10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K

(Mark One)
ý	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2014
Or
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from            to            .

Commission file number: 000-50463

Callidus Software Inc.

(Exact name of registrant as specified in its charter)

Delaware (State or other jurisdiction of incorporation or organization) 77-0438629 (I.R.S. Employer Identification Number)

4140 Dublin Boulevard, Suite 400

Dublin, California 94568

(Address of principal executive offices, including zip code)

(925) 251-2200

(Registrant's Telephone Number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class	Name of Each Exchange on Which Registered
Common Stock, $0.001 par value per share Preferred Stock Purchase Rights	The NASDAQ Stock Market LLC The NASDAQ Stock Market LLC

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ý No o

Indicate by check mark whether the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o    No ý

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ý    No o

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

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

Large accelerated filer o Accelerated filer ý Non-accelerated filer o  (Do not check if a smaller reporting company) Smaller reporting company o

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

The aggregate market value of the voting and non-voting stock held by non-affiliates of the Registrant, based on the closing sale price of the Registrant's common stock on June 30, 2014, as reported on the NASDAQ Global Market, was approximately $564.0 million. Shares of common stock held by each executive officer and director and by each person who may be deemed to be an affiliate of the Registrant have been excluded from this computation. The determination of affiliate status for this purpose is not necessarily a conclusive determination for other purposes. As of February 17, 2015, the Registrant had 49,075,288 of its common stock, $0.001 par value, outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the information called for by Part III of this Form 10-K are hereby incorporated by reference from the definitive proxy statement for the Registrant's annual meeting of stockholders, which will be filed with the Securities and Exchange Commission not later than 120 days after the Registrant's fiscal year ended December 31, 2014.

CALLIDUS SOFTWARE INC.

ANNUAL REPORT ON FORM 10-K

For the Fiscal Year Ended December 31, 2014

TABLE OF CONTENTS

PART I
Item 1.	Business	1
Item 1A.	Risk Factors	7
Item 1B.	Unresolved Staff Comments	19
Item 2.	Properties	19
Item 3.	Legal Proceedings	19
Item 4.	Mine Safety Disclosures	19
PART II
Item 5.	Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	20
Item 6.	Selected Financial Data	21
Item 7.	Management's Discussion and Analysis of Financial Condition and Results of Operations	22
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	34
Item 8.	Financial Statements and Supplementary Data	35
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	65
Item 9A.	Controls and Procedures	65
Item 9B.	Other Information	66
PART III
Item 10.	Directors, Executive Officers and Corporate Governance
Item 11.	Executive Compensation
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Item 13.	Certain Relationships and Related Transactions, and Director Independence
Item 14.	Principal Accountant Fees and Services
PART IV
Item 15.	Exhibits and Financial Statement Schedules	66
Signatures		69

©2015. Callidus Software Inc. All rights reserved. Callidus, Callidus Software, the Callidus Software logo, CallidusCloud, the CallidusCloud logo, TrueComp Manager, ActekSoft, ACom3, iCentera, Webcom, Litmos, the Litmos logo, LeadFormix, Rapid Intake, 6FigureJobs, Clicktools and LeadRocket are trademarks, service marks, or registered trademarks of Callidus Software Inc. and its affiliates in the United States and other countries. All other brand, service or product names are trademarks or registered trademarks of their respective companies or owners.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Annual Report on Form 10-K, including the "Management's Discussion and Analysis of Financial Condition and Results of Operations" section in Item 7 of this report, and other materials accompanying this Annual Report on Form 10-K contain 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. These statements relate to our future plans, objectives, expectations, intentions and financial performance and the assumptions that underlie these statements. Generally, the words "believe," "expect," "intend," "estimate," "anticipate," "project," "may," "will," and similar expressions and the negatives thereof identify forward-looking statements, which generally are not historical in nature. These forward-looking statements include, but are not limited to, statements concerning the following: levels of revenue, changes in and expectations with respect to revenue, revenue growth and gross margins, anticipated growth and growth strategies, the impact of competition, our ability to sell products, future operating expense levels, future operating results, the impact of quarterly fluctuations of revenue and operating results, staffing and expense levels, expected cash and investment balances and the impact of foreign exchange rate fluctuations. As and when made, management believes that these forward-looking statements are reasonable. However, caution should be taken not to place undue reliance on any such forward-looking statements because such statements speak only as of the date when made and may be based on assumptions that do not prove to be accurate. Callidus Software Inc. undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, occurring after the date of this Annual Report on Form 10-K. In addition, forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from our Company's historical experience and our present expectations or projections. For a detailed discussion of these risks and uncertainties, see the "Business" and "Risk Factors" sections in Items 1 and 1A, respectively, of this Annual Report on Form 10-K.

PART I

Item 1.    Business

Overview

CallidusCloud® is a global leader in cloud-based sales, marketing, learning and customer experience solutions. CallidusCloud enables its customers to accelerate their Lead to Money process with a suite of solutions that, among other things, identify leads, implement territory and quota plans, enable sales forces, automate bid configuration pricing and quoting, manage contracts, streamline sales compensation and capture customer feedback for competitive advantage. Over 3,700 organizations, across a broad set of industries, rely on CallidusCloud to optimize the Lead to Money process and close more deals, faster.

Lead to Money is a process designed to help companies respond to the changing role of sales and marketing in the redefined buying cycle. In the last decade, the ubiquity of social networks, mobile devices and e-commerce has transformed the traditional sales cycle into a buyer-led digital journey. Buyers are researching and evaluating companies online and are completing a significant portion of their purchases digitally. In order to successfully turn leads into money, sales, marketing, learning and customer experience teams must work together.

We provide a suite of Software-as-a-Service ("SaaS") solutions which generate revenue from cloud subscriptions, sales operation services and term licenses. Our SaaS customers typically purchase annual subscriptions, but occasionally will purchase multi-year subscriptions.

We were incorporated in Delaware in 1996. Our principal executive office is located in Dublin, California and our principal website address is www.calliduscloud.com. The information on our website is not incorporated herein by reference and is not part of this Annual Report on Form 10-K.

Our Lead to Money Solutions

Our Lead to Money suite and technology solutions are detailed below.

Lead

• Marketing Automation empowers customers to generate high-quality sales leads by capturing intelligence about buyers' behaviors and engaging them across multiple channels. Marketing Automation tracks buyers through their journey identifying which are ready to buy, and which should continue to be nurtured before being engaged by the sales force. Additionally, our Marketing Automation solution provides sales professionals the power of social media and marketing automation in an easy to use mobile friendly format. Sales professionals can listen and engage with their prospects across social media channels and create trackable email marketing campaigns that generate relevant alerts as the prospect engages.

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Planning

• Territory and Quotahelps customers evaluate their territory, quota distribution plans and strategies for meeting corporate sales goals. Territory and Quota unites relevant data to improve decision-making by customers around buyers and sales opportunities, coupled with analytics to size and value territories.

Enablement

• Enablement provides sales and channel partners with relevant sales content at each step of the sales cycle in a centralized solution. The content can be shared with customers through deal portals, providing customers with a richer buying experience. Enablement provides the sales force with analytics to accelerate sales cycles, and helps marketing personnel to capture field insights to enhance the content, messaging and tools being produced for the sales force.

• Litmos Learning Management System is a powerful, mobile-friendly platform for training. Administrators can package content into rich, interactive courses and deploy them to learners. Automatically generated reports provide management with important insight into the success of the training programs and how learners are engaging with the content to optimize how companies train their staff, partners and customers.

• Litmos Content enables course developers to collaboratively create courses that can be published to both desktop browsers and mobile devices in one joint package. It accelerates the production of powerful mobile-friendly training courses to reduce training costs.

• Sales Performance Manager ("SPM") enables customers to set targeted coaching plans tailored to the individual sales professional. SPM provides managers a complete view of key performance indicators from multiple data sources across the enterprise, as well as skills evaluations observed in the field. The mobile interface makes it easy to capture detailed feedback and development actions needed to optimize the performance of the individual sales professionals.

Quotes and Proposals

• Configure-Price-Quote ("CPQ")guides sales representatives through the quoting process, highlights opportunities for up-selling and cross-selling while ensuring the optimum configuration for the maximum deal size. CPQ eliminates errors, manages margins and generates appealing and insightful proposals in minutes, all from a mobile device.

Contracts

• Contract Lifecycle Management ("CLM")streamlines the creation, negotiation and storage of contracts to accelerate the final part of the sales cycle. CLM provides customers a centralized repository for all contract data improving the tracking of key milestone dates, renewal alerts and internal compliance requirements to protect the bottom-line. Integration with e-signature solutions allows users to complete the contracting process in an entirely digital platform, saving time in the process.

Incentives

• Commissions streamlines the design and management of incentive compensation programs and commission payments. It drives sales performance while reducing errors in sales force payouts and shadow accounting by sales professionals, leading to more selling time and higher cross-sell and up-sell revenue. It also includes modules for Management by Objectives ("MBOs") programs, channel and producer onboarding, reporting and basic workflows.

• Incentive Compensation Management ("ICM") is designed specifically for customers in the insurance industry. It delivers automation in incentive and bonus plan configuration, plan payout and producer management. It is a highly configurable solution that can be rapidly deployed, is easy to use and optimizes the management of producer incentives, bonuses and commission programs.

• Producer Management is designed to provide a flexible central repository for producer data that can be tailored to customers. It is a powerful solution designed to help customers with large channels to manage their producer hierarchies, licenses, appointments, education, correspondence and book of business in order to optimize the effectiveness of channel programs. 

• MySalesGame combines gamification and social technology to create an innovative platform that taps into the natural competitiveness of sales people and provides the tools necessary to drive performance-improving behavioral change. MySalesGame breaks down complex tasks into smaller easier to manage objectives, with clear communication of goals and instant recognition of achievements to drive enhanced completion.

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Customer Experience

• Surve (from Clicktools Ltd., a CallidusCloud Company) is an enterprise, business to business “Voice of the Customer” solution that helps companies better understand and serve their customers and deliver an enhanced customer experience. Surve provides self-service tools to collect, centralize and act on customer feedback across all channels including surveys, forms and call scripts. Customer Relationship Management (“CRM”) integration enables the synchronization of results with critical customer data.

Technology

• Thunderbridge Big Sales Data combines big data technology with innovative analytics and visualizations to enable real-time exploration of critical sales performance data. Access to big sales data, and the ability to analyze it, is a key to improving sales and channel decision-making. This product is initially targeted for the insurance and telecom markets.

• WorkFlow is a powerful business process automation solution that can be configured to optimize critical business processes and drive collaboration. Example workflows include commission plan and payment approvals, hiring and onboarding flows, deal collaboration and partner deal registration.

