Lease: Landlord shall give notice to Tenant of its election to rebuild or not to rebuild the Premises within thirty (30) days of casualty to the Premises and such notice shall specify Landlord's architect's or engineer's reasonable estimate as to the time required to rebuild or restore the Premises. If, in the reasonable opinion of Landlord's architect or engineer, the Premises will take longer than three hundred sixty five (365) days to rebuild or restore and Landlord has elected to perform such rebuilding or restoration, Tenant may, notwithstanding Landlord's election, terminate this Lease by written notice to Landlord of such termination within five (5) days after its receipt of Landlord's notice. Such termination shall be effective thirty (30) days after the giving of Tenant's notice. If Landlord fails to restore the Premises (including reasonable means of access thereto) within a period which is sixty (60) days longer than the period stated in Landlord's notice to Tenant as the estimated rebuilding period, 'Tenant, at any time thereafter until such rebuilding is completed, may terminate this Lease by delivering written notice to Landlord of such termination, in which event this Lease shall terminate as of the date of the giving of such notice. If casualty to the Premises occurs within the last twenty-four months of the term and the period in which Tenant is obligated to exercise its option to renew the term pursuant to Section 18 has not expired, Tenant shall have thirty (30) days after the date of casualty in which to notify Landlord of its election to exercise such renewal option. If Tenant elects to renew the term as provided above, Landlord shall have no right to terminate the Lease pursuant to this Section 15.

16. Condemnation: If any part of the Premises shall be taken for any public or quasi-public use, under any statute or by right of eminent domain or private purchase in lieu thereof, and only a part thereof remains which is susceptible of occupation hereunder, this Lease shall, as to the part so taken, terminate as of the day before title vests in the condemnor or purchaser ("Vesting Date") and Base Monthly Rent payable hereunder shall be adjusted so that Tenant is required to pay for the remainder of the Lease Term only such portion of Base Monthly Rent as the value of the part remaining after such taking bears to the value of the entire Premises prior to such taking. If all of the Premises or such part thereof be taken so that there does not remain a portion susceptible for occupation hereunder, this Lease shall terminate on the Vesting Date. If part or all of the Premises be taken, all compensation awarded upon such taking shall go to Landlord, and Tenant shall have no claim thereto; but Landlord shall cooperate with Tenant, without cost to Landlord, to recover compensation for damage to or taking of any Alterations, Tenant Improvements, or for Tenant's moving costs. Tenant hereby waives the provisions of California Code of Civil Procedures Section 1265.130 and any other similarly enacted statue, and the provisions of this Section 16 shall govern in the case of such taking.

17. Assignment or Sublease:

A. Consent by Landlord: Except as specifically provided in this Section 17.E, Tenant may not assign, sublet, hypothecate, or allow a third party to use the Premises without the express written consent of Landlord which shall not be unreasonably withheld, conditioned or delayed. Except in connection with a Permitted Transfer, in the event Tenant desires to assign this Lease or any interest herein including, without limitation, a pledge, mortgage or other hypothecation, or sublet the Premises or any part thereof, Tenant shall deliver to Landlord (i) executed counterparts of any agreement and of all ancillary agreements with the proposed assignee/subtenant, (ii) current financial statements of the transferee covering the preceding three years if available, (iii) the nature of the proposed transferee's business to be carried on in the Premises, (iv) a statement outlining all consideration to be given on account of the Transfer, and (v) a current financial statement of Tenant. Landlord may condition its approval of any Transfer to a certification from both Tenant and the proposed transferee of all consideration to be paid to Tenant in connection with such Transfer. At Landlord's request, Tenant shall also provide additional information reasonably required by Landlord to determine whether it will consent to the proposed assignment or sublease. Landlord shall have a fifteen business (15) day period following receipt of all the foregoing within which to notify Tenant in writing that Landlord elects to: (i) terminate this Lease in the event of an assignment only; (ii) permit Tenant to assign or sublet such space to the named assignee/subtenant on the terms and conditions set forth in the notice; or (iii) refuse consent. If Landlord should fail to notify Tenant in writing of such election within the 15-day period, Landlord shall be deemed to have elected option (ii) above. In the event Landlord elects option (i) above, this Lease shall expire with respect to such part of the Premises on the date upon which the proposed sublease was to commence, and from such date forward, Base Monthly Rent and Tenant's Allocable Share of all other costs and charges shall be adjusted based upon the proportion that the rentable area of the Premises remaining bears to the total rentable area of the Premises. In the event Landlord elects option (ii) above, Landlord's written consent to the proposed assignment or sublease shall not be unreasonably withheld, provided and upon the condition that: (i) the proposed assignee or subtenant is engaged in a business that is limited to the use expressly permitted under this Lease; (ii) the proposed assignee or subtenant is a company with sufficient financial worth and management ability to undertake the financial obligation of this Lease and Landlord has been furnished with reasonable proof thereof; (iii) the proposed assignment or sublease is in form reasonably satisfactory to Landlord; (iv) Tenant reimburses Landlord on demand for any reasonable costs that may be incurred by Landlord in connection with said assignment or sublease, including the costs of making investigations as to the acceptability of the proposed assignee or subtenant and legal costs incurred in connection with the granting of any requested consent; and (vi) Tenant shall not have advertised or publicized in any way the availability of the Premises without prior notice to Landlord. In the event all or any one of the foregoing conditions are not satisfied, Landlord shall be considered to have acted reasonably if it withholds its consent.

B. Assignment or Subletting Consideration: Any rent or other economic consideration realized by Tenant under any sublease and assignment, in excess of the rent payable hereunder after deducting (i) reasonable subletting and assignment costs (ii) the Monthly Amortized Cost (defined below) of the Tenant Improvements paid by Tenant, and (iii) any economic consideration received by Tenant for services rendered or personal property sold or leased, shall be divided and paid fifty percent (50%) to Landlord and fifty percent (50%) to Tenant. Monthly Amortized Cost shall be determined by taking sum paid by Tenant for the Tenant Improvements installed in the Building and dividing this sum by one hundred forty four (144) months. Tenant's obligation to pay over Landlord's portion of the consideration constitutes an obligation for additional rent hereunder. The above provisions relating to Landlord's right to terminate the Lease and relating to the allocation of bonus rent are independently negotiated terms of the Lease which constitute a material inducement for the Landlord to enter into the Lease, and are agreed by the parties to be commercially reasonable. No assignment or subletting by Tenant shall relieve it of any obligation under this Lease. Any assignment or subletting except in connection with a Permitted Transfer which conflicts with the provisions hereof shall be void.

C. No Release: Any assignment or sublease except in connection with a Permitted Transfer shall be made only if and shall not be effective until the assignee or subtenant shall execute, acknowledge, and deliver to Landlord an agreement, in form and substance satisfactory to Landlord, whereby the assignee or subtenant shall assume all the obligations of this Lease on the part of Tenant to be performed or observed and shall be subject to all the covenants, agreements, terms, provisions and conditions in this Lease. Notwithstanding any such sublease or assignment and the acceptance of rent by Landlord from any subtenant or assignee, Tenant and any guarantor shall remain fully liable for the payment of Base Monthly Rent and additional rent due, and to become due hereunder, for the performance of all the covenants, agreements, terms, provisions and conditions contained in this Lease on the part of Tenant to be performed and for all acts and omissions of any licensee, subtenant, assignee or any other person claiming under or through any subtenant or assignee that shall be in violation of any of the terms and conditions of this Lease, and any such violation shall be deemed a violation by Tenant. Tenant shall indemnify, defend and hold Landlord harmless from and against all losses, liabilities, damages, costs and expenses (including reasonable attorney fees) resulting from any claims that may be made against Landlord by the proposed assignee or subtenant or by any real estate brokers or other persons claiming compensation in connection with the proposed assignment or sublease, unless caused by Landlord's breach of this Lease.

D. Reorganization of Tenant: The provisions of this Section 17.D shall apply if Tenant is a corporation and: (i) there is a dissolution, merger, consolidation, or other reorganization of or affecting Tenant, where Tenant is not the surviving corporation, or (ii) there is a sale or transfer to one person or entity (or to any group of related persons or entities) of stock possessing more than 50% of the total combined voting power of all classes of Tenant's capital stock issued, outstanding and entitled to vote for the election of directors, and after such sale or transfer of stock Tenant's stock is no longer publicly traded. In a transaction under clause (i) the surviving corporation shall promptly execute and deliver to Landlord an agreement in form reasonably satisfactory to Landlord under which such corporation assumes the obligations of Tenant hereunder, and in a transaction under clause (ii) the transferee shall promptly execute and deliver to Landlord an agreement in form reasonably satisfactory to Landlord under which such transferee assumes the obligations of Tenant to the extent accruing after such transferee's acquisition of Tenant's stock possessing more than 50% of the total combined voting of all classes of Tenant's capital stock issued, outstanding and entitled to vote for the election of directors.

E. Permitted Transfers: Notwithstanding anything contained in this Section 17, Tenant may enter into any of the following transfers (a "Permitted Transfer") without Landlord's prior consent, and Landlord shall not be entitled to terminate the Lease or to receive any part of any subrent resulting therefrom that would otherwise be due pursuant to Sections 17.A and 17.B. Tenant may sublease all or part of the Premises or assign its interest in this Lease to (i) any person or entity which controls, is controlled by, or is under common control with the original Tenant to this Lease by means of an ownership interest of more than 50%; (ii) any person or entity which results from a merger, consolidation or other reorganization in which Tenant is not the survivor, so long as the survivor has a net worth at the time of such transfer sufficient to enable it to meet its obligations under this Lease; and (iii) any person or entity which purchases or otherwise acquires all or substantially all of the assets of Tenant so long as such acquiring person or entity has a net worth at the time of such transfer that is sufficient at the time of such transfer to enable it to meet its obligations under this Lease.

F. Effect of Default: In the event of Tenant's default, Tenant hereby assigns all rents due from any assignment or subletting to Landlord as security for performance of its obligations under this Lease, and Landlord may collect such rents as Tenant's Attorney-in-Fact, except that Tenant may collect such rents unless a default occurs as described in Section 13 above. A Lease termination due to Tenant's default shall not automatically terminate an assignment or sublease then in existence; rather at Landlord's election, such assignment or sublease shall survive the Lease termination, the assignee or subtenant shall attorn to Landlord, and Landlord shall undertake the obligations of Tenant under the sublease or assignment; except that Landlord shall not be liable for prepaid rent, security deposits or other defaults of Tenant to the subtenant or assignee, or for any acts or omissions of Tenant and Tenant's Agents.

G. Conveyance by Landlord: As used in this Lease, the term "Landlord" is defined only as the owner for the time being of the Premises, so that in the event of any sale or other conveyance of the Premises or in the event of a master lease of the Premises, Landlord shall be entirely freed and relieved of all its covenants and obligations hereunder, and it shall be deemed and construed, without further agreement between the parties and the purchaser at any such sale or the master tenant of the Premises, that the purchaser or master tenant of the Premises has assumed and agreed to carry out any and all covenants and obligations of Landlord hereunder. Such transferor shall transfer and deliver Tenant's security deposit to the purchaser at any such sale or the master tenant of the Premises, and thereupon the transferor shall be discharged from any further liability in reference thereto.

F. Successors and Assigns: Subject to the provisions this Section 17, the covenants and conditions of this Lease shall apply to and bind the heirs, successors, executors, administrators and assigns of all parties hereto; and all parties hereto shall be jointly and severally liable hereunder.

18. Option to Extend the Lease Term:

A. Grant and Exercise of Option: Landlord grants to Tenant, subject to the terms and conditions set forth in this Section 18.A, two (2) options (the "Options") to extend the Lease Term for an additional term (the "Option Term"). Each Option Term shall be for a period of sixty (60) months and shall be exercised, if at all, by written notice to Landlord no earlier than eighteen (18) months prior to the date the Lease Term would expire but for such exercise but no later than twelve (12) months prior to the date the Lease Term would expire but for such exercise, time being of the essence for the giving of such notice. If Tenant exercises the first Option or both of the Options, all of the terms, covenants and conditions of this Lease except this Section shall apply during the Option Term as though the expiration date of the Option Term was the date originally set forth herein as the Expiration Date, provided that Base Monthly Rent for the Premises payable by Tenant during the Option Term shall be the greater of (i) the average amount of Base Monthly Rent paid during the initial Lease Term, and (ii) ninety five percent (95%) of the Fair Market Rental as hereinafter defined. Notwithstanding anything herein to the contrary, if Tenant is in monetary or material non- monetary default after expiration of any applicable cure period under any of the terms, covenants or conditions of this Lease either at the time Tenant exercises the Option or at any time thereafter prior to the commencement date of the Option Term, Landlord shall have, in addition to all of Landlord's other rights and remedies provided in this Lease, the right to terminate the Option upon notice to Tenant, in which event the expiration date of this Lease shall be and remain the Expiration Date. As used herein, the term "Fair Market Rental" is defined as the rental and all other monetary payments, including any escalations and adjustments thereto (including without limitation Consumer Price Indexing) that Landlord could obtain during the Option Term from a third party desiring to lease the Premises, based upon the current use and other potential uses of the Premises, as determined by the rents then being obtained for new leases of space comparable in age and quality to the Premises in the locality of the Building. The appraisers shall be instructed that the foregoing five percent (5%) discount is intended to reduce comparable rents which include (i) brokerage commissions, (ii) tenant improvement allowances, and (iii) vacancy costs, to account for the fact that Landlord will not suffer such costs in the event Tenant exercises its Option.

B. Determination of Fair Market Rental: If Tenant exercises the Option, Landlord shall send Tenant a notice setting forth the Fair Market Rental for the Option Term within thirty (30) days following the Exercise Date. If Tenant disputes Landlord's determination of Fair Market Rental for the Option Term, Tenant shall, within thirty (30) days after the date of Landlord's notice setting forth Fair Market Rental for the Option Term, send to Landlord a notice stating that Tenant either elects to terminate its exercise of the Option, in which event the Option shall lapse and this Lease shall terminate on the Expiration Date, or that Tenant disagrees with Landlord's determination of Fair Market Rental for the Option Term and elects to resolve the disagreement as provided in Section 18.C below. If Tenant elects to resolve the disagreement as provided in Section 18.C and such procedures are not concluded prior to the commencement date of the Option Term, Tenant shall pay to Landlord as Base Monthly Rent the Fair Market Rental as determined by Landlord in the manner provided above. If the Fair Market Rental as finally determined pursuant to Section 18.C is greater than Landlord's determination, Tenant shall pay Landlord the difference between the amount paid by Tenant and the Fair Market Rental as so determined in Section 18.C within thirty (30) days after such determination. If the Fair Market Rental as finally determined in Section 18.C is less than Landlord's determination, the difference between the amount paid by Tenant and the Fair Market Rental as so determined in Section 18.C shall be credited against the next installments of rent due from Tenant to Landlord hereunder.

C. Resolution of a Disagreement over the Fair Market Rental: Any disagreement regarding Fair Market Rental shall be resolved as follows:

1. Within thirty (30) days after Tenant's response to Landlord's notice setting forth the Fair Market Rental, Landlord and Tenant shall meet at least two (2) times at a mutually agreeable time and place, in an attempt to resolve the disagreement.

2. If within the 30-day period referred to above, Landlord and Tenant cannot reach agreement as to Fair Market Rental, each party shall select one appraiser to determine Fair Market Rental. Each such appraiser shall arrive at a determination of Fair Market Rental and submit their conclusions to Landlord and Tenant within thirty (30) days after the expiration of the 30-day consultation period described above.

3. If only one appraisal is submitted within the requisite time period, it shall be deemed as Fair Market Rental. If both appraisals are submitted within such time period and the two appraisals so submitted differ by less than ten percent (10%), the average of the two shall be deemed as Fair Market Rental. If the two appraisals differ by more than 10%, the appraisers shall immediately select a third appraiser who shall, within thirty (30) days after his selection, make and submit to Landlord and Tenant a determination of Fair Market Rental. This third appraisal will then be averaged with the closer of the two previous appraisals and the result shall be Fair Market Rental.

4. All appraisers specified pursuant to this Section shall be members of the American Institute of Real Estate Appraisers with not less than ten (10) years experience appraising office and industrial properties in the Santa Clara Valley. Each party shall pay the cost of the appraiser selected by such party and one-half of the cost of the third appraiser.

D. Personal to Tenant: All Options provided to Tenant in this Lease are personal and granted to Siebel Systems, Inc. and any Permitted Transferee and are not exercisable by any third party should Tenant assign or sublet all or a portion of its rights under this Lease, unless Landlord consents to permit exercise of any option by any assignee or subtenant, in Landlord's sole and absolute discretion. In the event Tenant has multiple options to extend this Lease, a later option to extend the Lease cannot be exercised unless the prior option has been so exercised.

19. This section intentionally left blank.

20. Right Of First Offering To Purchase:

A. Grant and Exercise of Option: In the event either or both Master Landlord and Landlord elect to sell their respective interests in the Building, Master Landlord and Landlord hereby grants Tenant a right of first offering to purchase their respective interests in the Building (Master Landlord and Landlord are individually and collectively referred to in this Section as "Seller"). Prior to Seller offering to sell its interest in the Building to a third party, Seller shall give Tenant written notice of such desire and the terms and other information under which Seller intends to sell the Building. Provided at the time of exercise, Tenant is not in default beyond the expiration of any applicable cure period, Tenant shall have the option, which must be exercised, if at all, by written notice to Seller within thirty (30) days after Tenant's receipt of Seller's notice, to purchase its interest in the Building at the sales price and terms of sale specified in the notice. In the event Tenant timely exercises such option to purchase its interest in the Building, Seller shall sell its interest in the Building to Tenant, and Tenant shall purchase its interest in the Building from Seller in accordance with the price and terms specified in Seller's notice. Seller and Tenant shall, in good faith, attempt to reach agreement on the terms of a mutually acceptable purchase agreement consistent with the terms set forth in Seller's notice within thirty (30) days of Seller's notice. In the event (i) Seller and Tenant are unable to reach agreement on a mutually acceptable purchase agreement within such thirty (30) day period or (ii) Tenant fails to exercise Tenant's option within said thirty (30) day period, Seller shall have one hundred eighty (180) days thereafter to sell its interest in the Building at no less than ninety five percent (95%) of the sales price and upon the same or substantially the same other terms of sale as specified in the notice to Tenant. In the event Seller fails to sell its interest in the Building within said one hundred eighty (180) day period or in the event Seller proposes to sell its interest in the Building at less than ninety five percent (95%) of the sales price or on other material terms which are more favorable to the prospective buyer than that proposed to Tenant, Seller shall be required to resubmit such offer to Tenant in accordance with this Right of First Offering except that Tenant shall be required to respond to any resubmission within a seven (7) day period.

B. Exclusions: This Right of First Offering shall automatically terminate, (i) upon the expiration or sooner termination of the Lease, or (ii) in the event of a foreclosure or other involuntary transfer of Landlord's interest in the Building. Notwithstanding the forgoing, this Right of First Offering shall not apply to transfers (but shall survive such transfers ) of all or a portion of the Building or Project to (i) John A. Sobrato and/or John M. Sobrato (individually and collectively "Sobrato"), and (ii) any immediate family member of Sobrato, and (iii) any trust established, in whole or in art, for the benefit of Sobrato and/or any immediate family member of Sobrato, (iv) any partnership in which Sobrato or any immediate family member, either directly or indirectly (e.g., through a partnership or corporate entity or a trust) retains a general partner interest, and/or (v) any corporation under the control, either directly or indirectly, by Sobrato or any immediate family member of Sobrato.

21. General Provisions:

A. Attorney's Fees: In the event a suit or alternative form of dispute resolution is brought for the possession of the Premises, for the recovery of any sum due hereunder, to interpret the Lease, or because of the breach of any other covenant herein; then the losing party shall pay to the prevailing party reasonable attorney's fees including the expense of expert witnesses, depositions and court testimony as part of its costs which shall be deemed to have accrued on the commencement of such action. The prevailing party shall also be entitled to recover all costs and expenses including reasonable attorney's fees incurred in enforcing any judgment or award against the other party. The foregoing provision relating to post-judgment costs is severable from all other provisions of this Lease.

B. Authority of Parties: Tenant represents and warrants that it is duly formed and in good standing, and is duly authorized to execute and deliver this Lease on behalf of said corporation, in accordance with a duly adopted resolution of the Board of Directors of said corporation or in accordance with the by-laws of said corporation, and that this Lease is binding upon said corporation in accordance with its terms. At Landlord's request, Tenant shall provide Landlord with corporate resolutions or other proof in a form acceptable to Landlord, authorizing the execution of the Lease.

C. Brokers: Tenant represents it has not utilized or contacted a real estate broker or finder with respect to this Lease other than Chris Allen, d/b/a Resource Real Estate Group, which fee shall be payable by Landlord pursuant to a written agreement and the Parties agree to indemnify, defend and hold each other harmless against any claim, cost, liability or cause of action asserted by any other broker or finder.

D. Choice of Law: This Lease shall be governed by and construed in accordance with California law. Except as provided in Section 21.E, venue shall be Santa Clara County.

E. Dispute Resolution: Landlord and Tenant and any other party that may become a party to this Lease or be deemed a party to this Lease including any subtenants agree that, except for any claim by Landlord for unlawful detainer or any claim within the jurisdiction of the small claims court (which small claims court shall be the sole court of competent jurisdiction), any controversy, dispute, or claim of whatever nature arising out of, in connection with or in relation to the interpretation, performance or breach of this Lease, including any claim based on contract, tort, or statute, shall be resolved at the request of any party to this agreement through a two- step dispute resolution process administered by J.A.M.S. or another judicial mediation service mutually acceptable to the parties located in Santa Clara County, California. The dispute resolution process shall involve first, mediation, followed, if necessary, by final and binding arbitration administered by and in accordance with the then existing rules and practices of J.A.M.S. or other judicial mediation service selected. In the event of any dispute subject to this provision, either party may initiate a request for mediation and the parties shall use reasonable efforts to promptly select a J.A.M.S. mediator and commence the mediation. In the event the parties are not able to agree on a mediator within thirty (30) days, J. A. M. S. or another judicial mediation service mutually acceptable to the parties shall appoint a mediator. The mediation shall be confidential and in accordance with California Evidence Code 1119 et. seq. The mediation shall be held in Santa Clara County, California and in accordance with the existing rules and practice of J. A. M. S. (or other judicial and mediation service selected). The parties shall use reasonable efforts to conclude the mediation within sixty (60) days of the date of either party's request for mediation. The mediation shall be held prior to any arbitration or court action (other than a claim by Landlord for unlawful detainer or any claim within the jurisdiction of the small claims court which are not subject to this mediation/arbitration provision and may be filed directly with a court of competent jurisdiction). Should the prevailing party in any dispute subject to this Section 19.E attempt an arbitration or a court action before attempting to mediate, the prevailing party shall not be entitled to attorney's fees that might otherwise be available to them in a court action or arbitration and in addition thereto, the party who is determined by the arbitrator to have resisted mediation, shall be sanctioned by the arbitrator or judge.

If a mediation is conducted but is unsuccessful, it shall be followed by final and binding arbitration administered by and in accordance with the then existing rules and practices of J.A.M.S. or the other judicial and mediation service selected, and judgment upon any award rendered by the arbitrator(s) may be entered by any state or federal court having jurisdiction thereof AS PROVIDED BY CALIFORNIA CODE OF CIVIL PROCEDURE SECTION 1280 ET. SEQ, AS SAID STATUTES THEN APPEAR, INCLUDING ANY AMENDMENTS TO SAID STATUTES OR SUCCESSORS TO SAID STATUTES OR AMENDED STATUTES, EXCEPT THAT in no event shall the parties be entitled to propound interrogatories or request for admissions during the arbitration process. The arbitrator shall be a retired judge or a licensed California attorney. The venue for any such arbitration or mediation shall be in Santa Clara County, California.

NOTICE: BY INITIALING IN THE SPACE BELOW YOU ARE AGREEING TO HAVE ANY DISPUTE ARISING OUT OF THE MATTERS INCLUDED IN THE "MEDIATION AND ARBITRATION OF DISPUTES" PROVISION DECIDED BY NEUTRAL ARBITRATION AS PROVIDED BY CALIFORNIA LAW AND YOU ARE GIVING UP ANY RIGHTS YOU MIGHT POSSESS TO HAVE THE DISPUTE LITIGATED IN A COURT OR fURY TRIAL. BY INITIALING IN THE SPACE BELOW YOU ARE GIVING UP YOUR JUDICIAL RIGHTS TO DISCOVERY AND APPEAL, UNLESS THOSE RIGHTS ARE SPECIFICALLY INCLUDED IN THE "MEDIATION AND ARBITRATION OF DISPUTES" PROVISION. IF YOU REFUSE TO SUBMIT TO ARBITRATION AFTER AGREEING TO THIS PROVISION, YOU MAY BE COMPELLED TO ARBITRATE UNDER THE AUTHORITY OF THE CALIFORNIA CODE OF CIVIL PROCEDURE. YOUR AGREEMENT TO THIS ARBITRATION PROVISION IS VOLUNTARY.

WE HAVE READ AND UNDERSTAND THE FOREGOING AND AGREE TO SUBMIT DISPUTES ARISING OUT OF THE MATTERS INCLUDED IN THE "MEDIATION AND ARBITRATION OF DISPUTES" PROVISION TO NEUTRAL ARBITRATION.

LANDLORD: ______ TENANT: _______

F. Entire Agreement: This Lease and the exhibits attached hereto contains all of the agreements and conditions made between the parties hereto and may not be modified orally or in any other manner other than by written agreement signed by all parties hereto or their respective successors in interest. This Lease supersedes and revokes all previous negotiations, letters of intent, lease proposals, brochures, agreements, representations, promises, warranties, and understandings, whether oral or in writing, between the parties or their respective representatives or any other person purporting to represent Landlord or Tenant.

G. Entry by Landlord: Upon prior notice to Tenant and subject to Tenant's reasonable security regulations, Tenant shall permit Landlord and his agents to enter into and upon the Premises at all reasonable times, and without any rent abatement or reduction or any liability to Tenant for any loss of occupation or quiet enjoyment of the Premises thereby occasioned, unless caused by Landlord's negligence or willful misconduct, for the following purposes: (i) inspecting and maintaining the Premises; (ii) making repairs, alterations or additions (only if agreed by Tenant) to the Premises; (iii) erecting additional building(s) and improvements on the land where the Premises are situated or on adjacent land owned by Landlord; and (iv) performing any obligations of Landlord under the Lease including remediation of hazardous materials if determined to be the responsibility of Landlord provided that Landlord agrees to use reasonable efforts to minimize interference with Tenant's use. Tenant shall permit Landlord and his agents, at any time within one hundred eighty (180) days prior to the Expiration Date (or at any time during the Lease if Tenant is in default hereunder), to place upon the Premises "For Lease" signs and exhibit the Premises to real estate brokers and prospective tenants at reasonable hours.

H. Estoppel Certificates: At any time during the Lease Term, each party (the "Responding Party") shall, within ten (10) days following written notice from the other party (the "Requesting Party"), execute and deliver to the Requesting Party a written statement certifying, if true, the following: (i) that this Lease is unmodified and in full force and effect (or, if modified, stating the nature of such modification); (ii) the date to which rent and other charges are paid in advance, if any; (iii) acknowledging that there are not, to Responding Party's knowledge, any uncured defaults on Requesting Party's part hereunder (or specifying such defaults if they are claimed); and (iv) such other information as Requesting Party may reasonably request. Any such statement may be conclusively relied upon by any prospective purchaser or encumbrancer of Requesting Party's interest in the Premises. The Responding Party's failure to deliver such statement within such time shall be conclusive upon the Responding Party that this Lease is in full force and effect without modification, except as may be represented by the Requesting Party, and that there are no uncured defaults in Requesting Party's performance. Tenant agrees to provide, within five (5) days of Landlord's request, Tenant's most recent three (3) years of audited financial statements for Landlord's use in financing the Premises or Landlord's interest therein.

I. Exhibits: All exhibits referred to are attached to this Lease and incorporated by reference.

J. Interest: All rent due hereunder, if not paid when due, shall bear interest at the rate of the Reference Rate published by Bank of America, San Francisco Branch, plus two percent (2%) per annum from that date until paid in full ("Agreed Interest Rate"). This provision shall survive the expiration or sooner termination of the Lease. Despite any other provision of this Lease, the total liability for interest payments shall not exceed the limits, if any, imposed by the usury laws of the State of California. Any interest paid in excess of those limits shall be refunded to Tenant by application of the amount of excess interest paid against any sums outstanding in any order that Landlord requires. If the amount of excess interest paid exceeds the sums outstanding, the portion exceeding those sums shall be refunded in cash to Tenant by Landlord. To ascertain whether any interest payable exceeds the limits imposed, any non-principal payment(including late charges) shall be considered to the extent permitted by law to be an expense or a fee, premium, or penalty rather than interest.

K. Modifications Required by Lender: If any Lender of Landlord or ground lessor of the Real Property Requires a modification of this Lease that will not increase Tenant's cost or expense or materially or adversely change Tenant's rights and obligations, this Lease shall be so modified and Tenant shall execute whatever documents are required and deliver them to Landlord within ten (10) days after the request.

L. No Presumption Against Drafter: Landlord and Tenant understand, agree and acknowledge that this Lease has been freely negotiated by both parties; and that in any controversy, dispute, or contest over the meaning, interpretation, validity, or enforceability of this Lease or any of its terms or conditions, there shall be no inference, presumption, or conclusion drawn whatsoever against either party by virtue of that party having drafted this Lease or any portion thereof.

M. Notices: All notices, demands, requests, or consents required to be given under this Lease shall be sent in writing by U.S. certified mail, return receipt requested, or by personal delivery or by a nationally recognized overnight courier addressed to the party to be notified at the address for such party specified in Section 1 of this Lease, or to such other place as the party to be notified may from time to time designate by at least fifteen (15) days prior notice to the notifying party. When this Lease requires service of a notice, that notice shall replace rather than supplement any equivalent or similar statutory notice, including any notices required by Code of Civil Procedure Section 1161 or any similar or successor statute. when a statute requires service of a notice in a particular manner, service of that notice (or a similar notice required by this lease) shall replace and satisfy the statutory service-of-notice procedures, including those required by Code of Civil Procedure Section 1162 or any similar or successor statute.

N. Property Management: No property management fee shall be payable to Landlord.

O. Rent: All monetary sums due from Tenant to Landlord under this Lease, including, without limitation those referred to as "additional rent", shall be deemed as rent.

P. Representations: Tenant acknowledges that neither Landlord nor any of its employees or agents have made any agreements, representations, warranties or promises with respect to the Premises or with respect to present or future rents, expenses, operations, tenancies or any other matter. Except as herein expressly set forth herein, Tenant relied on no statement of Landlord or its employees or agents for that purpose.

Q. Rights and Remedies: All rights and remedies hereunder are cumulative and not alternative to the extent permitted by law, and are in addition to all other rights and remedies in law and in equity.

R. Severability: If any term or provision of this Lease is held unenforceable or invalid by a court of competent jurisdiction, the remainder of the Lease shall not be invalidated thereby but shall be enforceable in accordance with its terms, omitting the invalid or unenforceable term.

S. Submission of Lease: Submission of this document for examination or signature by the parties does not constitute an option or offer to lease the Premises on the terms in this document or a reservation of the Premises in favor of Tenant. This document is not effective as a lease or otherwise until executed and delivered by both Landlord and Tenant.

T. Subordination: This Lease is subject and subordinate to ground and underlying leases, mortgages and deeds of trust (collectively "Encumbrances") which may now affect the Premises, to any covenants, conditions or restrictions of record, and to all renewals, modifications, consolidations, replacements and extensions thereof; provided, however, if the holder or holders of any such Encumbrance ("Holder") require that this Lease be prior and superior thereto, within seven (7) days after written request of Landlord to Tenant, Tenant shall execute, have acknowledged and deliver all documents or instruments, in the form presented to Tenant, which Landlord or Holder deems necessary or desirable for such purposes. Landlord shall have the right to cause this Lease to be and become and remain subject and subordinate to any and all Encumbrances which are now or may hereafter be executed covering the Premises or any renewals, modifications, consolidations, replacements or extensions thereof, for the full amount of all advances made or to be made thereunder and without regard to the time or character of such advances, together with interest thereon and subject to all the terms and provisions thereof; provided only, that in the event of termination of any such lease or upon the foreclosure of any such mortgage or deed of trust, Holder agrees to recognize Tenant's rights under this Lease as long as Tenant is not then in default beyond the expiration of any applicable cure period and continues to pay Base Monthly Rent and additional rent and observes and performs all required provisions of this Lease. Within ten (10) days after Landlord's written request, Tenant shall execute any documents required by Landlord or the Holder to make this Lease subordinate to any lien of the Encumbrance. If Tenant fails to do so, then in addition to such failure constituting a default by Tenant, it shall be deemed that this Lease is so subordinated to such Encumbrance. Notwithstanding anything to the contrary in this Section, Tenant hereby attorns and agrees to attorn to any entity purchasing or otherwise acquiring the Premises at any sale or other proceeding or pursuant to the exercise of any other rights, powers or remedies under such encumbrance.

This Lease constitutes a sublease under that certain Ground Lease dated March 5, 1999 (the "Existing Ground Lease") between The Sobrato 1979 Revocable Trust, As Amended ("Master Landlord"), as landlord and Landlord, as tenant, covering all of the real property within the Project, a copy which has been provided to Tenant, and under the Parcel Lease described in the next sentence. In connection with the subdivision of the Project as contemplated by Section 2.C above, it is anticipated that a separate Parcel Lease (as defined in the Existing Ground Lease) will be entered into between Master Landlord, as landlord, and Landlord, as tenant, for the lot within which the Building will be constructed. As used in this Lease, "Master Lease" shall mean the Existing Ground Lease, until such time as the Parcel Lease is entered into, and thereafter shall mean the Parcel Lease. Notwithstanding this Section 21.T above, concurrently with the execution of this Lease by Landlord and Tenant, Landlord and Tenant shall execute in recordable form, and Landlord shall cause Master Landlord to execute in recordable form, the Subordination, Nondisturbance and Attornment Agreement attached hereto as Exhibit "G" (the "SNDA"). Landlord shall cause the SNDA to be recorded at Landlord's cost in the Official Records of San Mateo County, California within five (5) days after this Lease is executed by Landlord and Tenant. Similarly, in connection with the Parcel Lease, within ten (10) days after Landlord's request, Landlord and Tenant shall execute in recordable form, and Landlord shall cause Master Landlord to execute in recordable form, a Subordination, Nondisturbance and Attornment Agreement substantially in the form of the SNDA (the "Revised SNDA"), modified to refer to the Parcel Lease, Memorandum of Parcel Lease to be recorded in connection with the Parcel Lease and the revised Premises description, rather than the Original Ground Lease, the Memorandum of Ground Lease referenced in the SNDA and the original Premises described in this Lease. Landlord shall cause the Revised SNDA to be recorded at Landlord's cost in the Official Records of San Mateo County, California immediately after recordation of the Memorandum of Lease recorded for the Parcel Lease.

Notwithstanding the foregoing, Tenant shall not be required to subordinate its interest under this Lease unless (i) such subordination' does not materially increase Tenant's obligations, or materially decrease its rights under this Lease, and (ii) Landlord first obtains from the holder of the mortgage, deed of trust, or other instrument of security to which this Lease is to become subordinated a written agreement that provides substantially that as long as Tenant performs its obligations under this Lease, no foreclosure of, deed given in lieu of foreclosure of, or sale under the encumbrance, and no steps or procedures taken under the encumbrance, shall affect Tenant's rights hereunder.

U. Survival of Indemnities: All indemnification, defense, and hold harmless obligations of Landlord and Tenant under this Lease shall survive the expiration or sooner termination of the Lease.

V. Time: Time is of the essence hereunder.

W. Transportation Demand Management Programs: Should a government agency or municipality require Landlord to institute TDM (Transportation Demand Management) facilities and/or program, Tenant agrees that the cost of TDM imposed facilities required on the Premises, including but not limited to employee showers, lockers, cafeteria, or lunchroom facilities, shall be paid by Tenant. Further, any ongoing costs or expenses associated with a TDM program which are required for the Premises and not provided by Tenant, such as an on-site TDM coordinator, shall be provided by Landlord with such reasonable costs being included as additional rent and reimbursed to Landlord by Tenant within thirty (30) days after demand. If TDM facilities and programs are instituted on a Project wide basis, Tenant shall pay its proportionate share of such costs in accordance with Section 8 above.

IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease on the day and year first above written.

Landlord: SOBRATO INTERESTS III Tenant: SIEBEL SYSTEMS, INC.

a California Limited Partnership a Delaware Corporation

By: _____________________________ By: _____________________________

Its: General Partner Its: _____________________________

Master Landlord: THE SOBRATO 1979 REVOCABLE TRUST

By: _____________________________

Its: Trustee

EXHIBIT "A" - Building and Project

Exhibit "B" - Not applicable

EXHIBIT "C" - Parcel Map & Declaration of Covenants and Grant of Easements

EXHIBIT "D" - Shell Plans and Specifications

(sheet references to be attached)

EXHIBIT "E" - Building Shell Definition

1. Building Structure

(a) All foundations to include footings, piling, grade beams, foundation walls or other building foundation components required to support the building structure.

(b) Concrete slab supported on beams and columns above the parking podium and any other reinforcing or structural connections that may be necessary or required as specified by structural engineer.

(c) Complete structural framing system comprised of rolled steel beams, columns, and braced-frame steel construction with corrugated metal deck and concrete fill, all members required by code to be fireproofed. Upper floor systems provide a minimum of 3" concrete over metal deck and are designed for an 80 lb. live load plus 20 lb. partition load. Structural framing will include intermediate beams for HVAC units at the roof, and for major shafts on each floor. A roof screen consistent with the design of the building and acceptable to the local Building and Planning Departments is included.

(d) Tinted high performance glass including required caulking and sealants. Tinted reflective glass window wall system with granite and stainless steel accents. Two (2) pair of lobby doors, and two (2) exit doors per building. All shell doors will be fitted with electric locks and conduit to J-boxes ready for connection to the Tenant's security system.

(e) Four (4) ply built up roofing by Owens-Corning, John Manville, or equal and all flashings over a light weight concrete on corrugated metal deck roof system. Title 24 code required roof insulation is included.

(f) Exterior painting where required with Texcoat textural paint and all caulking of exterior concrete joints in preparation for painting.

(g) One (1) steel fire stair at perimeter of building, and two (2) interior fire stairs which will extent to the roof.

(h) At grade loading area with screening and scissors lift external of building.

(i) Riser for Building sprinkler system (no sprinkler grid or drops).

2. Podium Garage Structure

(a) Podium garage structure with access ramps, fire sprinkler system, emergency exit stairways, and mechanical venting (if required).

(b) Lighting in podium parking to a minimum level per code.