• Data Hub enables customers to move data in real-time between popular third party applications and our solutions using an incredibly flexible, scalable, and powerful integration platform. Data Hub synchronizes data such as sales opportunities, product catalogs and human resource information across different applications to make sure critical business processes use the right data.

Services

We provide a broad range of services to our customers, including professional services, business process outsourcing services, maintenance and technical support services, and education services.

Professional Services. We provide integration and configuration services to our customers. Professional services typically include the identification and sourcing of legacy data, configuration of application rules to create compensation and coaching plans, set up of pre-defined reports and custom reports, and the ability to interface our hosted application with other applications used by our customers. Configuration and other professional services related to our software can be performed by us, our customers or third-party implementation providers. We also provide services to our implementation partners to aid them in certain projects and training programs. In addition, we provide strategic and expert services to help our customers optimize incentive compensation business processes and management capability.

Business Process Outsourcing Services. We provide a suite of value-added business outsourcing solutions designed to drive specific customer outcomes. Each solution includes clearly defined engagement plans, rapid deployment methods, and a proven track record of delivering value to customers. Business Process Outsourcing Services include Sales Operations Management to manage day-to-day operations and maintain the sales effectiveness system; Sales Performance Manager to design and deploy the right territory, quota, incentive plan, and coaching strategy to drive specific financial targets; Sales Performance Intelligence to analyze capacity, coverage, and incentive effectiveness; and Sales Performance Optimization to benchmark and tune the Sales Performance Manager system.

Maintenance and Technical Support Services. We have maintenance and technical support centers in the United States and India. We currently offer two levels of support, standard and premium, which are generally provided on an annual basis. Under both levels of support, we provide our customers with online access to our customer support database, telephone, web and e-mail support, and all product enhancements and new releases. We also offer online chat to customers as an alternative option. In the case of premium support, we provide customers with access to a support engineer 24 hours a day, 7 days a week. In addition, customers who subscribe to standard or premium support can access remote technical account managers to assist with management and resolution of support requests.

            Education Services. We offer a comprehensive set of performance-oriented, role-based training courses for our customers, partners, and employees. Our education services include self-service web-based training, classroom training, virtual training with off-site instructors, on-site training, and customized training. Our professional certification is available for professionals who demonstrate the ability to implement our suite of products and promotes our standards of service.

Operations, Technology and Development

            Most of our customers implement our solutions as an on-demand SaaS-based subscription, and some enter into an on-premise license arrangement. Our solutions can be configured with a selection of service levels and options to suit an organization's business objectives, requirements and resources. With our SaaS solutions, our customers rely on our Lead to Money SaaS operations services to provide the infrastructure operations and software required for improving their sales effectiveness and sales performance management. In addition, our Business Process Outsourcing services provide plan and reporting administration services, such as compensation plan maintenance, coaching plan management, portal management, report design and maintenance. Business Process Outsourcing services include customer service, issue resolution, and production support. Customers that select these services do not need to hire or train personnel to run and manage the application.

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We have developed our on-demand infrastructure with the goal of maximizing the availability, performance, and security of our solutions through several hosting facilities. Our scalable hosting infrastructure and application architecture enable us to offer services to our global customers at mutually agreed service level arrangements. Our information security policies are modeled on the ISO 27002, Statement on Standards for Attestation Engagements (SSAE)16 and Safe Harbor.

            We organize our development staff along product lines, with a development operations group that provide centralized support for quality assurance and deployment. In 2014, 2013 and 2012, we recorded research and development expenses of $20.3 million, $17.1 million and $16.6 million, respectively. These expenses include stock-based compensation expenses.

Customers

We ended 2014 with over 3,700 customers. Our customers are diverse in size and type across a wide variety of industries, with a focus on telecommunications, insurance, banking, and technology markets. In 2014, 2013 and 2012, no single customer accounted for more than 10% of our revenue.

Sales and Marketing

            We sell and market our software primarily through a direct sales force and in conjunction with our external partners. In the United States, we have sales and service offices in Dublin, California; Atlanta, Georgia; Birmingham, Alabama; Milwaukee, Wisconsin; New York, New York; and Phoenix, Arizona. Outside the United States, we have sales and service offices in Australia, Canada, Hong Kong, India, Malaysia, Mexico, Serbia, Singapore, Japan, Germany and the United Kingdom.

            Sales. Our direct sales force, which consist of account executives, technical pre-sales engineers and field management, is responsible for the sale of our products to global enterprises across multiple industries, and is organized into geographic territories. Beginning in 2014, we organized our direct sales force along a vertical industry focus. We also have an inside sales division that sells our learning, marketing and customer experience solutions to businesses of all sizes across all industries.

            Marketing. Our marketing activities include product and customer marketing functions as well as marketing communications. The function of our product marketing is to define new product requirements, manage product life cycles, and generate content for sales collateral and marketing programs. The function of our marketing communications is to focus on both primary demand generation efforts to increase awareness of sales effectiveness, product solutions and secondary demand generation efforts to drive sales leads for our solutions. This is done through multiple channels, including advertising, webcasts, industry events, conferences, email marketing, web marketing, and telemarketing. In addition, our corporate website is optimized to drive prospects to our Lead to Money solutions.

Alliances and Partnerships

            We actively promote and maintain strategic relationships with systems integrators, consulting organizations, independent software vendors, value-added resellers, and technology providers. These relationships provide both customer referrals and co-marketing opportunities, which have contributed to the expansion of our customer base. We have established alliances with partners such as Accenture, Appirio, Imperio Consulting, Canidium, Cognizant Technology Solutions, Deloitte and Touche, PriceWaterhouseCoopers, and Tata Consulting Services (TCS) to service our customers nationally and internationally. We have also expanded our relationship with technology partners such as Salesforce, NetSuite, Microsoft and Workday that collaborate with us in re-selling our solutions.

Competition

            Our principal competition comes from Oracle, International Business Machines (IBM) and the internally-developed software solutions deployed at potential customers. We also compete with other software and consulting companies, which typically focus on specific industries or sectors, including:

• Sales: Apttus, Pros, SAVO Group, IBM, Varicent and Xactly Corporation

•Marketing: Oracle, Marketo and Pardot

•Learning: Adobe Systems, SABA Software, Cornerstone On-demand, and SumTotal Systems

•Customer Experience: Medallia, Allegiance and GetFeedback

We believe that the principal competitive factors in our market are:

•ability to offer a broad suite of solutions across the Lead to Money cycle;

•industry-specific domain expertise;

•scalability and flexibility of solutions;

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•quality of customer service;

•functionality of solutions;

•total cost of ownership; and

• ease of use.

            We believe that we compete effectively with other established enterprise software companies due to our broad suite of solutions beyond core commission management, established market leadership, domain expertise, and our highly scalable architecture. Furthermore, we believe we have developed the domain expertise necessary to meet the dynamic requirements of our customers' complex and growing sales performance and sales effectiveness programs.

We believe that our products offer customers a more cost-effective and more extensive alternative to their internally-developed solutions, which are generally expensive, inflexible and difficult to maintain, particularly for companies with increasingly complex sales performance programs and sales channels. We also believe that our suite of SaaS-based solutions for the spectrum of Lead-to-Market functions has advantages over multiple single-point solutions, including cost-effectiveness, ease of implementation and ease of use.

            With respect to our offerings in specific industry verticals, we believe that we have developed breadth and depth of functionality demanded by those specific markets, and we have differentiated our products by adding features that are specific to each target market and that scale to growing business needs.

Intellectual Property

            Our ability to compete successfully depends in part on our ability to develop and maintain the proprietary aspects of our technology and operate without infringing upon the proprietary rights of others. We rely on a combination of patents, trademarks, copyrights, service marks, trade secrets, confidentiality procedures, contractual provisions and other similar measures to protect our proprietary information and intellectual property.

            Our customer agreements include restrictions intended to protect and defend our intellectual property rights. We also require our employees, contractors and many others with whom we have business relationships to sign confidentiality agreements.

            Some of our products include licensed third-party software, but we believe that such software is commercially available and that there are other commercially available substitutes that can be integrated with our products on reasonable terms. We also believe that in some cases, we could develop substitute technology to replace third-party software if the third-party licenses were no longer available on reasonable terms.

While our patents are an important part of our success, our business as a whole is not materially dependent on any one patent or on a combination of any or all of our patents.

Employees

As of December 31, 2014, we had 741 employees. None of our employees are represented by a labor union.

Segment and Geographic Information

We operate in one reportable segment, which is the development, marketing and sale of enterprise software and related services. See Note 16 of our accompanying Notes to Consolidated Financial Statements.

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Executive Officers

The following table sets forth information about our executive officers as of December 31, 2014:

Name	Age	Position	Executive Officer Since
Leslie J. Stretch	53	President, Chief Executive Officer	2005
Bob L. Corey	63	Senior Vice President, Chief Financial Officer	2013
Jimmy Duan	52	Senior Vice President, Chief Technology Officer	2008

Leslie J. Stretch has served as our President and CEO since 2007 and has served as a director on our board of directors since July 2008. Previously, Mr. Stretch was our Senior Vice President, Global Sales, Marketing and On-Demand Business in 2007, our Senior Vice President, Worldwide Sales from 2006 to 2007 and Vice President, Worldwide Sales from 2005 to 2006. Prior to joining Callidus, Mr. Stretch served as interim Chief Executive Officer for The Hamsard Group, plc. in the United Kingdom during 2005. Previously, Mr. Stretch served in a variety of roles at Sun Microsystems, most recently as Senior Vice President of Global Channel Sales. Prior to joining Sun Microsystems, Inc. (acquired by Oracle Corporation). Mr. Stretch served in a variety of roles at Oracle Corporation, UK. Mr. Stretch holds a B.A. in Economics and Economic History from the University of Strathclyde and a Postgraduate Diploma in Computer Systems Engineering from the University of Edinburgh.

Bob L. Corey has served as our Senior Vice President, and Chief Financial Officer since May 2013. Prior to joining Callidus, Mr. Corey served as the Chief Financial Officer of FrontRange Solutions USA Inc., an enterprise software company, from May 2012 to May 2013. Prior to FrontRange, he served in various roles at Extreme Networks, Inc., an Ethernet solutions company from July 2009 to March 2011, including as its interim chief executive officer, executive vice president and chief financial officer. From 2003 to 2006, Mr. Corey held a variety of executive positions, including executive vice president and chief financial officer, at Thor Technologies, Inc., an enterprise software company. Mr. Corey currently serves as a member of the board of directors and as chairman of the audit committee for Apigee Corporation, a private software development tools and services company. Mr. Corey holds a B.A. with a concentration in accounting from California State University at Fullerton.