3. Sitework

(a) All work outside the building perimeter walls shall be considered site work for the Building Shell and shall include asphalt concrete paving, landscaping, landscape irrigation, storm drainage, utility service laterals, curbs, gutters, sidewalks, specialty paving (if required), retaining walls, planters, trash enclosure, parking lot and landscape lighting and other exterior lighting per code. All fountains and podium landscaping shall also be considered site work for the Building Shell.

(b) Paving sections for automobile and truck access shall be according to the Geologic Soils Report.

(c) All parking lot striping to include handicap spaces and signage.

(d) Underground site storm drainage system shall be connected to the city storm system main.

4. Plumbing

(a) Underground sanitary sewer lateral connected to the city sewer main in the street and stubbed to the core of the building.

(b) Domestic water mains connected to the city water main in the street and stubbed to the building.

(c) Roof drain leaders and downspouts piped and connected to the site storm drainage system.

(d) Gas lines connected to the city or public utility mains and run to gas meters adjacent to, and in close proximity to the building. Meter supplied by utility company.

5. Electrical

(a) A primary and secondary electrical service from the street to the building electrical room in the garage podium including underground conduit, wire feeders, and transformer pads. Transformer supplied by utility company.

(b) Two 4" Underground conduit from the street to the building for telephone trunk lines by Pacific Telephone.

(c) Two 4" conduit from the building to each of the adjacent buildings for future data connections.

(d) An electrically operated landscape irrigation system, with controller, that is a complete and functioning system.

(e) Underground conduit from the building to the main fire protection system post indicated valve (PIV) for installation of supervisory alarm wiring.

6. General

(a) All construction shall conform to State and Local Building Codes, Title 24 Regulations, and shall be ADA Compliant.

(b) All building shell work shall be constructed as described above and as show on the drawings listed in the attached Exhibit (TBD).

(c) All other costs shall be deemed Tenant Improvements.

EXHIBIT "F" - Tenant Improvement Plans and Specifications

(sheet references to be attached)

EXHIBIT "G" - Subordination, Nondisturbance and Attornment Agreement

EX-10.11

WATERGATE OFFICE LEASE

WATERGATE TOWER ASSOCIATES,

A California Limited Partnership,

Landlord

And

SCOPUS TECHNOLOGY, INC.,

A California Corporation,

Tenant

TABLE OF CONTENTS

1. PARTIES; BASIC LEASE PROVISIONS; DEFINED TERMS
1. Parties
2. Basic Lease Provisions
3. Defined Terms
2. PREMISES; COMMON AREAS; TENANT PARKING
1. Demise of Premises
2. Condition of Premises
3. Common Areas
4. Tenant Parking
3. TERM
1. Period
2. Term Commencement
3. Delayed Occupancy
4. Holding Over
4. BASE RENT; SECURITY DEPOSIT; OPERATING COSTS; TAXES
1. Base Rent
2. Security Deposit
3. Operating Costs
4. Taxes Payable By Tenant
5. Late Charges and Interest
5. USES
1. Authorized
2. Suitability
3. Insurance
4. Laws
5. Nuisance
6. Rules and Regulations
6. SERVICES AND UTILITIES
1. Basic Services by Landlord
2. Additional Heating and Air Conditioning
3. Special Apparatuses
4. Interruption in Services
5. Tenant's Other Utilities
7. TENANT'S ALTERATIONS; PROTECTION AGAINST LIENS
1. Landlord's Consent Required
2. Removal of Tenant's Alterations
3. Protection Against Liens
8. MAINTENANCE AND REPAIRS
1. Landlord's Obligations
2. Tenant's Obligations
9. INDEMNITY AND EXEMPTIONS OF LANDLORD
1. Indemnity
2. Exemption of Landlord From Liability
10. INSURANCE
1. Tenant's Insurance
2. Landlord's Insurance
3. Subrogation Waiver
11. ASSIGNMENT AND SUBLETTING
1. Landlord's Consent Required
2. Tenant's Application
3. Required Provisions
4. Bonus Rent
5. Fees for Review
6. No Release of Tenant
7. Assumption of Obligations
8. Deemed Transfers
9. Landlord's Option to Recapture
12. SUBORDINATION AND ATTORNMENT
1. Subordination
2. Attornment
3. Nonmaterial Amendments
13. DEFAULT BY TENANT
1. Acts Constituting Default
2. Landlord's Remedies
14. DEFAULT BY LANDLORD
1. Existence of Default
2. Mortgagee's Right To Cure
3. Judgment Against Landlord
15. CONDEMNATION
1. Termination Due To Taking
2. Award For Taking
3. No Termination Due To Taking
16. DAMAGE AND DESTRUCTION
1. Partial Damage - Insured
2. Partial Damage - Uninsured
3. Total Destruction
4. Landlord's Obligations
5. Waiver by Tenant
17. DEFINITIONS
1. "Base Rent"
2. "Base Year"
3. "Basic Lease Provisions"
4. "Bonus Rent"
5. "Building"
6. "Commencement Date"
7. "Common Areas"
8. "Environmental Damages"
9. "Environmental Requirements"
10. "Expiration Date"
11. "Hazardous Materials"
12. "Increased Operating Costs'
13. "Landlord's Work"
14. "Lease Date"
15. "Mortgagee"
16. "Office Complex"
17. "Operating Costs"
18. "Overdue Rates"
19. "Parking Charge"
20. "Parking Facilities"
21. "Premises"
22. "Rules and Regulations"
23. "Security Deposit"
24. "Scope of Work"
25. "Subsequent Year"
26. "Substantial Completion"
27. "Taking"
28. "Tenant Parking"
29. "Tenant's Share"
30. "Term"
18. MISCELLANEOUS PROVISIONS
1. Estoppel Certificates
2. Surrender of Premises
3. Light and Air
4. Waiver
5. Attorneys' Fees
6. Notices
7. Merger
8. Substituted Premises
9. Headings
10. Time and Applicable Law
11. Successors and Assigns
12. Entry by Landlord
13. Entire Agreement
14. Severability
15. Signs
16. Execution by Landlord
17. Brokers
18. Name of building
19. Nonrecordability of Lease
20. Construction
21. Inability to Perform
22. Authority
23. Quiet Enjoyment
19. EXTRA PARKING PERMITS
20. LETTER OF CREDIT/SECURITY DEPOSIT
21. RIGHT TO NEGOTIATE LEASE OF ADDITIONAL SPACE
1. Grant of Right
2. Notice of Space Requirement
3. Exercise of Negotiation Right
4. Limitation of Right

22. TERMINATION OF EXISTING LEASE

WATERGATE OFFICE LEASE

1. PARTIES BASIC LEASE PROVISIONS; DEFINED TERMS

      1.1 Parties. This Watergate Office Lease ("Lease") is entered into in the City of Emeryville, County of Alameda, State of California, between Watergate Tower Associates, a California limited partnership ("Landlord"), and Scopus Technology, Inc,, a California corporation ("Tenant").

      1.2 Basic Lease Provisions. The following Basic Lease Provisions constitute an integral part of this Lease, and each reference in this Lease to the Basic Lease Provisions shall mean the provisions set forth in this Paragraph 1.2. Section references in this Paragraph 1.2 are to the section in which the particular Basic Lease Provision is first discussed. In the event of any conflict between the Basic Lease Provisions and the remainder of the Lease, the latter shall control.

      Lease  Date:          August 24,  1994

      Address of Landlord:  2000 Powell Street,  Suite 1600
                            Emeryville, CA 94608

      Address of Tenant:    Before Lease Execution:
                            1900 Powell Street
                            Suite 900
                            Emeryville, CA  94608

                            After Lease Execution;
                            1900 Powell Street
                            Suite 700
                            Emeryville, CA  94608

Section 2:
      Premises:             Suite 700
      Building:             Watergate Tower 1
                            1900 Powell Street
                            Emeryville, CA  94608


      Premises Rentable Area:     18,539 square feet
      Premises Usable Area:       16,406 square feet
      Building Rentable Area:     215,978 square feet
      Tenant Parking:             Forty-nine (49)
      Extra Parking:              Permits Sixteen (16)
                                  permits subject to Section
                                  19, hereinbelow
      Parking Charge:             $25.00 per permit

Section 3:
      Term:                Five (5) years
      Commencement Date:   October 16, 1994
      Expiration Date:     October 15, 1999

Section 4:
      Base Rent:
                October 16, 1994 - October 31, 1994:
                   $9,722.22
                November 1, 1994 - November 30, 1994:
                   $18,836.80 per month
                December 1, 1994 - December 31, 1994:
                   $23,636.80 per month
                January 1, 1995 - September 30, 1995:
                   $27,577.40 per month
                October 1, 1995 - September 30, 1997:
                   $31,516.34 per month
                October 1, 1997 - October 15,  1999:
                   $32,443.25 per month

      Security Deposit:  $32,443.25, subject to Section 20 hereinbelow

      Base Year:              1995
      Tenant's Share:         8.58 percent

      1.3 Defined Terms. Words and phrases which are capitalized in this Lease (other than words which are capitalized solely to donate the beginning of sentences) are defined terms. The definitions of such words and phrases are set forth in Section 17 of this Lease.

2. PREMISES COMMON AREAS; TENANT PARKING

      2.1 Demise of Premices. on and subject to the terms, covenants and conditions set forth in this Lease, Landlord demises the Premises to Tenant and Tenant rents and hires the Premises from Landlord. The usable and rentable area of the Premises, and the rentable area of the Building, for all purposes under this Lease, are stipulated to be as specified in the Basic Lease Provisions. Landlord shall not be liable to Tenant, nor shall Tenant have any claim against Landlord or defense to the enforcement of this Lease, if it is determined that the actual rentable or usable area of the Premises or the rentable area of the Building differs from that specified in the Basic Lease Provisions.

      2.2 Condition of Premises. Except as otherwise expressly provided in a Scope of Work executed by Landlord and Tenant concurrently with their execution of this Lease, Tenant shall accept the Premises in an "as is" condition on the date the Term commences and Landlord shall have no obligation to improve, alter, remodel or otherwise modify the Premises prior to Tenant's occupancy. Landlord shall construct or install in the Premises only the improvements specified in the Scope of Work, The Scope of Work, if any, will be attached as Exhibit B to this Lease, and , subject to events of force majeure and Tenant delays, Landlord shall cause the Substantial Completion of Landlord's Work pursuant to the Scope of Work on or before the Commencement Date.

      2.3 Common Areas, During the Term, Tenant shall have the nonexclusive right to use of the Common Areas for their intended and usual purpose. However, the manner in which the Common Areas are maintained shall be at the sole reasonable discretion of landlord and use thereof shall be subject to the Rules and Regulations. Landlord reserves the right to make alterations, additions or deletions to, or to change the location of elements of the Common Areas, Building Or Office Complex, and to use the roof, exterior walls and the area above and beneath the Premises, together with the right to install, use, maintain and replace equipment, machinery, pipes, conduits and wiring through the Premises, which serve other parts of the Building or Office Complex, in a manner and in locations which do not unreasonably interfere with Tenant's use of or access to the Premises.

      2.4 Tenant Parking. Tenant shall have the right to obtain the number of parking permits designated as Tenant Parking in the Basic Lease Provisions, and each such permit shall authorize Tenant or its employees to park one passenger automobile in the Parking Facilities. Issuance of such parking permits shall be subject to Tenant's payment of the Parking Charge for each permit specified in the Basic Lease Provisions, which Parking Charge shall be payable on the first day of each calendar month during the Term and may be increased by Landlord at any time, and from time to time, during the Term upon not less than thirty (30) days' prior written notice to Tenant. Tenant and its employees shall at all times observe such terms and conditions and charges as may be established by Landlord from time to time concerning the operation and use of the Parking Facilities. Tenant's employees shall not be entitled to park in areas located in the Parking Facilities designated by Landlord for reserved parking or for use by visitors to the Office Complex.

3. TERM

      3.1 Period. The Term shall be for the period specified in the Basic Lease Provisions. The Term shall commence on the Commencement Date end shall end on the Expiration Date, as such dates are determined under Paragraph 3.2 below, unless sooner terminated pursuant to any provision of this Lease.

      3.2 Term Commencement. The anticipated Commencement Date and the corresponding Expiration Date are specified in the Basic Lease Provisions. However, the actual Commencement Date shall be the earlier of (a) the date Tenant first occupies any part of the Premises, or (b) the date of Substantial Completion of the Landlord's Work or (c) the date established by Landlord in the event of a delay by Tenant, as provided in Paragraph 3.3(b) below; and the Expiration Date shall be adjusted so that the period between the actual Commencement Date and the Expiration Date is equal to the Term specified in the Basic Lease Provisions. If the actual Commencement I-ease Date and the Expiration Date differ from those inserted in the Base Lease Provisions as of the Lease Date, then promptly after the Commencement Date Landlord and Tenant shall execute a written acknowledgment of the Commencement Date and the Expiration Late, and attach it as Exhibit C to this Lease,

      3.3 Delayed Occupancy.

                (a) Landlord shall Substantially Complete any Landlord's Work on or before the Commencement Date specified in the Basic Lease Provisions, provided, however, that the Commencement Date for purposes of Landlord's obligation with respect to Landlord's Work shall be extended one (1) day for each day (i) that the Lease is not fully executed by August 22, 1994, (ii) that Tenant causes a delay in Landlord's Work, and (iii) that an event of force majeure delays Landlord's Work. However, this Lease shall not be void or voidable, nor shall Landlord or its agents or contractors have any liability to Tenant, by reason of Landlord's failure to substantially complete Landlord's Work by the Commencement Date specified in the Basic Lease Provisions, or by reason of Landlord's failure to deliver possession of the Premises due to any other cause beyond Landlord's reasonable control, arid postponement of Tenant's rental obligation prior to delivery of possession of the Premises shall be Tenant's exclusive remedy and in sole satisfaction of all claims Tenant might otherwise have by reason of Landlord's failure to deliver the Premises by the Commencement Date specified in the Basic Lease Provisions. Notwithstanding the foregoing, if the Premises are not Substantially Completed on or before the termination date under the Existing Lease (as defined in Section 22) or the date Tenant's right to occupy a portion of its existing space on the ninth floor of the Building under a certain sublease with Preferred Health Network ("Sublease") expires, provided such delay in Landlord's Work has not been caused by Tenant and the termination of the Existing Lease or the Sublease, as the case may be, does not result from Tenant's default, Tenant shall have the right to continue to occupy its entire existing space on the ninth floor of the Building on the same terms and conditions as the Existing Lease.

                (b) Time is of the essence in connection with the delivery to Landlord of each and every drawing, plan, specification, schedule or other item required to be given by Tenant to Landlord or to be approved by Tenant pursuant to the schedule in and provisions of the Scope of Work. Accordingly, notwithstanding any contrary provision of this Lease, if Landlord is delayed in the Substantial Completion of Landlord's Work as a result of (i) Tenant's failure to approve plans, specifications, changes, cost estimates and other items within the time limits specified therefor in the Scope of Work, or (ii) any change by Tenant in said plans, specifications, or other items after the expiration of such time limits, or ;iii) any default by Tenant relating to its obligations hereunder or under the Scope of Work, then, in any or all such instances and without limitation as to any other right or remedy available to Landlord, Landlord may under clause (c) of Paragraph 3.2 determine in its sole reasonable discretion that the actual Commencement Date is the date that Substantial Completion of Landlord's Work would have occurred but for such delay.

      3.4 Holding Over. Tenant shall not be entitled to remain in possession of the Premises after the Expiration Date or after earlier termination of this Lease, except with Landlord's prior written consent. Any such continuance of possession with Landlord's consent shall constitute a month-to-month tenancy on all of the terms and conditions of this Lease, except that the Base Rent shall be 150% of the Base Rent in effect as of the Expiration Date or the earlier termination date. Any such continuance in possession without Landlord's consent (or after such consent has been withdrawn upon thirty (30) days' notice to Tenant) shall constitute an unlawful detention of the Premises; and Tenant shall indemnify, defend and hold Landlord harmless from all claims, losses or liability resulting from Landlord's inability to timely deliver possession of the Premises to any succeeding tenant.

4. BASE RENT; SECURITY DEPOSIT; OPERATING COSTS; TAXES

      4.1 Base Rent. Tenant shall pay to Landlord as monthly Base Rent for the Premises, in advance, without deduction, setoff, prior notice or demand, the sum specified in the Basic Lease Provisions. The first month's Base Rent shall be paid upon Tenant's execution of this Lease, and the Base Rent for each calendar month thereafter during the Term shall be paid on the first day of each such calendar month. If the Commencement Date occurs ors a day other than the first day of a calendar month, the Base Rent payable for the first calendar month of the Term shall be prorated on the basis which the number of days of the Term in the first month bears to the total number of days in such month; and, in such case, Tenant shall pay such prorated Base Rent to Landlord on the Commencement Date, and the first month's Base Rent paid upon execution of this Lease shall be credited against the Base Rent for the second calendar month. If the Term ends on a day other than the last day of a calendar month, the Base Rent payable for the last calendar month of the Term shall be prorated on the basis which the number of days of the Term in the last calendar month tears to the total number of days in such month.

      4.2 Security Deposit.

                (a) Upon Tenant's execution of this Lease, Tenant shall deposit with Landlord the sum specified as the Security Deposit in the Basic Lease Provisions, which shall be held by Landlord as security for the faithful performance by Tenant of all of the terms, covenants, and conditions of this Lease, it being expressly understood and agreed that the Security Deposit is not an advance deposit for rent or a measure of Landlord's damages in case of Tenant's default. If at any time Tenant's Base Rent is increased, the Security Deposit shall also be increased by the same percentage Ds the increase in Base Rent and Tenant shall, within ten (101 days after receipt of notice of such increase in Base Rent, deposit cash with Landlord in an amount sufficient to affect such adjustment.

                (b) The Security Deposit may be retained, used or applied by Landlord to remedy any default by Tenant, to repair damage caused by Tenant to any part of the Premises or the Building, and to clean the Premises upon expiration or earlier termination of this Lease, as well as to reimburse Landlord for any amount which Landlord may spend by reason of Tenant's default or to compensate Landlord for any other loss or damage which Landlord may suffer by reason of Tenant's default. If any portion of the Security Deposit is so used or applied, Tenant shall, within ten 110) days after written demand therefor, deposit cash with Landlord in an amount sufficient to restore the Security Deposit to the full amount required hereunder, and Tenant's failure to do so shall be a material breach of this Lease. Landlord shall not be required to keep the Security Deposit separate from its general funds, and Tenant shall not be entitled to interest on, or any other compensation for, Landlord's retention of the Security Deposit. Tenant may not elect to apply any portion of the Security Deposit toward payment of Base Rent or any other amounts payable by Tenant under this Lease, although Landlord may elect to do so in the event Tenant is in default or is insolvent, If Tenant shall fully and faithfully perform every provision of this Lease to be performed by it, the Security Deposit or any balance thereof shall be returned to Tenant at Tenant's last known address (or, at Landlord's option, to the last assignee of -tenant's interest hereunder) within thirty (30) days after the Term has ended and Tenant has vacated the Premises.

      4.3 Operating Costs. Tenant shall pay to Landlord Tenant's Share of the Increased Operating Costs as follows:

                (a) Landlord shall submit to Tenant before January 1 of each Subsequent Year, or as soon thereafter as Landlord has sufficient data, a reasonably detailed statement showing the estimated Increased Operating Costs for such Subsequent Year, which determination shall be made by Landlord based upon experience with actual costs and projections. At the first monthly Base Rent payment date following the submittal of such statement and at each succeeding monthly rent payment date thereafter during the Subsequent Year, Tenant shall pay to Landlord an amount equal to one-twelfth (1112th) of the Increased Operating Costs. If Landlord does not submit said statement to Tenant prior to January 1 of any Subsequent Year, Tenant shall continue to pay Tenant's Share of the Increased Operating Costs at the then existing rate until such statement is submitted and, thereafter, at the monthly Base Rent payment date next following the submittal of such statement Tenant shall pay Tenant's Share of the Increased Operating Costs based on the rate set forth in such statement plus, if the new rate is greater than the old rate, the difference accrued from January 1 of such Subsequent Year. Landlord may revise such estimated Increased Operating Costs at the end of any calendar quarter.

                (b) On or before March 31 of the second and each succeeding Subsequent Year or as soon thereafter as Landlord has sufficient data, Landlord shall submit to Tenant a reasonably detailed statement showing the actual Building Operating Costs paid or incurred by Landlord during the previous calendar year. If Tenant's Share of the actual Increased Operating Costs is less than the amount of Tenant's Share of the estimated Increased Operating Costs for the previous Subsequent Year theretofore paid by Tenant, Landlord shall credit such difference against the next Increased Operating Costs payments coming due. If Tenant's Share of the actual Increased Operating Costs is more than the amount of Tenant's Share of the estimated Increased Operating Costs for such previous Subsequent Year theretofore paid by Tenant, Tenant shall pay to Landlord the full amount of such difference at the monthly Base Rent payment date next following the submittal of such statement to Tenant.

                (c) If the Expiration Date or the date of earlier termination of this Lease is other than December 31, the Operating Costs for both the Base Year and the last Subsequent Year shall be prorated based on what the number of days in the Term in the last Subsequent Year bears to 365; and any amounts owed or to be credited pursuant to Paragraph shall be paid at the time in the last Subsequent Year, or in the calendar year immediately following the last Subsequent Year, that such amount is calculated pursuant to Paragraph 4.3(c).

      4.4 Taxes Payable By Tenant, Tenant shall pay before delinquency any and all taxes levied or assessed and which become payable by Tenant (or directly or indirectly by Landlord) during the Term (excluding, however, state and .federal personal or corporate income taxes measured by the income of Landlord from all sources, capital stock taxes, and estate and inheritance taxes, collectively, "Landlord's Taxes"), whether or not now customary or within the contemplation of the parties hereto, which are based upon, measured by or otherwise calculated with respect to: (a) the gross or net rental income of Landlord under this Lease, including, without limitation, any gross receipts tax levied by any taxing authority as a supplemental tax, or any other gross income tax or excise tax levied by any taxing authority with respect to the receipt of the rental payable hereunder as a supplemental tax, but specifically excluding Landlord's Taxes; (b1 the value of Tenant's equipment, furniture, fixtures or other personal property located in the Premises; (c1 the possession, lease, operation, management, maintenance, alteration, repair, use or occupancy by Tenant of the Premises or any portion thereof; (d) the value of any leasehold improvements, alterations or additions made in or to the Premises, regardless of whether title to such improvements, alterations or additions shall be in Tenant or Landlord; or (e) this transaction or any document to which Tenant is a party creating or transferring an interest or an estate in the Premises.

      4.5 Late Charges and Interest. Ail amounts payable under this Lease shall be paid in lawful money of the United States of America. Any amount of Base Rent, Tenant's Share of Increased Operating Costs, Parking Charges or any other amount payable under this Lease which is not paid within ten (1 0) days after it is due shall be subject to a late charge of 5% of the amount unpaid, Any amount due to Landlord that is not paid when due shall bear interest at the Overdue Rate, except that no interest shall accrue for the month in which a late charge is assessed. Tenant's failure to perform any monetary obligations under this Lease shall have the same consequences as Tenant's failure to pay Base Rent.

5. USES

      5.1 Authorized. Tenant shall use the Premises solely for general office purposes and for no other purpose. Tenant shall not use or permit or suffer the Premises or any part thereof to be used for any purpose other than the purpose expressly authorized herein.

      5.2 Suitability, Tenant acknowledges that neither Landlord nor any agent of Landlord has made any representation or warranty with respect to the Premises, the Building or the Office Complex, or with respect to the suitability of same for the conduct of Tenant's business, except as expressly provided in this Lease. Tenant's acceptance of possession of the Premises shall conclusively establish that the foregoing were at such time in satisfactory condition.

      5.3 Insurance. Tenant shall not do or suffer anything to be done in or about the Premises, nor shall Tenant bring or allow anything to be brought into the Premises, which will in any way increase the rate of any fire insurance or other insurance upon the Building or its contents, cause a cancellation of said insurance or otherwise affect said insurance in any manner: provided, however, that Tenant's business as a computer software vendor, in particular Tenant's proposed electrical usage as shown on the Final Plans, shall be deemed to comply with this Section 5.3,

      5.4 Laws. Tenant shall not do or suffer anything to be done in or about the Premises which will in any way conflict with any law, statute, ordinance or other governmental rule, regulation or requirement now in force or which may be subsequently enacted or promulgated. Tenant shall, at its sole cost and expense, promptly comply with each and all of said governmental measures and also with the requirements of any board of fire underwriters or other similar body now or hereafter constituted to deal with the condition, use or occupancy of the Premises, excluding structural changes not related to or affected by Tenant's alterations, additions or improvements. Without limiting the generality of the foregoing, Tenant will maintain throughout the Term a copy of the most current list of chemicals known to the State of California to cause cancer or reproductive toxicity, as published by the State Health and Welfare Agency in accordance with the Safe Drinking Water and Toxic Enforcement Act of 1986 ("Proposition 65"). Tenant will monitor the chemicals Tenant maintains on the Premises and will comply with both the warning requirements and the discharge prohibitions of Proposition 65 for all chemicals on the Premises that appear on such list. The judgment of any court of competent jurisdiction or the admission 8f Tenant in any judicial action, regardless of whether Landlord is a party thereto, that Tenant has violated any of said governmental measures or requirements shall be conclusive of that fact as between Landlord and Tenant.

      5.5 Nuisance. Tenant shall not place or permit to be placed on any floor a load exceeding the floor load which such floor was designed to carry. Tenant also shall not do or suffer anything to be done in or about the Premises which will in any way obstruct or interfere with the rights of other tenants or occupants of the Building or injure or annoy said tenants or occupants, nor shall Tenant use or suffer the Premises to be used for any unlawful purposes, In no event shall Tenant cause or permit any nuisance in or about the Premises, and no loudspeakers or similar devices shall be used without the prior written approval of Landlord, which approval may be withheld in Landlord's sole discretion. Tenant shall not commit or suffer to be committed any waste in or upon the Premises. The provisions of this paragraph are for the benefit of Landlord only and shall not be construed to be for the benefit of any tenant or occupant of the Building.

      5.6 Rules and Regulations. Tenant shall comply with the Rules and Regulations for the Building, together with all modifications and additions thereto adopted by Landlord from time to time. If there is any conflict between the Rules and Regulations and the provisions of this Lease, the provisions of this Lease shall prevail. Subject to Tenant's right to quiet enjoyment of the Premises under Section 18.23, Landlord shall not be responsible to Tenant for the nonperformance of any of the Rules and Regulations by any other tenants or occupants of the Building,

6. SERVICES AND UTILITIES

      6.1 Basic Services by Landlord. Provided Tenant is not in default under this Lease, and subject to the provisions elsewhere in this Lease and to the Rules arid Regulations of the Building, Landlord shall furnish the Premises with: (a) water, sewage and electricity suitable in Landlord's judgment for the intended use of the Premises and for the operation of Tenant's business as a computer software vendor, provided Tenant's electrical usage does not exceed Tenant's proposed usage as shown on the Final Plans; (b) heat and air conditioning between 8:00 a.m. and 5:00 p.m. on days other than Saturdays, Sundays arid generally recognized holidays, in an amount reasonably required in Landlord's judgment for the comfortable occupation of the Premises; (c) elevator service, which shall mean service by non-attended automatic elevators or elevators with attendants, either or both, at the option of Landlord; and (d) daily janitorial service (five nights per week) similar to that which is provided in comparable office buildings in the Oakland/Emeryville area. Landlord shall maintain the Common Areas in a clean and orderly manner and in a good state of repair,

      6.2 Additional Heating and Air Conditioning. Landlord shall use reasonable efforts to provide additional or after-hours heating or air conditioning at Tenant's request, provided Tenant pays to Landlord the cost of such services as determined solely by Landlord based upon Landlord's reasonable estimates of the costs of such additional services, plus a reasonable charge (not to exceed ten percent (10%) of the cost of such services) for Landlord's overhead expense. Tenant shall keep all draperies closed when necessary because of the sun's position and at all times reasonably cooperate with Landlord and abide by all the regulations and requirements which Landlord may prescribe from time to time for the proper functioning and protection of the heating, ventilating and air conditioning systems. Whenever heat-generating machines or equipment or lighting used in the Premises by Tenant affect the temperature otherwise maintained by the air conditioning system, Landlord shall have the right to install any machinery and equipment Landlord deems reasonably necessary to restore the temperature balance in any affected part of the Building, including but not limited to modifications to the Building's air conditioning system or installation of supplementary air conditioning units. Tenant shall pay the cost thereof, including installation and any additional costs of operation and maintenance occasioned thereby, to Landlord upon demand.

      6.3 Special Apparatus. Tenant shall not, except with Landlord's prior written consent, which consent may be withheld in Landlord's sole discretion, either: (a) use any apparatus or device in the Premises which will increase the amount of cooling, ventilation, electricity or water supplied to the Premises beyond that provided as part of Landlord's Work; or (b) connect with electric current or water pipes any device or apparatus for the purpose of using electrical current or water, except as such connections now exist or as may be provided for in the Scope of Work. If Landlord consents to the use and/or connection of any apparatus or device described in clauses (a) and (b) above, Landlord may install meters or similar monitoring devices to measure the amount of utilities consumed by such apparatus or devices and Tenant shall pay for the cost of all work and materials required for the installation, maintenance and use of such meters and monitoring devices. If Landlord elects not to install a special meter or monitoring device, Landlord shall determine the amount of additional utilities and resources consumed by such apparatus tar device based upon Landlord's reasonable estimates and best judgment, and such determination, made in good faith by Landlord, shall be conclusive on Tenant. Tenant shall pay to Landlord promptly upon demand the cost of any excess use of utilities and resources based on the rates charged by the local public utility company or other supplier furnishing same, plus any additional expense incurred by Landlord in keeping account of the foregoing and administering same.

      6.4 Interruption In Service. Landlord shall use diligent efforts to remedy any interruption in the furnishing of services and utilities. However, Landlord shall not be in default under this Lease or liable for any damages directly or indirectly arising from, nor shall the rent be abated except as provided below by reason of, any failure to provide or any reduction in any of the above services or utilities if such failure or reduction is caused by the making of repairs or improvements to the Premises or the Building, the installation of equipment, acts of God or the elements, labor disturbances of any character, or any other events or conditions whatsoever beyond the reasonable control of Landlord, or rationing or restrictions on the use of said services and utilities due to energy shortages or other causes, whether or not any of the above result from acts or omissions of Landlord. Furthermore, Landlord shall be entitled to cooperate voluntarily in a reasonable manner with the efforts of national, state or local governmental bodies or utilities suppliers in reducing energy or other resources consumption. The failure of Landlord to provide the utilities and services specified in this Section B shall not constitute a constructive or other eviction of Tenant. If any interruption in the furnishing of utilities or services to the Premises materially, adversely affects Tenant's use and occupancy of the Premises, Tenant shall be entitled to an abatement of Base Rent in proportion to the interference with Tenant's use and occupancy, only if, and to the extent that, such interruption continues for more than thirty (30) days.

      6.5 Tenant's Other Utilities. Tenant shall pay prior t0 delinquency for all telephone and all other materials and services not expressly required to be provided by Landlord, which may be furnished to or used in, on or about the Premises during the Term.

7. TENANT'S ALTERATIONS; PROTECTION AGAINST LIENS

      7.1 Landlord's Consent Required, Tenant shall not make or permit to be made any alterations, additions or improvements to the Premises or any part thereof, without first obtaining Landlord's written consent. When applying for such consent, Tenant shall, if required by Landlord, furnish complete plans and specifications for such alterations, additions or improvements. All alterations, additions or improvements to the Premises shall be performed by contractors selected and supervised by Landlord for Tenant's account and at Tenant's sole cost and expense. Within ten (101 days after receipt of a written statement from Landlord, Tenant shall reimburse Landlord for all reasonable costs arising in connection with Landlord's approval of plans and specifications and supervision of contractors. Landlord shall have the right to require that any contractor performing alterations, improvements or additions to the Premises shall, prior to commencement of any work, provide Landlord with a performance bond and labor and materials payment bond in the amount of the contract price for the work, naming Landlord and Tenant (and any other persons designated by Landlord as co-obligees). All alterations, additions, fixtures and improvements, including without limitation all improvements made pursuant to a Scope of Work, whether temporary or permanent in character, made in or upon the Premises either by Landlord or Tenant, shall at once belong to Landlord and become part of the Premises and shall remain on the Premises without compensation of any kind to Tenant, unless Landlord requires their removal under Paragraph 7.2 below. Tenant shall carry insurance as required by Section 10 covering any improvements, alterations or additions to the Premises made or paid for by Tenant except for Landlord's Work described in the Scope of Work, it being understood and agreed that none of such alterations, additions or improvements shall be insured by Landlord nor shall Landlord be required under any provision of this Lease to repair, reconstruct or reinstall any such alterations, additions or improvements. Movable furniture and equipment which are removable without material damage to the Building or the Premises shall remain the property of Tenant.

      7.2 Removal of Tenant's Alterations. Notwithstanding any contrary provision in this Lease, Tenant shall, upon Landlord's written request made prior to or within thirty (30i days following the Expiration pate or the earlier termination of this Lease, promptly remove any alterations, additions, fixtures or improvements designated by Landlord to be removed and repair any damage to the Premises resulting from such removal. Landlord may, in connection with any such removal which might in Landlord's judgment involve damage to the Promises, require that such removal be performed by a bonded contractor or other person for whom a bond satisfactory to Landlord has been furnished covering the cost of repairing the anticipated damage.

      7.3 Protection Against Liens. Tenant shall keep the Premises, the Building and the Common Areas free from any liens arising out of work performed, materials furnished, or obligations incurred by Tenant and shall indemnify, hold harmless and defend Landlord from any liens and encumbrances arising out of any work performed or materials furnished by or at the direction of Tenant, In the event that Tenant shall not, within twenty (201 days following written notice of the imposition of any such lien, cause such lien to be released of record by payment or posting of a proper bond, Landlord shall have, in addition to all other remedies provided in this Lease and by law, the right, but no obligation, to cause the same to be released by such means as Landlord shall deem proper, including payment of the claim giving rise to such lien. All such sums paid by Landlord and all expenses incurred by it in connection therewith, including attorneys' fees and costs, shall be payable by Tenant upon demand with interest at the Overdue Rate from the date such sums are paid or expenses incurred by Landlord. Landlord shall have the right at all times to post and keep posted on the Premises any notices permitted or required by law, or which Landlord shall deem proper, for the protection of Landlord and the Premises, and any other party having an interest therein, from mechanics' and materialmen's liens, and Tenant shall give to Landlord at least ten (101 business days' prior written notice of the day of commencement of any work relating to alterations, additions or improvements in or to the Premises.

8. MAINTENANCE AND REPAIRS

      8.1 Landlord's Obligations. Subject to Sections 15 and 16, Landlord shall maintain in good order, condition and repair the structural portions of the Building including the exterior walls, underflooring and roof, the basic heating, ventilating, air conditioning, plumbing, electrical, arid fire detection and security systems, and all other portions of the Premises not the obligation of Tenant or any other tenant in the Building. However, if any such maintenance or repair becomes necessary in whole or in part because of wrongful acts or omissions by Tenant or Tenant's employees, agents, invitees or customers, or because of a breaking and entering, Tenant shall pay the entire cost thereof upon demand. Landlord shall not be liable to Tenant, and rent shall not be abated, for any failure by Landlord to maintain and repair areas which are being used in connection with construction of improvements, or for any failure to make any repairs or perform any maintenance unless such failure shall continue for an unreasonable time after written notice of the need therefor is given to Landlord by Tenant. Landlord shall also not be liable under any circumstances for loss of profits or for injury to or interference with Tenant's business arising from or in connection with the making of or the failure of Landlord to make any repairs, maintenance, alterations or improvements in order to make any repairs, maintenance, alterations or improvements in or to any portion of the Building or the Common Areas or in or to fixtures, appurtenances and equipment therein. Notwithstanding the foregoing. if Landlord fails to make any repairs or perform any maintenance within a reasonable time after written notice of the need therefor from Tenant to Landlord, Tenant may, after giving Landlord at least ten (10) days' prior written notice of its intent to do so, make necessary repairs or perform necessary maintenance, provided, however, (a) Tenant's work does not affect structural elements of the Building or Building systems, and (b) so long as Landlord is diligently attempting to make the necessary repairs or perform the necessary maintenance, Tenant shall have no right of "self-help."

      8.2 Tenant's Obligation,

                (a) Tenant shall maintain the Premises in good order, condition and repair including the interior surfaces of the ceilings, walls and floors, all doors, interior windows, and all special plumbing pipes, valves and fixtures, electrical wiring, panels, switches, and all other fixtures and equipment installed for the use of the Premises by or on behalf of Tenant, including, without limitation, the "PBX Switchboard Area" and "Computer Labs" shown on the Final Plans (as defined in the Scope of Work. Tenant expressly waives the benefit of any statute, ordinance or judicial decision now or hereafter in effect which would otherwise afford Tenant the right to make repairs at Landlord's expense or to terminate this Lease because of Landlord's failure to keep the Premises in good order, condition and repair,

                (b) Upon the Expiration Date or the earlier termination of this Lease, Tenant shall surrender the Premises in the same condition as received, except for ordinary wear and tear and damage by fire, earthquake, acts of God or the elements, not caused by wrongful act or omission of Tenant or Tenant's agents, and shall promptly remove or cause to be removed, at Tenant's expense, from the Premises and the Building any signs, notices and displays placed by Tenant.

                (c) Tenant shall repair any damage to the Premises or the Building caused by or in connection with the removal of any articles of personal property, business or trade fixtures, machinery, equipment, cabinetwork, furniture, movable partitions or permanent improvements or additions, including without limitation, repairing the floor and patching and painting the walls where required by Landlord to Landlord's reasonable satisfaction, but excluding any damage caused by reasonable use. Tenant shall indemnify Landlord against any loss or liability resulting from delay by Tenant in so surrendering the Premises, including without limitation, any claims made by any succeeding tenant reasonably founded on such delay.

                (d) Tenant shall do all acts required to comply with all applicable laws, ordinances, regulations and rules of any public authority relating to Tenant's use and occupancy of the Premises.

                (e) If Tenant fails to maintain the Premises in good order, condition and repair, or to comply with applicable laws, ordinances, regulations or rules, Landlord shall give Tenant written notice to do such acts as are reasonably required to satisfy its obligations under this paragraph. If Tenant fails to promptly commence such work and diligently prosecute it to completion, Landlord shall have the right after first giving Tenant at least ten (10) days' written notice (except in an emergency), but no obligation, to do such acts and expend such funds as are reasonably required to perform such work. Any amount so expended by Landlord shall be paid by Tenant promptly after demand with interest at the Overdue Rate from the date of such work. Landlord shall have no liability to Tenant for any damage, inconvenience or interference with the use of the Premises by Tenant as a result of performing any such work.

9. INDEMNITY AND EXEMPTIONS OF LANDLORD

      9.1 Indemnity. Except as set forth herein, Tenant shall indemnify, hold harmless, and defend Landlord against arty and all claims of liability for any death or injury to any person or damage to any property whatsoever occurring in, on or about the Premises or any part thereof, or occurring in, on or about any of the Common Areas, to the extent such injury or damage is cause by the act, negligence, fault or omission of any duty with respect to the same by Tenant, its agents, contractors, employees, invitees or customers. Tenant shall further indemnify, hold harmless and defend Landlord from and against any and all claims, actions and liabilities arising from (a) any breach or default in the performance of any obligation on Tenant's part to be performed under this Lease, or (b) arising from any act or negligence of Tenant, or any of its agents, contractors, invitees or employees, or (c) any Environmental Damages arising from the presence of Hazardous Materials upon, within or about the Premises due to any act or omission of Tenant or any of its agents, contractors, invitees or employees, or Id) violation of any Environmental Requirements pertaining to the Premises or the activities therein, and (e) from and against all costs, attorneys' fees, expenses and liabilities incurred in the defense of any such claim, action or liability, and any proceeding brought thereon. In case any action or proceeding be brought against Landlord by reason of any such claim, Tenant, upon notice from Landlord, shall defend the same at Tenant's expense by counsel reasonably satisfactory to Landlord; provided, however, that Tenant shall not be liable for damage to property or death or injury to persons) occasioned by the gross negligence or intentional misconduct of Landlord or its agents or employees unless covered by insurance Tenant is required to provide.

      9.2 Exemption of Landlord From Liability. Tenant hereby assumes all risk of damage to property or injury to persons in, upon or about the Premises from any cause other than the active negligence or intentional misconduct of Landlord and its agents or employees. Without limiting the generality of the foregoing, Landlord shall not be liable for injury or damage which may be sustained by the person, goods, wares, merchandise or property of Tenant, its employees, invitees or customers, or any other person in or about the Premises caused by or resulting from fire, steam, electricity, gas, water or rain, which may leak or flow from or into any part of the Premises, or from the breakage, leakage, obstruction or other defects of the pipes, sprinklers, wires, appliances, plumbing, heating, air conditioning or lighting fixtures of the same, whether the damage or injury results from conditions arising upon the Premises or upon other portions of the Building from other sources. Landlord shall not be liable for any damages arising from any act or omission of any other tenant or occupant of the Building except to the extent caused by the gross negligence or intentional misconduct of Landlord.

10. INSURANCE

      10.1 Tenant's Insurance.

                (a) At all times during the Term Tenant shall maintain in effect policies of casualty insurance covering (i) all alterations, additions or improvements in, on or to the Premises as may be made or paid for by Tenant (except for Landlord's Work described in the Scope of Work), and (11) al( trade fixtures, merchandise and other personal property from time to time in, on or upon the Premises, in an amount not less than their actual replacement cost, providing protection against any peril included within the classification of "Fire and Extended Coverage" together with insurance against sprinkler damage, vandalism and malicious mischief, including cost of debris removal and demolition. Replacement cost for purposes hereof shall be determined by mutual agreement, or failing such agreement, by an accredited appraiser selected by Landlord, with the cost of such appraisal to be borne by Tenant. The proceeds of such insurance shall be used for the repair or replacement of the property so insured. Upon termination of this Lease following a casualty as set forth in Section 16, the proceeds under clause (i) above shall be paid to Landlord, and the proceeds under clause (ii) above shall be paid to Tenant.

                (b) At all times during the Term Tenant shall maintain in effect workers' compensation insurance and comprehensive public liability and property damage insurance adequate to protect Landlord against liability for injury to or death of any person or loss or injury to any property in connection with the activities of Tenant in, on or about the Premises or with the use, operation or condition of the Premises. Such insurance at all times shall afford combined single limit coverage in an amount of not less than Two Million Dollars ($2,000,000). The limits of such insurance shall not limit the liability of Tenant under this Lease. All public liability and property damage policies shall contain a provision that Landlord, although named as an insured, shall nevertheless be entitled to recovery under said policies for any loss occasioned to it, its servants, agents or employees by reason of Tenant's negligence.

                (c) All insurance required to be carried by Tenant hereunder shall be issued by responsible insurance companies acceptable to Landlord and any Mortgagee. All policies of insurance provided for in this Lease shall be issued by insurance companies licensed to do business in the State of California, with general policy holder's rating of not less than "A" and a financial rating of not less than "Class X" as rated in the most current available "Best's Insurance Reports,' Each policy shall name Landlord and at Landlord's request any Mortgagee as an additional insured, as their respective interests may appear, and a duplicate original of all policies or certificates evidencing the existence and amounts of such insurance shall be delivered to Landlord by Tenant at least ten (10) days prior to Tenant's occupancy of the Premises. All policies of insurance delivered to Landlord must contain a provision that the company writing said policy will give Landlord thirty (30) days' written notice in advance of any cancellation or lapse of or any change in such insurance. All public liability, property damage and other casualty insurance policies shall be written as primary policies, not contributing with, and not in excess of coverage which Landlord may carry. Tenant shall furnish Landlord with renewals or "binders" of any such policy at least thirty (301 flays prior to the expiration thereof. If Tenant does not procure and maintain such insurance, Landlord may (but shall not be required to) obtain such insurance on Tenant's behalf and charge Tenant the premiums therefor which shall be payable upon demand, and no such action by Landlord shall constitute a waiver of Tenant's default hereunder. Tenant may carry such insurance under a blanket policy, provided such blanket policy expressly affords the coverage required by this Lease by a Landlord's protective liability endorsement or otherwise.

                (d) Every five (5) years during the Term or whenever Tenant materially improves or alters the Premises, Tenant shall increase the policy limits for the insurance to be carried by Tenant under this Section 10 to such amounts as Landlord reasonably determines are appropriate.

      10.2 Landlord's Insurance. At all times during the Term Landlord shall maintain in effect a policy or policies of insurance covering the Building in an amount not less than ninety percent 190%) of full replacement cost (exclusive of the cost of excavations, foundations, footings and all tenant improvements constructed at the request or cost of Tenant, but inclusive of the cost of building standard tenant improvements) from time to time during the Term, providing protection against any peril generally included in the classification "Fire and Extended Coverage" together with insurance against sprinkler damage, vandalism and malicious mischief. Landlord's obligation to carry the insurance provided for herein may be brought within the coverage of any blanket policy or policies of insurance carried and maintained by Landlord. In addition to the coverage required by this paragraph, Landlord shall be entitled to procure (and include the premiums therefor in Operating Costs) such other types of insurance and in such amounts as Landlord may deem to be necessary or appropriate.

      10.3 Subrogation Waiver. Landlord and Tenant each hereby waive any and all rights of recovery against the other or against the officers, partners, employees, agents and representatives of the other, on account of loss or damage of such waiving party or its property, or the property of others under its control, to the extent that such loss or damage is insured against under any fire and extended coverage insurance policy which either may have in force at the time of such loss or damage. Tenant shall, upon obtaining the policies of insurance required under this Lease, give notice to its insurance carriers) that the foregoing mutual waiver of subrogation is contained in this Lease. The waivers set forth herein shall be required and effective only to the extent such waivers are available from each party's insurer without additional premium; if an extra charge is incurred to obtain such waiver, it shall be paid by the party in whose favor the waiver runs within fifteen (15) days after written notice from the other party, and, if not so paid, such other party's waiver under this paragraph shall be neither required nor effective.

11. ASSIGNMENT AND SUBLETTING

      11.1 Landlord's Consent Required. Tenant shall not sell, assign, mortgage, pledge, hypothecate, encumber or otherwise transfer this Lease or any interest therein, and shall not sublet the Premises or any part thereof, or suffer or permit the Premises or any part thereof to be occupied by any other person (the agents, employees, and invitees of Tenant excepted), without the prior written consent of Landlord in each instance; and any attempt to do so without such consent shall be voidable and, at Landlord's election, shall constitute a noncurable default under this Lease. No interest of Tenant in this Lease or the Premises shall be assignable by operation of law. Subject to the terms and conditions contained in this section, Landlord shall not unreasonably withhold its consent to a voluntary assignment of this Lease or a subletting of the Premises.

      11.2 Tenant's Application If Tenant desires at any time to assign this Lease or to sublet the Premises or any portion thereof, Tenant shall submit to Landlord at least thirty (30) days prior to the proposed effective date of the assignment or sublease, in writing: (a) a notice of intent to assign or sublease, setting forth the proposed effective date thereof; (b) the name of the proposed assignee or subtenant; (c) the nature of the proposed assignee's or subtenant's business to be carried on in the Premises; (d) the terms and provisions of the proposed assignment or sublease; and (e) such financial information as Landlord may request concerning the proposed assignee or subtenant, including recent financial statements and bank references. At the time of Tenant's application to assign the Lease, Tenant may also request Landlord in writing to be released from liability under this Lease, which request may or may not be granted in Landlord's sole discretion.

      11.3 Required Provisions. All assignment or sublease agreements shall (a) contain such terms as are described in Tenant's notice under Paragraph 11.2 above or as otherwise agreed by Landlord, (b) prohibit further assignments or subleases except with Landlord's written consent, (c) impose the same obligations and conditions on the assignee or sublessee as are imposed on Tenant by this Lease (except as to rent and term or as otherwise agreed by Landlord), (d) be expressly subject and subordinate to each and every provision of this Lease, (e) have a term that expires on or before the Expiration Date, and (f) provide that Tenant and/or the assignee or sublessee shall pay Landlord the amount of any additional costs or expenses incurred by Landlord for repairs, maintenance or otherwise as a result of any change in the nature of occupancy caused by the assignment or sublease.

      11.4 Bonus Rent. Landlord shall be entitled to receive all Bonus Rent payable in connection with any assignment or sublease. Within fifteen (15) days after written request by Landlord, Tenant shall provide and certify to Landlord all financial information required for the calculation of Bonus Rent.

      11.5 Fees for Review. If Landlord retains the services of an attorney to review any aspect of the proposed assignment or sublease transaction, Tenant shall pay to Landlord all attorneys' fees reasonably incurred by Landlord in connection therewith, Tenant shall pay such attorneys' fees to Landlord within thirty (30) days after written request therefor.

      11.6 No Release of Tenant. Unless Landlord has specifically released Tenant in writing from all obligations under the Lease, no consent of landlord to any assignment or subletting by Tenant shall relieve Tenant of the obligations to be performed by Tenant under this Lease, whether accruing before or after such assignment, or subletting, and notwithstanding any subsequent modification, extension or renewal of this Lease made with or without Tenant's consent. The consent by Landlord to any assignment, transfer or subletting shall not relieve Tenant from the obligations to obtain Landlord's express prior written consent to any subsequent or other transfer or subletting. The acceptance by Landlord of payment from any other person shall not be deemed to be a waiver by Landlord of any provision of this Lease or to be a consent to any transfer or sublease, or to be a release of Tenant from any obligation under this Lease. If the Premises or any part thereof is sublet or occupied by any person other than Tenant, Landlord may, after default by Tenant, collect the rent from any such transferee, subtenant or occupant and apply the net amount collected to the rent reserved herein, and no such action by Landlord shall be deemed a consent to such transfer, sublease or occupancy.

      11.7 Assumption of Obligations. Each assignee of Tenant shall assume all obligations of Tenant under this Lease and shall be and remain liable jointly and severally with Tenant (unless Landlord has specifically released Tenant in writing from all obligations under the Lease) for the payment of the rent and the performance of all the terms, covenants, conditions and agreements herein contained on Tenant's part to be performed for the Term. No assignment shall be binding on Landlord unless the assignee or Tenant delivers to Landlord a counterpart of the assignment instrument in recordable form which contains a covenant of assumption by the transferee satisfactory in substance and form to Landlord, consistent with the requirements of this section. The failure or refusal of any assignee t0 execute such instrument of assumption shall not release or discharge the assignee from its liability to Landlord hereunder. Landlord shall have no obligation whatsoever to perform directly any duty to or respond directly to any request from any sublessee, it being the obligation of Tenant to administer the terms of its subleases; provided, however, Landlord shall remain liable to Tenant to perform all of Landlord's obligations under this Lease.

      11.8 Deemed Transfers. If Tenant is a privately held corporation, or is an unincorporated association or partnership, the transfer, assignment or hypothecation of any stock or interest in such corporation, association or partnership in the aggregate from the Lease Date in excess of fifty percent (50%) shall be deemed an assignment or transfer within the meaning of this section. Tenant may assign this Lease or sublet the Premises or any part thereof without Landlord's prior written consent to any corporation which controls Tenant, is controlled by Tenant, or is under common control with Tenant or to any entity resulting from any reorganization, merger or the sale of substantially all of Tenant's stock, provided Tenant gives Landlord at least thirty (301 days' prior written notice of such subletting or assignment; and such subletting or assignment shall not release or discharge Tenant from any liability under this Lease.

      11.9 Landlord's Option t Recapture. Landlord reserves the option, to be exercised by giving notice to Tenant within fifteen (151 days after receipt of Tenant's notice of intent to assign of sublease to recapture the portion of the Premises described in Tenant's notice for the remainder of the Term, and to terminate this Lease with respect to such recaptured Premises. The effective date of such recapture and termination shall be as specified in Landlord's notice of exercise of its recapture option, but shall not be less than thirty (301 days nor more than sixty (601 days after the delivery of such notice. The option to recapture reserved to Landlord hereunder shall also arise in the event Tenant shall, voluntarily or involuntarily, sell, assign, mortgage, pledge, encumber or otherwise transfer this Lease or any interest herein, or sublet the Premises or any portion thereof, or suffer or permit the Premises to be occupied by any third person (the agents, employees, invitees and customers of Tenant excepted), without first obtaining the written consent of Landlord and in such event the recapture option shall apply to the portion of the Premises so affected and be exercisable but Landlord at any time after the occurrence of the event for which Landlord's consent was required by not obtained by Tenant. If this Lease is terminated pursuant to Landlord's recapture option with respect to only a portion of the Premises, the Base Rent required under this Lease and Tenant's Share shall be adjusted proportionately based on the rentable square footage retained by Tenant and the rentable square footage of the Premises leased by Tenant immediately prior to such recapture and cancellation, and Landlord and Tenant shall thereupon execute an amendment of this Lease in accordance therewith. If Landlord so recaptures a portion of the Premises, it shall construct and erect at is sole cost such partitions as may be required in Landlord's and Tenant's reasonable judgment to sever the space retained by Tenant from the space recaptured by Landlord; provided, however, that Tenant shall bear the cost of painting, covering or otherwise decorating the surfaces of such partitions which face the remaining Premises. Landlord may, without limitation, lease the recaptured portion of the Premises to the proposed subtenant or assignee, on the same or different terms as were proposed by Tenant, without liability to Tenant.

12. SUBORDINATION AND ATTORNMENT

      12.1 Subordination. Upon the written request of Landlord or any Mortgagee, Tenant will in writing subordinate its rights under this Lease to the lien of any mortgage or deed of trust now or hereafter in force against the Premises, the Building or the underlying land and to all advances made or hereafter to be made upon the security thereof, and to all extensions, modifications and renewals thereunder. Tenant shall also, upon Landlord's request, subordinate its rights hereunder t0 any ground or underlying lease which may now exist or hereafter be executed affecting the Building and/or the underlying land. Tenant shall have the right to condition its subordination upon the execution and delivery of an attornment and nondisturbance agreement, as described in Paragraph 12.2, between the Mortgagee or the lessor under any such ground or underlying lease and Tenant Tenant shall not subordinate its rights hereunder to any lien other than that of a first mortgage or first deed of trust, except with the prior written consent of the Mortgagee holding such first mortgage or deed of trust.

      12.2 Attornment. Upon the written request of the Landlord or any Mortgagee or any lessor under a ground or underlying lease, Tenant shall attorn to any Mortgagee or lessor, provided such Mortgagee or lessor agrees that if Tenant is not in default under this Lease, Tenant's possession of the Premises in accordance with the terms of this Lease shall not be disturbed, Such agreement shall provide, among other things, (a) that this Lease shall remain in full force and effect, (b) that Tenant pay rent to said Mortgagee or lessor from the date of said attornment, (c) that said Mortgagee or lessor shall not be responsible to Tenant under this Lease except for obligations accruing subsequent to the date of such attornment, and (d) that Tenant, in the event of foreclosure or a deed in lieu thereof or a termination of the ground or underlying lease, will enter into a new lease with the Mortgagee, lessor or other person having or acquiring title on the same terms and conditions as this Lease and for the balance of the Term.

      12.3 Nonmaterial Amendments. If any lender should require any modification of this Lease as a condition of loans secured by a lien on the Premises, the Building or the land underlying the Building, or if any such modification is required as a condition to a ground or underlying lease, Tenant will not unreasonably withhold its approval or execution of any such modifications, promptly after request by Landlord provided no such modification shall relate to the rent payable hereunder, the length of the Term or otherwise materially change the rights or obligations of Landlord or Tenant.

13. DEFAULT BY TENANT

      13.1 Acts Constituting Default. In addition to the events specified as a default elsewhere in this Lease, the failure of Tenant to perform each covenant made under this Lease, or any abandonment of the Premises by Tenant, shall constitute a default hereunder. However, Landlord shall not commence any action to terminate Tenant's right of possession as a consequence of a default until any period of grace with respect thereto has elapsed; provided, that any such period of grace shall be in lieu of and not in addition to the period during which Tenant may cure such default following the delivery of notice pursuant to California Code of Civil Procedure Section 1 161.

                (a) Subject to the limitation expressed in Paragraph 13.1(c), Tenant shall have a period of three (3) days from the date of written notice from Landlord within which to cure any default in the payment of any monetary obligations of Tenant under this Lease.

                (b) Tenant shall have a period of fifteen (15) days from the date of written notice from Landlord within which to cure any other default under this Lease which is capable of being cured; provided, however, that with respect to any default which cannot reasonably be cured within fifteen (15) days, the default shall not be deemed to be uncured if Tenant commences to cure within five (5) days from Landlord's notice and thereafter prosecutes diligently and continuously to completion all acts required to cure the default.

                (c) There shall be no period of grace with respect to any default by Tenant which is not capable of being cured. Landlord and Tenant stipulate that the following defaults are not capable of being cured by Tenant: (i) any default which is specified in this Lease as being incurable; (ii) any unauthorized sale, assignment, mortgage, pledge, hypothecation, encumbrance or other transfer of this Lease or any interest herein, or any unauthorized subletting of all or any portion of the Premises; (iii) the commission of waste by Tenant; (iv) the failure of Tenant to pay rent or any other monetary obligation of Tenant hereunder on the due date thereof where such failure occurs on more than three (3) consecutive occasions or more than six (61 occasions during any twelve (12) month period; and (v) any other default which is recognized under California law as being incurable.

      13.2 Landlord's Remedies. If Tenant fails to cure a default, or in the event of a default which is not capable of being cured by Tenant, Landlord shall have the following rights and remedies in addition to any other rights and remedies available to Landlord at law or in equity:

                (a) Landlord shall have all rights and remedies provided by California Civil Code Section 1951.2 (or any successor statute), including but not limited to, recovery of the worth at the time of award of the amount by which the unpaid rent for the balance of the Term after the time of award exceeds the amount of rental loss for the same period that Tenant proves could be reasonably avoided, as computed pursuant to subsection (b) of said Section 1951.2;

                (b) Landlord shall have rights and remedies provided by California Civil Code Section 1951,4 (or any successor statute), which allows Landlord to continue this Lease in effect and to enforce all of its rights and remedies under this Lease, including the right to recover rent as it becomes due, for so long as Landlord does not terminate Tenant's right to possession. Acts of maintenance or preservation, efforts to relet the Premises, or the appointment of a receiver upon the Landlord's initiative to protect its interest under this Lease shall not constitute a termination of Tenant's right to possession; and

                (c) Landlord shall have the right, but not the obligation, to make any payment or perform any act on Tenant's part as may be required to cure Tenant's default, without waiving its rights based upon such default by Tenant and without releasing Tenant from any of its obligations. All sums so paid and all costs incurred by Landlord, together with interest thereon at the Overdue Rate from the date of such payment or the incurrence of such cost by Landlord, whichever occurs first, shall be paid to Landlord on demand.

14. DEFAULT BY LANDLORD

      14.1 Existence of Default. Landlord shall not be deemed to be in default in the performance of any obligation under this Lease unless and until it has failed to perform such obligation within twenty (20) days after receipt of written notice by Tenant to Landlord specifying such failure; provided, however, that if the nature of the Landlord's default is such that more than twenty (20) days are required for its cure, then Landlord shall not be deemed to be in default if it commences such cure within the twenty (20) day period and thereafter diligently prosecutes such cure to completion,

      14.2 Mortagaee's Right To Cure. Tenant shall give any Mortgagee a copy, by registered mail, of any notice of default served upon Landlord, provided that Tenant previously has been notified in writing (by way of Notice of Assignment of Rents and Leases, or otherwise), of the address of such Mortgagee. If Landlord fails to cure such default within the time provided in this Lease, any such Mortgagee shall have an additional forty-five (45) days within which to cure such default by Landlord, or if such default cannot be cured within that time, then such additional time as may be necessary if within that forty-five (45) day period the Mortgagee has commenced and is pursuing the remedies necessary to cure such default (including but not limited to commencement of foreclosure proceedings, if necessary to effect such cure), in which event this Lease shall not be terminated while such remedies are being so pursued.

      14.3 Judgment Against Landlord. If Tenant recovers any judgment against Landlord for a default by Landlord under this Lease, the judgment shall be satisfied only out of the interest of Landlord in the Building and neither Landlord nor any of its partners, officers, employees or agents shall be personally liable for any such default or for any deficiency.

15. CONDEMNATION

      15.1 Termination Due To Taking. If ail or any part of the Premises are the subject of a Taking, either Landlord or Tenant may, by written notice given to the other within thirty (30) days of receipt of notice of such Taking, elect to terminate this Lease as of the date possession is transferred pursuant to the Taking; provided, however, that before Tenant may terminate this Lease for a Taking, such 'faking must be of such an extent and nature as to substantially impede Tenant's use of the Premises, If any pan of the Building other than the Premises shall be the subject of a Taking, Landlord may elect to Terminate this Lease. If there is a Taking of all or a part of the Parking Facilities and the parking rights granted to Tenant under Paragraph 2.4 are substantially reduced thereby, Landlord shall have the right to provide replacement parking to compensate for such reduction within other parking areas serving the Office Complex. 1f such replacement parking is not provided, then for a period of thirty (30) days after Landlord notifies Tenant that such replacement parking cannot be provided, Tenant shall have the right to terminate this Lease, effective at a time specified by Tenant not to exceed thirty (30) days from the date of the notice.

      15.2 No Termination Due To Taking. If a partial Taking of the Premises does not result in a termination of this Lease, Base Rent, Tenant's Share of Increased Operating Costs and Tenant's parking rights shall be reduced in proportion to what the area of the Premises taken bears to the area of the Premises immediately prior to the Taking. No temporary taking of the Premises or any part of the Building shall terminate this Lease, except at Landlord's election, or give Tenant any right to any abatement of Base Rent or Increased Operating Costs, except that Base Rent and Operating Costs shall be reduced in accordance with the preceding sentence during that portion of any temporary Taking of the Premises lasting more than thirty (301 days. Each party hereto waives the provisions of California Code of Civil Procedure Section 1265.130 (or any successor statute) allowing either party to file a petition to terminate this Lease for a partial Taking.

      15.3 Award For Taking. No award for any partial or entire Taking shall be apportioned, and Tenant hereby assigns to Landlord any and all rights of Tenant to any portion of the award for a Taking. However, nothing contained herein shall be deemed to give Landlord any interest in or to require Tenant to assign to Landlord any award made to Tenant for taking of personal property belonging to Tenant.

16. DAMAGE AND DESTRUCTION

      16.1 Partial Damage - Insured. If the Premises or the Building are damaged by a risk covered under fire and extended coverage insurance insuring Landlord, then Landlord shall restore such damage provided insurance proceeds are available to Landlord to pay ninety percent (90%) or more of the cost of restoration, and provided such restoration by Landlord can be completed within eight (8) months after the commencement of work in the opinion of a licensed architect or engineer appointed by Landlord. 1n such event this Lease shall continue in full force and effect, except that Tenant shall, so long as the damage is not due to the act or omission of Tenant, be entitled to an equitable reduction of Bass Rent and Tenant's Share of Increased Operating Costs while such restoration takes place, such reduction to be based upon the extent to which the damage or restoration efforts materially interfere with Tenant's use of the Premises.

      16.2 Partial Damage - Uninsured. If the Premises or the Building are damaged by a risk not covered by such insurance or if the insurance proceeds available to Landlord are less than eighty percent (80%) of the cost of restoration, or if the restoration cannot be completed within eight (8) months after the commencement of work in the opinion of the licensed architect or engineer appointed by Landlord, then Landlord shall have the option either to (a) repair or restore such damage, this Lease continuing in full force and effect, with the Base Rent and Tenant's Share of Increased Operating Costs to be equitably reduced as provided in Paragraph 16.1, or (b) give notice to Tenant at any time within ninety (90) days after such damage terminating this Lease as of a date to be specified in such notice, which date shall be not less than thirty (30) nor more than sixty (60) days after the giving of such notice. If such notice is given, this Lease shall expire and any interest of Tenant in the Premises shall terminate on the date specified in such notice. The Base Rent and Tenant's Share of Increased Operating Costs during the period prior to the termination shall be reduced as provided in Paragraph 16.1 and paid up through the date of termination.

      16.3 Total Destruction. if the Premises are totally destroyed or in Landlord's judgment the Premises cannot be restored as required herein under applicable laws and regulations, notwithstanding the availability of insurance proceeds, this Lease shall be terminated effective as of the date of the damage.

      16.4 Landlord's Obligations. Any restoration by Landlord pursuant to Paragraphs 16.1 or 16.2 shall be commenced as soon as reasonably possible after the date of damage and prosecuted diligently to completion at the earliest possible date. Landlord shall not be required to carry insurance of any kind on Tenant's property and shall not be required to repair any injury or damage thereto by fire or other causes, or to make any restoration or replacement of any paneling, decorations, partitions, ceilings, floor covering, office fixtures or any other improvements or property installed in the Premises by or at the direct or indirect expense of Tenant and Tenant shall be required to restore or replace same in the event of damage. Tenant shall have no claim against Landlord for any loss suffered by reason of any such damage, destruction, repair or restoration. Notwithstanding anything to the contrary contained in this section, Landlord shall have no obligation to repair, reconstruct or restore the Premises with respect to damage or destruction as described in this section occurring during the last twelve (12) months of the Term.

      16.5 Waiver by Tenant. Tenant shall have no right to terminate this Lease as a result of any statutory provisions now or hereafter in effect pertaining to the damage and destruction of the Premises or the Building, except as expressly provided herein, and Tenant expressly waives the provisions of California Civil Code Sections 1932(2) and 1933(4) with respect to any damage or destruction of the Premises.

17. DEFINITIONS

      17.1 "Rase Rent" means the monthly rent payable pursuant to Paragraph 4.1, and as specified in the Basic Lease Provisions.

      17.2 "Base Year" means the calendar year specified in the Basic Lease Provisions.

      17.3 "Basic Lease Provisions" means the provisions contained in Paragraph 1.2 of this Lease.

      17.4 "Bonus Rent" means the excess of (a) all consideration received by Tenant from an assignment of this Lease or a sublease of all or any portion of the Premises over (b) the Base Rent, Increased Operating Costs and other charges payable by Tenant to Landlord under this Lease (prorated, in the case of a sublease of less than all of the Premises, to reflect obligations allocable to only the portion of the Premises so sublet). In determining the total consideration under the foregoing clause la), Tenant shall be entitled to exclude therefrom reasonable leasing commissions paid by Tenant to any unaffiliated third party, payments attributable to the amortization of the cost of improvements Tenant must make to the Premises at its cost to ready same for the assignee or sublessee, and other reasonable, out-of-pocket costs paid by Tenant which are directly related to Tenant's obtaining the assignment or sublease.

      17.5 "Building" means the highrise office building described in the Basic Lease Provisions, the parcels of land on which such office building is situated, all other improvements situated on the land, and all rights and easements appurtenant thereto. Except where the context requires otherwise, references to the "Building" shall include the Common Areas and the Parking Facilities serving the Building and other buildings in the Office Complex.

      17.6 "Commencement Date" means the date determined pursuant to Paragraph 3.2 of this Lease for the commencement of the Term. 17.7 "Common Areas" means areas within the Building (including common corridors and hallways, stairwells, elevators, restrooms, lobbies and other public areas) and within the Office Complex which are available for nonexclusive use by Tenant and other tenants of the Building or the Office Complex.

     17.7 "Common Areas" means areas within the Building (including common corridors and hallways, stairwells, elevators, restrooms, lobbies and other public areas) and within the Office Complex which are available for nonexclusive use by Tenant and other tenants of the Building or the office Complex.

      17.8 "Environmental Damages" means all claims, judgments, damages, losses, penalties, fines, liabilities, strict costs and expenses of defense of any claim and of any settlement or judgment, including without limitation reasonable attorneys' fees and consultants' fees, any of which are incurred at any time as a result of the existence of "Hazardous Material" upon, about, beneath the Premises or migrating or threatening to migrate to or from the Premises, or the existence of a violation of "Environmental Requirements" pertaining to the Premises including, without limitation: (a) damages for personal injury, or injury to property or natural resources occurring upon or off of the Premises, foreseeable or unforeseeable, including, without limitation, lost profits, consequential damages, interest and penalties including but not limited to claims brought by or on behalf of employees of Tenant, with respect to which Tenant waives any immunity to which it may be entitled under any industrial or worker's compensation laws; (b) diminution in the value of the premises, and damages for the loss of or restriction on the use of or adverse impact on the marketing of rentable or usable space of any amenity of the Premises; (c) fees incurred for the services of attorneys, consultants, contractors, experts, laboratories and all other costs incurred in connection with the investigation or remediation of such "Hazardous Materials" or violation of "Environmental Requirements" including, but not limited to, the preparation of any feasibility studies or reports or the performance of any cleanup, remedial, removal, containment, restoration or monitoring work required by any federal, state or local governmental agency or political subdivision, or reasonably necessary to make full economic use of the Premises or any other property or otherwise expended in connection with such conditions, and including without limitation any attorneys' fees, costs and expenses incurred in enforcing this agreement or collecting any sums due hereunder; and (d) liability to any third person or governmental agency to indemnify such person or agency for costs expended in connection with the items referenced in subparagraph (c) herein.

      17.9 "Environmental Requirements" means all applicable present and future statutes, regulations, rules, ordinances, codes, licenses, permits, orders, approvals, plans, authorizations, concessions, franchises and similar items, of all governmental agencies, departments, commissions, boards, bureaus or instrumentalities of the United States, states and political subdivisions thereof and all applicable judicial and administrative and regulatory decrees, judgments and orders relating to the protection of human health, or the environment, including, without limitation: (a) all requirements, including but not limited to, those pertaining to reporting, licensing, permitting, investigation and remediation of emissions, discharges, releases or threatened releases of "Hazardous Materials," chemical substances, pollutants, contaminants or hazardous or toxic substances, materials or wastes whether solid, liquid or gaseous in nature, into the air, surface water, groundwater or land, or relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of chemical substances, pollutants, contaminants or hazardous or toxic substances, materials, or wastes, whether solid, liquid or gaseous in nature; and (b) all requirements pertaining to the protection of the health and safety of employees or the public.

      17.10 "Expiration Date" means the scheduled date on which the Term will expire as determined pursuant to Paragraph 3.2 of this Lease.

      17.11 "Hazardous Materials" means any substance (a) the presence of which requires investigation or remediation under any federal, state or local statute, regulation, ordinance, order, action or policy; or (b) which is or becomes defined as a "hazardous waste" or "hazardous substance" under any federal, state or local statute, regulation or ordinance or amendments thereto; or (c) which is toxic, explosive, corrosive, flammable, infectious, radioactive, carcinogenic, mutagenic, or otherwise hazardous and is or becomes regulated by any governmental authority, agency, department, commission, board, agency or instrumentality of the United States, the State of California or any political subdivision thereof; or (d) the presence of which on the Premises causes or threatens to cause a nuisance upon the Premises or to adjacent properties or poses or threatens to pose a hazard to the Premises or the health or safety of persons on or about the Premises; or (e) without limitation, which contains gasoline, diesel fuel or other petroleum hydrocarbons; or (f) which contains polychlorinated bipheynols (PCBs), asbestos or urea formaldehyde foam insulation.

      17.12 "Increased Operating Costs" means the amount by which the Operating Costs during any Subsequent Year exceed the Operating Costs for the Base Year.

      17.13 "Landlord's Work" means the work, if any, to be performed by Landlord to ready the Premises for Tenant's occupancy, as specified in the Scope of Work.

      17.14 "Lease Date" means the date specified in the Basic Lease Provisions, which shall be the effective date of execution of this Lease by Landlord and Tenant unless otherwise provided in this Lease.

      17.15 "Mortgagee" means the holder of any mortgage or deed of trust secured by the Building or the Premises or any portion thereof.

      17.16 "Office Complex" means the development comprised of the three office buildings commonly known as Watergate Towers I, II and III, addressed, respectively, as 1900 Powell Street, 2200 Powell Street and 2000 Powell Street, Emeryville, California.

      17.17 "Operating Costs" means all actual costs of ownership, operation, maintenance, repair and management of the Building, including the Building's share of all such costs of the Parking Facilities and the Common Areas which are shared with other buildings in the Office Complex to be based on Landlord's reasonable allocation among the buildings. If during the Base Year or any Subsequent Year the Building is less than ninety-five percent (95%) occupied, those Operating Costs which vary based on the level of occupancy shall be adjusted upward to reflect, in Landlord's reasonable judgment, the Operating Costs that would apply during such year if the Building were at least ninety-five percent (95%) occupied.

      17.17.1. Operating Costs shall include:

                (a) salaries, and other compensation, including payroll taxes, vacation, holiday and other paid absences, and welfare, retirement and other fringe benefits, paid to employees, independent contractors or agents of Landlord engaged in the operation, repair, management or maintenance of the Building, including (i) elevator operators, (ii) window cleaners, miscellaneous repair personnel, janitors, cleaning personnel and porters, (iii) security personnel and caretakers, and (iv) engineers, mechanics, electricians and plumbers;

                (b) repairs and maintenance of the Building and the costs of supplies, tools, materials and equipment for such repairs and maintenance that are under generally accepted accounting principles not capitalized;

                (c) premiums and other charges incurred by Landlord for insurance on the Building and for Landlord's employees, including (i) fire and extended coverage insurance, and earthquake, windstorm, flood and explosion insurance, (ii) public liability and property damage insurance, (iii) worker's compensation insurance, (iv) boiler and machinery insurance, sprinkler leakage, water damage and related liability insurance, and burglary, fidelity and pilferage insurance on equipment and materials, (v) health, accident and group life insurance, (vi) such other insurance as is customarily carried by operators of comparable first-class office buildings in the San Francisco Bay Area;

                (d) costs incurred for inspection and servicing, including all outside maintenance contracts necessary for the maintenance of the Building, such as janitorial and window cleaning, rubbish removal, exterminating, water treatment, elevator, electrical, plumbing and mechanical equipment, and the costs of materials, tools, supplies and equipment used for inspection and servicing of the Building;

                (e) costs incurred for electricity, water, gas, fuel and' other utilities;

                (f) payroll taxes, federal taxes, state and local unemployment taxes, and social security taxes paid for the employees of Landlord engaged in the operation, maintenance and repair of the Building;

                (g) sales, use and excise taxes on goods and services purchased by Landlord for use in the Building;

                (h) license, permit and inspection fees; (i) accounting and legal fees;

                (j) Customary management fees not to exceed five percent (5%) of the gross revenues of the Building;

                (k) the annual amortization over its useful life, with a reasonable salvage value on a straightline basis, of the costs of any capital improvements made by Landlord and required by any changes in applicable laws, rules or regulations of any governmental authority enacted after the Building was completed;

                (l) the annual amortization over its useful life, with a reasonable salvage value on a straightline basis, of the costs of any equipment or capital improvements made by Landlord after the Building was completed as a labor-saving measure or to accomplish other savings in operating, repairing, managing or maintaining the Building, but only to the extent of the savings;

                (m) the annual amortization, over its useful life on a straight line basis, of the cost of any exterior window draperies provided by Landlord and the carpeting in the Common Areas;

                (n) any costs for substituting work, labor, materials or services in place of any of the above items, or for any additional work, labor, materials, services or improvements to comply with any governmental laws, rules, regulations or other requirements applicable to the Building enacted after the Building was completed which are considered operating expenses under generally accepted accounting principles;

                (o) other costs reasonably necessary to maintain, operate, repair and manage the Building in a first-class mariner and condition;

                (p) all real property taxes on the Building, the land on which the Building is situated, and the various estates in the Building and a proportion of the real property taxes on the land and improvements comprising the Parking Facilities and the Common Areas shared with other buildings in the Office Complex, based on Landlord's reasonable allocation among the buildings using such facilities and areas;

                (q) all personal property taxes levied on property used in the operation of the Building;

                (r) all taxes of every kind and nature whatsoever levied or assessed in lieu of or in substitution for existing or additional real or personal property taxes on the Building, land or personal property other than taxes covered by Paragraph 4.4, including, but not limited to, any charge, levy, excise or assessment upon Landlord's business of leasing the Premises or other portions of the Building or the Parking Facilities; and

                (s) the cost to Landlord of contesting the amount, validity or applicability of any of the foregoing items.

      17.17.2. Operating Costs shall exclude:

                (a) leasing commissions, costs, disbursements, attorneys' fees, accounting fees and other expenses incurred for leasing, renovating or improving space for tenants;

                (b) the cost of electricity or other services sold to tenants for which Landlord is to be reimbursed as a charge over the rent payable under the leases with such tenants;

                (c) costs incurred because Landlord or another tenant violated the terms of any lease of the Building;

                (d) interest on debt or amortization payments on mortgages or deeds of trust or any other debt for borrowed money, except as herein expressly permitted;

                (e) items and services for which Tenant reimburses Landlord or pays third parties or that Landlord provides selectively to one or more tenants of the Building other than Tenant without reimbursement;

                (f) advertising and promotional expenses;

                (g) repairs or other work needed because of fire or other casualty insured against by Landlord;

                (h) costs incurred in operating the Parking Facilities except to the extent the cost of operating the Parking Facilities exceeds the revenues generated from operation thereof;

                (i) nonrecurring costs incurred to remedy structural defects in the original construction materials or insulation; and

                (j) costs incurred by Landlord for alterations that are considered capital improvements under generally accepted accounting principles except to the extent the same are expressly permitted under Paragraph 17.17.1

      17.18 "Overdue Rate" means the lesser of; (a) eighteen percent (18%) per annum; or (b) the maximum rate permitted under applicable usury law.