Jimmy Duan, Ph.D. has served as our Senior Vice President and Chief Technology Officer since June 2013. Since joining Callidus in October 2008, Dr. Duan has served in a variety of executive management roles at Callidus, including senior vice president of commissions business and international sales. From 2006 to 2008, Dr. Duan served as vice president of client services at Xactly Corporation, a software company, where he was responsible for defining and setting up SaaS operations and managing customer success. Earlier in his career, Dr. Duan held professional services management positions at Quovera and Talus Solutions (acquired by Manugistics) and consulted with multi-national organizations in financial services, telecommunications, transportation and high-tech manufacturing. Dr. Duan holds a Ph.D. in industrial and systems engineering from Virginia Polytechnic Institute and State University (Virginia Tech). Dr. Duan holds a B.S. in Mining Engineering, from Central South University, China.

Available Information

Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and other periodic reports are available free of charge on our website (www.calliduscloud.com) as soon as reasonably practicable after we have electronically filed or furnished such materials to the Securities and Exchange Commission. They are also available at www.sec.gov.

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Item 1A.    Risk Factors

Factors That Could Affect Future Results

You should carefully consider the risks below, as well as other information included or incorporated by reference in this report before making an investment decision. We operate in a dynamic and rapidly changing environment that involves many risks and uncertainties that could cause actual results to differ materially from results contemplated by forward-looking statements in this report.  Because of the factors discussed below, other information included or incorporated by reference in this report and other factors affecting our operating results, past performance should not be considered a reliable indicator of future performance. The risks discussed in this report are not the only risks we face. Risks and uncertainties of which we are not currently aware, or which we currently deem to be immaterial, may also adversely affect our business, financial condition or operating results.

Risks Related to Our Business

We have a history of losses, and we cannot assure you that we will achieve profitability.

We incurred net losses of $11.6 million in 2014, $21.4 million in 2013, and $27.7 million in 2012. We had an accumulated deficit of $271 million as of December 31, 2014. To achieve profitability, we must increase our revenue, particularly our recurring revenue by entering into more and larger sales transactions while limiting customer churn, and managing our cost structure in line with our revenue. If we fail to do so, our future results and financial condition will be adversely affected and we may be unable to continue operating.

We continue to monitor and manage our costs in an effort to optimize our performance for the long-term. However, there is no assurance that we will be successful; unforeseen expenses, difficulties or delays may prevent us from realizing our goals. From time to time, we incur restructuring expenses or expenses related to other cost reduction efforts, but we can offer no assurance that these or other actions will enable us to achieve or sustain profitability in the future. In addition, we cannot be certain that steps we have taken to control our costs will not adversely affect our prospects for long-term revenue growth. If we cannot increase our revenue, improve gross margins and control costs, our future results and financial condition will be negatively affected.

Our revenue and operating results have fluctuated in the past and are likely to fluctuate in the future, and because we recognize revenue from subscriptions over a period of time, downturns in revenue may not be immediately reflected in our operating results.

Because we recognize recurring revenue and maintenance revenue ratably over the terms of the related subscription agreements and maintenance support agreements, most of our revenue each quarter results from recognition of deferred revenue related to agreements entered into during previous quarters. Consequently, declines in new or renewed subscription agreements and maintenance agreements that occur in one quarter will largely be felt in future quarters, both because we may be unable to generate sufficient new revenue to offset the decline and because we may be unable to adjust our operating costs and capital expenditures to align with the changes in revenue. Our subscription model makes it more difficult for us to increase our revenue rapidly in any period, because revenue from new customers must be recognized over the applicable subscription term. Furthermore, although our business model is primarily focused on recurring revenue, we anticipate continuing to recognize license revenue, particularly with international customers. License revenue is difficult to forecast and is likely to fluctuate due to many factors that are beyond our control including transition of license customers to recurring revenue models. Accordingly, we believe that period-to-period comparisons of our results of operations should not be relied upon as definitive indicators of future performance.

Other factors that may cause our revenue and operating results to fluctuate include:

• timing of customer budget cycles;

• the priority our customers place on our products compared to other business investments;

• size, timing and contract terms of new customer contracts, and unpredictable and often lengthy sales cycles;

• reduced renewals;

• competitive factors, including new product introductions, upgrades and discounted pricing or special payment terms offered by our competitors, as well as strategic actions by us or our competitors, such as acquisitions, divestitures, spin-offs, joint ventures, strategic investments or changes in business strategy;

• technical difficulties, errors or service interruptions in our solutions that may cause customer dissatisfaction with solutions;

• consolidation among our customers, which may alter their buying patterns, or business failures that may reduce demand for our solutions;

• operating expenses associated with expansion of our sales force or business, and our product development efforts;

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• cost, timing and management efforts related to the introduction of new features to our solutions;

• our ability to obtain, maintain and protect our intellectual property rights and adequately safeguard the information imported to our solutions or otherwise provided to us by our customers; and

• extraordinary expenses such as impairment charges, litigation or other payments related to settlement of disputes.

Any of these developments may adversely affect our revenue, operating results and financial condition. Furthermore, we maintain an allowance for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments. In such cases, we may be required to defer revenue recognition on sales to affected customers. In the future, we may have to record additional reserves or write-offs, or defer revenue on sales transactions, which could negatively impact our financial results.

If we are unable to maintain the profitability of our recurring revenue solutions, our operating results could be adversely affected.

We have invested, and expect to continue to invest, substantial resources to expand, market and refine our solutions. If we are unable to grow the volume of our recurring revenue, or to improve our gross margins, we may not be able to achieve profitability and our operating results and financial condition could be adversely affected. Factors that could harm our ability to improve our gross margins include:

• customer attrition as customers decide not to renew for any reason;

• our inability to maintain or increase the prices customers pay for our solutions, due to competitive pricing pressures or limited demand;

• our inability to reduce operating costs through technology-based efficiencies and streamlined processes;

• increased direct and indirect cost of third-party services, including hosting facilities and professional services contractors performing implementation and support services;

• higher personnel and personnel-related costs;

• increased costs to integrate products or personnel that we acquire, including time and expense associated with new sales personnel reaching full productivity; and

• increased costs to license and maintain third-party software embedded in our solutions or to create alternatives to such third-party software.

Our business and operations have experienced rapid growth in recent periods, and if we do not effectively manage any future growth or are unable to improve our systems and processes, our operating results will be adversely affected.

We have experienced rapid growth and increased demand for our products over the last few years. Our employee headcount and number of customers have increased significantly, and we expect to continue to grow our headcount significantly in future periods. For example, from the end of fiscal 2013 to the end of fiscal 2014, our employee headcount increased from 612 to 741 employees, and our number of customers increased from more than 2,200 to over 3,700. We anticipate that we will continue to significantly expand our operations and headcount in the near term, and anticipate that our customer base will continue to expand. The growth and expansion of our business and our product and service offerings place a significant strain on our management, operations, sales and marketing, and financial resources. To manage any future growth effectively, we must continue to improve and expand our information technology and financial infrastructure, our operating and administrative systems, our sales and marketing teams and our ability to manage headcount, capital, and business processes in an efficient manner.

We may not be able to successfully implement improvements to our systems and processes in an efficient or timely manner, and we may discover deficiencies in our existing systems and processes. We may experience difficulties in managing improvements to our systems and processes, which could disrupt existing customer relationships, cause us to lose customers, limit sales of our products, or increase our technical support costs. Our failure to improve our systems and processes, or the failure of those systems and processes to operate in the intended manner, may result in our inability to manage the growth of our business and accurately forecast our revenue and expenses. Our productivity and the quality of our solutions may be adversely affected if we do not integrate and train new employees quickly and effectively. Any future growth would add complexity to our organization and require effective coordination throughout our organization. For example, as a result of growth in our employee headcount, we relocated our corporate headquarters to a larger office space in Dublin, California in February 2015. Failure to manage any future growth effectively could result in increased costs, negatively impact our customers’ satisfaction with our solutions, and harm our operating results.

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Decreases in retention rates for customer SaaS subscriptions or on-premise maintenance arrangements could materially impact our future revenue or operating results.

Our customers have no obligation to renew our SaaS subscriptions or maintenance support arrangements after the expiration of the subscription or maintenance period, which is typically 12 to 24 months. Customers may elect not to renew, or may renew for fewer seat licenses or shorter contract terms. In addition, we offer a pay-as-you-go model, whereby customers can pay for our SaaS services on a monthly basis without a long-term commitment, which may unexpectedly increase the rate of customer non-renewals and thus negatively and unpredictably affect our recurring revenue. If our customer renewal rates decline, which may occur as a result of many factors, including reduced budgets, insourcing decisions or dissatisfaction with our service, our revenue will be adversely affected and our business will suffer.

A majority of our revenue is derived from our Lead to Money solutions, and a decline in sales of those solutions could adversely affect our operating results and financial condition.

We derive a majority of our revenue from our Lead to Money solutions; if demand for those solutions declines significantly and we are unable to replace the revenue with revenue from our other offerings, our business and operating results will be adversely affected. We cannot assure you that our current levels of market penetration and revenue from these solutions will continue. If conditions in the market for these solutions change as a result of increased competition or new product offerings by our competitors or consolidation among our competitors, or if we are unable to timely introduce successful new solutions to keep pace with technological advancements, our revenue may decline and our financial results and financial condition would be harmed.

If we do not compete effectively, our revenue may not grow and could decline.

We have experienced intense competition from other software companies, as well as from customers’ internal development teams. We believe one of our key challenges is to demonstrate the benefits of our solutions to prospective customers so that they will prioritize purchases of our solutions over other options. Our financial performance depends in large part on continued growth in the number of organizations adopting our sales effectiveness solutions to manage the performance of their sales organizations, yet the market for sales effectiveness solutions may not develop as we expect, or at all.

We compete principally with vendors of sales effectiveness software, incentive compensation management ("ICM") software, enterprise resource planning software and customer relationship management software. Our competitors may be more successful than we are in capturing the market by, for example, announcing new products, services or enhancements that better meet the needs of prospective customers or our current customers or changing industry standards. In addition, if one or more of our competitors were to merge or partner with another of our competitors, the change in the competitive landscape could adversely affect our ability to compete effectively. Increased competition may cause price reductions, reduced gross margins and loss of market share, any of which could have a material adverse effect on our business, results of operations and financial condition.

Many of our competitors, particularly our enterprise resource planning competitors, have longer operating histories with significantly greater financial, technical, marketing, service and other resources. Many also have a larger installed base of users, larger marketing budgets and broader relationships, established distribution agreements, and greater name recognition. Some of our competitors' products may also be more effective at performing particular sales effectiveness or ICM system functions or may be more customized for particular customer needs in any given market. Even if our competitors provide products with less sales performance management or ICM system functionality than our solutions, their products may incorporate other capabilities, such as recording and accounting for transactions, customer orders or inventory management. A product that performs these functions, along with functions of our solutions, may appeal to some customers by reducing the number of software applications they use in their business. Our competitors, especially larger competitors, may also bundle ICM or other functionalities with their other offerings, rendering our software less competitive from a pricing perspective.

Our products generally must be integrated with software provided by existing or potential competitors. These competitors could alter their software products in ways that inhibit integration with ours, or they could deny or delay our access to advance software releases, which would restrict our ability to adapt our products for integration with their new releases and could result in the loss of both sales opportunities and renewals of on-demand services and maintenance.

Some potential customers have already made substantial investments in third-party or internally-developed solutions designed to model, administer, analyze and report on sales effectiveness programs. These companies may be reluctant to abandon such investments in favor of our solutions. In addition, information technology departments of some potential customers may resist purchasing our solutions for a variety of reasons, including concerns that hosted solutions are not sufficiently customizable for their needs or that they pose data security concerns for their enterprises.

If we change prices, alter our payment terms or modify our products or services in order to compete, our margins and operating results may be adversely affected.

The intensely competitive market in which we do business may require us to change our prices or modify our pricing strategies for our solutions in ways that adversely affect our operating results. If our competitors offer discounts on competitive products or services, we may need to lower prices or offer other terms more favorable to existing and prospective customers in order to compete

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successfully. If we raise prices based upon our own evaluation of the value of our products, those increases might not be well received by customers, which may hurt our sales. Some of our competitors may bundle their products with other solutions for promotional purposes or as a pricing strategy, or provide guarantees of prices and product implementations. These practices could, over time, limit the prices that we can charge for our solutions or cause us to modify our existing market strategies accordingly. If we cannot offset price reductions and other terms that are more favorable to our customers with a corresponding increase in sales or decrease in spending, then the reduced revenue resulting from lower prices would adversely affect our gross margins and operating results.

If we experience service interruptions in our offerings to customers, our business and financial results could be harmed.

Our business is primarily conducted over the Internet, so we depend on our ability to protect our computer equipment and stored data against damage from natural disasters, power loss, telecommunications failures, cyber-attacks or other unauthorized intrusion and other events. Although we have redundant facilities to support our operations, our systems, procedures and controls might not be adequate.

There can be no assurance that our disaster preparedness will prevent significant interruption of our operations, which could be lengthy. Service interruptions may result in material liability claims from customers for breach of service-level commitments, customer terminations and damage to our reputation and business prospects.

In addition, third-party service providers for hosting facilities or other critical infrastructure could be interrupted in the event of a natural disaster, facility closings or other unanticipated problems. Third-party telecommunications providers of Internet and other telecommunication services may fail to perform adequately, or their systems may fail to operate properly or be disabled, causing business interruption or system damage and could harm our revenue, increase costs, cause regulatory intervention or damage to our reputation.

Software errors could be costly and time-consuming for us to correct, and could harm our reputation and impair our ability to sell our solutions.

Our solutions are based on complex software that may contain errors, or "bugs," that could be costly to correct, harm our reputation and impair our ability to sell our solutions to new customers. Moreover, customers relying on our solutions to implement their incentive compensation arrangements may be more sensitive to such errors, and the attendant potential security vulnerabilities and business interruptions for these applications. If we incur substantial costs to correct any errors of this nature, our operating margins could be adversely affected. Because our customers depend on our solutions for critical business functions, any service interruptions could result in lost or delayed market acceptance and lost sales, higher service-level credits and warranty costs, diversion of development resources and product liability suits.

Breaches of security or failure to safeguard customer data could create the perception that our solutions are not secure, causing customers to discontinue or reject the use of our solutions and potentially subject us to significant liability. Implementing, monitoring and maintaining adequate security safeguards may be costly.

Our solutions allow our customers to access and transmit confidential data, including personally identifiable individual data of their employees, agents and customers over the Internet, and we store our customers’ data on servers. We may also have access to confidential and private individual data in connection with the activities of our professional services organization, including implementation, maintenance and support activities for term and perpetual license customers.

Moreover, many of our customers are subject to heightened security obligations regarding the personally identifiable information of their downstream customers. In the United States, these heightened obligations particularly affect the financial services, healthcare and insurance sectors, which are subject to controls over personal information under various state and federal laws and regulations. Other directives, such as the European Union Directive on Data Protection and accompanying laws and regulations of the Member States of the European Union implementing the directive, create international obligations on the protection of personal data that typically exceed security requirements mandated in the United States. The security measures we have implemented and may need to implement, monitor and maintain in the future in order to satisfy the requirements of our customers may be substantial and involve significant time and effort, which increases our costs.

Security measures designed to protect customer information may be breached by third-party action, including intentional misconduct or malfeasance, employee error or otherwise, and result in unauthorized disclosure of or access to our customers’ data or our data, including our intellectual property and other confidential business information, or our information technology (“IT”) systems. Third parties may attempt to fraudulently induce employees or customers into disclosing sensitive information such as user names, passwords or other information in order to gain access to our customers’ data or our data or IT systems. Because the techniques used to obtain unauthorized access, or to sabotage systems, change frequently and are often not recognized until launched against a target, we may be unable to anticipate these techniques or to implement adequate preventative measures. In addition, our customers may authorize third-party technology providers to access their customer data. Because we do not control our customers and third-party technology providers, or the processing of such data by third-party technology providers, we cannot ensure the integrity or security of such transmissions or processing. Malicious third-parties may also conduct attacks designed to temporarily deny customers access to our services.

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If we do not adequately safeguard the information imported into our solutions or otherwise provided to us by our customers, or if third parties penetrate our systems or security and misappropriate our customers' confidential information, it may damage our reputation, result in a loss of confidence in the security of our service, negatively impact our future sales, or disrupt our business, and we may be sued and incur substantial damages in connection with such events. Even if it is determined that our security measures were adequate, the damage to our reputation may cause customers and potential customers to reconsider the use of our solutions, which may have a material adverse effect on our results of operations.

Legal and regulatory changes in the data protection and privacy area could create unexpected costs, require changes to our business or impact the use and adoption of our solutions, which could have an adverse effect on our future revenue, operating results or customer retention.

The legal or regulatory framework for data protection and privacy issues is evolving worldwide, and various government and consumer agencies and public advocacy groups have called for new regulation and changes in industry practices. As a result, we expect federal, state and foreign governments to continue to increase regulation and we expect more public scrutiny, enforcement and sanctions in this area. The new laws and regulations that may, among other things, relate to the solicitation, collection, processing use, and disclosure of personal information, as well as those that apply to cross-border transfers of personal information, could affect demand for our solutions or cause us to change our platform or business model and increase our costs of doing business.

Our customers can use our service to store compensation and other personal or identifying information about their sales personnel that are or may be considered personal data in some jurisdictions and, therefore, may be subject to this evolving legislation, regulation or heightened public scrutiny. In addition to the potential adoption of new laws and regulations in the United States and internationally, evolving definitions and norms regarding personal data may require us to adapt our business practices, or limit or inhibit our ability to operate or expand our business.

Complying with any new regulatory requirements could force us to incur substantial costs or require us to change our business practices in a manner that could reduce our revenue or compromise our ability to effectively pursue our growth strategy. In addition, the compliance costs and other burdens imposed by such laws and regulations applicable to our customers’ businesses may limit the use and adoption of our service and reduce overall demand, or lead to significant fines, penalties or liabilities for any noncompliance with such privacy laws. As a result, some industries may not adopt our services based on perceived privacy concerns, regardless of the validity of such concerns.

While we take measures to protect the security of information that we collect, use and disclose in the operation of our business, and we offer privacy protections with respect to this information, these measures may not always be effective. Furthermore, although we strive to comply with applicable laws and regulations relating to privacy and data collection, use and disclosure, these laws and regulations are continually evolving, not always clear, and not always consistent across the jurisdictions in which we do business. Any proceedings brought against us relating to compliance with such laws and regulations could hurt our reputation, force us to spend significant amounts in defense of these proceedings, distract our management, increase our costs of doing business, adversely affect the demand for our services and ultimately result in the imposition of monetary liability or restrictions on our ability to conduct our business. In some cases, these costs may not be covered by contractual indemnity or insurance, even if caused by a third party.

In addition, if we are perceived as not operating in accordance with industry best practices with regard to privacy, we may be subject to negative publicity, government investigation, litigation or investigation by accountability groups. Any action against us could be costly and time consuming, require us to change our business practices, expose us to substantial monetary liability and result in damage to our reputation and business.

The European Parliament is considering revocation of the legal framework under which personal data of European residents may be transferred to the United States, and this revocation, if implemented, could hamper our plans to expand our business in Europe.

The use and transfer of personal data in many European countries is currently governed under a regulatory framework pursuant to which U.S. businesses: (i) commit to treat the personal data of European Union residents in accordance with the current regulatory framework and (ii) may self-certify their compliance. The European Union is currently considering adoption of new regulations which would include prohibitions on the transfer of our data about European Union customers to our computer servers in the United States. If these restrictions are adopted, we may have to create duplicative, and potentially expensive, information technology infrastructure and business operations in Europe, which may hinder our expansion plans in Europe, or render these plans commercially infeasible. These developments could materially increase our costs of doing business and harm our operating results.

Acquisitions of, and investments in, other businesses present many risks. We may not realize the anticipated financial and strategic benefits of these transactions, and we may not be able to manage our operations with the acquired businesses efficiently or profitably.

As part of our business strategy, we evaluate opportunities to expand and enhance our product and service offerings to meet customer needs, increase our market opportunities and grow revenue through internal development efforts and external acquisitions and partnerships. We have completed a number of acquisitions in recent years, including LeadRocket, Inc. and Clicktools Ltd. in 2014. We may continue to acquire or make investments in other companies, products, services and technologies in the future. Acquisitions and investments may cause disruptions in or add complexity to our operations and involve a number of risks, including the following:

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• the anticipated benefits, such as an increase in revenue, may not materialize if, for example, a larger number of customers than expected choose not to renew or if we are unable to cross-sell the acquired company's solutions to our existing customer base;

• we may have difficulty integrating and managing the acquired technologies or products with our existing product lines, and maintaining uniform standards, controls, procedures and policies across locations;

• we may experience challenges in, and have difficulty penetrating, new markets where we have little or no prior experience and where competitors have stronger market positions;

• integrating the financial systems and personnel of the acquired business and retaining key employees may be difficult, and, to the extent we issue shares of stock or other rights to purchase stock to such individuals, existing stockholders may be diluted;

• our ongoing business and management's attention may be disrupted or diverted by transition or integration issues and the complexity of overseeing geographically and culturally diverse locations;

• we may find that the acquired business or assets do not further our business strategy, or that we overpaid for the business or assets, or that we do not realize the expected operating efficiencies or product integration benefits;

• our use of cash consideration for one or more significant acquisitions may require us to use a substantial portion of our available cash or incur substantial debt, and if we incur substantial debt, it could result in material limitations on the conduct of our business;

• we may fail to uncover or realize the significance of, or otherwise become exposed to, liabilities and other issues assumed from an acquired business, such as claims from terminated employees or third-parties and unfavorable revenue recognition or other accounting practices; and

• we may experience customer confusion as a result of product overlap, particularly when we offer, price and support various product lines differently.