      17.19 "Parking Charge" means the monthly amount to be paid by Tenant for each parking permit issued to Tenant pursuant to Paragraph 2.4, which amount is specified in the Basic Lease Provisions and subject to increase.

      17.20 "Parking Facilities" means the parking lot(s) and parking structure(s) located within or adjacent to the Office Complex and designated by Landlord as serving the Building.

      17.21 "Premises" means the portion of the Building demised by this Lease, as designated by suite number in the Basic Lease Provisions and shown on Exhibit A to this Lease.

      17.22 "Rule and Regulations" means the rules and regulations regulating the use of the Premises, the Common Areas, Parking Facilities and other portions of the Building promulgated by Landlord from time to time as provided in paragraph 5.6 of this Lease.

      17.23 "Security Deposit" means the amount specified in the Basic Lease Provisions, which is to be held by Landlord to secure tenant's performance of its obligations under this Lease as provided in paragraph 4.2

      17.24 "Scope of Work" means the Scope of Work Agreement if any, executed by Landlord and Tenant concurrently with their execution of the Lease, which will de attached as Exhibit B to this Lease and will establish the full extent of Landlord's Work in readying the Premises for Tenant's occupancy hereunder.

      17.25 "Subsequent Year" means any calendar year during the Term after the Base Year.

      17.26 "Substantial Completion" means (a) completion, as determined in the event of a dispute by Landlord's architect in accordance with AIA standards, of Landlord's Work except for such items a$ constitute a minor defect or deficiency which can be completed or corrected after occupancy without causing any material interference with Tenant's use of the Premises, and (b) the issuance of a certificate of occupancy by the City of Emeryville or such other governmental authorization as may be required for occupancy of the Premises.

      17.27 "Taking" means the taking of property or any interest therein for public or quasi public use by exercise of the power of eminent domain or otherwise, or a taking in the nature of inverse condemnation, with or without litigation, or a transfer of property or any interest therein pursuant to an agreement entered into under threat of exercise of the power of eminent domain.

      17.28 "Tenant Parking" means the number of permits to park passenger automobiles in the Parking Facilities which are to be issued to Tenant pursuant to paragraph 2.4, and as specified in the Basic Lease Provisions.

      17.29 "Tenant's Share" means the ratio that the rentable square footage of the Premises bears to the total rentable square footage of the Building. If the rentable square footage of the Premises and/or the total rentable square footage of the Building changes, Tenant's Share shall be appropriately adjusted so that it at all times reflects the proportion which the rentable square footage of the Premises bears to the total rentable square footage of the Building.

      17.30 "Term" means the term of this Lease, including any permitted extensions or renewals thereof.

18. MISCELLANEOUS PROVISIONS

      18.1 Estoppel Certificates. Within ten (10) days following any written request Landlord may make from time to time, Tenant without any charge therefor, shall execute, acknowledge and deliver a statement certifying: (a) the Commencement bate of this Lease; (b) the fact that this Lease is unmodified and in full force and effect (or, if there have been modifications hereto, that this Lease is in full force and effect, as modified, and stating the date and nature of such modifications); (c) the date to which the rent and other sums payable under this Lease have been paid; (d) the fact that there are no current defaults under this Lease by either Landlord or Tenant except as specified in the statement; and (e) such other matters as may be reasonably requested by Landlord. Landlord and Tenant intend that any statement delivered pursuant to this paragraph may be relied upon by a mortgagee, beneficiary, purchaser or prospective purchaser of the Building or any interest therein. Tenant's failure to deliver any such statement within said ten (10) day period shall constitute a material default, arid Tenant shall indemnify and hold Landlord harmless from and against any and all liability, loss, cost, damage and expense which Landlord may sustain or incur as a result of or in connection with Tenant's failure or delay in delivering such statement. If Landlord elects to sell the Building or to obtain loans secured by a lien on the Building, Tenant, promptly after demand, shall provide to any such purchaser or lender financial statements of Tenant reasonably required by the purchaser or lender, The financial statements so provided shall be kept confidential as to any parties other than the purchaser or lender.

      18.2 Surrender of Premises. A voluntary or other surrender of this Lease by Tenant or the mutual cancellation of this Lease shall not work a merger and shall, at the option of Landlord, terminate all or any existing subleases or subtenancies, or may, at the option of Landlord, operate as an assignment to it of any or all such subleases or subtenancies.

      18.3 Light and Air. No diminution of light, air or view by any structure which may hereafter be erected (whether or not by Landlord) shall entitle Tenant to any reduction of rent under this Lease, result in any liability of Landlord to Tenant, or in any other way affect this Lease.

      18.4 Waiver. If either Landlord or Tenant waives the performance of any term, covenant or condition contained in this Lease, such waiver shall not be deemed to be a waiver of the term, covenant or condition itself or a waiver of any subsequent breach of the same or any other term, covenant or condition contained herein. Furthermore, the acceptance of rent by Landlord shall not constitute a waiver of any preceding breach by Tenant of any term, covenant or condition of this Lease, regardless of Landlord's knowledge of such preceding breach at the time Landlord accepts such rent. Failure by Landlord or Tenant to enforce any of the terms, covenants or conditions of this Lease for any length of time shall not be deemed to waive or to decrease the right of Landlord or Tenant, as the case may be, to insist thereafter upon strict performance by Tenant the other party, Waiver by Landlord or Tenant of any term, covenant or condition contained in this Lease may only be made by a written document signed by the party being bound.

      18.5 Attorneys' Fees, In the event that any action or proceeding (including arbitration) is brought to enforce or interpret any term, covenant or condition of this Lease on the part of Landlord or Tenant, the prevailing party in such action or proceeding (whether after trial or appeal) shall be entitled to recover from the party not prevailing its expenses therein, including reasonable attorneys' fees and all allowable costs. If Landlord is made a party to any action or proceeding commenced by a third party due to any actual or alleged act or omission of Tenant or Tenant's agents, employees, contractors, invitees or subtenants, Tenant shall indemnify and hold Landlord harmless from all costs incurred in such action or proceeding, including reasonable attorneys' fees. Subject to the foregoing obligation of Tenant, if Tenant is made a party to any action or proceeding commenced by a third party due to any actual or alleged act or omission of Landlord or Landlord's agents, employees, contractors or invitees, Landlord shall indemnify and hold Tenant harmless from all costs incurred in such action or proceeding, including reasonable attorneys' fees. If Tenant requests Landlord's consent to, approval of or signature on any instrument or agreement which would alter or affect Landlord's legal rights and duties, Tenant shall reimburse Landlord upon demand for Landlord's reasonable attorneys' fees incurred in connection with the review and evaluation of the requested action.

      18.6 Notices. Any notice required or permitted under this Lease shall be in writing and shall be delivered either personally or by depositing same in the United States Mail, postage prepaid, registered or certified, return receipt requested, addressed to the intended recipient at such party's address set forth in the Basic Lease Provisions or at such other address as such party has theretofore specified by written notice delivered in accordance with this paragraph. Any notice delivered by mail in the manner specified in this paragraph shall be deemed delivered on the earlier of the third day following deposit thereof in the United States Mail or on the delivery date shown on the return receipt prepared in connection therewith; and any such notice specifying a default by Tenant shall be deemed sufficient for all purposes under California Code of Civil Procedure Sections 1161 and 1162, notwithstanding the fact that such notice is not personally served on Tenant or that such notice does not demand possession of the Premises as an alternative to Tenant's curing of such default.

      18.7 Merger. Notwithstanding the acquisition (if same should occur) by the same party of the title and interests of both Landlord and Tenant under this Lease, there shall never be a merger of the estates of Landlord and Tenant under this Lease, but instead the separate estates, rights, duties and obligations of Landlord and Tenant, as existing hereunder, shall remain unextinguished and continue, separately, in full force and effect until this Lease expires or otherwise terminates in accordance with the express provisions herein contained.

      18.8 Substituted Premises. [Intentionally deleted.]

      18.9 Headings. Words used in neuter gender include the feminine and masculine, where applicable. If there is more than one Tenant, the obligations imposed under this Lease upon Tenant shall be joint and several. The headings and titles to the sections and paragraphs of this Lease are used for convenience only and shall have no effect upon the construction or interpretation of this Lease.

      18.10 Time And Applicable Law. Time is of the essence of this Lease and all of its provisions. This Lease shall in all respects be governed by and interpreted in accordance with the laws of the State of California.

      18.11 Successors And Assigns. Each conveyance by Landlord or its successors in interest of Landlord's interest in the Building or the Premises prior to the expiration or termination of this Lease shall be subject to this Lease and shall relieve the grantor of all further liability or obligations as Landlord, except for such liability or obligations accruing prior to the date of such conveyance. If any Security Deposit has been given to Landlord, Landlord shall deliver such Security Deposit to Landlord's successors in interest, whether such interest is acquired by sale, transfer, foreclosure, deed in lieu of foreclosure or otherwise. Subject to the foregoing and to the provisions of Section 16, the terms, covenants and conditions contained herein shall be binding upon and inure to the benefit of the heirs, successors, executors, administrators and assigns of the parties hereto.

      18.12 Entry by Landlord. Landlord and its authorized representative shall have the right to enter the Premises: (a) to inspect the Premises; (b) to supply any service provided to Tenant hereunder: (c) to show the Premises to prospective brokers, agents, purchasers, lenders or tenants; (d) to post notices of non-responsibility, (e) to alter, improve or repair the Premises and any other portion of the Building; and (f) to erect scaffolding and other necessary structures, where required by the work to be performed, all without reduction or abatement of rent. Tenant hereby waives any claim for damages for any injury to or interference with Tenant's business or quiet enjoyment of the Premises or any other loss occasioned by such entry. Landlord shall at all times have a key to unlock all doors in and about the Premises, excluding Tenant's vaults and safes, and Landlord shall have the right to use any means which Landlord deems proper to open said doors in an emergency, and any such entry to the Premises shall not under any circumstances be construed or deemed to be a forcible or unlawful entry into the Premises or a detainer of the Premises or an eviction of Tenant from any portion of the Premises.

      18.13 Entire Agreement. This Lease, together with its exhibits, contains all the agreements of the parties hereto and supersedes any previous negotiations. There have been no representations made by the Landlord or understandings made between the parties other than those set forth in this Lease and its exhibits. This Lease may not be modified except by a written instrument duly executed by the parties hereto.

      18.14 Severability. If any provision of this Lease or the application of such provision to other persons or circumstances shall not be affected thereby and shall be enforced to the greatest extent permitted by law.

      18.15 Signs. Tenant shall not place or permit to be placed in or upon the Premises where visible from outside the Premises or any part of the Building, any signs, notices, drapes, shutters, blinds or window coatings, or displays of any type without the prior written consent of Landlord. Landlord shall consent to the location at the cost of Tenant of a building standard sign on or near the entrance of the Premises and shall include Tenant in the Building directories located in the Building. Landlord reserves the right in Landlord's sole discretion to place and locate on the roof and exterior of the Building and in any area of the Building not leased to Tenant, such signs, notices, displays and similar items as Landlord deems appropriate in the proper operation of the Building,

      18.16 Execution By Landlord. The submission of this document for examination and negotiation does not constitute an offer to lease, or a reservation of, or option for, the Premises. This document becomes effective and binding only upon execution and delivery hereof by Tenant and by Landlord, No act or omission of any employee or agent of Landlord or of Landlord's broker shall alter, change or modify any of the provisions hereof.

      18.17 Brokers. Tenant shall hold Landlord harmless from all damages (including attorneys' fees and costs) resulting from any claims that may be asserted against Landlord by any broker, finder, or other person with whom Tenant has or purportedly has dealt, except the leasing agent for the Building duly appointed by Landlord.

      18.18 Name of Building. Tenant shall not use the name of the Building for any purpose other than the address of the business to be conducted by Tenant in the Premises. Tenant shall not use any picture of the Building in its advertising, stationery or in any other manner, so as to imply that the entire Building is leased by Tenant. Landlord expressly reserves the right at any time to change the name or street address of the Building without in any manner being liable to Tenant therefor.

      18.19 Nonrecordability of Lease. Tenant agrees that in no event shall this Lease or a memorandum hereof be recorded without Landlord's express prior written consent, which consent Landlord may withhold in its sole discretion.

      18.20 Construction. All provisions hereof, whether covenants or conditions, shall be deemed to be both covenants and conditions, The definitions contained in this Lease shall be used to interpret the Lease. All rights and remedies of Landlord and Tenant shall, except as otherwise expressly provided, be cumulative and non-exclusive of any other remedy at law or in equity.

      18.21 Inability To Perform. This Lease and the obligations of Tenant hereunder shall not be affected or impaired because Landlord is unable to fulfill any of its obligations hereunder or is delayed in doing so, if such inability or delay is caused by reason of force majeure, strike, labor troubles, acts of God, acts of government, unavailability of materials or labor, or any other cause beyond the control of Landlord.

      18.22 Authority. If Tenant is a corporation, each individual executing this Lease on behalf of Tenant represents and warrants that Tenant is qualified to do business in California and that he is duly authorized to execute and deliver this Lease on behalf of Tenant and shall deliver appropriate certification to that effect if requested. If Tenant is a partnership, joint venture, or other unincorporated association, each individual executing this Lease on behalf of Tenant represents and warrants that he is duly authorized to execute and deliver this Lease on behalf of Tenant and that this Lease is binding on Tenant. Furthermore, Tenant agrees that the execution of any written consent hereunder, or any written modification or termination of this Lease, by any general partner of Tenant or any other authorized agent of Tenant, shall be binding on Tenant.

      18.23 Quiet Enjoyment. So long as Tenant is not in default under this Lease, Tenant shall have quiet enjoyment of the Premises for the Term, subject to all the terms and conditions of this Lease and all liens and encumbrances prior to this Lease.

19. EXTRA PARKING PERMITS

      Tenant, provided Tenant is not in default under this Lease, shall have the right to utilize sixteen (1 fit extra parking permits at the then current rate for monthly parking in the parking structure so long as there is sufficient monthly parking available to reasonably provide for the proportionate parking requirements of all the tenants within the Building. If, in Landlord's opinion, there is insufficient parking, then Landlord reserves the right to revoke the extra parking permits issued.

20. LETTER OF CREDIT/SECURITY DEPOSIT

      Within ten (10) days after execution of this Lease, Tenant shall deposit with Landlord cash in the amount of $1,780.35 to increase the cash portion of the Security Deposit held by Landlord to $13,233. 60, In addition, Tenant shall deliver to Landlord a clean, irrevocable letter of credit issued by a bank reasonably acceptable to Landlord in the amount of $19,209.65. Such letter of credit shall have an expiration date not less than one (1) year from the date of issuance and, should Tenant fail to deliver to Landlord a renewal thereof or a new letter of credit within thirty (30) days prior to such expiration date, Landlord shall have the right to draw down the entire letter of credit and retain the proceeds thereof as a cash Security Deposit. The letter of credit shall permit partial drawings thereunder and shall be payable upon presentation of a sight draft and a certificate from Landlord under the terms of the Lease to draw down the funds requested in such sight draft.

21. RIGHT TO NEGOTIATE LEASE OF ADDITIONAL SPACE

      21.1 Grant of Right. During the Term of this Lease and provided Tenant is not in material default under this Lease, Tenant shall have the right to negotiate (the "Negotiation Right") to lease additional office space in the Building as such space becomes available. This Negotiation Right shall arise and may be exercised only in accordance with the terms of this section.

      21.2 Notice of Space Requirement. As Tenant requires additional space, Tenant shall notify Landlord in writing of its additional space requirements, which notice shall state the number of square feet required by Tenant (the "Requirement Notice"). Tenant's Negotiation Right shall become operative upon Landlord's receipt of Tenant's Requirement Notice; provided, however, that such Negotiation Right shell be subject to any preexisting options, rights of refusal or rights to negotiate contained in leases with other tenants. For purposes hereof, a right of refusal or right to negotiate in another lease shall be deemed to preexist Tenant's Negotiation Right where the same became operative prior to the date Tenant delivered its Requirement Notice for additional space as set forth in a previously delivered Requirement Notice; and such subsequent Notice shall serve to terminate any previous Requirement Notice and Tenant's Negotiation Right.

      27.3 Exercise of Negotiation Right. Where Tenant's Negotiation Right is operative and not subject to any preexisting options, rights of refusal or rights to negotiate in other leases, the following procedure shall apply:

                (a) At such time as office space in the Building encompassing a square footage equal to or greater than that specified in Tenant's Requirement Notice is available for lease, Landlord shall give Tenant notice thereof and shall specify in such notice the additional office space which is available and the rent and other basic economic terms on which Landlord is willing to lease such additional office space to Tenant (the "Offer Notice"), The rent specified in the Offer Notice will be equal to the then fair market rental value for comparable premises in the Building.

                (b) Tenant shall have a period of five (5) business days after receipt of the Offer Notice within which to notify Landlord in writing of Tenant's exercise of the Negotiation Right. Should Tenant fail to so notify Landlord within said five (5) business day period, Tenant's Negotiation Right shall lapse and Landlord shall be free to deal with the office space described in the Offer Notice without regard thereto.

                (c) if Tenant gives Landlord timely notice of Tenant's exercise of the Negotiation Right (the "Exercise Notice"), Tenant shall specify in its Exercise Notice (i) the amount of additional office space Tenant desires to lease (which shall not be less than the amount stated in Tenant's Requirement Notice), (ii) whether the rent and other basic economic terms described in the Offer Notice are acceptable to Tenant and, if not, the rent or other basic economic terms Tenant proposes in their place, and (iii) any additional terms or conditions Tenant desires with respect to the lease of such additional office space. Promptly following Landlord's receipt of Tenant's Exercise Notice, the parties shall meet to negotiate an amendment to this Lease to expand the Premises to include the additional office space specified therein (the "Expansion Amendment"). The Expansion Amendment shall incorporate the terms and provisions of this Lease except insofar as the same are inconsistent with the rent and other basic economic terms the parties have negotiated pursuant to this section or are not reasonably applicable to such expansion.

                (d) if the parties fail to mutually agree upon and execute a definitive Expansion Amendment with in twenty (20) business days after Tenant's delivery of the Exercise Notice, Tenant's Negotiation Right shall lapse and Landlord shall be free to deal with the office space described in Landlord's Offer Notice without regard thereto.

      21.4 Limitation of Right. Nothing in this section shall be construed to require Landlord to lease to Tenant any portion of any floor in the Building which would leave Landlord with a remainder of such floor that was not commercially and economically rentable to third parties.

22. TERMINATION OF EXISTING LEASE

As of the Commencement Date, Landlord shall terminate the entire existing direct lease between Landlord and Tenant for a portion of Tenant's premises on the ninth (9th) floor of the Building dated December 15, 1992, the Amendment to Lease dated April 30, 1993, the Second Amendment to Lease dated December 21, 1993, and the Third Amendment to Lease dated February 16, 1994 (collectively, "Existing Lease"),

 

TENANT:	TENANT:
WATERGATE TOWER ASSOCIATES,	SCOPUS TECHNOLOGY, INC.,
a California limited partnership	a California corporation
By: /s/ F.P. Lathrop, by Sandra L. Hyde	By: /s/ S. Sasson
Its: General Partner/Attorney-in-Fact	Its: Vice President, Operations

Exhibit A

Drawing of Floor Plan

Exhibit B

Scope of Work

1. Landlord shall be responsible, at its sole cost and expense, for constructing certain tenant improvements ("Landlord's Work") in accordance with the final plans and specifications ("Final Plans") prepared by Carl Mehler & Associates dated as of August 9. 1994, with general revisions dated August 15, 1994.

2. Any Changes to Landlord's Work from the Final Plans ("Change Orders") may be made only at Tenant's written request, approved by Landlord. Tenant shall be responsible for any delay in the Substantial Completion of Landlord's Work and any increase in the cost of Landlord's Work as a result of such Change Orders.

3. Tenant shall be responsible, at its sole cost and expense, for any telephone and computer installation, including wiring, and for any other tenant improvements not included in the Final Plans.

 

WATERGATE TOWER ASSOCIATES,	SCOPUS TECHNOLOGY, INC.,
a California limited partnership	a California corporation
By: /s/ F.P. Lathrop, by Sandra L. Hyde	By: /s/ S. Sasson
Its: General Partner/Attorney-in-Fact	Its: Vice President, Operations

EX-10.12

Exhibit 10.12

BASIC LEASE INFORMATION

OFFICE GROSS

LEASE DATE:		August 16, 1999
TENANT:		SIEBEL SYSTEMS, INC., a Delaware corporation
TENANT'S NOTICE ADDRESS:		1855 South Grant Street San Mateo, California 94402 Attention: Ms. Linda Jansen, Director of Facilities, Real Estate
With a copy to:		1855 South Grant Street San Mateo, California 94402 Attention: Vice President, Legal Affairs
TENANT'S BILLING ADDRESS:		1855 South Grant Street San Mateo, California 94402
TENANT CONTACT:	Ms. Linda Jansen	PHONE NUMBER: FAX NUMBER:	(650) 295-5511 (650) 295-5512
LANDLORD:		Spieker Properties, L.P., a California limited partnership
LANDLORD'S NOTICE ADDRESS:		2200 Powell Street, Suite 325 Emeryville, California 94608
LANDLORD'S REMITTANCE ADDRESS:		Spieker Properties P.O. Box 45587 Department 11479 San Francisco, California 94145-0587
Project Description:		Watergate Office Towers
Building Description:		2100 Powell Street, Emeryville, California, comprised of one 16- story office building with approximately 328,000 rentable square feet and a 4- level above-grade parking garage for approximately 915 vehicles, subject to adjustment pursuant to Paragraph 39.I hereof
Premises:		Approximately two hundred twenty-five thousand (225,000) rentable square feet (subject to adjustment pursuant to Paragraph 39.I hereof) which shall include all of Floors 1-8, 14-16 and a portion of Floor 13, each as described on Exhibit B attached hereto.
Permitted Use:		General office use and training and call center uses
Occupancy Density:		One occupant per 250 rentable square feet
Parking Density and Parking Charge:		Three (3) non-exclusive spaces per every 1,000 square feet of useable area leased at initially $55.00 per space / per month. Parking permit rate shall increase per Paragraph 37.
Scheduled Term Commencement Date:		March 1, 2001
Scheduled Length of Term:		144 months
Scheduled Term Expiration Date:		February 28, 2013
Rent:
Monthly Base Rent:		See Paragraph 39.A hereof and subject to adjustment pursuant to Paragraphs 39.H(7) and 39.I hereof
Base Year for Operating Expenses:		2001
Security Deposit:		$3,000,000 Letter of Credit (subject to adjustment as provided in Paragraph 39.H and Paragraph 19 hereof)
Tenant's Proportionate Share:
Of Building:		Approximately 68.6%, subject to adjustment pursuant to Paragraph 39.I hereof

The foregoing Basic Lease Information is incorporated into and made a part of this Lease. Each reference in this Lease to any of the Basic Lease Information shall mean the respective information above and shall be construed to incorporate all of the terms provided under the particular Lease paragraph pertaining to such information. In the event of any conflict between the Basic Lease Information and the Lease, the latter shall control.

LANDLORD	TENANT
Spieker Properties, L.P.,	Siebel Systems, Inc., a Delaware corporation
a California limited partnership
By: Spieker Properties, Inc.,
a Maryland corporation,	By:
its general partner	Name:________________________________
	Its: __________________________________
By:
John R. Winther
Its: Senior Vice President

TABLE OF CONTENTS

Page

Basic Lease Information 1

Table of Contents 2

1. Premises *
2. Possession and Lease Commencement 4
3. Term *
4. Use *
5. Rules and Regulations *
6. Rent *
7. Operating Expenses *
8. Insurance and Indemnification *
9. Waiver of Subrogation *
10. Landlord's Repairs and Maintenance *
11. Tenant's Repairs and Maintenance *
12. Alterations *
13. Signs *
14. Inspection/Posting Notices *
15. Services and Utilities *
16. Subordination *
17. Financial Statements *
18. Estoppel Certificate *
19. Security Deposit *
20. Limitation of Tenant's Remedies *
21. Assignment and Subletting *
22. Authority of Tenant *
23. Condemnation *
24. Casualty Damage *
25. Holding Over *
26. Default *
27. Liens *
28. Substitution *
29. Transfers by Landlord *
30. Right of Landlord to Perform Tenant's Covenants *
31. Waiver *
32. Notices *
33. Attorney's Fees *
34. Successors and Assigns *
35. Force Majeure *
36. Surrender of Premises *
37. Parking *
38. Miscellaneous *
39. Additional Provisions *
40. Jury Trial Waiver *

Signatures *

Exhibits:

Exhibit A Rules and Regulations

Exhibit B Site Plan, Property Description

Exhibit C Lease Improvement Agreement

Exhibit D Signage

Additional Exhibits as Required

LEASE

THIS LEASE is made as of the ____ day of August, 1999, by and between Spieker Properties, L.P., a California limited partnership (hereinafter called "Landlord"), and Siebel Systems, Inc., a Delaware corporation (hereinafter called "Tenant").

1. PREMISES

Landlord leases to Tenant and Tenant leases from Landlord, upon the terms and conditions hereinafter set forth, those premises (the "Premises") as depicted on Exhibit B and described in the Basic Lease Information. The Premises shall be all or part of a building (the "Building") and of a project (the "Project"), which may consist of more than one building and additional facilities, as described in the Basic Lease Information. The Building and Project are each depicted on Exhibit B. Landlord and Tenant acknowledge that physical changes may occur from time to time in the Premises, Building or Project, and that the number of buildings and additional facilities which constitute the Project may change from time to time, which may result in an adjustment in Tenant's Proportionate Share, as defined in the Basic Lease Information, as provided in Paragraph 7.A.

2. POSSESSION AND LEASE COMMENCEMENT

A. Intentionally Omitted.

B. Construction of Improvements. If this Lease pertains to a Building to be constructed or improvements to be constructed within a Building, the provisions of this Paragraph 2.B. shall apply in lieu of the provisions of Paragraph 2.A. above and the term commencement date ("Term Commencement Date") shall be the date on which the improvements to be constructed or performed in the Premises by Landlord (if any) shall have been substantially completed in accordance with the plans and specifications, if any, described on Exhibit C and Tenant's taking of possession of the Premises or any part thereof shall constitute Tenant's confirmation of substantial completion for all purposes hereof, whether or not substantial completion of the Building or Project shall have occurred. If for any reason Landlord cannot deliver possession of the Premises to Tenant on the scheduled Term Commencement Date, Landlord shall not be subject to any liability therefor, nor shall Landlord be in default hereunder nor shall such failure affect the validity of this Lease, and Tenant agrees to accept possession of the Premises at such time as such improvements have been substantially completed, which date shall then be deemed the Term Commencement Date. Tenant shall not be liable for any Rent for any period prior to the Term Commencement Date (but without affecting any obligations of Tenant under any improvement agreement appended to this Lease). In the event of any dispute as to substantial completion of work performed or required to be performed by Landlord, the certificate of Landlord's architect shall be conclusive. Substantial completion shall have occurred notwithstanding Tenant's submission of a punchlist to Landlord, which Tenant shall submit, if at all, within ten (10) business days after the Term Commencement Date or otherwise in accordance with any improvement agreement appended to this Lease. Upon Landlord's request, Tenant shall promptly execute and return to Landlord a "Start-Up Letter" in which Tenant shall agree, among other things, to acceptance of the Premises and to the determination of the Term Commencement Date, in accordance with the terms of this Lease, but Tenant's failure or refusal to do so shall not negate Tenant's acceptance of the Premises or affect determination of the Term Commencement Date. Subject to Paragraph 35 hereof, Landlord shall use commercially reasonable efforts to cause the Base Building Work (described in Schedule 1 to Exhibit C hereto) to be constructed in a first-class and good and workmanlike manner and be substantially complete (as defined in Schedule 1 to Exhibit C) on or before January 15, 2001. Provided that the Base Building Work is substantially complete, Tenant shall have the right to occupy the Premises on the date of such substantial completion with all terms and conditions of this Lease in full force and effect, excluding payment of Base Rent and Operating Expenses. In the event Tenant takes possession and occupies the Premises in accordance with the previous sentence, Tenant's obligation to pay Base Rent and Operating expenses shall not commence until forty-five (45) following the date of substantial completion of the Base Building Work. Notwithstanding the foregoing, Landlord shall not deliver, and Tenant shall not be obligated to accept, possession of the Premises prior to January 15, 2001, unless substantial completion of the Base Building Work has occurred and Tenant takes possession and occupies the Premises for Tenant's ordinary business use, in which event the terms of this Paragraph 2.B shall apply with respect to the determination of the Term Commencement Date.

3. TERM

The term of this Lease (the "Term") shall commence on the Term Commencement Date and continue in full force and effect for the number of months specified as the Length of Term in the Basic Lease Information or until this Lease is terminated as otherwise provided herein. If the Term Commencement Date is a date other than the first day of the calendar month, the Term shall be the number of months of the Length of Term in addition to the remainder of the calendar month following the Term Commencement Date. Tenant may terminate this Lease by delivering written notice to Landlord on or before February 14, 2002 if (i) Landlord has not substantially completed the Base Building Work (as defined in Schedule 1 to Exhibit C) to be constructed by Landlord as described in Exhibit C to this Lease by January 14, 2002; (ii) Tenant has given Landlord at least twenty (20) days' prior written notice ("Tenant's Termination Notice Period") of Landlord's failure to do so, except for punchlist items, and except for delays caused by Tenant or Tenant's Parties (including delays caused by the contractor or anyone else performing services on behalf of Tenant) or by events beyond Landlord's control and other force majeure events, including, but not limited to, strikes, material shortages, delays of governmental agencies and Acts of God, which delays will not be cause for termination hereunder; and (iii) Landlord has not, as of the expiration of Tenant's Termination Notice Period, substantially completed the Base Building Work and delivered possession of the Premises to Tenant. Tenant may terminate this Lease by delivering written notice to Landlord on or before August 1, 2000 if (a) Landlord has not commenced construction of the Building by July 1, 2000, (b) Tenant has given Landlord at least twenty (20) days' prior written notice of Landlord's failure to do so, except for delays caused by Tenant or Tenant's Parties (including delays caused by the contractor or anyone else performing services on behalf of Tenant) or by events beyond Landlord's control and other force majeure events, including, but not limited to, strikes, material shortages, delays of governmental agencies and Acts of God, which delays will not be cause for termination hereunder; and (c) Landlord has not, as of the expiration of the aforementioned twenty (20) day period, commenced construction of the Building. In the event of either such termination, Landlord shall return any Security Deposit to Tenant as well as any other sums paid hereunder by Tenant to Landlord. All obligations of Tenant and Landlord under this Lease shall thereafter terminate and no party shall have any further obligations under this Lease. Landlord and Tenant are parties to an existing lease (the "1900 Powell Street Lease") covering certain premises in the building located at 1900 Powell Street, Emeryville, California. In the event that Landlord fails to deliver the Premises as provided in Paragraph 2 above prior to the expiration of the 1900 Powell Street Lease due to a delay caused by Landlord or Landlord's agents, invitees or employees, the 1900 Powell Street Lease shall be extended on a month-to-month basis under the same terms and conditions contained in the 1900 Powell Street Lease until Landlord delivers possession of the Premises in accordance with this Lease, but in no event shall the 1900 Powell Street Lease be extended beyond the termination of this Lease.

4. USE

A. General. Tenant shall use the Premises for the permitted use specified in the Basic Lease Information ("Permitted Use") and for no other use or purpose. Tenant shall control Tenant's employees, agents, customers, visitors, invitees, licensees, contractors, assignees and subtenants (collectively, "Tenant's Parties") in such a manner that Tenant and Tenant's Parties cumulatively do not exceed the occupant density (the "Occupancy Density") or the parking density (the "Parking Density") specified in the Basic Lease Information at any time. Tenant shall pay the Parking Charge specified in the Basic Lease Information as Additional Rent (as hereinafter defined) hereunder. So long as Tenant is occupying the Premises, Tenant and Tenant's Parties shall have the nonexclusive right to use, in common with other parties occupying the Building or Project, the parking areas, driveways and other common areas of the Building and Project, subject to the terms of this Lease and such rules and regulations as Landlord may from time to time prescribe. Landlord reserves the right, without notice or liability to Tenant, and without the same constituting an actual or constructive eviction, to alter or modify the common areas from time to time, including the location and configuration thereof, and the amenities and facilities which Landlord may determine to provide from time to time, provided that any such alteration or modification of the common areas shall not materially and adversely interfere with Tenant's Permitted Use hereunder.

B. Limitations. Tenant shall not permit any odors, smoke, dust, gas, substances, noise or vibrations to emanate from the Premises or from any portion of the common areas as a result of Tenant's or any Tenant's Party's use thereof, nor take any action which would constitute a nuisance or would disturb, obstruct or endanger any other tenants or occupants of the Building or Project or elsewhere, or interfere with their use of their respective premises or common areas. Storage outside the Premises of materials, vehicles or any other items is prohibited. Tenant shall not use or allow the Premises to be used for any immoral, improper or unlawful purpose, nor shall Tenant cause or maintain or permit any nuisance in, on or about the Premises. Tenant shall not commit or suffer the commission of any waste in, on or about the Premises. Tenant shall not allow any sale by auction upon the Premises, or place any loads upon the floors, walls or ceilings which could endanger the structure, or place any harmful substances in the drainage system of the Building or Project. No waste, materials or refuse shall be dumped upon or permitted to remain outside the Premises. Landlord shall not be responsible to Tenant for the non-compliance by any other tenant or occupant of the Building or Project with any of the above-referenced rules or any other terms or provisions of such tenant's or occupant's lease or other contract.

C. Compliance with Regulations. By entering the Premises following substantial completion of the Base Building Work, Tenant accepts the Premises in the condition existing as of the date of such entry, subject to the correction of any punchlist items. Tenant shall at its sole cost and expense strictly comply with all existing or future applicable municipal, state and federal and other governmental statutes, rules, requirements, regulations, laws and ordinances, including zoning ordinances and regulations, and covenants, easements and restrictions of record governing and relating to the use, occupancy or possession of the Premises, to Tenant's use of the common areas, or to the use, storage, generation or disposal of Hazardous Materials (hereinafter defined) by Tenant or any of Tenant's Parties (collectively "Regulations"). Tenant shall at its sole cost and expense obtain any and all licenses or permits necessary for Tenant's use of the Premises. Tenant shall at its sole cost and expense promptly comply with the requirements of any board of fire underwriters or other similar body now or hereafter constituted. Tenant shall not do or permit anything to be done in, on, under or about the Project or bring or keep anything which will in any way increase the rate of any insurance upon the Premises, Building or Project or upon any contents therein or cause a cancellation of said insurance or otherwise affect said insurance in any manner. Tenant shall indemnify, defend (by counsel reasonably acceptable to Landlord), protect and hold Landlord harmless from and against any loss, cost, expense, damage, attorneys' fees or liability arising out of the failure of Tenant to comply with any Regulation. Tenant's obligations pursuant to the foregoing indemnity shall survive the expiration or earlier termination of this Lease. Landlord shall be responsible for complying with Regulations (other than the ADA) pertaining to the common areas of the Project prior to and except to the extent arising out of (1) Tenant's occupancy or use of the Premises or common areas, or (2) construction of any Tenant Improvements or Alterations made by or on behalf of Tenant, whether by Landlord or otherwise, and performed after the Term Commencement Date, or (3) installation of any equipment, fixtures, furniture or other personal property in or about the Premises. Tenant shall have the sole responsibility for complying, at Tenant's cost, with any and all provisions of the Americans with Disabilities Act of 1990, as it has been and may later be amended ("ADA"), (i) with respect to the Premises; and (ii) with respect to the common areas of the Project where in the case of this clause (ii) such compliance has been brought about by: (A) any Tenant Improvements or Alterations to the Premises or to the common areas made by or on behalf of Tenant, whether by Landlord or otherwise, and performed after the Term Commencement Date; (B) requirements of Tenant's employees, or any changes to Tenant's use of the Premises; or (C) any architectural barriers caused by Tenant's installation of any equipment, fixtures, furniture, or other personal property in or about the Premises (items (i) and (ii) collectively, "Tenant's ADA Responsibilities"). Tenant shall indemnify, defend and hold Landlord, its agents and employees harmless from and against any and all claims, damages, or liabilities (including, without limitation, reasonable attorneys' fees and costs) arising directly or indirectly from Tenant's failure to satisfy any of Tenant's ADA Responsibilities. Landlord shall indemnify, defend and hold Tenant, its agents and employees harmless from and against any and all claims, damages or liabilities arising directly or indirectly from Landlord's failure to comply with any obligations of a landlord under the ADA, other than such claims, damages or liabilities arising from Tenant's failure to satisfy any of Tenant's ADA Responsibilities; provided, however, that Landlord may treat costs of ADA compliance with respect to the common areas of the Project to the extent incurred after the Term Commencement Date as an Operating Expense in accordance with Paragraph 7 hereof. Landlord represents that, as of the date Landlord delivers possession of the Premises to Tenant, to the best of Landlord's actual knowledge, the Base Building Work shall comply in all material respects with each of: (x) the ADA, and (y) Regulations, as the ADA and Regulations have each been interpreted in Alameda County and as each of the ADA and Regulations pertain to the Base Building Work. Any costs incurred by Landlord to comply with ADA and Regulations solely as described in the foregoing sentence shall not be an Operating Expense as defined herein.