These factors could have a material adverse effect on our business, results of operations and financial condition or cash flows. Furthermore, during periods of operational expansion, we often need to increase the size of our staff, our related operations and third party partnerships, and potentially amplify our financial and accounting controls to ensure they remain effective. Such changes may increase our expenses, and there is no assurance that our infrastructure will be sufficiently scalable to efficiently manage any growth that we may experience. If we are unable to leverage our operating cost investments as a percentage of revenue, our ability to generate or increase profits will be adversely impacted. In addition, from time to time, we may enter into negotiations for acquisitions and other investments that are not ultimately consummated, which could result in significant diversion of management time, as well as out-of-pocket expenses.

Some of our products rely on third-party software licenses to operate, and the loss or inability to maintain these licenses, or errors, discontinuations or updates to that software, could result in higher costs, delayed sales, customer claims, or termination of existing agreements.

We license technology from several software providers for our reporting, analytics and integration applications, and we anticipate continuing to license technologies from these or other providers in connection with our current and future products. We also rely on generally available third-party software to run our applications. Any of these software applications may not continue to be available on commercially reasonable terms, if at all, or new versions may be released that are incompatible with our offerings. Some of the products could be difficult to replace, and developing or integrating new software with our products could require months or years of design and engineering work. Modification or loss of access to any of these technologies could result in delays in providing our products until equivalent technology is developed or, if available, is identified, licensed and integrated. Acquisitions of third-party technologies by other companies, including our competitors, may have a material adverse impact on us if the acquirer seeks to cancel or change the terms of our license.

In addition, we depend upon the successful operation of third-party products in conjunction with our products or services. As a result, undetected errors in those third-party products could prevent the implementation, or impair the functionality of, our products, delay new product introductions, limit the availability of our products via our on-demand service, and injure our reputation. Our use of additional or alternative third-party products could result in new or higher royalty payments if we are required to enter into license agreements for such products.

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Our success depends upon our ability to develop new solutions and enhance our existing solutions rapidly and cost-effectively. Failure to introduce new or enhanced solutions that meet customer needs may adversely affect our operating results.

The markets for sales effectiveness solutions and cloud computing are generally characterized by:

• rapid technological advances,

•changing customer needs, and

•frequent new product introductions and enhancements.

To keep pace with technological developments, satisfy increasingly sophisticated customer requirements, achieve market acceptance and effectively respond to competition, we must quickly identify emerging trends and requirements, accurately define and design enhancements and improvements for existing solutions, and introduce new solutions that satisfy our customers’ changing demands. Accelerated introductions for new solutions require high levels of expenditures for research and development that could adversely affect our operating results. Further, any new solutions we develop may not be introduced in a timely manner or be available in a distribution model favored by our target markets, and may therefore not achieve the broad market acceptance necessary to generate significant revenue. If we are unable to quickly and successfully develop or acquire and distribute new products and services cost-effectively, or enhance existing solutions, or if we fail to position and price our solutions to meet market demand, our business and operating results will be adversely affected.

Our offshore product development, support and professional services may prove difficult to manage or may not allow us to realize our cost reduction goals, produce effective new solutions and provide professional services to drive growth.

We use offshore resources to perform new product and services development and provide support and professional consulting efforts, which requires detailed technical and logistical coordination. We must ensure that our international resources and personnel are aware of and understand development specifications and customer support, as well as implementation and configuration requirements and that they can meet applicable timelines. If we are unable to maintain acceptable standards of quality in support, product development and professional services through our international third-party service providers, our attempts to reduce costs and drive growth through new products and margin improvements in technical support and professional services may be negatively impacted, which would adversely affect our results of operations. Outsourcing services to offshore providers may expose us to misappropriation of our intellectual property or that of our customers, or make it more difficult to defend intellectual property rights in our technology.

The loss of key personnel, higher than normal employee attrition in key departments or the inability of replacement personnel to quickly and successfully perform in their new roles could adversely affect our business.

Our success depends to a significant extent on the abilities and effectiveness of our personnel, and, in particular, our chief executive officer and other executive officers. All of our existing personnel, including our executive officers, are employed on an "at-will" basis. If we lose or terminate the services of one or more of our current executives or key employees or if one or more of our current or former executives or key employees joins a competitor or otherwise competes with us, or if we do not have an effective succession or development plan in place for such individuals, our ability to successfully implement our business plan could be impaired. Likewise, if a number of employees from specific departments were to depart, our business may be adversely affected. Additionally, if we are unable to quickly hire qualified replacements for our executives, other key positions or employees within specific departments, our ability to execute our business plan could be harmed. Even if we can quickly hire qualified replacements, we would expect to experience operational disruptions and inefficiencies during any transition.

If we are unable to hire and retain qualified employees and contractors, including sales, professional services and engineering personnel, our growth may be impaired.

To scale our business successfully, increase productivity, maintain a high level of quality and meet customers' needs, we need to recruit, retain and motivate highly skilled employees and contractors in all areas of our business, including sales, professional services and engineering. In particular, if we are unable to hire or contract for and retain talented personnel with the skills, and in the locations, we require, we might need to redeploy existing personnel or increase our reliance on contractors. Furthermore, we have been, and intend to continue, increasing our sales force and, if we are not successful in attracting and retaining qualified personnel, or if new sales personnel are unable to achieve desired productivity levels within a reasonable time period, we may not be able to increase our revenue and realize the anticipated benefits of these investments.

As our customer base increases and as we continue to evaluate and modify our organizational structure to increase efficiency, we are likely to experience staffing constraints in connection with the deployment of trained and experienced professional services and support resources capable of implementing, configuring, maintaining and supporting our products and related services. Moreover, as a company focused on the development of complex products and the provision of online services, we are often in need of additional software developers and engineers. We have relied on our ability to grant equity compensation as one mechanism for recruiting, retaining and motivating such highly skilled personnel. Our ability to provide equity compensation depends, in part, upon receiving stockholder approval for an increase in shares authorized for issuance pursuant to our equity compensation plan. If we are not able to

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secure such approval from our stockholders, our ability to recruit, retain and motivate our personnel may be adversely impacted, which would negatively impact our operating results.

Our credit agreement contains restrictive and financial covenants that may limit our operational flexibility. Furthermore, if we default on our obligations under the credit agreement, our operations may be interrupted and our business and financial results could be adversely affected.

In May 2014, we entered into a credit agreement with Wells Fargo Bank, National Association (“Wells Fargo”), under which Wells Fargo agreed to provide a revolving loan to us in an amount not to exceed $10.0 million, with an accordion feature that allows us to increase the maximum borrowing amount by not less than $5.0 million and not more than $10.0 million ("Revolver"). We may draw upon the Revolver to finance our operations or for other corporate purposes. In September 2014, we increased the maximum borrowing amount to $15.0 million. The Revolver contains a number of restrictive covenants, and its terms may restrict our current and future operations, including:

• our flexibility to plan for, or react to, changes in our business and industry conditions;

• our ability to use our cash flows, or obtain additional financing, for future working capital, capital expenditures, acquisitions or other general corporate purposes;

• place us at a competitive disadvantage compared to our less leveraged competitors; and

• increase our vulnerability to the impact of adverse economic and industry conditions.

In addition, if we fail to comply with the covenants or payment obligations specified in the Revolver, we may trigger an event of default and Wells Fargo would have the right to: (i) terminate its commitment to provide additional loans under the Revolver, and (ii) declare all borrowings outstanding, together with accrued and unpaid interest and fees, to be immediately due and payable. In addition, Wells Fargo would have the right to proceed against the Revolver collateral, which consists of substantially all our assets. If the debt under the Revolver were to be accelerated, we may not have sufficient cash or be able to sell sufficient collateral to repay this debt, which would have an immediate material adverse effect on our business, results of operations and financial condition.

Changes in the terms of our current or future indebtedness or our credit rating may adversely affect our financial condition and results of operations.

We cannot provide assurances that additional borrowing capacity will be available under the Revolver, including pursuant to the accordion feature, or that future indebtedness will be obtainable on terms as favorable as the Revolver. As a result, in the future, we may be subject to higher interest rates and our interest expense may increase, which may have an adverse effect on our financial results. Furthermore, changes by any rating agency to our outlook or credit rating could negatively affect the value of both our debt and equity securities and increase the interest amounts we pay on outstanding or future debt. These risks could adversely affect our financial condition and results.

If we are unable to maintain effective internal control over financial reporting, investors may lose confidence in the accuracy and completeness of our financial reports and the trading price of our common stock may be negatively affected.

We are required to maintain internal controls over financial reporting and to report any material weaknesses in such internal controls. Effective planning and management processes are necessary to meet these requirements, and we expect that we will need to continue to improve existing, and implement new, operational and financial systems, procedures and controls to manage our business effectively in the future. We are also required to furnish a report by management on the effectiveness of our internal control over financial reporting pursuant to Section 404 of the Sarbanes-Oxley Act. If we identify material weaknesses in our internal control over financial reporting, if we are unable to comply with the requirements of Section 404 in a timely manner or assert that our internal control over financial reporting is effective or if our independent registered public accounting firm is unable to express an opinion as to the effectiveness of our internal control over financial reporting, investors may lose confidence in the accuracy and completeness of our financial reports, the trading price of our common stock could be negatively affected, and we could become subject to investigations by The Nasdaq Stock Market LLC, the Securities and Exchange Commission or other regulatory authorities, which could require additional financial and management resources.

If we fail to adequately protect our proprietary rights and intellectual property, we may lose valuable assets, experience reduced revenue and incur costly litigation to protect our rights.

Our success and ability to compete depends on the proprietary technology embedded in our solutions. We rely on a combination of patents, trademarks, copyrights, service marks, trade secrets, contractual provisions and other similar measures to establish and protect our proprietary rights. We cannot protect our intellectual property if we are unable to enforce our rights or if we do not detect its unauthorized use. Despite our precautions, unauthorized third parties may be able to copy or reverse engineer our solutions and use information that we regard as proprietary to create products and services that compete with ours. Provisions in our agreements prohibiting unauthorized use, copying, transfer and disclosure of our licensed programs and services may be unenforceable under the laws of some jurisdictions. Further, the laws of some countries do not protect proprietary rights to the same extent as the laws of the

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United States. To the extent that we engage in international activities, our exposure to unauthorized copying and use of our products, services and proprietary information increases.