D. Hazardous Materials. As used in this Lease, "Hazardous Materials" shall include, but not be limited to, hazardous, toxic and radioactive materials and those substances defined as "hazardous substances," "hazardous materials," "hazardous wastes," "toxic substances," or other similar designations in any Regulation. Tenant shall not cause, or allow any of Tenant's Parties to cause, any Hazardous Materials to be handled, used, generated, stored, released or disposed of in, on, under or about the Premises, the Building or the Project or surrounding land or environment in violation of any Regulations. Tenant must obtain Landlord's written consent prior to the introduction of any Hazardous Materials onto the Project. Notwithstanding the foregoing, Tenant may handle, store, use and dispose of products containing small quantities of Hazardous Materials for "general office purposes" (such as toner for copiers) to the extent customary and necessary for the Permitted Use of the Premises; provided that Tenant shall always handle, store, use, and dispose of any such Hazardous Materials in a safe and lawful manner and never allow such Hazardous Materials to contaminate the Premises, Building, or Project or surrounding land or environment. Tenant and Landlord shall each immediately notify the other in writing of any Hazardous Materials' contamination of any portion of the Project of which the notifying party becomes aware, whether or not caused by such party. Landlord shall have the right at all reasonable times to inspect the Premises and to conduct tests and investigations to determine whether Tenant is in compliance with the foregoing provisions, the costs of all such inspections, tests and investigations to be borne by Landlord, unless Landlord reasonably believes Tenant or any of Tenant's Parties has violated this Paragraph 4.D. or any Regulation, in which event such costs shall be borne solely by Tenant. Tenant shall indemnify, defend (by counsel reasonably acceptable to Landlord), protect and hold Landlord harmless from and against any and all claims, liabilities, losses, costs, loss of rents, liens, damages, injuries or expenses (including attorneys' and consultants' fees and court costs), demands, causes of action, or judgments directly or indirectly arising out of or related to the use, generation, storage, release, or disposal of Hazardous Materials by Tenant or any of Tenant's Parties in, on, under or about the Premises, the Building or the Project or surrounding land or environment, which indemnity shall include, without limitation, damages for personal or bodily injury, property damage, damage to the environment or natural resources occurring on or off the Premises, losses attributable to diminution in value or adverse effects on marketability, the cost of any investigation, monitoring, government oversight, repair, removal, remediation, restoration, abatement, and disposal, and the preparation of any closure or other required plans, whether such action is required or necessary prior to or following the expiration or earlier termination of this Lease. Neither the consent by Landlord to the use, generation, storage, release or disposal of Hazardous Materials nor the strict compliance by Tenant with all laws pertaining to Hazardous Materials shall excuse Tenant from Tenant's obligation of indemnification pursuant to this Paragraph 4.D. Tenant's obligations pursuant to the foregoing indemnity shall survive the expiration or earlier termination of this Lease. Landlord shall indemnify, defend and hold Tenant harmless from and against any and all claims, judgments, damages, penalties, fines, costs, liabilities or losses, including without limitation reasonable attorneys' fees and costs arising out of any Hazardous Material in, on or about the Project or the Premises which was created, handled, placed, stored, used, transported or disposed of by Landlord or by Landlord's agents, employees or representatives, excluding, however, any Hazardous Material, whose presence was caused by Tenant or any Tenant's Parties. In the event Tenant or any Tenant Party violates this Paragraph 4.D, or in any way is not compliant with any Regulation concerning Hazardous Materials, and Tenant fails to immediately and adequately, as determined by Landlord, commence and prosecute a cure, Landlord has the option, but not the obligation, to immediately commence a cure on Tenant's behalf. Landlord may take such actions without any obligation and without releasing Tenant from any of Tenant's obligations. All sums so paid by Landlord and all incidental costs incurred by Landlord and interest thereon at the Applicable Interest Rate, from the date of payment by Landlord, shall be paid to Landlord on demand as Additional Rent.

5. RULES AND REGULATIONS

Tenant shall faithfully observe and comply with the building rules and regulations attached hereto as Exhibit A and any other reasonable rules and regulations and any modifications or additions thereto which Landlord may from time to time prescribe in writing for the purpose of maintaining the proper care, cleanliness, safety, traffic flow and general order of the Premises or the Building or Project, and provided that such reasonable rules and regulations shall not materially adversely affect Tenant's use of the Premises as provided hereunder. Landlord shall apply such rules and regulations in a nondiscriminatory manner. Tenant shall cause Tenant's Parties to comply with such rules and regulations. Landlord shall not be responsible to Tenant for the non-compliance by any other tenant or occupant of the Building or Project with any of such rules and regulations, any other tenant's or occupant's lease or any Regulations. In the event that a conflict exists between this Lease and Exhibit A, the terms of this Lease shall control.

6. RENT

A. Base Rent. Tenant shall pay to Landlord and Landlord shall receive, without notice or demand throughout the Term, Base Rent as specified in the Basic Lease Information, payable in monthly installments in advance on or before the first day of each calendar month, in lawful money of the United States, without deduction or offset whatsoever, at the Remittance Address specified in the Basic Lease Information or to such other place as Landlord may from time to time designate in writing. Base Rent for the first full month of the Term for which Base Rent is due and payable pursuant to the terms of this Lease shall be paid by Tenant upon Tenant's execution of this Lease. If the obligation for payment of Base Rent commences on a day other than the first day of a month, then Base Rent shall be prorated and the prorated installment shall be paid on the first day of the calendar month next succeeding the Term Commencement Date. The Base Rent payable by Tenant hereunder is subject to adjustment as provided elsewhere in this Lease, as applicable. As used herein, the term "Base Rent" shall mean the Base Rent specified in the Basic Lease Information as it may be so adjusted from time to time.

B. Additional Rent. All monies other than Base Rent required to be paid by Tenant hereunder, including, but not limited to, Tenant's Proportionate Share of Operating Expenses, as specified in Paragraph 7 of this Lease, charges to be paid by Tenant under Paragraph 15, the interest and late charge described in Paragraphs 26.C. and D., and any monies spent by Landlord pursuant to Paragraph 30 29, shall be considered additional rent ("Additional Rent"). "Rent" shall mean Base Rent and Additional Rent.

7. OPERATING EXPENSES

A. Operating Expenses. In addition to the Base Rent required to be paid hereunder, beginning with the expiration of the Base Year specified in the Basic Lease Information (the "Base Year"), Tenant shall pay as Additional Rent, Tenant's Proportionate Share of the Building and/or Project (as applicable), as defined in the Basic Lease Information, of increases in Operating Expenses (defined below) over the Operating Expenses incurred by Landlord during the Base Year (the "Base Year Operating Expenses"), in the manner set forth below. Tenant shall pay the applicable Tenant's Proportionate Share of each such Operating Expenses. Landlord and Tenant acknowledge that if the number of buildings which constitute the Project increases or decreases, or if physical changes are made to the Premises, Building or Project or the configuration of any thereof, Landlord may at its discretion reasonably adjust Tenant's Proportionate Share of the Building or Project to reflect the change. Landlord's determination of Tenant's Proportionate Share of the Building and of the Project shall be conclusive so long as it is reasonably and consistently applied. Operating Expenses shall be reasonably allocated by Landlord to the tenants of the Building and the Project. "Operating Expenses" shall mean all expenses and costs of every kind and nature which Landlord shall pay or become obligated to pay, because of or in connection with the ownership, management, maintenance, repair, preservation, replacement and operation of the Building or Project and its supporting facilities and such additional facilities now and in subsequent years as may be determined by Landlord to be necessary or desirable to the Building and/or Project (as determined in a reasonable manner) other than those expenses and costs which are specifically attributable to Tenant or which are expressly made the financial responsibility of Landlord or specific tenants of the Building or Project pursuant to this Lease. Operating Expenses shall include, but are not limited to, the following:

(1) Taxes. All real property taxes and assessments, possessory interest taxes, sales taxes, personal property taxes, business or license taxes or fees, gross receipts taxes, service payments in lieu of such taxes or fees, annual or periodic license or use fees, excises, transit charges, and other impositions, general and special, ordinary and extraordinary, unforeseen as well as foreseen, of any kind (including fees "in-lieu" of any such tax or assessment) which are now or hereafter assessed, levied, charged, confirmed, or imposed by any public authority upon the Building or Project, its operations or the Rent (or any portion or component thereof), or any tax, assessment or fee imposed in substitution, partially or totally, of any of the above. Operating Expenses shall also include any taxes, assessments, reassessments, or other fees or impositions with respect to the development, leasing, management, maintenance, alteration, repair, use or occupancy of the Premises, Building or Project or any portion thereof, including, without limitation, by or for Tenant, and all increases therein or reassessments thereof whether the increases or reassessments result from increased rate and/or valuation (whether upon a transfer of the Building or Project or any portion thereof or any interest therein or for any other reason). Operating Expenses shall not include inheritance or estate taxes imposed upon or assessed against the interest of any person in the Project, or taxes computed upon the basis of the net income of any owners of any interest in the Project. If it shall not be lawful for Tenant to reimburse Landlord for all or any part of such taxes, the monthly rental payable to Landlord under this Lease shall be revised to net Landlord the same net rental after imposition of any such taxes by Landlord as would have been payable to Landlord prior to the payment of any such taxes.

(2) Insurance. All insurance premiums and costs, including, but not limited to, any deductible amounts, premiums and other costs of insurance incurred by Landlord, including for the insurance coverage set forth in Paragraph 8.A. herein.

(3) Common Area Maintenance.

(a) Repairs, replacements, and general maintenance of and for the Building and Project and public and common areas and facilities of and comprising the Building and Project, including, but not limited to, the roof and roof membrane, windows, elevators, restrooms, conference rooms, health club facilities, lobbies, mezzanines, balconies, mechanical rooms, building exteriors, alarm systems, pest extermination, landscaped areas, parking and service areas, driveways, sidewalks, loading areas, fire sprinkler systems, sanitary and storm sewer lines, utility services, heating/ventilation/air conditioning systems, electrical, mechanical or other systems, telephone equipment and wiring servicing, plumbing, lighting, and any other items or areas which affect the operation or appearance of the Building or Project, which determination shall be at Landlord's discretion, except for: those items to the extent paid for by the proceeds of insurance; and those items attributable solely or jointly to specific tenants of the Building or Project.

(b) Repairs, replacements, and general maintenance shall include the cost of any improvements made to or capital assets acquired for the Project or Building that in Landlord's discretion may reduce any other Operating Expenses, including present or future repair work, are reasonably necessary for the health and safety of the occupants of the Building or Project, or to ensure continuing operation of the Building systems, services and equipment, or are required to comply with any Regulation, such costs or allocable portions thereof to be amortized substantially in accordance with generally accepted accounting principles and over such reasonable period as Landlord shall determine, together with interest on the unamortized balance at the publicly announced "prime rate" charged by Wells Fargo Bank, N.A. (San Francisco) or its successor at the time such improvements or capital assets are constructed or acquired, plus two (2) percentage points, or in the absence of such prime rate, then at the U.S. Treasury six-month market note (or bond, if so designated) rate as published by any national financial publication selected by Landlord, plus four (4) percentage points, but in no event more than the maximum rate permitted by law, plus reasonable financing charges.

(c) Payment under or for any easement, license, permit, operating agreement, declaration, restrictive covenant or instrument relating to the Building or Project.

(d) All expenses and rental related to services and costs of supplies, materials and equipment used in operating, managing and maintaining the Premises, Building and Project, the equipment therein and the adjacent sidewalks, driveways, parking and service areas, including, without limitation, expenses related to service agreements regarding security, fire and other alarm systems, janitorial services, window cleaning, elevator maintenance, Building exterior maintenance, landscaping and expenses related to the administration, management and operation of the Project, including without limitation salaries, wages and benefits and management office rent.

(e) The cost of supplying any services and utilities which benefit all or a portion of the Premises, Building or Project, including without limitation services and utilities provided pursuant to Paragraph 15 hereof.

(f) Legal expenses and the cost of audits by certified public accountants; provided, however, that legal expenses chargeable as Operating Expenses shall not include the cost of negotiating leases, collecting rents, evicting tenants nor shall it include costs incurred in legal proceedings with or against any tenant or to enforce the provisions of any lease.

(g) A management and accounting cost recovery fee equal not to exceed five percent (5%) of the sum of the Project's base rents and Operating Expenses to the extent not included in such base rents (other than such management and accounting fee).

If the rentable area of the Building and/or Project is not fully occupied during any fiscal year of the Term (including any calendar year(s) falling within the Base Year), then an adjustment shall be made in computing the Operating Expenses for such year so that Tenant pays an equitable portion of all variable items (e.g., utilities, janitorial services and other component expenses that are affected by variations in occupancy levels) of Operating Expenses, as reasonably determined by Landlord, as if one hundred percent (100%) of the rentable area of the Building and/or Project had been one hundred percent (100%) occupied for the entirety of such calendar year; provided, however, that in no event shall Landlord be entitled to collect in excess of one hundred percent (100%) of the total Operating Expenses from all of the tenants in the Building or Project, as the case may be.

Operating Expenses shall not include the cost of providing tenant improvements or other specific costs incurred for the account of, separately billed to and paid by specific tenants of the Building or Project, the initial construction cost of the Building, or debt service on any mortgage or deed of trust recorded with respect to the Project other than pursuant to Paragraph 7.A.(3)(b) above. Notwithstanding anything herein to the contrary, in any instance wherein Landlord, in Landlord's reasonable discretion, deems Tenant to be responsible for any amounts greater than Tenant's Proportionate Share, Landlord shall have the right to allocate costs in any equitable manner Landlord reasonably deems appropriate.

The above enumeration of services and facilities shall not be deemed to impose an obligation on Landlord to make available or provide such services or facilities except to the extent if any that Landlord has specifically agreed elsewhere in this Lease to make the same available or provide the same. Without limiting the generality of the foregoing, Tenant acknowledges and agrees that it shall be responsible for providing adequate security for its use of the Premises, the Building and the Project and that Landlord shall have no obligation or liability with respect thereto, except to the extent if any that Landlord has specifically agreed elsewhere in this Lease to provide the same.

Notwithstanding anything in the definition of Operating Expenses in this Lease to the contrary, Operating Expenses shall not include the following, except to the extent specifically provided:

1. Any ground lease rental;
2. Costs of capital improvements, replacements or equipment and any depreciation or amortization expenses thereon, except as specifically set forth in the definition of Operating Expenses in Paragraph 7.A of the Lease;
3. Rentals for items (except when needed in connection with normal repairs and maintenance of permanent systems) which if purchased, rather than rented, would constitute a capital improvement which is specifically excluded in Subsection (ii) above (excluding, however, equipment not affixed to the Building or Project which is used in providing janitorial or similar services);
4. Costs incurred by Landlord for the repair of damage to the Building or Project, to the extent that Landlord is reimbursed by insurance proceeds;
5. Costs, including permit, license and inspection costs, incurred with respect to the installation of tenant or other occupant improvements made for tenants or other occupants in the Building or the Project or incurred in renovating or otherwise improving, decorating, painting or redecorating vacant space for or the premises of other tenants or other occupants of the Building;
6. Marketing costs, including leasing commissions, attorneys' fees in connection with the negotiation and preparation of letters, deal memos, letters of intent, leases, subleases and/or assignments, space planning costs, and other costs and expenses incurred in connection with lease, sublease and/or assignment negotiations and transactions with present or prospective tenants or other occupants of the Building or the Project;
7. Costs incurred by Landlord due to the violation by Landlord of the terms and conditions of any lease of space in the Building or the Project;
8. Interest, principal, points and fees on debt or amortization payments on any mortgage or deed of trust or any other debt instrument encumbering the Building or Project or the land on which the Building or Project is situated;
9. Except for making repairs or keeping permanent systems in operation while repairs are being made, rentals and other related expenses incurred in leasing air conditioning systems, elevators or other equipment ordinarily considered to be of a capital nature, except equipment not affixed to the Building or Project which is used in providing janitorial or similar services;
10. Advertising and promotional expenditures (except for retail property promotions);
11. Costs incurred in connection with upgrading the Building or Project to comply with disability, life, fire and safety codes in effect prior to the issuance of the temporary certificate of occupancy for the Building;
12. Interest, fines or penalties incurred as a result of Landlord's failure to make payments when due unless such failure is commercially reasonable under the circumstances;
13. Costs arising from Landlord's charitable or political contributions;
14. Costs for acquisition of sculpture, paintings or other objects of art in common areas;
15. The depreciation of the Building and other real property structures in the Project;
16. Landlord's general corporate overhead and general administrative expenses not related to the operation of the Building or the Project, except as specifically set forth in Paragraph 7.A of this lease;
17. Any bad debt loss, rent loss or reserves for bad debts or rent loss, or reserves for equipment or capital replacement;
18. Costs to correct defects in construction and design materials or workmanship in the Building or Project during the term of this Lease;
19. Costs in connection with Landlord's express financial obligation to comply with Regulations (other than ADA) described in Paragraph 4 of this Lease;
20. Costs of the premiums for earthquake insurance in excess of costs which are commercially reasonable;
21. Costs for senior executive wages, salaries or other compensation;
22. Costs of capital improvements made to specific buildings in the Project which buildings are not occupied by Tenant;
23. Costs of capital improvements made to the parking structure (the "West Parking Structure") existing prior to the date of this Lease and located on the western portion of the Project adjacent to 2200 Powell Street, but only to the extent Tenant does not utilize the West Parking Structure; and
24. Costs incurred by Landlord in connection with compliance with ADA and Regulations but only to the extent expressly excluded from Operating Expenses in Paragraph 4.C of this Lease.

B. Payment of Estimated Operating Expenses. "Estimated Operating Expenses" for any particular year shall mean Landlord's estimate of the Operating Expenses for such fiscal year made with respect to such fiscal year as hereinafter provided. Landlord shall have the right from time to time to revise its fiscal year and interim accounting periods so long as the periods as so revised are reconciled with prior periods in a reasonable manner. During the last month of each fiscal year during the Term, or as soon thereafter as practicable, Landlord shall give Tenant written notice of the Estimated Operating Expenses for the ensuing fiscal year. Tenant shall pay Tenant's Proportionate Share of the difference between Estimated Operating Expenses and Base Year Operating Expenses with installments of Base Rent for the fiscal year to which the Estimated Operating Expenses applies in monthly installments on the first day of each calendar month during such year, in advance. Such payment shall be construed to be Additional Rent for all purposes hereunder. If at any time during the course of the fiscal year, Landlord determines that Operating Expenses are projected to vary from the then Estimated Operating Expenses by more than five percent (5%), Landlord may, by written notice to Tenant, revise the Estimated Operating Expenses for the balance of such fiscal year, and Tenant's monthly installments for the remainder of such year shall be adjusted so that by the end of such fiscal year Tenant has paid to Landlord Tenant's Proportionate Share of the revised difference between Estimated Operating Expenses and Base Year Operating Expenses for such year, such revised installment amounts to be Additional Rent for all purposes hereunder. Within a reasonable time following Tenant's written request, but in no event more than one (1) time during a twelve (12) month period, Landlord shall deliver to Tenant a reasonably detailed summary statement which itemizes Landlord's calculation of Operating Expenses.

C. Computation of Operating Expense Adjustment. "Operating Expense Adjustment" shall mean the difference between Estimated Operating Expenses and actual Operating Expenses for any fiscal year, over Base Year Operating Expenses, determined as hereinafter provided. Within one hundred twenty (120) days after the end of each fiscal year, or as soon thereafter as practicable, Landlord shall deliver to Tenant a statement of actual Operating Expenses for the fiscal year just ended, accompanied by a computation of Operating Expense Adjustment. If such statement shows that Tenant's payment based upon Estimated Operating Expenses is less than Tenant's Proportionate Share of actual increases in Operating Expenses over the Base Year Operating Expenses, then Tenant shall pay to Landlord the difference within thirty (30) days after receipt of such statement, such payment to constitute Additional Rent for all purposes hereunder. If such statement shows that Tenant's payments of Estimated Operating Expenses exceed Tenant's Proportionate Share of actual increases in Operating Expenses over the Base Year Operating Expenses, then (provided that Tenant is not in default under this Lease) Landlord shall pay to Tenant the difference within thirty (30) days after delivery of such statement to Tenant. If this Lease has been terminated or the Term hereof has expired prior to the date of such statement, then the Operating Expense Adjustment shall be paid by the appropriate party within thirty (30) days after the date of delivery of the statement. Tenant's obligation to pay increases in Operating Expenses over the Base Year Operating Expenses shall commence on January 1 of the year succeeding the Base Year. Should this Lease terminate at any time other than the last day of the fiscal year, Tenant's Proportionate Share of the Operating Expense Adjustment shall be prorated based on a month of 30 days and the number of calendar months during such fiscal year that this Lease is in effect. Tenant shall in no event be entitled to any credit if Operating Expenses in any year are less than Base Year Operating Expenses. Notwithstanding anything to the contrary contained in Paragraph 7.A or 7.B, Landlord's failure to provide any notices or statements within the time periods specified in those paragraphs shall in no way excuse Tenant from its obligation to pay Tenant's Proportionate Share of increases in Operating Expenses.

D. Gross Lease. This shall be a gross Lease; however, it is intended that Base Rent shall be paid to Landlord absolutely net of all costs and expenses other than Operating Expenses each year equal to Tenant's Proportionate Share of Base Year Operating Expenses, except as otherwise specifically provided to the contrary in this Lease. The provisions for payment of increases in Operating Expenses and the Operating Expense Adjustment are intended to pass on to Tenant and reimburse Landlord for all costs and expenses of the nature described in Paragraph 7.A. incurred in connection with the ownership, management, maintenance, repair, preservation, replacement and operation of the Building and/or Project and its supporting facilities and such additional facilities, in excess of the Base Year Operating Expenses, now and in subsequent years as may be determined by Landlord to be necessary or desirable to the Building and/or Project.

E. Tenant Audit. If Tenant shall dispute the amount set forth in any statement provided by Landlord under Paragraph 7.B. or 7.C. above, Tenant shall have the right, not later than twenty (20) sixty (60) days following receipt of such statement and upon the condition that Tenant shall first deposit with Landlord the full amount in dispute, to cause Landlord's books and records with respect to Operating Expenses for such fiscal year to be audited by certified public accountants selected by Tenant and subject to Landlord's reasonable right of approval. The Operating Expense Adjustment shall be appropriately adjusted on the basis of such audit. If such audit discloses a liability for a refund in excess of ten five percent (10%)(5%) of Tenant's Proportionate Share of the Operating Expenses previously reported, the cost of such audit shall be borne by Landlord; otherwise the cost of such audit shall be paid by Tenant within thirty (30) days following completion of the audit. If Tenant shall not request an audit in accordance with the provisions of this Paragraph 7.E. within twenty (20) sixty (60) days after receipt of Landlord's statement provided pursuant to Paragraph 7.B. or 7.C., such statement shall be final and binding for all purposes hereof. Tenant acknowledges and agrees that any information revealed in the above described audit may contain proprietary and sensitive information and that significant damage could result to Landlord if such information were disclosed to any party other than Tenant's auditors. Tenant shall not in any manner disclose, provide or make available any information revealed by the audit to any person or entity without Landlord's prior written consent, which consent may be withheld by Landlord in its sole and absolute discretion. The information disclosed by the audit will be used by Tenant solely for the purpose of evaluating Landlord's books and records in connection with this Paragraph 7.E.

8. INSURANCE AND INDEMNIFICATION

A. Landlord's Insurance. All insurance maintained by Landlord shall be for the sole benefit of Landlord and under Landlord's sole control.

(1) Property Insurance. Landlord agrees to maintain property insurance insuring the Building against damage or destruction due to risk including fire, vandalism, and malicious mischief in an amount not less than the replacement cost thereof, in the form and with deductibles and endorsements as selected by Landlord. At its election, Landlord may instead (but shall have no obligation to) obtain "All Risk" coverage, and may also obtain earthquake, pollution, and/or flood insurance in amounts selected by Landlord, so long as such coverage is available at commercially reasonable rates.

(2) Optional Insurance. Landlord, at Landlord's option, may also (but shall have no obligation to) carry insurance against loss of rent, in an amount equal to the amount of Base Rent and Additional Rent that Landlord could be required to abate to all Building tenants in the event of condemnation or casualty damage for a period of twelve (12) months. Landlord may also (but shall have no obligation to) carry such other insurance as Landlord may deem prudent or advisable, including, without limitation, liability insurance in such amounts and on such terms as Landlord shall determine, so long as such coverage is available at commercially reasonable rates. Landlord shall not be obligated to insure, and shall have no responsibility whatsoever for any damage to, any furniture, machinery, goods, inventory or supplies, or other personal property or fixtures which Tenant may keep or maintain in the Premises, or any leasehold improvements, additions or alterations within the Premises.

B. Tenant's Insurance.

(1) Property Insurance. Tenant shall procure at Tenant's sole cost and expense and keep in effect from the date of this Lease and at all times until the end of the Term, insurance on all personal property and fixtures of Tenant and all improvements, additions or alterations made by or for Tenant to the Premises on an "All Risk" basis, insuring such property for the full replacement value of such property.

(2) Liability Insurance. Tenant shall procure at Tenant's sole cost and expense and keep in effect from the date of this Lease and at all times until the end of the Term Commercial General Liability insurance covering bodily injury and property damage liability occurring in or about the Premises or arising out of the use and occupancy of the Premises and the Project, and any part of either, and any areas adjacent thereto, and the business operated by Tenant or by any other occupant of the Premises. Such insurance shall include contractual liability insurance coverage insuring all of Tenant's indemnity obligations under this Lease. Such coverage shall have a minimum combined single limit of liability of at least Two Million Dollars ($2,000,000.00), and a minimum general aggregate limit of Three Million Dollars ($3,000,000.00), with an "Additional Insured - Managers or Lessors of Premises Endorsement." All such policies shall be written to apply to all bodily injury (including death), property damage or loss, personal and advertising injury and other covered loss, however occasioned, occurring during the policy term, shall be endorsed to add Landlord and any party holding an interest to which this Lease may be subordinated as an additional insured, and shall provide that such coverage shall be "primary" and non- contributing with any insurance maintained by Landlord, which shall be excess insurance only. Such coverage shall also contain endorsements including employees as additional insureds if not covered by Tenant's Commercial General Liability Insurance. All such insurance shall provide for the severability of interests of insureds; and shall be written on an "occurrence" basis, which shall afford coverage for all claims based on acts, omissions, injury and damage, which occurred or arose (or the onset of which occurred or arose) in whole or in part during the policy period.

(3) Workers' Compensation and Employers' Liability Insurance. Tenant shall carry Workers' Compensation Insurance as required by any Regulation, throughout the Term at Tenant's sole cost and expense. Tenant shall also carry Employers' Liability Insurance in amounts not less than One Million Dollars ($1,000,000) each accident for bodily injury by accident; One Million Dollars ($1,000,000) policy limit for bodily injury by disease; and One Million Dollars ($1,000,000) each employee for bodily injury by disease, throughout the Term at Tenant's sole cost and expense.

(4) General Insurance Requirements. All coverages described in this Paragraph 8.B. shall be endorsed to (i) provide Landlord with thirty (30) days' notice of cancellation or change in terms; and (ii) waive all rights of subrogation by the insurance carrier against Landlord. If at any time during the Term the amount or coverage of insurance which Tenant is required to carry under this Paragraph 8.B. is, in Landlord's reasonable judgment, materially less than the amount or type of insurance coverage typically carried by owners or tenants of properties located in the general area in which the Premises are located which are similar to and operated for similar purposes as the Premises or if Tenant's use of the Premises should change with or without Landlord's consent, Landlord shall have the right to require Tenant to increase the amount or change the types of insurance coverage required under this Paragraph 8.B. All insurance policies required to be carried by Tenant under this Lease shall be written by companies rated A X or better in "Best's Insurance Guide" and authorized to do business in the State of California. In any event deductible amounts under all insurance policies required to be carried by Tenant under this Lease shall not exceed One Hundred Thousand Dollars ($100,000.00) per occurrence, provided that Tenant maintains a net worth of at least Two Hundred Fifty Million Dollars ($250,000,000.00) as reasonably determined by Landlord, or, if Tenant's net worth is less than Two Hundred Fifty Million Dollars ($250,000,000.00), such deductible amounts shall not exceed Five Thousand Dollars ($5,000.00) per occurrence. Tenant shall deliver to Landlord on or before the Term Commencement Date, and thereafter at least thirty (30) days before the expiration dates of the expired policies, certified copies of Tenant's insurance policies, or a certificate evidencing the same issued by the insurer thereunder; and, if Tenant shall fail to procure such insurance, or to deliver such policies or certificates, Landlord may, at Landlord's option and in addition to Landlord's other remedies in the event of a default by Tenant hereunder, procure the same for the account of Tenant, and the cost thereof shall be paid to Landlord as Additional Rent.

(5) Self-insurance; Deductibles. All or any portion of the coverages Tenant is required to maintain under this Lease may be maintained under a program of Tenant self-insurance or under policies that include self-insured retentions or deductibles larger than those typically carried by similarly situated tenants. Before the Term Commencement Date, Tenant shall advise Landlord of the self-insurance program, specifying limits and amounts of umbrella coverage and self-insured retentions, or deductibles. Landlord is considered to consent to such self-insurance program as long as it is effective and Tenant's net worth and current net assets (as reported to Landlord on a quarterly basis and confirmed by audited financial statements prepared in accordance with generally accepted accounting principles) exceed Two Hundred Fifty Million Dollars ($250,000,000.00) and Fifty Million Dollars ($50,000,000.00), respectively.

C. Tenant's C. Indemnification. Tenant shall indemnify, defend by counsel reasonably acceptable to Landlord, protect and hold Landlord harmless from and against any and all claims, liabilities, losses, costs, loss of rents, liens, damages, injuries or expenses, including reasonable attorneys' and consultants' fees and court costs, demands, causes of action, or judgments, directly or indirectly arising out of or related to: (1) claims of injury to or death of persons or damage to property occurring or resulting directly or indirectly from the use or occupancy of the Premises, Building or Project by Tenant or Tenant's Parties, or from activities or failures to act of Tenant or Tenant's Parties; (2) claims arising from work or labor performed, or for materials or supplies furnished to or at the request or for the account of Tenant in connection with performance of any work done for the account of Tenant within the Premises or Project; (3) claims arising from any breach or default on the part of Tenant in the performance of any covenant contained in this Lease; and (4) claims arising from the negligence or intentional acts or omissions of Tenant or Tenant's Parties. The foregoing indemnity by Tenant shall not be applicable to claims to the extent arising from the gross negligence or willful misconduct of Landlord. Landlord shall not be liable to Tenant and Tenant hereby waives all claims against Landlord for any injury or damage to any person or property in or about the Premises, Building or Project by or from any cause whatsoever (other than Landlord's gross negligence or willful misconduct) and, without limiting the generality of the foregoing, whether caused by water leakage of any character from the roof, walls, basement or other portion of the Premises, Building or Project, or caused by gas, fire, oil or electricity in, on or about the Premises, Building or Project. The provisions of this Paragraph shall survive the expiration or earlier termination of this Lease.

D. Landlord's Indemnification. Landlord shall indemnify, defend by counsel reasonably acceptable to Tenant, protect and hold Tenant harmless from and against any and all claims, liabilities, losses, costs, damages, injuries or expenses, including reasonable attorneys' and consultants' fees and court costs, demands, causes of action, or judgments arising out of or relating to the gross negligence or willful misconduct of Landlord or Landlord's agents, employees or invitees. Notwithstanding the foregoing or anything to the contrary contained in this Lease, Landlord shall in no event be liable to Tenant and Tenant hereby waives all claims against Landlord for any injury or damage to any person or property in or about the Premises, Building or Project, including without limitation the common areas, whether caused by theft, fire, rain or water leakage of any character from the roof, walls, plumbing, sprinklers, pipes, basement or any other portion of the Premises, Building or Project, or caused by gas, fire, oil or electricity in, on or about the Premises, Building or Project, or from any other systems except in each case to the extent caused by the gross negligence or willful misconduct of Landlord, or by acts of God (including without limitation flood or earthquake), acts of a public enemy, riot, strike, insurrection, war, court order, requisition or order of governmental body or authority, or for any damage or inconvenience which may arise through repair, subject to and except as expressly otherwise provided in Paragraph 9 or 10 of this Lease. In addition, Landlord shall in no event be liable for (i) injury to Tenant's business or any loss of income or profit therefrom or from consequential damages, or (ii) sums up to the amount of insurance proceeds received by Tenant. The foregoing indemnity by Landlord shall not be applicable to claims to the extent arising from the negligence or willful misconduct of Tenant or Tenant's Parties. The foregoing indemnity by Landlord shall survive the expiration or earlier termination of this Lease.

9. WAIVER OF SUBROGATION

To the extent permitted by law and without affecting the coverage provided by insurance to be maintained hereunder or any other rights or remedies, Landlord and Tenant each waive any right to recover against the other for: (a) damages for injury to or death of persons; (b) damages to property, including personal property; (c) damages to the Premises or any part thereof; and (d) claims arising by reason of the foregoing due to hazards covered by insurance maintained or required to be maintained pursuant to this Lease to the extent of proceeds recovered therefrom, or proceeds which would have been recoverable therefrom in the case of the failure of any party to maintain any insurance coverage required to be maintained by such party pursuant to this Lease. This provision is intended to waive fully, any rights and/or claims arising by reason of the foregoing, but only to the extent that any of the foregoing damages and/or claims referred to above are covered or would be covered, and only to the extent of such coverage, by insurance actually carried or required to be maintained pursuant to this Lease by either Landlord or Tenant. This provision is also intended to waive fully, and for the benefit of each party, any rights and/or claims which might give rise to a right of subrogation on any insurance carrier. Subject to all qualifications of this Paragraph 9, Landlord waives its rights as specified in this Paragraph 9 with respect to any subtenant that it has approved pursuant to Paragraph 21 but only in exchange for the written waiver of such rights to be given by such subtenant to Landlord upon such subtenant taking possession of the Premises or a portion thereof. Each party shall cause each insurance policy obtained by it to provide that the insurance company waives all right of recovery by way of subrogation against either party in connection with any damage covered by any policy.

10. LANDLORD'S REPAIRS AND MAINTENANCE

Landlord, at its sole cost and expense and not as an Operating Expense, shall maintain in good repair, reasonable wear and tear excepted, the structural soundness of the roof, foundations, and exterior walls of the Building and the common areas. The term "exterior walls" as used herein shall not include windows, glass or plate glass, doors, special store fronts or office entries; provided, however that Tenant shall in no event be liable for damage to exterior walls to the extent caused by structural defects of the Building. Any damage caused by or repairs necessitated by any negligence or act of Tenant or Tenant's Parties may be repaired by Landlord at Landlord's option and Tenant's expense. Tenant shall immediately give Landlord written notice of any defect or need of repairs in such components of the Building for which Landlord is responsible, after which Landlord shall have a reasonable opportunity and the right to enter the Premises at all reasonable times to repair same. Landlord's liability with respect to any defects, repairs, or maintenance for which Landlord is responsible under any of the provisions of this Lease shall be limited to the cost of such repairs or maintenance, and there shall be no abatement of rent and no liability of Landlord by reason of any injury to or interference with Tenant's business arising from the making of repairs, alterations or improvements in or to any portion of the Premises, the Building or the Project or to fixtures, appurtenances or equipment in the Building, except as provided in Paragraph 24 or as expressly provided in this Paragraph 10. In the event that Tenant's Permitted Use of the Premises is materially and adversely impaired as a result in defects in design or construction, Tenant's Rent shall abate but only to the extent Landlord receives rental abatement insurance proceeds. By taking possession of the Premises, Tenant accepts them "as is," as being in good order, condition and repair and the condition in which Landlord is obligated to deliver them and suitable for the Permitted Use and Tenant's intended operations in the Premises, whether or not any notice of acceptance is given.

11. TENANT'S REPAIRS AND MAINTENANCE

Tenant shall at all times during the Term at Tenant's expense maintain all parts of the Premises and such portions of the Building as are within the exclusive control of Tenant in a first-class, good, clean and secure condition and promptly make all necessary repairs and replacements, as determined by Landlord, with materials and workmanship of the same or similar character, kind and as high a quality as the original, each as reasonably acceptable to Landlord. Notwithstanding anything to the contrary contained herein, Tenant shall, at its expense, promptly repair any damage to the Premises or the Building or Project resulting from or caused by any negligence or act of Tenant or Tenant's Parties.

12. ALTERATIONS

A. Tenant shall not make, or allow to be made, any alterations, physical additions, improvements or partitions, including without limitation the attachment of any fixtures or equipment, in, about or to the Premises ("Alterations") without obtaining the prior written consent of Landlord, which consent shall not be unreasonably withheld with respect to proposed Alterations which: (a) comply with all applicable Regulations; (b) are, in Landlord's reasonable opinion, compatible with the Building or the Project and its mechanical, plumbing, electrical, heating/ventilation/air conditioning systems, and will not cause the Building or Project or such systems to be required to be modified to comply with any Regulations (including, without limitation, the Americans With Disabilities Act); and (c) will not interfere with the use and occupancy of any other portion of the Building or Project by any other tenant or its invitees. The initial Tenant Improvements as defined in Exhibit C hereto shall not be considered an "Alteration," as that term is defined above. Specifically, but without limiting the generality of the foregoing, Landlord shall have the right of written consent for all plans and specifications for the proposed Alterations, construction means and methods, all appropriate permits and licenses, any contractor or subcontractor to be employed on the work of Alterations, and the time for performance of such work, and may impose rules and regulations for contractors and subcontractors performing such work. Tenant shall also supply to Landlord any documents and information reasonably requested by Landlord in connection with Landlord's consideration of a request for approval hereunder. Notwithstanding the foregoing, Tenant shall have the right, without consent of, but upon at least ten (10) business days' prior written notice (as provided under Paragraph 12.B below) to, Landlord, to make non-structural, cosmetic Alterations within the interior of the Premises (and which are not visible from the outside of the Premises), which do not impair the value of the Building, and which cost, in the aggregate, less than Twenty Five Thousand Dollars ($25,000.00) in any twelve (12) month period during the Term of this Lease, provided that such Alterations shall nevertheless be subject to all of the remaining requirements of this Paragraph 12, including without limitation, subparagraphs (a) through (c) above and payment of the administration fee referred to in this Paragraph 12.A, other than the requirement of Landlord's prior consent. In addition unless Landlord elects in accordance with this Paragraph 12.A to have Landlord's contractor perform the proposed Alterations, all Alterations shall be performed by duly licensed contractors or subcontractors reasonably acceptable to Landlord, proof of insurance shall be submitted to Landlord as required under Paragraph 8.B above, and Landlord reserves the right to impose reasonable rules and regulations for contractors and subcontractors. Tenant shall, if requested by Landlord, promptly furnish Landlord with complete as-built plans and specifications for any Alterations performed by Tenant to the Premises, at Tenant's sole cost and expense.

B. Tenant shall cause all Alterations to be accomplished in a first-class, good and workmanlike manner, and to comply with all applicable Regulations and Paragraph 27 hereof. Tenant shall at Tenant's sole expense, perform any additional work required under applicable Regulations due to the Alterations hereunder. No review or consent by Landlord of or to any proposed Alteration or additional work shall constitute a waiver of Tenant's obligations under this Paragraph 12, nor constitute any warranty or representation that the same complies with all applicable Regulations, for which Tenant shall at all times be solely responsible. Tenant shall reimburse Landlord for all reasonable costs which Landlord may incur in connection with granting approval to Tenant for any such Alterations, including any reasonable costs or expenses which Landlord may incur in electing to have outside architects and engineers review said plans and specifications, and shall pay Landlord an administration fee of fifteen ten percent (15%)(10%) of the cost of the Alterations as Additional Rent hereunder. All such Alterations shall remain the property of Tenant until the expiration or earlier termination of this Lease, at which time they shall be and become the property of Landlord; provided, however, that Landlord may, at Landlord's option, require that Tenant, at Tenant's expense, remove any or all Alterations made by Tenant and restore the Premises by the expiration or earlier termination of this Lease, to their condition existing prior to the construction of any such Alterations. All such removals and restoration shall be accomplished in a first-class and good and workmanlike manner so as not to cause any damage to the Premises or Project whatsoever. If Tenant fails to remove such Alterations or Tenant's trade fixtures or furniture or other personal property, Landlord may keep and use them or remove any of them and cause them to be stored or sold in accordance with applicable law, at Tenant's sole expense. Notwithstanding the foregoing, Tenant shall not be liable for the removal of the initial Tenant Improvements upon the expiration or earlier termination of this Lease. In addition to and wholly apart from Tenant's obligation to pay Tenant's Proportionate Share of Operating Expenses, Tenant shall be responsible for and shall pay prior to delinquency any taxes or governmental service fees, possessory interest taxes, fees or charges in lieu of any such taxes, capital levies, or other charges imposed upon, levied with respect to or assessed against its fixtures or personal property, on the value of Alterations within the Premises, and on Tenant's interest pursuant to this Lease, or any increase in any of the foregoing based on such Alterations. To the extent that any such taxes are not separately assessed or billed to Tenant, Tenant shall pay the amount thereof as invoiced to Tenant by Landlord.

C. In compliance with Paragraph 27 hereof, at least ten (10) business days before beginning construction of any Alteration, Tenant shall give Landlord written notice of the expected commencement date of that construction to permit Landlord to post and record a notice of non- responsibility. Upon substantial completion of construction, if the law so provides, Tenant shall cause a timely notice of completion to be recorded in the office of the recorder of the county in which the Building is located. Within thirty (30) days following substantial completion of any Alteration, Tenant shall deliver two (2) complete sets of as-built drawings certified by Tenant and Tenant's contractor as being true and correct, which certification shall survive the expiration or termination of this Lease.

D. Notwithstanding anything to the contrary contained in Paragraph 12.A, at the time Landlord gives its consent for any Alterations, Tenant shall also be notified whether or not Landlord will require that such Alterations be removed upon the expiration or earlier termination of this Lease. If Landlord fails to so notify Tenant, it shall be assumed that Landlord will require their removal.

13. SIGNS

Tenant shall not place, install, affix, paint or maintain any signs, notices, graphics or banners whatsoever or any window decor which is visible in or from public view or corridors, the common areas or the exterior of the Premises or the Building, in or on any exterior window or window fronting upon any common areas or service area without Landlord's prior written approval which Landlord shall have the right to withhold in its absolute and sole discretion; provided that Tenant's name shall be included in any Building- standard door and directory signage, if any, in accordance with Landlord's Building signage program, including without limitation, payment by Tenant of any fee charged by Landlord for maintaining such signage, which fee shall constitute Additional Rent hereunder. Any installation of signs, notices, graphics or banners on or about the Premises or Project approved by Landlord shall be subject to any Regulations and to any other requirements imposed by Landlord. Tenant shall remove all such signs or graphics by the expiration or any earlier termination of this Lease. Such installations and removals shall be made in such manner as to avoid injury to or defacement of the Premises, Building or Project and any other improvements contained therein, and Tenant shall repair any injury or defacement including without limitation discoloration caused by such installation or removal.

14. INSPECTION/POSTING NOTICES

After reasonable notice, except in emergencies where no such notice shall be required, Landlord and Landlord's agents and representatives, shall have the right to enter the Premises to inspect the same, to clean, to perform such work as may be permitted or required hereunder, to make repairs, improvements or alterations to the Premises, Building or Project or to other tenant spaces therein, to deal with emergencies, to post such notices as may be permitted or required by law to prevent the perfection of liens against Landlord's interest in the Project or to exhibit the Premises to prospective tenants, purchasers, encumbrancers or to others, or for any other purpose as Landlord may deem necessary or desirable; provided, however, that Landlord shall use reasonable efforts not to unreasonably interfere with Tenant's business operations. Tenant shall not be entitled to any abatement of Rent by reason of the exercise of any such right of entry. Tenant waives any claim for damages for any injury or inconvenience to or interference with Tenant's business, any loss of occupancy or quiet enjoyment of the Premises, and any other loss occasioned thereby. Landlord shall at all times have and retain a key with which to unlock all of the doors in, upon and about the Premises, excluding Tenant's vaults and safes or special security areas (designated in advance), and Landlord shall have the right to use any and all means which Landlord may deem necessary or proper to open said doors in an emergency, in order to obtain entry to any portion of the Premises, and any entry to the Premises or portions thereof obtained by Landlord by any of said means, or otherwise, shall not be construed to be a forcible or unlawful entry into, or a detainer of, the Premises, or an eviction, actual or constructive, of Tenant from the Premises or any portions thereof. At any time within six (6) months prior to the expiration of the Term or following any earlier termination of this Lease or agreement to terminate this Lease, Landlord shall have the right to erect on the Premises, Building and/or Project a suitable sign indicating that the Premises are available for lease.

15. SERVICES AND UTILITIES

A. Provided Tenant shall not be in default hereunder, and subject to the provisions elsewhere herein contained and to the rules and regulations of the Building, Landlord shall furnish to the Premises during generally recognized business days (currently defined as 8 a.m. to 6 p.m.), to be determined by Landlord (but exclusive, in any event, of Saturdays, Sundays and legal holidays), water for lavatory and drinking purposes and electricity, heat and air conditioning as usually furnished or supplied for use of the Premises for reasonable and normal office use as of the date Tenant takes possession of the Premises as determined by Landlord (but not including above-standard or continuous cooling for excessive heat-generating machines, excess lighting or equipment), janitorial services during the times and in the manner that such services are, in Landlord's judgment, customarily furnished in comparable office buildings in the immediate market area, and elevator service, which shall mean service either by nonattended automatic elevators or elevators with attendants, or both, at the option of Landlord. Upon Landlord's receipt of written request by Tenant, Landlord shall make available additional or after-hours electricity, heating or air conditioning to Tenant, and Tenant shall pay upon demand to Landlord a reasonable charge for such services as determined by Landlord and any other extraordinary operating costs that result from Tenant's use of the Premises. Tenant agrees to keep and cause to be kept closed all window covering when necessary because of the sun's position, and Tenant also agrees at all times to cooperate fully with Landlord and to abide by all of the regulations and requirements which Landlord may reasonably prescribe for the proper functioning and protection of electrical, heating, ventilating and air conditioning systems. Wherever heat- generating machines, excess lighting or equipment are used in the Premises which affect the temperature otherwise maintained by the air conditioning system, Landlord reserves the right to install supplementary air conditioning units in the Premises and the cost thereof, including the cost of installation and the cost of operation and maintenance thereof, shall be paid by Tenant to Landlord upon demand by Landlord.

Tenant shall not without written consent of Landlord use any apparatus, equipment or device in the Premises, including without limitation, computers, electronic data processing machines, copying machines, and other machines, using excess lighting or using electric current, water, or any other resource in excess of or which will in any way increase the amount of electricity, water, or any other resource being furnished or supplied for the use of the Premises for reasonable and normal office use, in each case as of the date Tenant takes possession of the Premises and as determined by Landlord, or which will require additions or alterations to or interfere with the Building power distribution systems; nor connect with electric current, except through existing electrical outlets in the Premises or water pipes, any apparatus, equipment or device for the purpose of using electrical current, water, or any other resource. If Tenant shall require water or electric current or any other resource in excess of that being furnished or supplied for the use of the Premises as of the date Tenant takes possession of the Premises as determined by Landlord, Tenant shall first procure the written consent of Landlord which Landlord may refuse, to the use thereof, and Landlord may cause a special meter to be installed in the Premises so as to measure the amount of water, electric current or other resource consumed for any such other use. Tenant shall pay directly to Landlord upon demand as an addition to and separate from payment of Operating Expenses the cost of all such additional resources, energy, utility service and meters (and of installation, maintenance and repair thereof and of any additional circuits or other equipment necessary to furnish such additional resources, energy, utility or service). Landlord may add to the separate or metered charge a recovery of additional expense incurred in keeping account of the excess water, electric current or other resource so consumed. Landlord shall not be liable for any damages directly or indirectly resulting from nor shall the Rent or any monies owed Landlord under this Lease herein reserved be abated by reason of: (a) the installation, use or interruption of use of any equipment used in connection with the furnishing of any such utilities or services, or any change in the character or means of supplying or providing any such utilities or services or any supplier thereof; (b) (1) the failure to furnish or delay in furnishing any such utilities or services when such failure or delay is caused by acts of God or the elements, labor disturbances of any character, or any other accidents or any other reason whatsoever, or (2) because of any interruption of service due to Tenant's use of water, electric current or other resource in excess of that being supplied or furnished for the use of the Premises as of the date Tenant takes possession of the Premises; (c) the inadequacy, limitation, curtailment, rationing or restriction on use of water, electricity, gas or any other form of energy or any other service or utility whatsoever serving the Premises or Project, whether by Regulation or otherwise; or (d) the partial or total unavailability of any such utilities or services to the Premises or the Building, whether by Regulation or otherwise; nor shall any such occurrence constitute an actual or constructive eviction of Tenant. Notwithstanding the foregoing, if Tenant is prevented from using, and does not use, all or part of the Premises (the "Affected Area") as a result of a Essential Services Interruption Event, as defined below, if this Essential Services Interruption Event continues for three (3) consecutive business days after Landlord's receipt of notice from Tenant of the Essential Services Interruption Event (the "Eligibility Period"), the Rent payable under this Lease shall be abated after the expiration of the Eligibility Period for such time that Tenant continues to be prevented from using, and does not use, the Affected Area in the proportion that the rentable area of the Affected Area bears to the total rentable area of the Premises, but only to the extent Landlord actually receives insurance proceeds. If, however, Tenant reoccupies any portion of the Premises during this period, the Rent allocable to this reoccupied portion (based on the proportion that the rentable area of the reoccupied portion of the Premises bears to the total rentable area of the Premises) shall be payable by Tenant from the date on which Tenant reoccupies this portion of the Premises. An "Essential Services Interruption Event" shall mean the failure of or interruption in essential services required to be supplied by Landlord to the Premises during ordinary business hours of generally recognized business days which occurs solely as a result of an event described in clause (a), (b), (c) or (d) above. In the event of a stoppage or interruption of services, Landlord shall diligently attempt to resume such services as promptly as practicable. Landlord shall further have no obligation to protect or preserve any apparatus, equipment or device installed by Tenant in the Premises, including without limitation by providing additional or after-hours heating or air conditioning. Landlord shall be entitled to cooperate voluntarily and in a reasonable manner with the efforts of national, state or local governmental agencies or utility suppliers in reducing energy or other resource consumption. The obligation to make services available hereunder shall be subject to the limitations of any such voluntary, reasonable program. In addition, Landlord reserves the right to change the supplier or provider of any such utility or service from time to time, provided that Landlord uses commercially reasonable efforts to avoid an interruption of services to Tenant. Tenant shall have no right to contract with or otherwise obtain any electrical or other such service for or with respect to the Premises or Tenant's operations therein from any supplier or provider of any such service. Tenant shall cooperate with Landlord and any supplier or provider of such services designated by Landlord from time to time to facilitate the delivery of such services to Tenant at the Premises and to the Building and Project, including without limitation allowing Landlord and Landlord's suppliers or providers, and their respective agents and contractors, reasonable access to the Premises for the purpose of installing, maintaining, repairing, replacing or upgrading such service or any equipment or machinery associated therewith.

B. Tenant shall pay, upon demand, for all utilities furnished to the Premises, or if not separately billed to or metered to Tenant, Tenant's Proportionate Share of all charges jointly serving the Project in accordance with Paragraph 7. All sums payable under this Paragraph 15 shall constitute Additional Rent hereunder.

16. SUBORDINATION

Except as otherwise provided herein, without the necessity of any additional document being executed by Tenant for the purpose of effecting a subordination, this Lease shall be and is hereby declared to be subject and subordinate at all times to: (a) all ground leases or underlying leases which may now exist or hereafter be executed affecting the Premises and/or the land upon which the Premises and Project are situated, or both; and (b) any mortgage or deed of trust which may now exist or be placed upon the Building, the Project and/or the land upon which the Premises or the Project are situated, or said ground leases or underlying leases, or Landlord's interest or estate in any of said items which is specified as security. Notwithstanding the foregoing, Landlord shall have the right to subordinate or cause to be subordinated any such ground leases or underlying leases or any such liens to this Lease. If any ground lease or underlying lease terminates for any reason or any mortgage or deed of trust is foreclosed or a conveyance in lieu of foreclosure is made for any reason, Tenant shall, notwithstanding any subordination, attorn to and become the Tenant of the successor in interest to Landlord provided that Tenant shall not be disturbed in its possession under this Lease by such successor in interest so long as Tenant is not in default under this Lease beyond any applicable cure period. Within ten (10) days after request by Landlord, Tenant shall execute and deliver any additional documents evidencing Tenant's attornment or the subordination of this Lease with respect to any such ground leases or underlying leases or any such mortgage or deed of trust, in the form requested by Landlord or by any ground landlord, mortgagee, or beneficiary under a deed of trust, subject to such nondisturbance requirement. If requested in writing by Tenant, Landlord shall use commercially reasonable efforts to obtain a subordination, nondisturbance and attornment agreement for the benefit of Tenant reflecting the foregoing from any ground landlord, mortgagee or beneficiary, at Tenant's expense, subject to such other terms and conditions as the ground landlord, mortgagee or beneficiary may require. Notwithstanding the foregoing, in the event this Lease or the leasehold estate created hereunder is or becomes subject to the prior rights of any mortgagee or ground lessor, then Landlord shall secure from such mortgagee or ground lessor on their form an agreement in writing whereby Tenant, so long as Tenant is not in default hereunder beyond any applicable cure period, may remain in possession of the Premises pursuant to the terms hereof and without any diminution of Tenant's rights should Landlord become in default with respect to such mortgage or ground lease or should the Premises become the subject of any action to foreclose any mortgage or to dispossess Landlord. Such agreement would provide, among other things, that the new owner following any foreclosure, sale or conveyance shall not be (i) liable for any act or omission of any prior landlord or with respect to events occurring prior to acquisition of ownership; (ii) subject to any offsets or defenses which Tenant might have against any prior landlord; (iii) bound by prepayment of more than one (1) month's Rent; or (iv) liable to Tenant for any security deposit not actually received by such new owner. Each ground landlord, mortgagee, or beneficiary under a deed of trust shall be an express third party beneficiary of the provisions of this Paragraph 16 and any other provisions of this Lease that are for the benefit of such party.

17. FINANCIAL STATEMENTS

At the request of Landlord from time to time and not more often than one time in any twelve (12) month period, Tenant shall provide to Landlord Tenant's and any guarantor's current financial statements or other information discussing financial worth of Tenant and any guarantor, which Landlord shall use solely for purposes of this Lease and in connection with the ownership, management, financing and disposition of the Project. Tenant's publicly available financial information shall satisfy the above requirements unless Landlord has reasonable belief that Tenant's financial condition or credit rating have declined to a level which is unacceptable to Landlord. Landlord shall not in any manner disclose, provide or make available any information revealed by Tenant's private financial information to any person or entity without Tenant's prior written consent.

18. ESTOPPEL CERTIFICATE

Tenant agrees from time to time, within ten (10) days after request of Landlord, to deliver to Landlord, or Landlord's designee, an estoppel certificate stating that this Lease is in full force and effect, that this Lease has not been modified (or stating all modifications, written or oral, to this Lease), the date to which Rent has been paid, the unexpired portion of this Lease, that there are no current defaults by Landlord or Tenant under this Lease (or specifying any such defaults), that the leasehold estate granted by this Lease is the sole interest of Tenant in the Premises and/or the land at which the Premises are situated, and such other matters pertaining to this Lease as may be reasonably requested by Landlord or any mortgagee, beneficiary, purchaser or prospective purchaser of the Building or Project or any interest therein. Tenant agrees that if Tenant fails to execute and deliver such certificate within such ten (10) day period, Landlord may execute and deliver such certificate on Tenant's behalf and that such certificate shall be binding on Tenant. Landlord and Tenant intend that any statement delivered pursuant to this Paragraph may be relied upon by any mortgagee, beneficiary, purchaser or prospective purchaser of the Building or Project or any interest therein. The parties agree that Tenant's obligation to furnish such estoppel certificates in a timely fashion is a material inducement for Landlord's execution of this Lease, and shall be an event of default (without any cure period that might be provided under Paragraph 26.A(3) of this Lease) if Tenant fails to fully comply or makes any material misstatement in any such certificate. Landlord agrees from time to time, within ten (10) days after request of Tenant, to deliver to Tenant, or Tenant's designee, an estoppel certificate stating that this Lease is in full force and effect, that this Lease has not been modified (or stating all modifications, written or oral, to this Lease), the date to which Rent has been paid, the unexpired portion of this Lease, and that, to the best of Landlord's actual knowledge, there are no current defaults by Tenant under this Lease (or specifying any such defaults).

19. SECURITY DEPOSIT

Subject to Paragraph 39.H below, Tenant agrees to deposit with Landlord upon execution of this Lease, a security deposit as stated in the Basic Lease Information (the "Security Deposit"), which sum shall be held and owned by Landlord, without obligation to pay interest, as security for the performance of Tenant's covenants and obligations under this Lease. The Security Deposit is not an advance rental deposit or a measure of damages incurred by Landlord in case of Tenant's default. Upon the occurrence of any event of default by Tenant, Landlord may from time to time, without prejudice to any other remedy provided herein or by law, use such fund as a credit to the extent necessary to credit against any arrears of Rent or other payments due to Landlord hereunder, and any other damage, injury, expense or liability caused by such event of default, and Tenant shall pay to Landlord, on demand, the amount so applied in order to restore the Security Deposit to its original amount. Although the Security Deposit shall be deemed the property of Landlord, any remaining balance of such deposit shall be returned by Landlord to Tenant at such time after termination of this Lease that all of Tenant's obligations under this Lease have been fulfilled, reduced by such amounts as may be required by Landlord to remedy defaults on the part of Tenant in the payment of Rent or other obligations of Tenant under this Lease, to repair damage to the Premises, Building or Project caused by Tenant or any Tenant's Parties and to clean the Premises. Landlord may use and commingle the Security Deposit with other funds of Landlord.

20. LIMITATION OF TENANT'S REMEDIES

The obligations and liability of Landlord to Tenant for any default by Landlord under the terms of this Lease are not personal obligations of Landlord or of the individual or other partners of Landlord or its or their partners, directors, officers, or shareholders, and Tenant agrees to look solely to Landlord's interest in the Project for the recovery of any amount from Landlord, and shall not look to other assets of Landlord nor seek recourse against the assets of the individual or other partners of Landlord or its or their partners, directors, officers or shareholders. Any lien obtained to enforce any such judgment and any levy of execution thereon shall be subject and subordinate to any lien, mortgage or deed of trust on the Project. Under no circumstances shall Tenant have the right to offset against or recoup Rent or other payments due and to become due to Landlord hereunder except as expressly provided in this Lease, which Rent and other payments shall be absolutely due and payable hereunder in accordance with the terms hereof.

21. ASSIGNMENT AND SUBLETTING

A. (1) General. This Lease has been negotiated to be and is granted as an accommodation to Tenant. Accordingly, this Lease is personal to Tenant and any Permitted Transferee, and Tenant's rights granted hereunder do not include the right to assign this Lease or sublease the Premises, or to receive any excess, either in installments or lump sum, over the Rent which is expressly reserved by Landlord as hereinafter provided, except as otherwise expressly hereinafter provided. Tenant shall not assign or pledge this Lease or sublet the Premises or any part thereof, whether voluntarily or by operation of law, or permit the use or occupancy of the Premises or any part thereof by anyone other than Tenant, or suffer or permit any such assignment, pledge, subleasing or occupancy, without Landlord's prior written consent except as provided herein. If Tenant desires to assign this Lease or sublet any or all of the Premises, Tenant shall give Landlord written notice (the "Transfer Notice") at least thirty (30) days prior to the anticipated effective date of the proposed assignment or sublease, which shall contain all of the information reasonably requested by Landlord to address Landlord's decision criteria specified hereinafter. Landlord shall then have a period of ten (10) business days following receipt of the Transfer Notice to notify Tenant in writing that Landlord elects either: (i) to terminate this Lease as to the space so affected as of the date so requested by Tenant; or (ii) to consent to the proposed assignment or sublease, subject, however, to Landlord's prior written consent of the proposed assignee or subtenant and of any related documents or agreements associated with the assignment or sublease. If Landlord should fail to notify Tenant in writing of such election within said period, Landlord shall be deemed to have waived option (i) above, but written consent by Landlord of the proposed assignee or subtenant shall still be required. If Landlord does not exercise option (i) above, Landlord's consent to a proposed assignment or sublease shall not be unreasonably withheld. Consent to any assignment or subletting shall not constitute consent to any subsequent transaction to which this Paragraph 21 applies. Landlord hereby waives its right to recapture the Premises or a portion thereof pursuant to clause (i) above only with respect to the first (1^st) request by Tenant (a "Tenant Transfer Request") to sublease all or a portion of the Premises or assign this Lease during the Term or any extension thereto and only if the proposed sublease or assignment is for a term which is equal to less than 50% of the remaining Term of this Lease or any extension thereto, if such extension option has already been exercised by Tenant in accordance with the terms of this Lease. In the event that a Tenant Transfer Request pertains only to a portion of the Premises, Landlord's waiver of its recapture right shall continue to be in effect as provided above for the remaining portions of the Premises; provided however, that once a Tenant Transfer Request is submitted to Landlord for a portion of the Premises, Landlord shall no longer be deemed to waive its right to recapture with respect to such portion of the Premises.

2. Conditions of Landlord's Consent. Without limiting the other instances in which it may be reasonable for Landlord to withhold Landlord's consent to an assignment or subletting, Landlord and Tenant acknowledge that it shall be reasonable for Landlord to withhold Landlord's consent in the following instances: if the proposed assignee does not agree to be bound by and assume the obligations of Tenant under this Lease in form and substance satisfactory to Landlord; the use of the Premises by such proposed assignee or subtenant would not be a Permitted Use or would violate any exclusivity or other arrangement which Landlord has with any other tenant or occupant or any Regulation or would increase the Occupancy Density or Parking Density of the Building or Project, or would otherwise result in an undesirable tenant mix for the Project as reasonably determined by Landlord; the proposed assignee or subtenant is not of sound financial condition as determined by Landlord in Landlord's reasonable discretion; the proposed assignee or subtenant is a governmental agency; the proposed assignee or subtenant does not have a good reputation as a tenant of property or a good business reputation; the proposed assignee or subtenant is a person with whom Landlord is negotiating to lease space in the Building; the proposed assignee or subtenant is a present tenant of the Project and Landlord has space available or will have space available in the Building or Project which space satisfies the material requirements of such present tenant with respect to its needs for additional space, including the approximate square footage, the approximately timing of the leasehold estate and the nature of the existing improvements or the ability to construct such improvements; the assignment or subletting would entail any Alterations which would lessen the value of the leasehold improvements in the Premises or use of any Hazardous Materials or other noxious use or use which may disturb other tenants of the Project; or Tenant is in default of any obligation of Tenant under this Lease, or Tenant has defaulted under this Lease beyond any applicable cure period on three (3) or more occasions during any the twelve (12) months preceding the date that Tenant shall request consent. Failure by or refusal of Landlord to consent to a proposed assignee or subtenant shall not cause a termination of this Lease. Upon a termination under Paragraph 21.A.(1)(i), Landlord may lease the Premises to any party, including parties with whom Tenant has negotiated an assignment or sublease, without incurring any liability to Tenant. At the option of Landlord, a surrender and termination of this Lease shall operate as an assignment to Landlord of some or all subleases or subtenancies. Landlord shall exercise this option by giving notice of that assignment to such subtenants on or before the effective date of the surrender and termination. In connection with each request for assignment or subletting, Tenant shall pay to Landlord Landlord's standard fee for approving such requests, as well as all costs incurred by Landlord or any mortgagee or ground lessor in approving each such request and effecting any such transfer, including, without limitation, reasonable attorneys' fees.
3. Permitted Transfers. An "Affiliate" means any entity that (i) controls, is controlled by, or is under common control with Tenant, (ii) results from the transfer of all or substantially all of Tenant's assets or stock, or (iii) results from the merger or consolidation of Tenant with another entity. "Control" means the direct or indirect ownership of more than fifty percent (50%) of the voting securities of an entity or possession of the right to vote more than fifty percent (50%) of the voting interest in the ordinary direction of the entity's affairs. Notwithstanding anything to the contrary contained in this Lease, Landlord's consent is not required for and Landlord's recapture rights shall not apply to any assignment of this Lease or sublease of all or a portion of the Premises to an Affiliate so long as the following conditions are met: (a) at least ten (10) business days before any such assignment or sublease, Landlord receives written notice of such assignment or sublease (as well as any documents or information reasonably requested by Landlord regarding the proposed intended transfer and the transferee), unless such disclosure is prohibited by applicable law, in which event Tenant shall provide notice and such other documents as soon as is reasonably practicable and to the extent and in accordance with applicable laws; (b) Tenant is not then and has not been in default under this Lease; (c) if the transfer is an assignment or any other transfer to an Affiliate other than a sublease, the intended assignee assumes in writing all of Tenant's obligations under this Lease relating to the Premises in form satisfactory to Landlord or, if the transfer is a sublease, the intended sublessee accepts the sublease in form satisfactory to Landlord; (d) the intended transferee has a tangible net worth, as evidenced by financial statements delivered to Landlord and certified by an independent certified public accountant in accordance with generally accepted accounting principles that are consistently applied, at least equal to Fifty Million Dollars ($50,000,000.00); (e) the Premises shall continue to be operated solely for the use specified in the Basic Lease Information; and (f) Tenant shall pay to Landlord Landlord's standard fee for approving assignments and subleases (which fee shall not exceed one thousand dollars ($1,000.00)) and all costs reasonably incurred by Landlord or any mortgagee or ground lessor for such assignment or subletting, including, without limitation, reasonable attorneys' fees. No transfer to an Affiliate in accordance with this subparagraph shall relieve Tenant named herein of any obligation under this Lease or alter the primary liability of Tenant named herein for the payment of Rent or for the performance of any other obligation to be performed by Tenant, including the obligations contained in Paragraph 25 with respect to any Affiliate. Each such transfer to an Affiliate shall be a "Permitted Transfer" and the transferee of each Permitted Transfer shall be a "Permitted Transferee."

B. Bonus Rent. Any Rent or other consideration realized by Tenant under any such sublease or assignment in excess of the Rent payable hereunder, after amortization of a reasonable brokerage commission incurred by Tenant and reasonable attorneys' fees and improvement costs incurred by Tenant solely in connection with such sublease or assignment (and except to the extent paid for or reimbursed by Landlord), shall be divided and paid, ten percent (10%) to Tenant, ninety percent (90%) to Landlord, except in connection with a Permitted Transfer. In any subletting or assignment undertaken by Tenant, Tenant shall diligently seek to obtain the maximum rental amount available in the marketplace a sublease reflecting fair market rent for comparable space available for primary leasing.(including, but not limited to, sublease space) available for leasing in the geographical area in which the Building is located.

C. Corporation. If Tenant is a corporation, a transfer of corporate shares by sale, assignment, bequest, inheritance, operation of law or other disposition (including such a transfer to or by a receiver or trustee in federal or state bankruptcy, insolvency or other proceedings) resulting in a change in the present control of such corporation or any of its parent corporations by the person or persons owning a majority of said corporate shares, shall constitute an assignment for purposes of this Lease. Notwithstanding anything to the contrary in this Lease, the transfer of outstanding capital stock or other listed equity interests, or the purchase of outstanding capital stock or other listed equity interests, or the purchase of equity interests issued in an initial public offering of stock through the "over-the-counter" market or any recognized national or international securities exchange shall not be included in determining whether control has been transferred.

D. Unincorporated Entity. If Tenant is a partnership, joint venture, unincorporated limited liability company or other unincorporated business form, a transfer of the interest of persons, firms or entities responsible for managerial control of Tenant by sale, assignment, bequest, inheritance, operation of law or other disposition, so as to result in a change in the present control of said entity and/or of the underlying beneficial interests of said entity and/or a change in the identity of the persons responsible for the general credit obligations of said entity shall constitute an assignment for all purposes of this Lease.

E. Liability. No assignment or subletting by Tenant, permitted or otherwise, shall relieve Tenant of any obligation under this Lease or any guarantor of this Lease of any liability under its guaranty or alter the primary liability of the Tenant named herein for the payment of Rent or for the performance of any other obligations to be performed by Tenant, including obligations contained in Paragraph 25 with respect to any assignee or subtenant. Landlord may collect rent or other amounts or any portion thereof from any assignee, subtenant, or other occupant of the Premises, permitted or otherwise, and apply the net rent collected to the Rent payable hereunder, but no such collection shall be deemed to be a waiver of this Paragraph 21, or the acceptance of the assignee, subtenant or occupant as tenant, or a release of Tenant from the further performance by Tenant of the obligations of Tenant under this Lease or any guarantor of this Lease of any liability under its guaranty. Any assignment or subletting which conflicts with the provisions hereof shall be void.

22. AUTHORITY

Landlord, and the person or persons, if any, signing on behalf of Landlord, jointly and severally, represent and warrant that Landlord has full right and authority to enter into this Lease and to perform all of Landlord's obligations hereunder and that all persons signing this Lease on its behalf are authorized to do. Tenant and the person or persons, if any, signing on behalf of Tenant, jointly and severally represent and warrant that Tenant has full right and authority to enter into this Lease, and to perform all of Tenant's obligations hereunder, and that all persons signing this Lease on its behalf are authorized to do so.

23. CONDEMNATION

A. Condemnation Resulting in Termination. If the whole or any substantial part of the Premises should be taken or condemned for any public use under any Regulation, or by right of eminent domain, or by private purchase in lieu thereof, and the taking would prevent or materially interfere with the Permitted Use of the Premises, either party shall have the right to terminate this Lease at its option. If any material portion of the Building or Project is taken or condemned for any public use under any Regulation, or by right of eminent domain, or by private purchase in lieu thereof, Landlord may terminate this Lease at its option. In either of such events, the Rent shall be abated during the unexpired portion of this Lease, effective when the physical taking of said Premises shall have occurred.

B. Condemnation Not Resulting in Termination. If a portion of the Project of which the Premises are a part should be taken or condemned for any public use under any Regulation, or by right of eminent domain, or by private purchase in lieu thereof, and the taking prevents or materially interferes with the Permitted Use of the Premises, and this Lease is not terminated as provided in Paragraph 23.A. above, the Rent payable hereunder during the unexpired portion of this Lease shall be reduced, beginning on the date when the physical taking shall have occurred, to such amount as may be fair and reasonable under all of the circumstances, but only after giving Landlord credit for all sums received or to be received by Tenant by the condemning authority. Notwithstanding anything to the contrary contained in this Paragraph, if the temporary use or occupancy of any part of the Premises shall be taken or appropriated under power of eminent domain during the Term, this Lease shall be and remain unaffected by such taking or appropriation and Tenant shall continue to pay in full all Rent payable hereunder by Tenant during the Term; in the event of any such temporary appropriation or taking, Tenant shall be entitled to receive that portion of any award which represents compensation for the use of or occupancy of the Premises during the Term.

C. Award. Landlord shall be entitled to (and Tenant shall assign to Landlord) any and all payment, income, rent, award or any interest therein whatsoever which may be paid or made in connection with such taking or conveyance and Tenant shall have no claim against Landlord or otherwise for any sums paid by virtue of such proceedings, whether or not attributable to the value of any unexpired portion of this Lease, except as expressly provided in this Lease. Notwithstanding the foregoing, any compensation specifically and separately awarded Tenant for Tenant's personal property and moving costs, shall be and remain the property of Tenant.

D. Waiver of CCP 1265.130. Each party waives the provisions of California Civil Code Procedure Section 1265.130 allowing either party to petition the superior court to terminate this Lease as a result of a partial taking.

24. CASUALTY DAMAGE

A. General. If the Premises or Building should be damaged or destroyed by fire, tornado, or other casualty (collectively, "Casualty"), Tenant shall give immediate written notice thereof to Landlord. Within thirty (30) days after Landlord's receipt of such notice, Landlord shall notify Tenant whether in Landlord's estimation material restoration of the Premises can reasonably be made within one hundred eighty (180) days from the date of Landlord's written response to such notice. Landlord's determination shall be binding on Tenant.

B. Within 180 Days. If the Premises or Building should be damaged by Casualty to such extent that material restoration can in Landlord's estimation be reasonably completed within one hundred eighty (180) days from the date of Landlord's written response to the notice of damage, this Lease shall not terminate. Provided that insurance proceeds are received by Landlord to fully repair the damage, Landlord shall proceed to rebuild and repair the Premises diligently and in the manner determined by Landlord, except that Landlord shall not be required to rebuild, repair or replace any part of any Alterations which may have been placed on or about the Premises or paid for by Tenant. If the Premises are untenantable in whole or in part following such damage, the Rent payable hereunder during the period in which they are untenantable shall be abated proportionately, but only to the extent of rental abatement insurance proceeds received by Landlord during the time and to the extent the Premises are unfit for occupancy.

C. Greater than 180 Days. If the Premises or Building should be damaged by Casualty to such extent that rebuilding or repairs cannot in Landlord's estimation be reasonably completed within one hundred eighty (180) days from the date of Landlord's written response to the notice of damage, then Landlord shall have the option of either: (1) terminating this Lease effective upon the date of the occurrence of such damage, in which event the Rent shall be abated during the unexpired portion of this Lease; or (2) electing to rebuild or repair the Premises diligently and in the manner determined by Landlord. Landlord shall notify Tenant of its election within thirty (30) days after Landlord's receipt of notice of the damage or destruction. Notwithstanding the above, Landlord shall not be required to rebuild, repair or replace any part of any Alterations which may have been placed, on or about the Premises or paid for by Tenant. If the Premises are untenantable in whole or in part following such damage, the Rent payable hereunder during the period in which they are untenantable shall be abated proportionately, but only to the extent of rental abatement insurance proceeds received by Landlord during the time and to the extent the Premises are unfit for occupancy.

D. Greater than 270 Days. If the Premises or Building should be damaged by Casualty to such extent that rebuilding or repairs cannot in Landlord's estimation be reasonably completed within two hundred seventy (270) days from the date of Landlord's written response to the notice of damage, and such damage materially and adversely interferes with the conduct of Tenant's business in the Premises, then either party shall have the right to cancel this Lease by giving the other party written notice within ten (10) days from the date of Landlord's notice that material restoration of the Premises cannot be made within such two hundred seventy (270) day period or notice that Landlord has elected not to rebuild or repair the Premises. Said cancellation shall be effective thirty (30) days from the first day that either party gives its notice to cancel. If neither party elects to so cancel this Lease, Landlord shall proceed to rebuild and repair the Premises diligently and in the manner determined by Landlord, except that Landlord shall not be required to rebuild, repair or replace any part of any Alterations which may have been placed on or about the Premises by Tenant. If the Premises are untenantable in whole or in part following such damage, the Rent payable hereunder during the period in which they are untenantable shall be abated proportionately, but only to the extent of rental abatement proceeds received by Landlord during the time and to the extent the Premises are unfit for occupancy.

E. Greater than 360 Days. If Landlord and Tenant have not elected to terminate this Lease as provided above, and the Premises or Building has been damaged by Casualty to such extent that rebuilding or repairs have not been completed by Landlord within three hundred sixty (360) days from the date of Landlord's written response to the notice of damage, and such damage materially and adversely interferes with the conduct of Tenant's business in the Premises, then either party shall have the right to cancel this Lease by giving the other party written notice within ten (10) days from the date of Landlord's notice that material restoration of the Premises cannot be made within such three hundred sixty (360) day period or notice that Landlord has elected not to rebuild or repair the Premises. Said cancellation shall be effective thirty (30) days from the first day that either party gives its notice to cancel. If neither party elects to so cancel this Lease, Landlord shall proceed to rebuild and repair the Premises diligently and in the manner determined by Landlord, except that Landlord shall not be required to rebuild, repair or replace any part of any Alterations which may have been placed on or about the Premises by Tenant. If the Premises are untenantable in whole or in part following such damage, the Rent payable hereunder during the period in which they are untenantable shall be abated proportionately, but only to the extent of rental abatement proceeds received by Landlord during the time and to the extent the Premises are unfit for occupancy.

F. Tenant's Fault. Notwithstanding anything herein to the contrary, if the Premises or any other portion of the Building are damaged by Casualty resulting from the fault, negligence, or breach of this Lease by Tenant or any of Tenant's Parties, Base Rent and Additional Rent shall not be diminished during the repair of such damage and Tenant shall be liable to Landlord for the cost and expense of the repair and restoration of the Building caused thereby to the extent such cost and expense is not covered by insurance proceeds.

G. Insurance Proceeds. Notwithstanding anything herein to the contrary, if the Premises or Building are damaged or destroyed and are not fully covered by the insurance proceeds received by Landlord or if the holder of any indebtedness secured by a mortgage or deed of trust covering the Premises requires that the insurance proceeds be applied to such indebtedness, then in either case Landlord shall have the right to terminate this Lease by delivering written notice of termination to Tenant within thirty (30) days after the date of notice to Landlord that said damage or destruction is not fully covered by insurance or such requirement is made by any such holder, as the case may be, whereupon this Lease shall terminate.

H. Waiver. This Paragraph 24 shall be Tenant's sole and exclusive remedy in the event of damage or destruction to the Premises or the Building. As a material inducement to Landlord entering into this Lease, Tenant hereby waives any rights it may have under Sections 1932, 1933(4), 1941 or 1942 of the Civil Code of California with respect to any destruction of the Premises, Landlord's obligation for tenantability of the Premises and Tenant's right to make repairs and deduct the expenses of such repairs, or under any similar law, statute or ordinance now or hereafter in effect.

I. Tenant's Personal Property. In the event of any damage or destruction of the Premises or the Building, under no circumstances shall Landlord be required to repair any injury or damage to, or make any repairs to or replacements of, Tenant's personal property.

25. HOLDING OVER

Unless Landlord expressly consents in writing to Tenant's holding over, Tenant shall be unlawfully and illegally in possession of the Premises, whether or not Landlord accepts any rent from Tenant or any other person while Tenant remains in possession of the Premises without Landlord's written consent. If Tenant shall retain possession of the Premises or any portion thereof without Landlord's consent following the expiration of this Lease or sooner termination for any reason, then Tenant shall pay to Landlord for each day of such retention the amount of any damages suffered by Landlord due to Tenant's holding over, plus the greater of the following: (i) one-hundred fifty percent (150%) of the amount of daily rental plus Operating Expenses as of the last month prior to the date of expiration or earlier termination, or (ii) the fair rental value of the Premises as reasonably determined by Landlord. Tenant shall also indemnify, defend, protect and hold Landlord harmless from any loss, liability or cost, including consequential and incidental damages and reasonable attorneys' fees, incurred by Landlord resulting from delay by Tenant in surrendering the Premises, including, without limitation, any claims made by the succeeding tenant founded on such delay. Acceptance of Rent by Landlord following expiration or earlier termination of this Lease, or following demand by Landlord for possession of the Premises, shall not constitute a renewal of this Lease, and nothing contained in this Paragraph 25 shall waive Landlord's right of reentry or any other right. Additionally, if upon expiration or earlier termination of this Lease, or following demand by Landlord for possession of the Premises, Tenant has not fulfilled its obligation with respect to repairs and cleanup of the Premises or any other Tenant obligations as set forth in this Lease, then Landlord shall have the right to perform any such obligations as it deems necessary at Tenant's sole cost and expense, and any time required by Landlord to complete such obligations shall be considered a period of holding over and the terms of this Paragraph 25 shall apply. The provisions of this Paragraph 25 shall survive any expiration or earlier termination of this Lease.