We enter into various restrictive agreements with our employees and consultants, as well as with customers and third parties with whom we have strategic relationships. We cannot ensure that these agreements will be effective in controlling access to and distribution of our products, services and proprietary information. Nor do these agreements prevent our competitors from independently developing technologies that are substantially equivalent or superior to our solutions. Litigation may be necessary to enforce our intellectual property rights and protect our trade secrets. Litigation, whether successful or unsuccessful, could result in substantial costs and diversion of management resources, either of which could seriously harm our business.

Our results of operations may be adversely affected if we are subject to a protracted infringement claim or one that results in a significant damage award.

From time to time, we receive claims that our products, services offerings or business infringe or misappropriate the intellectual property rights of third parties, and we have in the past, and may continue in the future, to assert claims of infringement against third parties on such bases, including the lawsuit we settled with Versata Software, Inc., Versata Development Group, Inc. and Versata, Inc. in November 2014. Our competitors or other third parties may also challenge the validity or scope of our intellectual property rights. For more information, see "Item 3. Legal Proceedings". We believe that claims of infringement are likely to increase as the functionality of our solutions expand and we introduce new solutions, including technology acquired or licensed from third parties. Any infringement claim, whether offensive or defensive, could:

• require costly litigation to resolve;

• absorb significant management time;

• cause us to enter into unfavorable royalty or license agreements;

• require us to discontinue the sale of, or materially modify, all or a portion of our products or services;

• require us to indemnify our customers or third-party service providers; and

• require us to expend additional development resources to redesign our products or services.

Inclusion of open source software in our products may expose us to liability or require release of our source code.

We currently use open source software in our products and may use more in the future. We could be subject to suits by parties claiming ownership of what we believe to be open source software that has been incorporated into our products. In addition, some open source software is provided under licenses which require that proprietary software, when combined in specific ways with open source software, become subject to the open source license and thus freely available. While we take steps to minimize the risk that our products, when incorporated with open source software, would become subject to such provisions, few courts have interpreted open source licenses. As a result, the enforcement of these licenses is unclear. If our products became subject to open source licenses, our ability to continue commercializing our solutions, along with our operating results, would be materially and adversely affected.

Sales to customers in international markets pose risks and challenges for which we may not achieve the expected results.

We continue to invest substantial time and resources to grow our international operations. If we fail to do so successfully, our business and operating results could be seriously harmed. Such expansion may require substantial financial resources and management attention. International operations involve a variety of risks, particularly:

• greater difficulty in supporting and localizing our solutions;

• complying with numerous regulatory requirements, taxes, trade laws and tariffs that may conflict or change unexpectedly, including labor, tax, privacy and data protection;

• using international resellers and complying with anti-bribery and anti-corruption laws;

• greater difficulty in establishing, staffing and managing foreign operations;

• greater difficulty in maintaining acceptable quality standards in support, product development and professional services by our international third-party service providers;

• differing abilities to protect our intellectual property rights; and

• possible political and economic instability.

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We may be affected by fluctuations in currency exchange rates.

We are potentially exposed to adverse movements in currency exchange rates. Although most of our revenue and expenses occur in U.S. Dollars, some occur in local currencies and the amounts in local currencies may increase as we expand our international operations. An increase in the value of the U.S. Dollar could increase the real cost to our customers of our products in those markets outside the U.S., and a weakened U.S. Dollar could increase the cost of our expenses, as well as overseas capital expenditures. We have not engaged in hedging transactions to reduce the exposure to foreign currency fluctuations.

Our services revenue produces substantially lower gross margins than our recurring revenue, and periodic variations in the proportional relationship between services revenue and higher margin recurring revenue may harm our overall gross margins.

Our services revenue, which includes fees for consulting, implementation and training, represented 24% of our revenue in 2014. Our services revenue has a substantially lower gross margin than our recurring revenue. The percentage of total revenue represented by services revenue has varied significantly from period to period principally because the number of new recurring revenue customer transactions varies from quarter to quarter.

Deployment of solutions may require substantial technical implementation and support by us or third-party service providers. We may lose sales opportunities and our business may be harmed if we do not meet these implementation and support requirements, which may cause a decline in revenue and an increase in our expenses.

We deploy solutions, such as large enterprise-wide deployments, that require a substantial degree of technical and logistical expertise. It may be difficult for us to manage these deployments, including the timely allocation of personnel and resources by us and our customers. Failure to successfully manage the process could harm our reputation, both generally and with specific customers, harming our sales and causing customer disputes, which could adversely affect our revenue and increase our technical support and litigation costs. If actual remediation services exceed our accrued estimates, we could be required to take additional charges, which could be material.

We engage third-party partners, systems integrators and software vendors to provide customer referrals, cooperate with us in the design, sales and marketing of our solutions, provide insights into market demands, and provide our customers with systems implementation services or overall program management. In some cases, we may not have formal agreements governing such relationships, and the agreements we do have generally do not include specific obligations with respect to exclusivity, generating sales opportunities or cooperating on future business.

From time to time, we also consider new or unusual strategic relationships, which can pose additional risks. For example, while reseller arrangements offer the advantage of leveraging larger sales organizations than our own to sell our products, they also require considerable time and effort on our part to train and support the reseller's personnel, and require the reseller to properly motivate and incentivize its sales force. Also, if we enter into an exclusive reseller arrangement, the exclusivity may prevent us from pursuing the applicable market ourselves; if the reseller is not successful in the particular location, our results of operations may be adversely affected.

Should any of these third-parties go out of business, perform unsatisfactory services or choose not to work with us, we may be forced to develop new capabilities internally, which may cause significant delays and expense, thereby adversely affecting our operating results. These third-party providers may offer products of other companies, including products competitive with ours. If we do not successfully or efficiently establish, maintain and expand our industry relationships with influential market participants, we could lose sales and service opportunities, which would adversely affect our results of operations.

Our solutions have unpredictable sales cycles, making it difficult to plan our expenses and forecast our results.

It is difficult to determine how long the sales cycles for our solutions will be, thereby making it difficult to predict the quarter in which a particular sale will close and to plan expenditures accordingly. Moreover, to the extent that sales are completed in the final two weeks of a quarter, the impact of recurring revenue transactions is typically not reflected in our financial statements until subsequent quarters. The period between our initial contact with a potential customer and ultimate sale of our solutions is relatively long due to several factors, which may include:

• the complex nature of some of our products;

• the need to educate potential customers about the uses and benefits of our solutions;

• budget cycles of our potential customers that affect the timing of purchases;

• the expiration date of existing point solutions that we seek to replace;

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• customer requirements for competitive evaluation and often lengthy internal approval processes (particularly of large organizations) before purchasing our solutions; and

• potential delays of purchases due to announcements or planned introductions of new solutions by us or our competitors.

The length and unpredictability of our sales cycle make it difficult for us to project revenues and plan for levels of expenditures to support our solutions appropriately. If we do not manage our sales cycle successfully, we may misallocate resources and our financial results may be harmed.

Our latest product features and functionality may require existing on-premise license customers to migrate to our SaaS solutions. Moreover, we may choose or be compelled to discontinue maintenance support for older versions of our software products, forcing our on-premise customers to upgrade their software in order to continue receiving maintenance support. If existing on-premise license customers fail to migrate or delay migration to our on-demand solution, our revenue may be harmed.

We continue to promote our on-demand product offerings to existing customers who currently have on-premise perpetual and term licenses. Customers with on-premise licenses may need to migrate to our on-demand solutions to take full advantage of the features and functionality in those solutions. We expect to periodically terminate maintenance support on older versions of our on-premise products for various reasons including, without limitation, termination of support by third-party software vendors whose products complement ours or upon which we are dependent. Regardless of the reason, a migration is likely to involve additional cost, which our customers may delay or decline to incur. If a sufficient number of customers do not migrate to our on-demand product offerings, our continued maintenance support opportunities and our ability to sell additional products to these customers, and as a result, our revenue and operating income, may be harmed.

Risks Related to Our Stock

Our stock price is likely to remain volatile.

The trading price of our common stock has in the past, and may in the future, be subject to wide fluctuations in response to many factors, including those described in this section. The volume of trading in our common stock is limited, which may increase volatility. Investors should consider an investment in our common stock as risky and should purchase our common stock only if they can withstand significant losses. Other factors that affect the volatility of our stock include:

• our actual and anticipated operating performance and the performance of other similar companies;

• actual and anticipated fluctuations in our financial results;

• failure of securities analysts to maintain coverage of us;

• ratings changes by any securities analysts who follow us;

• failure to meet our projected results or the published operating estimates or expectations of securities analysts and investors;

• failure to achieve revenue or earnings expectations;

• price and volume fluctuations in the overall stock market, including as a result of trends in the global economy;

• significant sales by existing investors, coupled with limited trading volume for our stock;

• announcements by us or our competitors of significant contracts, results of operations, projections, or new technologies;

• lawsuits threatened or filed against us;

• adverse publicity;

• acquisitions, commercial relationships, joint-ventures or capital commitments;

• changes in our management team or board of directors;

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• publication of research reports, particularly those that are inaccurate or unfavorable, about us or our industry by securities analysts; and

• other events or factors, including those resulting from war, incidents or terrorism or responses to these events.

Additionally, some companies with volatile market prices for their securities have been the subject of securities class action lawsuits. Any such suit could have a material adverse effect on our business, results of operations, financial condition and price of our common stock.

Future sales of substantial amounts of our common stock, including securities convertible into or exchangeable for shares of our common stock could cause our stock price to fall.

We may issue additional shares of our common stock, including securities convertible into or exchangeable for, or that represent the right to receive, shares of our common stock. Such issuances will dilute the ownership interest of our stockholders and could adversely affect the market price of our common stock. We cannot predict the effect that future sales of shares of our common stock or other equity-related securities would have on the market price of our common stock. In addition, sales by existing stockholders of a large number of shares of our common stock in the public trading market (or in private transactions), including sales by our executive officers, directors or institutional investors, or the perception that such additional sales could occur, could cause the market price of our common stock to drop. We have stock options and restricted stock units outstanding for shares of our common stock. Our stockholders may incur dilution upon exercise of an outstanding stock option or vesting of outstanding restricted stock units.

We do not intend to pay dividends for the foreseeable future.

We have never declared or paid cash dividends on our capital stock. We currently intend to retain any future earnings to finance the operation and expansion of our business, and we do not expect to declare or pay any dividends in the foreseeable future. Consequently, stockholders must rely on sales of their common stock after price appreciation, which may never occur, as the only way to realize any future gains on their investment.

Provisions in our charter documents and Delaware law may delay or prevent an acquisition of our company.