26. DEFAULT

A. Events of Default. The occurrence of any of the following shall constitute an event of default on the part of Tenant:

(1) Abandonment. Abandonment of the Premises for a continuous period in excess of five (5) days. Tenant waives any right to notice Tenant may have under Section 1951.3 of the Civil Code of the State of California, the terms of this Paragraph 26.A. being deemed such notice to Tenant as required by said Section 1951.3.

(2) Nonpayment of Rent. Failure to pay any installment of Rent or any other amount due and payable hereunder upon the date when said payment is due, such failure continuing for three (3) days after written notice of such failure, as to which time is of the essence, provided that Landlord shall not be required to provide such notice more than once during the twelve (12) month period commencing with the date of such notice. The second failure to pay any such amount within three (3) days after said payment is due during such 12-month period shall be an event of default hereunder without notice. Such notice shall replace rather than supplement any statutory notice required under Code of Civil Procedure Section 1161 or any similar or successor statute.

(3) Other Obligations. Failure to perform any obligation, agreement or covenant under this Lease other than those matters specified in subparagraphs (1) and (2) of this Paragraph 26.A., such failure continuing for thirty (30) days after written notice of such failure, as to which time is of the essence. Notwithstanding anything to the contrary contained in this Lease, the following shall constitute an event of default under this Paragraph 26.A.(3) without any such notice or lapse of time: (i) failure to provide an estoppel certificate when and as required under Paragraph 18 hereof; (ii) failure to maintain insurance required under Paragraph 8 hereof; (iii) failure to vacate the Premises upon the expiration or earlier termination of this Lease; (iv)  failure to immediately alleviate any nuisance described in Paragraph 4.B hereof, and (v) any other matter provided for in another subparagraph of this Paragraph 26.A or for which another time limit is provided elsewhere in this Lease, including without limitation, under Exhibit C to this Lease.

(4) General Assignment. A general assignment by Tenant for the benefit of creditors.

(5) Bankruptcy. The filing of any voluntary petition in bankruptcy by Tenant, or the filing of an involuntary petition by Tenant's creditors, which involuntary petition remains undischarged for a period of thirty (30) days. If under applicable law, the trustee in bankruptcy or Tenant has the right to affirm this Lease and continue to perform the obligations of Tenant hereunder, such trustee or Tenant shall, in such time period as may be permitted by the bankruptcy court having jurisdiction, cure all defaults of Tenant hereunder outstanding as of the date of the affirmance of this Lease and provide to Landlord such adequate assurances as may be necessary to ensure Landlord of the continued performance of Tenant's obligations under this Lease.

(6) Receivership. The employment of a receiver to take possession of substantially all of Tenant's assets or Tenant's leasehold of the Premises, if such appointment remains undismissed or undischarged for a period of fifteen (15) days after the order therefor.

(7) Attachment. The attachment, execution or other judicial seizure of all or substantially all of Tenant's assets or Tenant's leasehold of the Premises, if such attachment or other seizure remains undismissed or undischarged for a period of fifteen (15) days after the levy thereof.

(8) Insolvency. The admission by Tenant in writing of its inability to pay its debts as they become due.

B. Remedies Upon Default.

(1) Termination. In the event of the occurrence of any event of default, Landlord shall have the right to give a written termination notice to Tenant, and on the date specified in such notice, Tenant's right to possession shall terminate, and this Lease shall terminate unless on or before such date all Rent in arrears and all costs and expenses incurred by or on behalf of Landlord hereunder shall have been paid by Tenant and all other events of default of this Lease by Tenant at the time existing shall have been fully remedied to the satisfaction of Landlord. At any time after such termination, Landlord may recover possession of the Premises or any part thereof and expel and remove therefrom Tenant and any other person occupying the same, including any subtenant or subtenants notwithstanding Landlord's consent to any sublease, by any lawful means, and again repossess and enjoy the Premises without prejudice to any of the remedies that Landlord may have under this Lease, or at law or equity by any reason of Tenant's default or of such termination. Landlord hereby reserves the right, but shall not have the obligation, to recognize the continued possession of any subtenant. The delivery or surrender to Landlord by or on behalf of Tenant of keys, entry codes, or other means to bypass security at the Premises shall not terminate this Lease.

(2) Continuation After Default. Even though an event of default may have occurred, this Lease shall continue in effect for so long as Landlord does not terminate Tenant's right to possession under Paragraph 26.B.(1) hereof. Landlord shall have the remedy described in California Civil Code Section 1951.4 ("Landlord may continue this Lease in effect after Tenant's breach and abandonment and recover Rent as it becomes due, if Tenant has the right to sublet or assign, subject only to reasonable limitations"), or any successor code section. Accordingly, if Landlord does not elect to terminate this Lease on account of any event of default by Tenant, Landlord may enforce all of Landlord's rights and remedies under this Lease, including the right to recover Rent as it becomes due. Acts of maintenance, preservation or efforts to lease the Premises or the appointment of a receiver under application of Landlord to protect Landlord's interest under this Lease or other entry by Landlord upon the Premises shall not constitute an election to terminate Tenant's right to possession.

(3) Increased Security Deposit. If Tenant is in default under Paragraph 26.A.(2) hereof and such default remains uncured for ten (10) days after such occurrence or such default occurs more than three times in any twelve (12) month period, Landlord may require that Tenant increase the Security Deposit to the amount of three times the current month's Rent at the time of the most recent default.

C. Damages After Default. Should Landlord terminate this Lease pursuant to the provisions of Paragraph 26.B.(1) hereof, Landlord shall have the rights and remedies of a Landlord provided by Section 1951.2 of the Civil Code of the State of California, or any successor code sections. Upon such termination, in addition to any other rights and remedies to which Landlord may be entitled under applicable law or at equity, Landlord shall be entitled to recover from Tenant: (1) the worth at the time of award of the unpaid Rent and other amounts which had been earned at the time of termination, (2) the worth at the time of award of the amount by which the unpaid Rent and other amounts that would have been earned after the date of termination until the time of award exceeds the amount of such Rent loss that Tenant proves could have been reasonably avoided; (3) the worth at the time of award of the amount by which the unpaid Rent and other amounts for the balance of the Term after the time of award exceeds the amount of such Rent loss that the Tenant proves could be reasonably avoided; and (4) any other amount and court costs necessary to compensate Landlord for all detriment proximately caused by Tenant's failure to perform Tenant's obligations under this Lease or which, in the ordinary course of things, would be likely to result therefrom. The "worth at the time of award" as used in (1) and (2) above shall be computed at the Applicable Interest Rate (defined below). The "worth at the time of award" as used in (3) above shall be computed by discounting such amount at the Federal Discount Rate of the Federal Reserve Bank of San Francisco at the time of award plus one percent (1%). If this Lease provides for any periods during the Term during which Tenant is not required to pay Base Rent or if Tenant otherwise receives a Rent concession, then upon the occurrence of an event of default, Tenant shall owe to Landlord the full amount of such Base Rent or value of such Rent concession, plus interest at the Applicable Interest Rate, calculated from the date that such Base Rent or Rent concession would have been payable.

D. Late Charge. In addition to its other remedies, and the right to recover all other costs and expenses incurred by Landlord as a result of any late payment by Tenant, Landlord shall have the right without notice or demand to add to the amount of any payment required to be made by Tenant hereunder, and which is not paid and received by Landlord on or before the first day of each calendar month, an amount equal to ten percent (10%) of the delinquency for each month or portion thereof that the delinquency remains outstanding to compensate Landlord for the loss of the use of the amount not paid and the administrative costs caused by the delinquency, the parties agreeing that Landlord's damage by virtue of such delinquencies would be extremely difficult and impracticable to compute and the amount stated herein represents a reasonable estimate thereof. Any waiver by Landlord of any late charges or failure to claim the same shall not constitute a waiver of other late charges or any other remedies available to Landlord.

E. Interest. Interest shall accrue on all sums not paid when due hereunder at the lesser of eighteen percent (18%) per annum or the maximum interest rate allowed by law ("Applicable Interest Rate") from the due date until paid.

F. Remedies Cumulative. All rights, privileges and elections or remedies of the parties are cumulative and not alternative, to the extent permitted by law and except as otherwise provided herein.

G. Replacement of Statutory Notice Requirements. When this Lease requires service of a notice, that notice shall replace rather than supplement any equivalent or similar statutory notice, including any notice required by California Code of Civil Procedure Section 1161 or any similar or successor statute. When a statute requires service of a notice in a particular manner, service of that notice (or a similar notice required by this Lease) in the manner required by this Paragraph 26 shall replace and satisfy the statutory service-of-notice procedures, including those required by California Code of Civil Procedure Section 1162 or any similar or successor statute.

27. LIENS

Tenant shall at all times keep the Premises and the Project free from liens arising out of or related to work or services performed, materials or supplies furnished or obligations incurred by or on behalf of Tenant or in connection with work made, suffered or done by or on behalf of Tenant in or on the Premises or Project. If Tenant shall not, within fifteen (15) days following the imposition of any such lien, cause the same to be released of record by payment or posting of a proper bond, Landlord shall have, in addition to all other remedies provided herein and by law, the right, but not the obligation, to cause the same to be released by such means as Landlord shall deem proper, including payment of the claim giving rise to such lien. All sums paid by Landlord on behalf of Tenant and all expenses incurred by Landlord in connection therefor shall be payable to Landlord by Tenant on demand with interest at the Applicable Interest Rate as Additional Rent. Landlord shall have the right at all times to post and keep posted on the Premises any notices permitted or required by law, or which Landlord shall deem proper, for the protection of Landlord, the Premises, the Project and any other party having an interest therein, from mechanics' and materialmen's liens, and Tenant shall give Landlord not less than ten (10) business days prior written notice of the commencement of any work in the Premises or Project which could lawfully give rise to a claim for mechanics' or materialmen's liens to permit Landlord to post and record a timely notice of non-responsibility, as Landlord may elect to proceed or as the law may from time to time provide, for which purpose, if Landlord shall so determine, Landlord may enter the Premises. Tenant shall not remove any such notice posted by Landlord without Landlord's consent, and in any event not before completion of the work which could lawfully give rise to a claim for mechanics' or materialmen's liens.

28. SUBSTITUTION

Omitted.

29. TRANSFERS BY LANDLORD

In the event of a sale or conveyance by Landlord of the Building or a foreclosure by any creditor of Landlord, the same shall operate to release Landlord from any liability upon any of the covenants or conditions, express or implied, herein contained in favor of Tenant, to the extent required to be performed after the passing of title to Landlord's successor-in-interest. In such event, Tenant agrees to look solely to the responsibility of the successor-in-interest of Landlord under this Lease with respect to the performance of the covenants and duties of "Landlord" to be performed after the passing of title to Landlord's successor-in-interest. This Lease shall not be affected by any such sale and Tenant agrees to attorn to the purchaser or assignee. Landlord's successor(s)-in-interest shall not have liability to Tenant with respect to the failure to perform any of the obligations of "Landlord," to the extent required to be performed prior to the date such successor(s)-in-interest became the owner of the Building.

30. RIGHT OF LANDLORD TO PERFORM TENANT'S COVENANTS

All covenants and agreements to be performed by Tenant under any of the terms of this Lease shall be performed by Tenant at Tenant's sole cost and expense and without any abatement of Rent. If Tenant shall fail to pay any sum of money, other than Base Rent, required to be paid by Tenant hereunder or shall fail to perform any other act on Tenant's part to be performed hereunder, including Tenant's obligations under Paragraph 11 hereof, and such failure shall continue for fifteen (15) days after notice thereof by Landlord, in addition to the other rights and remedies of Landlord, Landlord may make any such payment and perform any such act on Tenant's part. In the case of an emergency, no prior notification by Landlord shall be required. Landlord may take such actions without any obligation and without releasing Tenant from any of Tenant's obligations. All sums so paid by Landlord and all incidental costs incurred by Landlord and interest thereon at the Applicable Interest Rate, from the date of payment by Landlord, shall be paid to Landlord on demand as Additional Rent.

31. WAIVER

If either Landlord or Tenant waives the performance of any term, covenant or condition contained in this Lease, such waiver shall not be deemed to be a waiver of any subsequent breach of the same or any other term, covenant or condition contained herein, or constitute a course of dealing contrary to the expressed terms of this Lease. The acceptance of Rent by Landlord shall not constitute a waiver of any preceding breach by Tenant of any term, covenant or condition of this Lease, regardless of Landlord's knowledge of such preceding breach at the time Landlord accepted such Rent. Failure by Landlord to enforce any of the terms, covenants or conditions of this Lease for any length of time shall not be deemed to waive or decrease the right of Landlord to insist thereafter upon strict performance by Tenant. Waiver by Landlord of any term, covenant or condition contained in this Lease may only be made by a written document signed by Landlord, based upon full knowledge of the circumstances.

32. NOTICES

Each provision of this Lease or of any applicable governmental laws, ordinances, regulations and other requirements with reference to sending, mailing, or delivery of any notice or the making of any payment by Landlord or Tenant to the other shall be deemed to be complied with when and if the following steps are taken:

A. Rent. All Rent and other payments required to be made by Tenant to Landlord hereunder shall be payable to Landlord at Landlord's Remittance Address set forth in the Basic Lease Information, or at such other address as Landlord may specify from time to time by written notice delivered in accordance herewith. Tenant's obligation to pay Rent and any other amounts to Landlord under the terms of this Lease shall not be deemed satisfied until such Rent and other amounts have been actually received by Landlord.

B. Other. All notices, demands, consents and approvals which may or are required to be given by either party to the other hereunder shall be in writing and either personally delivered, sent by commercial overnight courier, mailed, certified or registered, postage prepaid or sent by facsimile with confirmed receipt (and with an original sent by commercial overnight courier), and in each case addressed to the party to be notified at the Notice Address for such party as specified in the Basic Lease Information or to such other place as the party to be notified may from time to time designate by at least fifteen (15) days notice to the notifying party. Notices shall be deemed served upon receipt or refusal to accept delivery. Tenant appoints as its agent to receive the service of all default notices and notice of commencement of unlawful detainer proceedings the person in charge of or apparently in charge of occupying the Premises at the time, and, if there is no such person, then such service may be made by attaching the same on the main entrance of the Premises.

C. Required Notices. Tenant shall immediately notify Landlord in writing of any notice of a violation or a potential or alleged violation of any Regulation that relates to the Premises or the Project, or of any inquiry, investigation, enforcement or other action that is instituted or threatened by any governmental or regulatory agency against Tenant or any other occupant of the Premises, or any claim that is instituted or threatened by any third party that relates to the Premises or the Project.

33. ATTORNEYS' FEES

If Landlord places the enforcement of this Lease, or any part thereof, or the collection of any Rent due, or to become due hereunder, or recovery of possession of the Premises in the hands of an attorney, Tenant shall pay to Landlord, upon demand, Landlord's reasonable attorneys' fees and court costs, whether incurred without trial, at trial, appeal or review. In any action which Landlord or Tenant brings to enforce its respective rights hereunder, the unsuccessful party shall pay all costs incurred by the prevailing party including reasonable attorneys' fees, to be fixed by the court, and said costs and attorneys' fees shall be a part of the judgment in said action.

34. SUCCESSORS AND ASSIGNS

This Lease shall be binding upon and inure to the benefit of Landlord, its successors and assigns, and shall be binding upon and inure to the benefit of Tenant, its successors, and to the extent assignment is approved by Landlord as provided hereunder, Tenant's assigns.

35. FORCE MAJEURE

If performance by a party of any portion of this Lease is made impossible by any prevention, delay, or stoppage caused by strikes, lockouts, labor disputes, acts of God, inability to obtain services, labor, or materials or reasonable substitutes for those items, government actions, civil commotions, fire or other casualty, or other causes beyond the reasonable control of the party obligated to perform, performance by that party for a period equal to the period of that prevention, delay, or stoppage is excused. Tenant's obligation to pay Rent, however, is not excused by this Paragraph 35.

36. SURRENDER OF PREMISES

Tenant shall, upon expiration or sooner termination of this Lease, surrender the Premises to Landlord in as good a condition as existed on the date Tenant originally took possession thereof, ordinary wear and tear excepted, provided that ordinary wear and tear shall not include repair and clean up items. Repair and clean up items shall include replacement of damaged or missing ceiling or floor tiles, window coverings or cover plates, removal of any Tenant-introduced markings, and repair of all holes and gaps, as well as the removal requirements contained in this Lease, all to the reasonable satisfaction of Landlord. Tenant shall remove all of its debris from the Project. At or before the time of surrender, Tenant shall comply with the terms of Paragraph 12.A. hereof with respect to Alterations to the Premises and all other matters addressed in such Paragraph. If the Premises are not so surrendered at the expiration or sooner termination of this Lease, the provisions of Paragraph 25 hereof shall apply. All keys to the Premises or any part thereof shall be surrendered to Landlord upon expiration or sooner termination of the Term. Tenant shall give written notice to Landlord at least thirty (30) days prior to vacating the Premises and shall meet with Landlord for a joint inspection of the Premises at the time of vacating, but nothing contained herein shall be construed as an extension of the Term or as a consent by Landlord to any holding over by Tenant. In the event of Tenant's failure to participate in such joint inspection, Landlord's inspection at or after Tenant's vacating the Premises shall conclusively be deemed correct for purposes of determining Tenant's responsibility for repairs and restoration.

37. PARKING

So long as Tenant is occupying the Premises, Tenant and Tenant's Parties shall have the right to use up to the number of parking spaces, if any, specified in the Basic Lease Information on an unreserved, nonexclusive, first come, first served basis, for passenger-size automobiles, sports utility vehicles and pickup trucks (provided that the only requirement with respect to the size of the parking spaces in the parking areas in the Project is that such parking spaces meet code requirements) in the parking areas in the Project designated from time to time by Landlord for use in common by tenants of the Building. Tenant shall be entitled to receive reserved parking spaces only in the event that Landlord grants such parking privileges to other tenants in the Building during the Term of this Lease, and in a manner provided herein. If Landlord does grant such reserved parking spaces, Tenant shall be entitled to receive one (1) parking space for every two (2) parking spaces Landlord grants to other tenants of the Building, up to a total amount of parking spaces not to exceed fifteen (15) spaces ("Tenant's Reserved Parking Spaces") granted to Tenant. Notwithstanding anything to the contrary in this Paragraph 37, Landlord shall not allocate more than a total of fifty (50) parking spaces (the "Maximum Reserved Parking") in the eastern parking structure (the "East Parking Structure") constructed contemporaneously with the Building and located in the eastern portion of the Project and adjacent to the Building. Landlord may allocate up to fifteen (15) additional reserved parking spaces in the East Parking Structure for the existing restaurant in the Project which is currently operated by Chevy's, Inc., which additional fifteen (15) spaces shall not be included in the calculation of Maximum Reserved Parking hereunder. That portion of the Maximum Reserved Parking not allocated to Tenant shall be evenly distributed between the floors of the East Parking Structure, as reasonably determined by Landlord. In the event that Tenant exercises its option to expand provided in Paragraph 39.C of this Lease, the total number of Maximum Reserved Parking shall be decreased by one parking space for each three thousand (3,000) usable square feet leased by Tenant thereunder.

Tenant may request additional parking spaces from time to time and if Landlord in its sole discretion agrees to make such additional spaces available for use by Tenant, such spaces shall be provided on a month-to- month unreserved and nonexclusive basis (unless otherwise agreed in writing by Landlord), and subject to such parking charges as Landlord shall determine, and shall otherwise be subject to such terms and conditions as Landlord may require.

Tenant shall at all times comply and shall cause all Tenant's Parties and visitors to comply with all Regulations and any rules and regulations established from time to time by Landlord relating to parking at the Project, including any keycard, sticker or other identification or entrance system, and hours of operation, as applicable.

Landlord shall have no liability for any damage to property or other items located in the parking areas of the Project, nor for any personal injuries or death arising out of the use of parking areas in the Project by Tenant or any Tenant's Parties. Without limiting the foregoing, if Landlord arranges for the parking areas to be operated by an independent contractor not affiliated with Landlord, Tenant acknowledges that Landlord shall have no liability for claims arising through acts or omissions of such independent contractor. In all events, Tenant agrees to look first to its insurance carrier and to require that Tenant's Parties look first to their respective insurance carriers for payment of any losses sustained in connection with any use of the parking areas.

Landlord reserves the right to assign specific spaces, and to reserve spaces for visitors, small cars, disabled persons or for other tenants or guests, and Tenant shall not park and shall not allow Tenant's Parties to park in any such assigned or reserved spaces. Tenant may validate visitor parking by such method as Landlord may approve, at the validation rate from time to time generally applicable to visitor parking. Landlord also reserves the right to alter, modify, relocate or close all or any portion of the parking areas in order to make repairs or perform maintenance service, or to restripe or renovate the parking areas, or if required by casualty, condemnation, act of God, Regulations or for any other reason deemed reasonable by Landlord, provided that Tenant suffers no diminution in the number of parking spaces granted to Tenant herein.

Tenant shall pay to Landlord (or Landlord's parking contractor, if so directed in writing by Landlord), as Additional Rent hereunder, the monthly charges established from time to time by Landlord for parking in such parking areas (which shall initially be the charge specified in the Basic Lease Information, as applicable). During the Term hereof, in no event shall such monthly parking charges increase more than five percent (5%) in any twelve (12) month period. Such parking charges shall be payable in advance with Tenant's payment of Basic Rent. No deductions from the monthly parking charge shall be made for days on which the Tenant does not use any of the parking spaces entitled to be used by Tenant.

38. MISCELLANEOUS

A. General. The term "Tenant" or any pronoun used in place thereof shall indicate and include the masculine or feminine, the singular or plural number, individuals, firms or corporations, and their respective successors, executors, administrators and permitted assigns, according to the context hereof.

B. Time. Time is of the essence regarding this Lease and all of its provisions.

C. Choice of Law. This Lease shall in all respects be governed by the laws of the State of California.

D. Entire Agreement. This Lease, together with its Exhibits, addenda and attachments and the Basic Lease Information, contains all the agreements of the parties hereto and supersedes any previous negotiations. There have been no representations made by the Landlord or understandings made between the parties other than those set forth in this Lease and its Exhibits, addenda and attachments and the Basic Lease Information.

E. Modification. This Lease may not be modified except by a written instrument signed by the parties hereto. Subject to Tenant's one-time right remeasure the Premises as set forth in Paragraph 39.I, Tenant accepts the area of the Premises as specified in the Basic Lease Information as the approximate area of the Premises for all purposes under this Lease, and acknowledges and agrees that no other definition of the area (rentable, usable or otherwise) of the Premises shall apply. Except as otherwise expressly provided herein, Tenant shall in no event be entitled to a recalculation of the square footage of the Premises, rentable, usable or otherwise, and no recalculation, if made, irrespective of its purpose, shall reduce Tenant's obligations under this Lease in any manner, including without limitation the amount of Base Rent payable by Tenant or Tenant's Proportionate Share of the Building and of the Project.

F. Severability. If, for any reason whatsoever, any of the provisions hereof shall be unenforceable or ineffective, all of the other provisions shall be and remain in full force and effect.

G. Recordation. Tenant shall not record this Lease or a short form memorandum hereof.

H. Examination of Lease. Submission of this Lease to Tenant does not constitute an option or offer to lease and this Lease is not effective otherwise until execution and delivery by both Landlord and Tenant.

I. Accord and Satisfaction. No payment by Tenant of a lesser amount than the total Rent due nor any endorsement on any check or letter accompanying any check or payment of Rent shall be deemed an accord and satisfaction of full payment of Rent, and Landlord may accept such payment without prejudice to Landlord's right to recover the balance of such Rent or to pursue other remedies. All offers by or on behalf of Tenant of accord and satisfaction are hereby rejected in advance.

J. Easements. Landlord may grant easements on the Project and dedicate for public use portions of the Project without Tenant's consent; provided that no such grant or dedication shall materially interfere with Tenant's Permitted Use of the Premises. Upon Landlord's request, Tenant shall execute, acknowledge and deliver to Landlord documents, instruments, maps and plats necessary to effectuate Tenant's covenants hereunder.

K. Drafting and Determination Presumption. The parties acknowledge that this Lease has been agreed to by both the parties, that both Landlord and Tenant have consulted with attorneys with respect to the terms of this Lease and that no presumption shall be created against Landlord because Landlord drafted this Lease. Except as otherwise specifically set forth in this Lease, with respect to any consent, determination or estimation of Landlord required or allowed in this Lease or requested of Landlord, Landlord's consent, determination or estimation shall be given or made solely by Landlord in Landlord's good faith opinion, whether or not objectively reasonable. If Landlord fails to respond to any request for its consent within the time period, if any, specified in this Lease, Landlord shall be deemed to have disapproved such request.

L. Exhibits. The Basic Lease Information, and the Exhibits, addenda and attachments attached hereto are hereby incorporated herein by this reference and made a part of this Lease as though fully set forth herein.

M. No Light, Air or View Easement. Any diminution or shutting off of light, air or view by any structure which may be erected on lands adjacent to or in the vicinity of the Building shall in no way affect this Lease or impose any liability on Landlord.

N. No Third Party Benefit. This Lease is a contract between Landlord and Tenant and nothing herein is intended to create any third party benefit.

O. Quiet Enjoyment. Upon payment by Tenant of the Rent, and upon the observance and performance of all of the other covenants, terms and conditions on Tenant's part to be observed and performed, Tenant shall peaceably and quietly hold and enjoy the Premises for the term hereby demised without hindrance or interruption by Landlord or any other person or persons lawfully or equitably claiming by, through or under Landlord, subject, nevertheless, to all of the other terms and conditions of this Lease. Landlord shall not be liable for any hindrance, interruption, interference or disturbance by other tenants or third persons, nor shall Tenant be released from any obligations under this Lease because of such hindrance, interruption, interference or disturbance, except as expressly set forth herein.

P. Counterparts. This Lease may be executed in any number of counterparts, each of which shall be deemed an original.

Q. Multiple Parties. If more than one person or entity is named herein as Tenant, such multiple parties shall have joint and several responsibility to comply with the terms of this Lease.

R. Prorations. Any Rent or other amounts payable to Landlord by Tenant hereunder for any fractional month shall be prorated based on a month of 30 days. As used herein, the term "fiscal year" shall mean the calendar year or such other fiscal year as Landlord may deem appropriate.

39. ADDITIONAL PROVISIONS

A. Base Rent.

Month:	Base Rent (subject to adjustment in accordance with Paragraph 39.I):
Month 1 through Month 12:	$600,750.00 per month, based upon $2.67 per rentable square foot
Month 13 through Month 24:	$612,000.00 per month, based upon $2.72 per rentable square foot
Month 25 through Month 36:	$623,250.00 per month, based upon $2.77 per rentable square foot
Month 37 through Month 48:	$634,500.00 per month, based upon $2.82 per rentable square foot
Month 49 through Month 60:	$645,750.00 per month, based upon $2.87 per rentable square foot
Month 61 through Month 72:	$659,250.00 per month, based upon $2.93 per rentable square foot
Month 73 through Month 84:	$670,500.00 per month, based upon $2.98 per rentable square foot
Month 85 through Month 96:	$684,000.00 per month, based upon $3.04 per rentable square foot
Month 97 through Month 108:	$697,500.00 per month, based upon $3.10 per rentable square foot
Month 109 through Month 120:	$711,000.00 per month, based upon $3.16 per rentable square foot
Month 121 through Month 132:	$724,500.00 per month, based upon $3.22 per rentable square foot
Month 133 through Month 144:	$738,000.00 per month, based upon $3.28 per rentable square foot

B. Option to Renew. Tenant shall, provided this Lease is in full force and effect and Tenant is not and has not been in default during the previous twenty-four (24) months under any of the terms and conditions of this Lease beyond any applicable cure period, have one option to renew this Lease for a term of five (5) years, for the Premises in "as is" condition and on the same terms and conditions set forth in this Lease, except as modified by the terms, covenants and conditions set forth below:

(1) If Tenant elects to exercise such option, then Tenant shall provide Landlord with written notice no later than 5:00 p.m. (Pacific Standard Time) on the date which is 540 days prior to the expiration of the then current term of this Lease. If Tenant fails to provide such notice, Tenant shall have no further or additional right to extend or renew the term of this Lease.

1. The Base Rent in effect at the expiration of the then current term of this Lease shall be increased to reflect the current fair market rental for comparable space in the Building or other similar buildings in the Emeryville rental market as of the date the renewal term is to commence, taking into account the specific provisions of this Lease which will remain constant, and the Building amenities, location, identity, quality, age, condition, term of lease, tenant improvements, services provided, and other pertinent items.

(3) Landlord shall advise Tenant of the new Base Rent for the Premises for the renewal term based on Landlord's determination of fair market rental value, as well as the terms and conditions for the renewal term, no later than fifteen (15) days after receipt of notice of Tenant's exercise of its option to renew.

(4) Landlord and Tenant shall negotiate in good faith to agree on the fair market rental value of the Premises and terms and conditions for each renewal term. If Tenant and Landlord are unable to agree on a mutually acceptable rental rate for any renewal term within thirty (30) days after notification by Landlord to Tenant of Landlord's determination of the new Base Rent for the applicable renewal term, but in any event no later than the date which is ninety (90) days prior to the expiration of the then current term, then on or before such date Landlord and Tenant shall each appoint a licensed real estate broker with at least ten (10) year's experience in leasing office space in the area in which the Building is located to act as arbitrators. The two (2) arbitrators so appointed shall determine the fair market rental value for the Premises for the applicable renewal term based on the above criteria and each shall submit his or her determination of such fair market rental value to Landlord and Tenant in writing, within sixty (60) days after their appointment.

If the two (2) arbitrators so appointed cannot agree on the fair market rental value for the applicable renewal term within such 60-day period, the two (2) arbitrators shall within five (5) days thereafter appoint a third arbitrator who shall be a licensed real estate broker with at least ten (10) year's experience in leasing office space in the area in which the Building is located. The third arbitrator so appointed shall independently determine the fair market rental value for the Premises for the renewal term within thirty (30) days after appointment, by selecting from the proposals submitted by each of the first two arbitrators the one that most closely approximates the third arbitrator's determination of such fair market rental value. The third arbitrator shall have no right to adopt a compromise or middle ground or any modification of either of the proposals submitted by the first two arbitrators. The proposal chosen by the third arbitrator as most closely approximating the third arbitrator's determination of the fair market rental value shall constitute the decision and award of the arbitrators and shall be final and binding on the parties.

Each party shall pay the fees and expenses of the arbitrator appointed by such party and one-half (1/2) of the fees and expenses of the third arbitrator. Notwithstanding the foregoing, in the event the Base Rent is found to be within ten percent (10%) of the original rate quoted by Landlord, then Tenant shall bear the full cost of the arbitration process.

If either party fails to appoint an arbitrator, or if either of the first two arbitrators fails to submit his or her proposal of fair market rental value to the other party, in each case within the time periods set forth above, then the decision of the other party's arbitrator shall be considered final and binding.

In the event the third arbitrator fails to present a fair market rental value within such 30-day period, then by mutual consent of the Landlord and Tenant :

(a) the time period will be extended, or

(b) If either Landlord or Tenant do not wish to extend the time period, a fourth arbitrator shall be selected by the first two arbitrators and a new thirty (30) day period shall begin

(5) Notwithstanding anything to the contrary contained in this Paragraph, in no event shall the Base Rent for any renewal term be less than the Base Rent in effect at the expiration of the previous term. In addition, Landlord shall have no obligation to provide or pay for any tenant improvements or brokerage commissions during any renewal term.

(6) Tenant's right to exercise any option to renew under this Paragraph shall be conditioned upon Tenant or a Permitted Transferee occupying at lease seventy-five percent (75%) of the entire Premises and the same not being occupied by any assignee, subtenant or licensee other than Tenant or a Permitted Transferee at the time of exercise of the option and commencement of the renewal term. Tenant's exercise of the option to renew shall constitute a representation by Tenant (or a Permitted Transferee, if applicable) to Landlord that as of the date of exercise of the option, Tenant does not intend to seek to assign more than twenty-five percent (25%) of this Lease for substantially the remainder of the Term, or sublet more than twenty-five percent (25%) of the Premises for substantially the remainder of the Term, except to a Permitted Transferee.

1. Any exercise by Tenant of the option to renew under this Paragraph shall be irrevocable. If requested by Landlord, Tenant agrees to execute a lease amendment or, at Landlord's option, a new lease agreement on Landlord's then standard lease form for the Building, reflecting the foregoing terms and conditions, prior to the commencement of the renewal term. The option to renew granted under this Paragraph is not transferable; the parties hereto acknowledge and agree that they intend that the option to renew this Lease under this Paragraph shall be "personal" to the specific Tenant named in this Lease and that in no event will any assignee or sublessee have any rights to exercise such option to renew.

3. One-Time Option to Expand. Provided Tenant is not in default, and has not been in material default beyond any applicable cure period of its obligations under this Lease beyond any applicable cure period, Tenant shall have the one-time option of expanding into all of Floors 9- 12 and the remaining portion of Floor 13 not initially leased by Tenant hereunder, on the same terms and condition as set forth in this Lease. Tenant shall exercise its option by giving Landlord written notice prior to May 1, 2000. If Tenant does not exercise this one-time option to expand prior to May 1, 2000, this option shall be null and void and Landlord may enter into leases for the premises with other third parties. Notwithstanding anything to the contrary contained herein, Tenant's right to expand by exercise of the foregoing option shall be conditioned upon the following: (i) at the time of the exercise of the option to expand and at the time of the commencement of the term for the expansion premises, Tenant or a Permitted Transferee shall be in possession of and occupying at lease seventy-five percent (75%) of the Premises for the conduct of its business therein and, further, that the option to expand shall be applicable hereunder only if the expansion premises will actually be occupied by Tenant or a Permitted Transferee and (ii) the notice of exercise shall constitute a representation by Tenant to Landlord, effective as of the date of the exercise, that Tenant does not intend to assign this Lease or the lease for the expansion premises in whole or in part, or sublet all or any portion of the Premises or the expansion premises, each except with respect to a Permitted Transferee, the election to expand being for the purpose of utilizing the expansion premises for Tenant's (or a Permitted Transferee's) purposes in the conduct of Tenant's (or a Permitted Transferee's) business therein. Such expansion premises shall be leased to Tenant under the same terms and conditions contained in this Lease. If Tenant is able to and properly exercises its one- time option to expand, Landlord shall prepare an amendment to accurately reflect changes in the Premises, Monthly Base Rent, Proportionate Share, a proportionate increase in the number of parking spaces and other appropriate terms. A copy of such amendment shall be sent to Tenant within a reasonable time after exercise by Tenant and executed by Tenant and returned to Landlord.
4. Right of First Opportunity. After the initial leasing of the entire Building, and provided Tenant is not, and has not been, in default of any terms and conditions of this Lease beyond any applicable cure period, Tenant shall have a one-time right of first offer to lease any available space in the Buildingat such time as such additional space is vacated by the prior tenant. Upon notification by Landlord in writing of the availability of space and the terms and conditions on which Landlord is willing to lease such additional space to Tenant, Tenant shall have five (5) days to notify Landlord in writing of Tenant's desire to exercise Tenant's right of first offer on the terms and conditions. In the event Tenant fails to give Landlord notice of Tenant's election to lease such additional space within such time period, Tenant shall have no further right, title or interest in such additional space other than as expressly provided herein under expansion optionsand this right of first offer shall terminate with respect to such space. If, on the other hand, Tenant exercises its right of first offer in the manner prescribed, Tenant shall immediately deliver to Landlord payment for the first month's rent for such additional space (in the same manner as provided for in this Lease), and the lease for such additional space shall be consummated without delay in accordance with the terms and conditions set forth in Landlord's notice Such additional space shall be leased to Tenant on an "as is" basis and Landlord shall have no obligation to improve such additional space or grant Tenant any improvement allowance thereon. Notwithstanding anything to the contrary herein contained, Tenant's right to the expansion premises shall be conditioned upon the following: (i) at the time Tenant agrees to accept the expansion premises and at the time of the commencement of the term for the expansion premises, Tenant or a Permitted Transferee shall be in possession of and occupying at lease seventy-five percent (75%) of the primary Premises for the conduct of its business therein and, provided further, that the option for additional space shall be applicable hereunder only if the expansion premises will actually be occupied by Tenant or a Permitted Transferee and (ii) the agreement of acceptance shall constitute a representation by Tenant to Landlord, effective as of the date of the agreement of acceptance and as of the date of commencement of the lease for the expansion premises, that, except with respect to a Permitted Transferee, Tenant does not intend to assign the lease for the expansion premises, in whole or in part or sublet all or any portion of the Premises, the election to expand being for the purpose of utilizing the expansion premises for Tenant's purposes in the conduct of Tenant's business therein. The Base Rent applicable to the expansion premises shall be the then current fair market rental determined by Landlord for comparable space in the Building or Project and in other similar buildings in the same rental market as of the date the expansion term is to commence, taking into account the specific provisions of this Lease which will remain constant, and the Building amenities, location, identity, quality, age, condition, term of lease, tenant improvements (or lack thereof), services provided, and other pertinent items.
5. One-Time Decrease of Initial Premises. Landlord agrees that Tenant shall have the one-time option of eliminating from the Premises leased to Tenant as of the date of this Lease up to twenty two thousand four hundred sixty two (22,462) rentable square feet located on Floor 13 and a portion of Floor 14 (the "Drop Space") by notifying Landlord of Tenant's election before May 1, 2000, which notice shall specify (i) which portion of the Drop Space Tenant wishes to eliminate from this Lease (the "Selected Drop Space") and (ii) a termination date for the Drop Space not less than three (3) months or more than nine (9) months following the date the notice is delivered ("Decrease Date"). The portion of Floor 14 that constitutes a part of the Drop Space shall be located in the same physical location as the portion of Floor 13 that was not part of the Premises. If Tenant is able to and properly exercises its one-time option of eliminating the Selected Drop Space, Monthly Base Rent for the Premises during the Term of the Lease and Tenant's Proportionate Share shall be reduced as of the Decrease Date based on a reduction in the rentable area of the Premises of an amount equal to the rentable area of the Selected Drop Space. If Tenant is able to and properly exercises the one-time option of eliminating the Selected Drop Space from the Premises, Landlord shall prepare an amendment to accurately reflect changes in the Premises, Monthly Base Rent, Proportionate Share, a proportionate reduction in the number of parking spaces and other appropriate terms. A copy of such amendment shall be sent to Tenant within a reasonable time after exercise by Tenant and executed by Tenant and returned to Landlord. If Tenant does not exercise this one-time option to decrease the initial Premises before May 1, 2000, this option shall be null and void.
6. Intentionally Omitted.
7. Signage. Tenant shall have the exclusive right to install two (2) internally illuminated pan channel exterior building signs (collectively, the "Signs") to be located on the glass penthouse area of two (2) of the northern, southern or eastern exposures of the Building and approximately as indicated on the attached floor plan (Exhibit B). Tenant may install only one (1) sign per Building exposure. The Signs shall: (a) not exceed five (5) feet in height per each Sign, and (b) reflect Tenant's current logo (subject to minimal modification with respect to the distance between letters), which logo states only the word "Siebel." Landlord and Tenant shall mutually agree upon the color of the Signs. Such Signs will be designed and constructed at Tenant's sole cost and expense. The Signs shall be subject to Landlord's approval, which shall not be unreasonably withheld or delayed, and approval of any public authorities having jurisdiction. In granting its approval, Landlord shall consider, among other things, the size, aesthetics, precise selected location, design and quality of materials in granting its approval, which may be withheld in Landlord's sole discretion. Tenant shall be responsible for electrical energy used in connection with the Signs, repairs and maintenance necessary to maintain the signs in their original condition. The Signs shall at all times remain the property of Tenant and Tenant must remove the Signs at the expiration or earlier termination of this Lease. Tenant shall repair any damage caused in the removal of its Signs. In the event Tenant shall be in default under any of the terms of this Lease for a period of time continuing fifteen (15) days beyond any applicable cure periods, or if at any time during the Term hereof Tenant does not occupy at least one hundred thousand (100,000) square feet of the Premises, Landlord may require Tenant to remove the Signs in accordance with this Paragraph 39G, in which event Tenant's signage rights pursuant to this Paragraph shall immediately expire and shall not be reinstated during the Term or any extension thereof except by written agreement executed by each of the parties hereto and pursuant to the terms and conditions of such written agreement. Tenant's exclusive right to install the Signs is expressly conditioned upon the following: (i) Tenant's exclusive right is personal to Tenant and any Permitted Transferee and shall not be assigned or otherwise transferred without the express prior written consent of Landlord which consent may be withheld in Landlord's sole discretion; and (ii) there is no other tenant in the Building occupying at least one hundred thousand (100,000) square feet; and (iii) Tenant or a Permitted Transferee shall occupy at least two hundred thousand (200,000) square feet of the Premises. In the event that any of clause (i), (ii) or (iii) above are not satisfied, Tenant's right to install and maintain the Signs shall continue to be in effect (provided that all other terms and conditions in this Lease with respect to the Signs are satisfied), but Tenant's right to install and maintain the Signs in an exclusive manner shall expire. Landlord shall not charge a fee to Tenant for right to display the Signs in accordance with this Paragraph 39G. Upon execution of this Lease through the Term Commencement Date, Tenant shall be entitled to erect one temporary sign onto the building located at 1900 Powell Street, Emeryville, California, at a location determined by Landlord and approximately as indicated on the attached Exhibit D. Notwithstanding anything to the contrary contained in this Lease, during the Term hereof and any extension thereto, Landlord may, at its election, erect one (1) or more temporary leasing signs on or about the Building or Project at a location and in a manner determined by Landlord in its sole discretion.
8. Letter of Credit.