Our certificate of incorporation and bylaws contain provisions that could make it harder for a third-party to acquire us without the consent of our board of directors. For example, if a potential acquirer were to make a hostile bid for us, the acquirer would not be able to call a special meeting of stockholders to remove our board of directors or act by written consent without a meeting. In addition, our board of directors has staggered terms, which means that replacing a majority of our directors would require at least two annual meetings. A potential acquirer would also be required to provide advance notice of its proposal to replace directors at any annual meeting, and would not be able to accumulate votes at a meeting, which would require such potential acquirer to hold more shares to gain representation on the board of directors than if cumulative voting were permitted. Furthermore, Section 203 of the Delaware General Corporation Law limits business combination transactions with 15% stockholders that have not been approved by the board of directors. All of these factors make it more difficult for a third-party to acquire us without negotiation. These provisions may apply even if the offer may be considered beneficial by some stockholders. Our board of directors could choose not to negotiate with a potential acquirer that it does not believe is in our strategic interests. If a potential acquirer is discouraged from offering to acquire us or prevented from successfully completing a hostile acquisition by these or other measures, under some circumstances, the market price of our common stock could be reduced.

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Item 1B.    Unresolved Staff Comments

None.

Item 2.    Properties

We lease our headquarters in Dublin, California which consists of approximately 75,000 square feet of office space. We also lease facilities in Alabama, Arizona, Georgia, Illinois, New York, Wisconsin, Australia, Hong Kong, India, Malaysia, Mexico, Serbia, Singapore, Japan and United Kingdom. We believe that our properties are in good operating condition and adequately serve our current business operations. We also anticipate that suitable additional or alternative space, including those under lease options, will be available at commercially reasonable terms for future expansion. Refer to Note 9 to our consolidated financial statements for information regarding our lease obligations.

In 2014 we also leased office space in Pleasanton, California of approximately 44,000 square feet, which we terminated in February 2015.

Item 3.    Legal Proceedings

Versata Software, Inc., Versata Development Group, Inc. and Versata Inc. v. Callidus Software, Inc. - Settled

On July 19, 2012, Versata Software, Inc. and Versata Development Group, Inc. (collectively, “Versata”) filed suit against us in the United States District Court for the District of Delaware (“Delaware District Court”). The suit asserted that we infringed U.S. Patent Nos. 7,904,326, 7,908,304 and 7,958,024. On May 30, 2013, we answered the complaint and filed a counterclaim in the Delaware District Court. Our counterclaim asserted that Versata infringed U.S. Patent Nos. 6,269,355, 6,850,924 and 6,473,748. On August 30, 2013, we filed petitions with the United States Patent and Trademark Office Patent Trial and Appeal Board (“PTAB”) for covered business method (“CBM”) patent review of U.S. Patent Nos. 7,904,326, 7,908,304 and 7,958,024, which Versata filed responses to on December 12, 2013. We also filed a motion with the Delaware District Court on August 30, 2013 to stay the litigation pending completion of the patent review proceedings with the PTAB (“Motion to Stay”). On January 8, 2014, we were granted leave by the Delaware District Court to add Versata Inc. (included in the above definition of “Versata”) as a counterclaim defendant. On March 4, 2014, the PTAB instituted covered business method patent review of each of Versata’s patents, namely, U.S. Patent Nos. 7,904,326, 7,908,304 and 7,958,024, finding it more likely than not that we would prevail in establishing that the challenged claims were not patentable. After requesting the PTAB to reconsider its decision to institute, which was denied, Versata filed a petition for writ of mandamus with the Court of Appeals for the Federal Circuit (“CAFC”) on April 11, 2014 asking that Court to deny institution of CBM patent review by the PTAB. The CAFC denied Versata’s petition for writ of mandamus on May 5, 2014. On April 17, 2014, we filed additional petitions with the PTAB for CBM patent review to address all of the remaining claims not previously covered in the prior petitions with respect to U.S Patent Nos. 7,908,304 and 7,958,024. On May 8, 2014, the Delaware District Court: (i) granted our Motion to Stay in part with respect to U.S. Patent No. 7,904,326 and (ii) denied our Motion to Stay in part with respect to U.S. Patent Nos. 7,908,304 and 7,958,024. On May 8, 2014, we appealed to the CAFC the Delaware District Court’s denial of the Motion to Stay with respect to U.S. Patent Nos. 7,908,304 and 7,958,024. On October 2, 2014, the PTAB instituted covered business method patent review of the remaining claims covered in the second set of petitions for U.S Patent Nos. 7,908,304 and 7,958,024. On October 21, 2014, we engaged in mediation with Versata and on November 13, 2014, entered into an agreement with Versata to settle and dismiss the pending district court litigation and patent office proceedings, to extend patent cross-licenses and covenants not to sue to one another, and we were appointed as an authorized reseller of certain Versata products. Under the agreement, each party covenanted not to sue the other (and its related entities) for infringement of any patents now owned (including pending patents) or later acquired by either party. In addition, each party granted to the other a fully paid-up, irrevocable, nonexclusive, worldwide license to certain patents (including the patents asserted in the pending district court litigation) for specified products of each party. The agreement also contained a release for any past infringement or claim between the parties and dismissal of the civil pending in the Delaware District Court, as well as the five covered business method patent review proceedings then-pending before the PTAB. Pursuant to the agreement, we agreed to pay to Versata $4.5 million in nine equal quarterly installments, commencing on January 31, 2015. The fair value of these payments was $4.3 million, of which we recognized a charge to earnings for $2.9 million and capitalized $1.4 million for the value of the patent license in 2014. The $1.4 million will be amortized to expense over the average life span of the associated patents of approximately 9.5 years. The difference between the installment payment and the fair value will be charged to interest as incurred.

We are, from time to time, a party to other various litigation and customer disputes incidental to the conduct of our business. At the present time, we believe that none of these matters is material.

Item 4.    Mine Safety Disclosures

None.

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PART II

Item 5.    Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Our common stock trades on the NASDAQ Global Market ("NASDAQ") under the symbol "CALD". The following table sets forth, for the periods indicated, the high and low intra-day sales prices reported on NASDAQ.

	Fiscal year ended December 31, 2014								Fiscal year ended December 31, 2013
	Fourth Quarter		Third Quarter		Second Quarter		First Quarter		Fourth Quarter		Third Quarter		Second Quarter		First Quarter
High	$	17.31	$	12.61	$	12.84	$	15.50	$	13.78	$	9.36	$	6.67	$	5.10
Low	$	11.28	$	10.41	$	9.15	$	10.99	$	8.52	$	6.34	$	4.10	$	4.10

As of February 17, 2015, there were 49,075,288 shares of our common stock outstanding held by 22 stockholders of record.

We have never declared or paid cash dividends on our capital stock. We expect to retain future earnings, if any, for use in the operation and expansion of our business and do not anticipate paying any cash dividends in the foreseeable future.

Performance Graph

The following performance graph shall not be deemed to be incorporated by reference by means of any general statement incorporating by reference this Form 10-K into any filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, except to the extent that we specifically incorporate this information by reference, and shall not otherwise be deemed filed under those acts.

The graph compares the cumulative total return of our common stock from December 31, 2009 through December 31, 2014 with the performance of the NASDAQ Composite Index and the NASDAQ Computer Index over those periods.

The graph assumes that (i) $100 was invested in our common stock at the closing price of our common stock on December 31, 2009, (ii) $100 was invested in each of the NASDAQ Composite Index and the NASDAQ Computer Index at the closing price of the respective indices on that date and (iii) all dividends received were reinvested. To date, no cash dividends have been declared or paid on our common stock.

	12/31/2009		12/31/2010		12/31/2011		12/31/2012		12/31/2013		12/31/2014
Callidus Software Inc.	$	100	$	167	$	213	$	150	$	455	$	541
NASDAQ Composite	$	100	$	118	$	117	$	137	$	193	$	221
NASDAQ Computer	$	100	$	118	$	120	$	137	$	183	$	223

*    We have not changed comparable indices since 2009.

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Item 6.    Selected Financial Data

The following selected consolidated financial data should be read in conjunction with the Management's Discussion and Analysis of Financial Condition and Results of Operations section and the Consolidated Financial Statements and Notes thereto included elsewhere in this annual report. The selected consolidated statements of operations data for each of the years in the three-year period ended December 31, 2014, and the consolidated balance sheet data as of December 31, 2014 and 2013, are derived from our audited consolidated financial statements that have been included in this annual report. The selected consolidated statement of operations data for the years ended December 31, 2011 and 2010 and the selected consolidated balance sheet data as of December 31, 2012, 2011 and 2010 are derived from our audited consolidated financial statements that have not been included in this Form 10-K.

	Year Ended December 31,
	2014			2013			2012			2011			2010
	(In thousands, except per share amounts)
Consolidated Statements of Operations Data:
Revenue:
Recurring	$	99,807		$	81,734		$	70,919		$	63,002		$	53,025
Services and license	36,811			30,603			24,033			20,769			17,855
Total revenue	136,618			112,337			94,952			83,771			70,880
Cost of revenue:
Recurring	31,282			28,741			30,039			32,820			26,180
Services and license	24,756			19,048			20,301			16,487			15,733
Patent settlement	—			—			—			701			—
Total cost of revenue	56,038			47,789			50,340			50,008			41,913
Gross profit	80,580			64,548			44,612			33,763			28,967
Operating expenses:
Sales and marketing	47,040			34,916			32,442			20,203			16,229
Research and development	20,307			17,143			16,643			12,025			10,369
General and administrative	26,255			22,951			19,953			17,726			13,754
Income from settlement and patent licensing	(500		)	(500		)	—			—			—
Acquisition-related contingent consideration	—			—			(1,612		)	—			—
Restructuring	1,025			1,699			1,115			649			1,655
Impairment of acquired intangible assets	—			—			—			—			160
Total operating expenses	94,127			76,209			68,541			50,603			42,167
Loss from operations	(13,547		)	(11,661		)	(23,929		)	(16,840		)	(13,200		)
Interest income and other income (expense), net	3,504			264			70			(333		)	46
Interest expense	(506		)	(3,183		)	(3,451		)	(2,495		)	(60		)
Debt conversion expense (1)	—			(4,776		)	—			—			—
Gain on extinguishment of convertible notes	—			—			—			915			—
Loss before provision for income taxes	(10,549		)	(19,356		)	(27,310		)	(18,753		)	(13,214		)
Provision for (benefit from) income taxes	1,012			2,055			388			(2,919		)	(478		)
Net loss	$	(11,561	)	$	(21,411	)	$	(27,698	)	$	(15,834	)	$	(12,736	)
Net loss per share:
Basic and diluted	$	(0.24	)	$	(0.55	)	$	(0.78	)	$	(0.48	)	$	(0.40	)
Weighted average shares:
Basic and diluted	47,547			38,858			35,393			32,809			31,536

(1) Refer to Note 8 to our Notes to Consolidated Financial Statements for information regarding our convertible debt.