1. Delivery of Letter of Credit. In lieu of depositing a security deposit with Landlord, Tenant shall, within ten (10) business days following execution of this Lease, deliver to Landlord and cause to be in effect during the Lease Term an unconditional, irrevocable letter of credit ("LOC") in the amount specified for the Security Deposit in the Basic Lease Information, as it may be increased or decreased as provided in this Lease (the "LOC Amount") which LOC shall renew automatically from year to year. The LOC shall be in a form acceptable to Landlord and shall be issued by an LOC bank selected by Tenant and acceptable to Landlord. An LOC bank is a bank that accepts deposits, maintains accounts, has a local office that will negotiate a letter of credit, and the deposits of which are insured by the Federal Deposit Insurance Corporation. Tenant shall pay all expenses, points, or fees incurred by Tenant in obtaining the LOC. The LOC shall not be mortgaged, assigned or encumbered in any manner whatsoever by Tenant without the prior written consent of Landlord. Tenant acknowledges that Landlord has the right to transfer or mortgage its interest in the Project, the Building and in this Lease and Tenant agrees that in the event of any such transfer or mortgage, Landlord shall have the right to transfer or assign the LOC and/or the LOC Security Deposit (as defined below) to the transferee or mortgagee, and in the event of such transfer, Tenant shall look solely to such transferee or mortgagee for the return of the LOC and/or the LOC Security Deposit.
2. Replacement of Letter of Credit. Tenant may, from time to time, replace any existing LOC with a new LOC if the new LOC (a) becomes effective at least thirty (30) days before expiration of the LOC that it replaces; (b) is in the required LOC amount; (c) is issued by an LOC bank acceptable to Landlord; and (d) otherwise complies with the requirements of this Paragraph 39.
3. Landlord's Right to Draw on Letter of Credit. Landlord shall hold the LOC as security for the performance of Tenant's obligations under this Lease. If, after notice and failure to cure within any applicable period provided in this Lease, Tenant defaults on any provision of this Lease, Landlord may, without prejudice to any other remedy it has, draw on that portion of the LOC necessary to (a) pay Rent or other sum in default; (b) pay or reimburse Landlord for any amount that Landlord may spend or become obligated to spend in exercising Landlord's rights under Paragraph 30 (Right of Landlord to Perform Tenant's Covenant); and/or (c) compensate Landlord for any expense, loss, or damage that Landlord may suffer because of Tenant's default. If Tenant fails to renew or replace the LOC at least thirty (30) days before its expiration, Landlord may, without prejudice to any other remedy it has, draw on the entire amount of the LOC.
4. LOC Security Deposit. Any amount of the LOC that is drawn on by Landlord but not applied by Landlord shall be held by Landlord as a security deposit (the "LOC Security Deposit") in accordance with Paragraph 19 of this Lease.
5. Restoration of Letter of Credit and LOC Security Deposit. If Landlord draws on any portion of the LOC and/or applies all or any portion of such draw, Tenant shall, within five (5) business days after demand by Landlord, either (a) deposit cash with Landlord in an amount that, when added to the amount remaining under the LOC and the amount of any LOC Security Deposit, shall equal the LOC Amount then required under this Paragraph 39; or (b) reinstate the LOC to the full LOC Amount.
6. Reduction of Letter of Credit. At any time after the first thirty-six (36) months of the initial Term hereof, and only in the event Tenant satisfies all of the following conditions to Landlord's reasonable satisfaction, the LOC Amount may be reduced to One Million Dollars ($1,000,000.00): (a) Tenant is not and for a period of twelve (12) successive calendar months, has not been in default under the terms of this Lease beyond any applicable cure period; and (b) Tenant maintains a tangible net worth in excess of Seven Hundred Fifty Million Dollars ($750,000,000.00); (c) Tenant maintains a financial current ratio in excess of two (2); (d) Tenant provides to Landlord ten (10) days prior notice of any such reduction; and (e) the LOC provides that the issuing bank shall notify Landlord in writing prior to any such reduction. In the event that such reduction to the LOC is made and, subsequently, Tenant fails to meet any of the above conditions for a period of thirty (30) days following delivery by Landlord of written notice of any such failure, Tenant shall, within forty-eight (48) hours, increase the face amount of the LOC to Three Million Dollars ($3,000,000.00).
7. Base Rent Adjustment. During the first thirty-six (36) months of the Term hereof, Landlord shall provide a credit to Tenant against Tenant's obligation to pay Base Rent hereunder an amount equal to One Thousand Eight Hundred Seventy-Five Dollars ($1,875.00) per month. During the remaining one hundred eight months of the initial Term of this Lease, Landlord shall provide a credit to Tenant against Tenant's obligation to pay Base Rent hereunder an amount equal to Six Hundred Twenty-Five Dollars ($625.00) per month.

I. BOMA Method of Measurement. Landlord warrants and represents that the actual rentable areas of the Premises, the Building and the Project shall be determined by Landlord's architect in accordance with the rentable standards set forth in ANSI/BOMA Z65.1-1996, as promulgated by the Building Owners and Managers Association ("BOMA Standard"), which measurement standard shall include areas for management and servicing the Building and other areas used in common. Tenant shall have a one-time right, exercisable within ten (10) business days after completion of the Base Building Work to remeasure the Premises and the Building. Tenant shall complete the remeasurement within ten (10) business days after expiration of the first ten (10) business day period. In the event such remeasurement of the Premises and the Building by Tenant, within the time period specified above, demonstrates to Landlord's reasonable satisfaction that the rentable square footage measurement prepared by Landlord produces a square footage number in excess of or lower than the square footage number which would have resulted had the BOMA Standard been properly applied, certain items and concepts addressed in this Lease with respect to the Premises, Base Rent, Tenant's Proportionate Share, and all other matters related to the measurement of the Building and the Premises shall be adjusted effective as of the Term Commencement Date, to reflect the actual number of rentable square feet, as properly remeasured under the BOMA Standard. Tenant shall have no further right to remeasure the Premises or the Building. In the event that Landlord and Tenant are unable to agree upon the measurement of the Premises or the Building within a reasonable period of time, the arbitration process described in Paragraph 39.J below shall apply. Tenant has had an opportunity to review the Plans and hereby acknowledges that the square footage calculation reflected in the Basic Lease Information and Exhibit B is in conformance with the BOMA Standard.

J. Arbitration Disputes.

(1) The parties agree that any and all disputes, claims or controversies arising out of or relating to Paragraph 39.I of this Lease, except matters entitled to "fast-track" adjudication, that are not resolved by their mutual agreement shall be submitted to final and binding arbitration before JAMS/ENDISPUTE, or its successor, pursuant to the United States Arbitration Act, 9 U.S.C. Sec. 1 et seq. Either party may commence the arbitration process called for in this Paragraph 39J by filing a written demand for arbitration with JAMS/ENDISPUTE with a copy to the other party. The arbitration will be conducted in the County in which the Premises is located and in accordance with the provisions of JAMS/ENDISPUTE's Streamlined Arbitration Rules and Procedures in effect at the time of filing the demand for arbitration. The parties will cooperate with JAMS/ENDISPUTE and with one another in selecting an arbitrator from JAMS/ENDISPUTE's panel of neutrals, and in scheduling the arbitration proceedings. The parties covenant that they will participate in the proceedings in good faith, and that they will share equally in its costs, including, without limitation, the arbitrator's fees, provided that each party shall bear its own attorneys' fees in connection with any arbitration. The provisions of this Paragraph may be enforced by any Court of competent jurisdiction, and, in the event that the arbitration process continues through and including a final determination of liability in accordance with this provision, the prevailing party shall be entitled to an award of all costs, fees and expenses, including reasonable attorneys' fees, to be paid by the party against whom enforcement is ordered.

(2) NOTICE: By initialing the space below you are agreeing to have all disputes, claims or controversies arising out of or relating to Paragraph 39.I of the Lease, except matters entitled to "fast- track" adjudication, decided by neutral arbitration, and you are giving up any rights you might possess to have those matters litigated in a court or jury trial. By initialing in the space below you are giving up your judicial rights to discovery and appeal except to the extent that they are specifically provided for under this Paragraph 39.J. If you refuse to submit to arbitration after agreeing to this provision, you may be compelled to arbitrate under federal or state law. Your agreement to this arbitration provision is voluntary.

We have read and understand the foregoing and agree to submission of all disputes, claims or controversies arising out of or related to Paragraph 39.I of this Lease, except for issues arising in connection with matters entitled to "fast-track" adjudication, to neutral arbitration in accordance with this Paragraph 39J.

___________ ___________

Landlord Tenant

11. Early Access. Provided that Tenant does not interfere whatsoever with the construction of the Base Building Work, and in accordance with this Paragraph 39.K, Tenant shall have the right to access the Premises upon the sufficient completion of the Base Building Work (as described below) during normal business hours after reasonable prior notice to Landlord for purposes of constructing the Tenant Improvements in accordance with Exhibit C hereto and installing furniture, fixtures and equipment in the Premises (as the timeline for such construction and installation is described below), with all terms and conditions of this Lease in full force and effect, excluding payment of Rent and Operating Expenses. Any interference by Tenant or any of Tenant's Parties with the construction of the Base Building Work shall constitute a Tenant Delay as defined in Exhibit C and shall constitute a delay by Tenant for purposes of Paragraph 3 hereof. The Base Building Work shall be sufficiently complete to permit access by Tenant to the Premises and commencement of construction of Tenant Improvements on a floor of the Premises on or before September 1, 2000 and the last floor of the Premises on or before December 15, 2000. Access to the interim floors of the Premises shall be based upon the criteria described below for sufficient completion and shall be provided as follows: (i) On or before October 6, 2000, a total of four (4) floors of the Premises; (ii) On or before November 10, 2000, a total of eight (8) floors of the Premises; and (iii) On or before November 27, 2000, a total of ten (10) floors of the Premises. Landlord's failure to provide access to the Premises to Tenant as provided herein shall constitute a Landlord Delay as described in Section 7 of Exhibit C, attached hereto. The Base Building Work will be completed simultaneously with the construction of Tenant Improvements. Sufficient completion of the Base Building Work shall be defined as follows: (i) the permanent roof, or a watertight temporary roof, complete so that a watertight condition is continuously maintained; (ii) permanent curtain wall, perimeter insulation and sheet rock and glass complete or a watertight temporary enclosure complete so that a watertight condition is continuously maintained; (iii) base building core walls complete; (iv) elevator door frames and sills in complete; (v) mechanical, electrical, plumbing and sprinkler riser work sufficiently complete to permit connection of tenant improvements; (vi) the base building sprinkler loop and ductwork sufficiently complete to permit connection of applicable Tenant Improvements; and (vii) floor slab complete and broom clean.

40. Jury Trial Waiver

Each party hereto (which includes any Assignee, successor heir or personal representative of a party) shall not seek a jury trial, hereby waives trial by jury, and hereby further waives any objection to venue in the county in which the Building is located, and agrees and consents to personal jurisdiction of the courts of the state in which the Property is located, in any action or proceeding or counterclaim brought by any party hereto against the other on any matter whatsoever arising out of or in any way connected with this Lease, the relationship of Landlord and Tenant, Tenant's use or occupancy of the Premises, or any claim of injury or damage, or the enforcement of any remedy under any statute, emergency or otherwise, WHETHER ANY OF THE FOREGOING IS BASED ON THIS LEASE OR ON TORT LAW. EACH PARTY REPRESENTS THAT IT HAS HAD THE OPPORTUNITY TO CONSULT WITH LEGAL COUNSEL CONCERNING THE EFFECT OF THIS PARAGRAPH 40. THE PROVISIONS OF THIS PARAGRAPH 40 shall survive the expiration or earlier termination of this Lease.

IN WITNESS WHEREOF, the parties hereto have executed this Lease as of the day and the year first above written.

LANDLORD

Spieker Properties, L.P.,

a California limited partnership

By: Spieker Properties, Inc.,

a Maryland corporation,

its general partner

By:

John R. WInther

Its: Senior Vice President

Date: August ___, 1999

TENANT

Siebel Systems, Inc., a Delaware corporation

By:

Name: ____________________________________________

Its: ______________________________________________

Date: August ___, 1999

Exhibit A

Rules and Regulations

Exhibit B

Site Plan, Property Description

Exhibit C

Tenant Improvements and Specifications

Exhibit D

Signage

EX-10.13

Exhibit 10.13

EXTENSION AGREEMENT

EXTENSION AGREEMENT which shall be known as Amendment Number Ten, and to be attached to and form a part of the lease (which together with any amendments, modifications and extensions thereof is hereinafter called the "Lease"), dated March 15, 1999, between Spieker Properties, L.P., as Landlord, and Siebel Systems, Inc., as Tenant, covering the premises known as the Seventh Floor, the Eighth Floor, the Ninth Floor, and a portion of the 10^th Floor, known as Suite 1015, and consisting of approximately 57,969 rentable square feet, at 1900 Powell Street, Emeryville, California, and as shown on the attached Exhibits "A.1", "A.2", "A.3", "A.4".

Landlord and Tenant hereby agree that the term of the Lease is hereby renewed and extended for an additional term of approximately one (1) year, to commence on the 16th day of October, 1999 and to end on the last day of September, 2000, subject to all of the provisions of the covenants and agreements contained in the Lease, except:

1) Rental:	Base Rent for the premises shall be:
10/16/99 - 9/30/00:	$130,430.25 per month plus increases in operating expenses per Paragraph 4.3 of the Lease over the Calendar Year 1999.
2) Term and Possession:	Tenant accepts the premises in "as is" condition.
3) Notices:	Tenant or Landlord may send any notice as required by the Lease via Federal Express or similar overnight courier service in lieu of sending notice via United States certified or registered mail.

4) Operating Expenses. Tenant shall pay its proportionate share of increases in Operating Expenses over the Calendar Year 1999.

5) Tenant Improvements. Provided Tenant is not in default under the Lease beyond any applicable cure period at the time Tenant request the Tenant Improvement Allowance, Landlord shall contribute a one-time allowance equal to $1.00 per rentable square foot ($57,969.00) ("Tenant Improvement Allowance") toward the cost of Tenant Improvements. Said Tenant Improvement Allowance shall be utilized by December 31, 1999. Provided Tenant is not then in default under the Lease, Landlord shall disburse the Tenant Improvement Allowance to Tenant upon completion of construction of the Tenant Improvements and expiration of the time for filing of any mechanics' liens claimed or which might be filed on account of any work ordered by Tenant or its contractor or any subcontractor, and upon receipt by Landlord of a certificate of completion executed by the Space Planner and Tenant's contractor, and unconditional mechanics' lien releases (which mechanics' lien releases shall be executed by the subcontractors, labor suppliers and materialmen in addition to Tenant's contractor), in each case in form and substance satisfactory to Landlord, and all appropriate bills and supporting documentation for the work ordered by Tenant or its contractor or any subcontractor, and reasonably requested by Landlord.

6) Expansion. Provided Tenant is not, and has not been, in default of any terms and conditions of this Lease beyond any applicable cure periods, Tenant shall have the right to lease all of the rentable area on the Eleventh (11th) floor consisting of approximately 18,456 rentable square feet (the " Expansion Premises"), effective December 1, 1999, and as shown outlined in green on the attached Exhibit "B". Tenant must notify Landlord in writing of Tenant's desire to exercise Tenant's right to lease the Expansion Premises no later than April 15, 1999. In the event Tenant fails to give Landlord notice of Tenant's election to lease such additional space within such time period, Tenant shall have no further right, title or interest in such additional space and this right shall terminate. If, on the other hand, Tenant exercises its right in the manner prescribed, Tenant shall immediately deliver to Landlord payment for the first month's rent for such additional space (in the same manner as provided for in this Lease), and the lease for such additional space shall be consummated without delay. Notwithstanding anything to the contrary herein contained, Tenant's right to the Expansion Premises shall be conditioned upon the following: (i) at the time Tenant agrees to accept the Expansion Premises and at the time of the commencement of the term for the Expansion Premises, Tenant and/or Tenant's affiliate(s) shall be in possession of and occupying the primary premises for the conduct of its business therein and the same shall not be occupied by any assignee, subtenant or licensee and, provided further, that the option for additional space shall be applicable hereunder only if the Expansion Premises will actually be occupied by Tenant and or Tenant's affiliate(s) and (ii) the agreement of acceptance shall constitute a representation by Tenant to Landlord, effective as of the date of the agreement of acceptance and as of the date of commencement of the lease for the Expansion Premises, that Tenant does not intend to assign the lease for the expansion premises, in whole or in part or sublet all or any portion of the Premises, the election to expand being for the purpose of utilizing the Expansion Premises for Tenant's purposes in the conduct of Tenant's business therein.

The commencement date of the Term with respect to the Expansion Premises shall be referred to as the "Expansion Premises Commencement Date". The Term with respect to the Expansion Premises shall end concurrently with the expiration of the term of this Lease as to the original Premises.

The Basic Rent payable for the Expansion Premises shall be at the same rental rate per square foot as the Rent for the original Premises as outlined in Paragraph 1 of this Extension Agreement ($41,526.00 per month).

The Expansion Premises shall be leased to Tenant "as is" and in its then existing condition and state of improvement and Landlord shall have no obligation to make any improvements, repairs or alterations thereof; provided, however, (i) such space shall be delivered to Tenant broom clean and in a usable condition and (ii) Landlord shall pay to Tenant an allowance of $.83 per rentable square foot ($15,393.00) in the Expansion Premises. The allowance set forth above shall be expended for the design and installation of work which constitutes permanent improvements to the Expansion Premises (including carpeting) which becomes Landlord's property upon installation pursuant to this Lease, and shall not be used for furniture, furnishings or other installations which do not become Landlord's property pursuant to this Lease. Tenant shall not be entitled to any payment or rent reduction for any part of said allowance not used by Tenant. Said allowance shall be utilized by Tenant no later than December 31, 1999.

Provided Tenant is not then in default under the Lease beyond any applicable cure period, Landlord shall disburse the Tenant Improvement Allowance to Tenant upon completion of construction of the Tenant Improvements and expiration of the time for filing of any mechanics' liens claimed or which might be filed on account of any work ordered by Tenant or its contractor or any subcontractor, and upon receipt by Landlord of a certificate of completion executed by the Space Planner and Tenant's contractor, and unconditional mechanics' lien releases (which mechanics' lien releases shall be executed by the subcontractors, labor suppliers and materialmen in addition to Tenant's contractor), in each case in form and substance satisfactory to Landlord, and all appropriate bills and supporting documentation for the work ordered by Tenant or its contractor or any subcontractor, and reasonably requested by Landlord.

Landlord shall have no liability to Tenant for any damages resulting from any delay in delivering possession of the Expansion Premises to Tenant, if said delay is caused by the holding over of a previous tenant of the Expansion Premises; provided, however, Landlord, at its expense, shall take all action reasonably necessary, including required legal proceedings, to secure possession of the Expansion Premises prior to the Expansion Premises Commencement Date therefor.

Upon the Expansion Premises Commencement Date, the term "Premises" shall include the Expansion Premises.

7) Option to Renew. Tenant shall, provided this Lease is in full force and effect and Tenant is not and has not been in default under any of the terms and conditions of this Lease beyond any applicable cure period, have one (1) option to renew this Lease for a term of eighteen (18) months, for the Premises in "as is" condition and on the same terms and conditions set forth in this Lease, except as modified by the terms, covenants and conditions set forth below:

(1) If Tenant elects to exercise such option, then Tenant shall provide Landlord with written notice no earlier than January 1, 2000, and no later than 5:00 p.m. (Pacific Standard Time) on April 1, 2000. If Tenant fails to provide such notice, Tenant shall have no further or additional right to extend or renew the term of this Lease.

(2) The Base Rent in effect at the expiration of the then current term of this Lease shall be increased to reflect the current fair market rental for comparable space in the Building or Project and in other similar buildings in the same rental market as of the date the renewal term is to commence, taking into account the specific provisions of this Lease which will remain constant, and the Building amenities, location, identity, quality, age, condition, term of lease, tenant improvements, services provided, and other pertinent items.

(3) Landlord shall advise Tenant of the new Base Rent for the Premises for the applicable renewal term based on Landlord's determination of fair market rental value, as well as the terms and conditions for the renewal term, no later than fifteen (15) days after receipt of notice of Tenant's exercise of its option to renew.

(4) Landlord and Tenant shall negotiate in good faith to agree on the fair market rental value of the Premises and terms and conditions for each renewal term. If Tenant and Landlord are unable to agree on a mutually acceptable rental rate for any renewal term within thirty (30) days after notification by Landlord to Tenant of Landlord's determination of the new Base Rent for the applicable renewal term, but in any event no later than the date which is one hundred twenty (120) days prior to the expiration of the then current term, then on or before such date Landlord and Tenant shall each appoint a licensed real estate broker with at least ten (10) year's experience in leasing office space in the area in which the Building is located to act as arbitrators. The two (2) arbitrators so appointed shall determine the fair market rental value for the Premises for the applicable renewal term based on the above criteria and each shall submit his or her determination of such fair market rental value to Landlord and Tenant in writing, within ten (10) days after their appointment.

If the two (2) arbitrators so appointed cannot agree on the fair market rental value for the applicable renewal term within such 10-day period, the two (2) arbitrators shall within five (5) days thereafter appoint a third arbitrator who shall be a licensed real estate broker with at least ten (10) year's experience in leasing office space in the area in which the Building is located. The third arbitrator so appointed shall independently determine the fair market rental value for the Premises for the renewal term within ten (10) days after appointment, by selecting from the proposals submitted by each of the first two arbitrators the one that most closely approximates the third arbitrator's determination of such fair market rental value. The third arbitrator shall have no right to adopt a compromise or middle ground or any modification of either of the proposals submitted by the first two arbitrators. The proposal chosen by the third arbitrator as most closely approximating the third arbitrator's determination of the fair market rental value shall constitute the decision and award of the arbitrators and shall be final and binding on the parties.

Each party shall pay the fees and expenses of the arbitrator appointed by such party and one-half (1/2) of the fees and expenses of the third arbitrator.

If either party fails to appoint an arbitrator, or if either of the first two arbitrators fails to submit his or her proposal of fair market rental value to the other party, in each case within the time periods set forth above, then the decision of the other party's arbitrator shall be considered final and binding.

In the event the third arbitrator fails to present a fair market rental value within such 10-day period, then by mutual consent of the Landlord and Tenant, the time period will be extended.

(5) Notwithstanding anything to the contrary contained in this Paragraph, in no event shall the Base Rent for any renewal term be less than the Base Rent in effect at the expiration of the previous term plus expense escalations over the previous years In addition, Landlord shall have no obligation to provide or pay for any tenant improvements or brokerage commissions during any renewal term.

(6) Tenant's right to exercise any option(s) to renew under this Paragraph shall be conditioned upon Tenant occupying the entire Premises and the same not being occupied by any assignee, subtenant or licensee other than Tenant or its affiliate at the time of exercise of any option and commencement of the renewal term. Tenant's exercise of the option to renew shall constitute a representation by Tenant to Landlord that as of the date of exercise of the option and the commencement of the renewal term, Tenant does not intend to seek to assign this Lease in whole or in part, or sublet all or any portion of the Premises.

(7) Any exercise by Tenant of any option to renew under this Paragraph shall be irrevocable. If requested by Landlord, Tenant agrees to execute a lease amendment or, at Landlord's option, a new lease agreement on Landlord's then standard lease form for the Building, reflecting the foregoing terms and conditions, prior to the commencement of the renewal term. The option(s) to renew granted under this Paragraph is/are not transferable; the parties hereto acknowledge and agree that they intend that each option to renew this Lease under this Paragraph shall be "personal" to the specific Tenant named in this Lease and that in no event will any assignee or sublessee have any rights to exercise such option(s) to renew.

8) Signage. Upon execution of a lease for premises in 2100 Powell Street in which the square footage is in excess of 200,000 rentable square feet, Tenant shall be immediately entitled to one sign to be located above the 12th Floor on the south side of the exterior of the Building known as 1900 Powell Street. Such sign will be designed and constructed at Tenant's sole cost and expense. Tenant shall pay all installation costs. All signs shall be subject to Landlord's approval, which shall not be unreasonably withheld or delayed, and approval of any public authorities having jurisdiction. Tenant shall be responsible for electrical energy used in connection with its signs, repairs and maintenance necessary to maintain the signs in their original condition. All of Tenant's signs shall at all times remain the property of Tenant and Tenant must remove its signs at the expiration or earlier termination of this Lease. Tenant shall repair any damage caused in the removal of its sign. The parties agree that said sign will be relocated by Tenant to 2100 Powell Street upon Tenant's occupancy of 2100 Powell Street.

IN WITNESS WHEREOF, the parties hereto have executed this Extension Agreement as of this __________ day of ____________, 199__.

LANDLORD:

SPIEKER PROPERTIES, L.P.

By: Spieker Properties, Inc.

By:

Its:

TENANT:

SIEBEL SYSTEMS, INC.

By:

Its:

EX-10.14

Exhibit 10.14

ELEVENTH AMENDMENT TO LEASE

THIS ELEVENTH AMENDMENT TO LEASE (this "Eleventh Amendment") is made this 13^th day of August, between Spieker Properties, L.P., a California limited partnership, (the "Landlord"), and Siebel Systems, Inc., (the "Tenant").

WHEREAS, Landlord and Tenant entered into a Lease dated August 24, 1994, (as amended, the "Lease"), for those certain premises located at 1900 Powell Street, Emeryville, California (the "Premises"), as more fully described in the Lease. Capitalized terms used but not otherwise defined herein shall have the meanings given them in the Lease; and

WHEREAS, Landlord and Tenant desire to modify the Lease accordingly.

NOW, THEREFORE, in consideration of the covenants and agreements contained herein the parties hereby mutually agree as follows:

1. Premises. The Premises shall be increased to include approximately eighteen thousand four hundred fifty six (16,953) square feet of rentable area (the "Expansion Premises"), which Expansion Premises includes a portion of the Building common area and is located on the eleventh (11th) floor of the Building. The Expansion Premises, are approximately as shown on the attached Exhibit A and outlined in red.
2. Term. The Term with respect to the Expansion Premises shall commence upon the date which Landlord delivers the Premises to Tenant, which is estimated to be November 14, 1999, but shall be no later than January 21, 2000 (the "Delivery Date") and shall expire on March 31, 2001. Landlord and Tenant hereby agree that Landlord may deliver portions of the Expansion Premises to Tenant when said portions of the Expansion Premises become available. Landlord estimates that it may be able to deliver approximately 2,110 rentable square feet near September 30, 1999. In such case where less than the entire Expansion Premises is delivered to Tenant, the Rent for said portion of the Expansion Premises shall be charged at the same rate per rentable square foot as stated in Paragraph 4 of this Eleventh Amendment. Landlord shall have no liability to Tenant for any damages resulting from any delay in delivering possession of the Expansion Premises to Tenant; provided, however, that Landlord shall make reasonable efforts deliver possession of the Expansion Premises to Tenant as provided herein.
3. Occupancy Density. Upon the Delivery Date, the Occupancy Density for the Expansion Premises shall be 123 people.

4. Rent. Base Rent for the Expansion Premises shall be as follows:

Delivery Date through 3/31/01: Forty-one thousand five hundred twenty-six dollars and no cents ($38,144.25) per month plus operating expenses per Paragraph 4.3 of the Lease over the calendar year 1999.

5. Tenant's Proportionate Share. Upon the Delivery Date, Tenant's proportionate share for the Expansion Premises shall be 7.83%. Tenant's Proportionate Share for the Premises, including the Expansion Premises, shall be 34.60%.
6. Tenant Improvements. Tenant agrees to accept the Expansion Premises "as is" condition; provided, however, that, pursuant to the terms of Paragraph 6 of Amendment Number Ten to the Lease, shall provide Tenant with a Tenant Improvement Allowance in the amount of $14,071.00. Said Tenant Improvement Allowance shall be disbursed pursuant to the terms and conditions of Paragraph 6 of Amendment Number Ten to the Lease. Upon execution of this Amendment Eleven, the Expansion Option as provided in Paragraph 6 of Amendment Number Ten to the Lease is hereby exercised by Tenant and Tenant shall have no further expansion rights thereunder.
7. Extension. Landlord and Tenant hereby agree that the Term of the Lease for the Premises, including the Expansion Premises, which Premises consists of approximately fifty seven thousand nine hundred sixty nine (57,969) square feet of rentable area on the 7^th, 8^th, and 9^th Floors, and a portion of the 10^th Floor, is hereby renewed and extended for an additional term of approximately six (6) months, to commence upon the 1^st day of October, 2000, and to end on the last day of March, 2001, subject to all of the provisions of the covenants and agreements contained in the Lease.

All other terms and conditions of the Lease shall remain in full force and effect and shall apply to the Premises, including the Expansion Premises.

Except as expressly modified above, all terms and conditions of the Lease remain in full force and effect and are hereby ratified and confirmed.

IN WITNESS WHEREOF, the parties hereto have entered into this Eleventh Amendment as of the date first written above.

LANDLORD: TENANT:

Spieker Properties, L.P., Siebel Systems, Inc.,

a California limited partnership a Delaware corporation

By: Spieker Properties, Inc.

a Maryland corporation

its General Partner

By:_____________________________ By: _____________________

John Winther ______________________

Its: Senior Vice President Its: ______________________

EX-10.15

Exhibit 10.15

TWELFTH AMENDMENT TO LEASE

THIS TWELFTH AMENDMENT TO LEASE (this "Twelfth Amendment") is made this 28th day of October, between Spieker Properties, L.P., a California limited partnership, (the "Landlord"), and Siebel Systems, Inc., (the "Tenant").

WHEREAS, Landlord and Tenant entered into a Lease dated August 24, 1994, (as amended, the "Lease"), for those certain premises located at 1900 Powell Street, Emeryville, California (the "Premises"), as more fully described in the Lease. Capitalized terms used but not otherwise defined herein shall have the meanings given them in the Lease; and

WHEREAS, Landlord and Tenant desire to modify the Lease accordingly.

NOW, THEREFORE, in consideration of the covenants and agreements contained herein the parties hereby mutually agree as follows:

1. Premises. The Premises shall be increased to include approximately three thousand three hundred seventy (3,370) square feet of rentable area (the "Expansion Premises"), which Expansion Premises includes a portion of the Building common area and is located on the tenth (10th) floor of the Building. The Expansion Premises, are approximately as shown on the attached Exhibit A and outlined in red.
2. Term. The Term with respect to the Expansion Premises shall commence upon the date which Landlord delivers the Premises to Tenant, which is estimated to be November 1, 1999, (the "Delivery Date") and shall expire on March 31, 2001. Landlord shall have no liability to Tenant for any damages resulting from any delay in delivering possession of the Expansion Premises to Tenant; provided, however, that Landlord shall make reasonable efforts deliver possession of the Expansion Premises to Tenant as provided herein.
3. Occupancy Density. Upon the Delivery Date, the Occupancy Density for the Expansion Premises shall be 60 people.

4. Rent. Base Rent for the Expansion Premises shall be as follows:

Delivery Date through 3/31/01: Seven thousand five hundred eighty-two and 50/100ths ($7,582.50) per month plus operating expenses per Paragraph 4.3 of the Lease over the calendar year 1999.

5. Tenant's Proportionate Share. Upon the Delivery Date, Tenant's proportionate share for the Expansion Premises shall be 1.56%. Tenant's Proportionate Share for the Premises, including the Expansion Premises, shall be 36.16%.
6. Tenant Improvements. Tenant agrees to accept the Expansion Premises "as is" condition; provided, however, that, Landlord shall provide Tenant with a Tenant Improvement Allowance in the amount of $3,370.00. Said Tenant Improvement Allowance shall be disbursed pursuant to the terms and conditions of Paragraph 6 of Amendment Number Ten to the Lease.

All other terms and conditions of the Lease shall remain in full force and effect and shall apply to the Premises, including the Expansion Premises.

Except as expressly modified above, all terms and conditions of the Lease remain in full force and effect and are hereby ratified and confirmed.

IN WITNESS WHEREOF, the parties hereto have entered into this Eleventh Amendment as of the date first written above.

LANDLORD: TENANT:

Spieker Properties, L.P., Siebel Systems, Inc.,

a California limited partnership a Delaware corporation

By: Spieker Properties, Inc.

a Maryland corporation

its General Partner

By:_____________________________ By: _____________________

John Winther ______________________

Its: Senior Vice President Its: ______________________

EX-23.1

Exhibit 23.1

Report on Financial Statement Schedule and Consent of Independent Auditors

The Board of Directors

Siebel Systems, Inc.

The audits referred to in our report dated January 24, 2000 included the related financial statement schedule as of December 31, 1999, and for each of the years in the three-year period ended December 31, 1999, as listed in the Index in Item 14(a)2 herein. The financial statement schedule is the responsibility of the Company's management. Our responsibility is to express an opinion on the financial statement schedule based on our audits. In our opinion, the financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects, the information set forth therein.

We consent to incorporation by reference in the registration statements (Nos. 333-07983, 333-22763, 333-36967, 333-40259, 333-40437, 333- 53369, 333-68041, 333-72969, 333-85007, 333-91777, 333-94243, 333-94261) on Forms S-3 and S-8 of Siebel Systems, Inc. of our reports dated January 24, 2000, relating to the consolidated balance sheets of Siebel Systems, Inc. and subsidiaries as of December 31, 1999 and 1998, and the related statements of operations and comprehensive income (loss), stockholders' equity and cash flows for each of the years in the three-year period ended December 31, 1999, and related financial statement schedule, which reports appear in the December 31, 1999, annual report on Form 10-K of Siebel Systems, Inc.

/s/ KPMG LLP

Mountain View, California

March 24, 2000

EX-27.1

 

<ARTICLE>  5
<LEGEND>     THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
             EXTRACTED FROM THE CONSOLIDATED FINANCIAL STATEMENTS FOR
             THE YEAR ENDED DECEMBER 31, 1999.

<MULTIPLIER>1,000

                                             
<FISCAL-YEAR-END>                               DEC-31-1999
<PERIOD-START>                                  JAN-01-1999
<PERIOD-END>                                    DEC-31-1999
<PERIOD-TYPE>                                   12-MOS
<CASH>                                            465,810
<SECURITIES>                                      339,504
<RECEIVABLES>                                     305,710
<ALLOWANCES>                                       12,700
<INVENTORY>                                             0
<CURRENT-ASSETS>                                1,129,035
<PP&E>                                             90,480
<DEPRECIATION>                                     33,605
<TOTAL-ASSETS>                                  1,226,962
<CURRENT-LIABILITIES>                             250,932
<BONDS>                                           300,000
<PREFERRED-MANDATORY>                                   0
<PREFERRED>                                             0
<COMMON>                                              195
<OTHER-SE>                                        674,396
<TOTAL-LIABILITY-AND-EQUITY>                    1,226,962
<SALES>                                           499,398
<TOTAL-REVENUES>                                  790,920
<CGS>                                               7,640
<TOTAL-COSTS>                                     180,918
<OTHER-EXPENSES>                                  427,048
<LOSS-PROVISION>                                        0
<INTEREST-EXPENSE>                                      0
<INCOME-PRETAX>                                   196,922
<INCOME-TAX>                                       74,830
<INCOME-CONTINUING>                               122,092
<DISCONTINUED>                                          0
<EXTRAORDINARY>                                         0
<CHANGES>                                               0
<NET-INCOME>                                      121,727
<EPS-BASIC>                                        0.65  
<EPS-DILUTED>                                        0.54

<F1>ITEM CONSISTS OF BASIC EARNINGS PER SHARE.