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	As of December 31,
	2014			2013		2012		2011		2010
	(In thousands)
Consolidated Balance Sheet Data:
Cash, cash equivalents and short-term investments	$	36,966		$	36,161	$	29,171	$	52,789	$	30,703
Total assets	176,298			134,193		124,743		133,607		79,805
Working capital	(2,905		)	7,161		2,425		28,440		11,498
Total liabilities	117,824			92,140		121,315		119,065		51,723
Total stockholders' equity	58,474			42,053		3,428		14,542		28,082

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

Overview

CallidusCloud® is a global leader in cloud-based sales, marketing, learning and customer experience solutions. CallidusCloud enables its customers to accelerate their Lead to Money process with a suite of solutions that, among other things, identify leads, implement territory and quota plans, enable sales forces, automate bid configuration pricing and quoting, manage contracts, streamline sales compensation and capture customer feedback for competitive advantage. Over 3,700 organizations, across a broad set of industries, rely on CallidusCloud to optimize the Lead to Money process and close more deals, faster.

Lead to Money is a process designed to help companies respond to the changing role of sales and marketing in the redefined buying cycle. In the last decade, the ubiquity of social networks, mobile devices and e-commerce has transformed the traditional sales cycle into a buyer-led digital journey. Buyers are researching and evaluating companies online and are completing a significant portion of their purchases digitally. In order to successfully turn leads into money, sales, marketing, learning and customer experience teams must work together.

We provide a suite of Software-as-a-Service ("SaaS") solutions which generate revenue from cloud subscriptions, sales and marketing operation services and term licenses. Our SaaS customers typically purchase annual subscriptions, but may agree to purchase multi-year commitments.

Revenue Increase and Customer Expansion

During 2014, we added more than 1,400 net new customers; as of December 31, 2014 we had over 3,700 customers. Our SaaS Annual Contract Value (“ACV”) increase in 2014 and 2013 was 35% and 29% respectively. ACV represents the aggregate value of the first 12 months of the contracted SaaS subscription. Our customer retention rate for our SaaS enterprise customers remained at 90% in 2014. We believe our high retention rates indicate the quality of our solutions and we strive to maintain these retention rates in a competitive environment.

In 2014, total revenue was $136.6 million, an increase of $24.3 million, or 22%, from 2013. Total recurring revenue, which includes SaaS revenue and maintenance revenue, increased by 22% in 2014, primarily as a result of higher SaaS revenue. SaaS revenue continued to drive the increase in both recurring revenue and total revenue, reflecting market acceptance of our solutions and our continued marketing and sales efforts. SaaS revenue increased to $83.7 million in 2014, representing an increase of $17.8 million or 27% from 2013. In 2014, recurring revenue accounted for 73% of our total revenue, and we expect that percentage will increase going forward. SaaS revenue contributed to an increase in recurring revenue gross margins to 69% in 2014 from 65% in 2013 and to an increase in overall gross margins to 59% in 2014 from 57% in 2013. Revenue from customer excess use was immaterial during 2014 and 2013.

Acquisitions

On September 16, 2014, we invested in our Lead to Money suite by acquiring Clicktools Ltd. ("Clicktools"), a provider of premium cloud-based survey products and services for businesses. The purchase consideration was $16.4 million, which included $14.8 million paid in cash and an indemnity holdback of $1.6 million payable upon the one year anniversary of the closing.

Clicktools financial results from September 16, 2014 to December 31, 2014 was included in our operating results.

On February 4, 2014, we acquired all of the common stock of LeadRocket, Inc. (“LeadRocket”), a provider of marketing automation and demand generation solutions that enable both marketing and sales users to identify and connect with leads efficiently. We acquired LeadRocket to strengthen our social engagement and digital marketing platform. The purchase consideration was $3.0 million, which included $2.5 million paid in cash and $0.5 million as indemnity holdback payable upon the one year closing anniversary.

LeadRockets, financial results from February 4, 2014 to December 31, 2014 was included in our operating results.

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Application of Critical Accounting Policies and Use of Estimates

Our discussion and analysis of our financial condition and results of operations that follows is based upon our consolidated financial statements prepared in accordance with U.S. Generally Accepted Accounting Principles ("GAAP"). The application of GAAP requires our management to make assumptions, judgments and estimates that affect our reported amounts of assets, liabilities, revenue and expenses, and the related disclosures regarding these items. We base our assumptions, judgments and estimates on historical experience and on various other factors that we believe to be reasonable under the circumstances. Actual results could differ significantly from these estimates under different assumptions or conditions. To the extent that there are material differences between these estimates and actual results, our future financial condition or results of operations will be affected. On a regular basis, we evaluate our assumptions, judgments and estimates. We also discuss our critical accounting policies and estimates with our Audit Committee of the board of directors.

We believe that the assumptions, judgments and estimates involved in the accounting for revenue recognition, allowance for doubtful accounts, stock-based compensation, valuation of acquired intangible assets, goodwill impairment, long-lived asset impairment, contingent consideration and income taxes have the greatest potential impact on our consolidated financial statements. These areas are key components of our results of operations and are based on complex rules which require us to make judgments and estimates. Historically, our assumptions, judgments and estimates in accordance with our critical accounting policies have not materially differed from actual results. For a more detailed discussion of these accounting policies and our use of estimates, refer to Note 1 of our Notes to Consolidated Financial Statements included in this report.

Revenue Recognition

We recognize revenue when all four revenue recognition criteria are met: persuasive evidence of an arrangement exists, we have delivered the product or performed the service, the fee is fixed or determinable and collection is reasonably assured. Determining whether and when some of these criteria have been satisfied often involves assumptions and judgments that can have a significant impact on the timing and amount of revenue we recognize. Changes in assumptions or judgments or changes to the elements in a software arrangement could cause a material increase or decrease in the amount of revenue that we report in a particular period. Refer to Note 1 of our Notes to Consolidated Financial Statements included in this report for further discussion on our revenue recognition policies.

Allowance for Doubtful Accounts

We estimate the uncollectibility of accounts receivable, and record an increase in the allowance for doubtful accounts when the prospect of collecting a specific account receivable becomes doubtful. Management specifically analyzes accounts receivable and historical bad debt experience, customer creditworthiness, current economic trends, international situations (such as currency devaluation) and changes in our customer payment history when evaluating the adequacy of the allowance for doubtful accounts. Should any of these factors change, the estimates made by management will also change, which could affect the level of our future provision for doubtful accounts.

Stock-based Compensation

Stock-based compensation expense is measured at the grant date based on the fair value of the award and is recognized on a straight-line basis over the requisite service period, which is generally the vesting period. Stock-based compensation expense for restricted stock units ("RSUs") is estimated based on the closing price of our common stock on the date of grant and the estimated forfeiture rate, which is based on historical forfeitures. We measure the value of stock options and employee stock purchase plan shares using the Black-Scholes-Merton option pricing model. The determination of the fair value of our stock awards on the date of grant using an option pricing model is affected by our stock price as well as assumptions regarding a number of subjective variables. These variables include: the expected term of the options, taking into account projected exercises; our expected stock price volatility over the expected term of the awards; the risk-free interest rate and expected dividends. We estimate forfeiture rate based on an analysis of its actual forfeitures and will continue to evaluate the adequacy of the forfeiture rate based on actual forfeiture experience and other factors. Changes in these variables could affect stock-based compensation expense in the future.

We granted performance-based share award ("PSUs") to select executives and other key employees.  Our PSUs are in the form of restricted stock units, the vesting of which is based on achievement of specified company or other goals. In 2014, we granted PSUs with vesting contingent on our absolute SaaS revenue growth over the three year period from 2014 to 2016, and our relative total shareholder return over the three year period from 2014 through 2016 compared to an index of 17 SaaS companies. These PSUs will, to the extent the performance criteria are achieved, vest on the third anniversary of the grant date. PSU awards based on total shareholder return is recognized as compensation costs over the requisite service period, if rendered, even if the market condition is never satisfied. In determining the fair value of PSUs based on total shareholder return the Company considered the achievement of the market condition in the estimated fair value.

Goodwill, Intangible Assets, Long-Lived Assets and Impairment Assessments

Goodwill represents the excess of the purchase price over the fair value of net assets acquired in connection with business combinations accounted for using the purchase method of accounting. Goodwill is not amortized, but instead goodwill is required to be tested for impairment annually and under certain circumstances. The Company performs such testing of goodwill in the fourth quarter of each year, or as events occur or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount.

The Company conducts a two-step test for impairment of goodwill. The first step of the test for goodwill impairment compares the fair value of the applicable reporting unit with its carrying value. If the fair value of a reporting unit is less than the reporting unit's carrying value, the Company will perform the second step of the test for impairment of goodwill. During the second step of the test for impairment of

23

goodwill, the Company will compare the implied fair value of the reporting unit's goodwill with the carrying value of that goodwill. If the carrying value of the goodwill exceeds the calculated implied fair value, the excess amount will be recognized as an impairment loss. The Company has one reporting unit and evaluates goodwill for impairment at the entity level. Based upon the results of the step one testing, the Company concluded that no impairment existed as December 31, 2014, and did not perform the second step of the goodwill impairment test.

Intangible assets with finite lives are amortized over their estimated useful lives. Refer to Note 4 of our Notes to Consolidated Financial Statements included in this report for a detailed discussion on useful lives over which our intangible assets are amortized. Generally, amortization is based on the higher of a straight-line method or the pattern in which the economic benefits of the intangible asset will be consumed. There was no impairment expense related to intangible assets during 2014, 2013 and 2012.

The Company also evaluates the recoverability of its long-lived assets for possible impairment whenever events or circumstances indicate that the carrying amount of such assets may not be recoverable. If such review indicates that the carrying amount of long-lived assets is not recoverable, the carrying amount of such assets is reduced to fair value. There were no impairment charges recorded during 2014, 2013 and 2012.

Business Combinations

We recognize assets acquired, liabilities assumed, and contingent consideration at their fair value on the acquisition date with subsequent changes recognized in earnings; recognizes acquisition related expenses and restructuring costs as incurred; and recognizes changes in accounting for deferred tax asset valuation allowances and acquired income tax uncertainties after the measurement period as a component of provision for taxes. During the measurement period, which may be up to one year from the business combination date, we record adjustments to the assets acquired and liabilities assumed, with the corresponding offset to goodwill. After the measurement period, we record adjustments to the assets acquired or liabilities assumed in our operating results in the period in which the adjustments were determined.

Contingent Consideration

We estimate the fair value of the contingent consideration issued in business combinations using a probability-based income approach. The fair value of our liability-classified contingent consideration is remeasured at each reporting period, with any changes in the fair value recorded as income or expense. Contingent acquisition consideration payable is included in accrued liabilities and on the Company's consolidated balance sheets.    

Accounting for Income Taxes

Income tax expense is recognized for the amount of taxes payable or refundable for the current year. In addition, deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the financial reporting and tax bases of assets and liabilities, and for operating losses and tax credit carryforwards. Management must make assumptions, judgments and estimates to determine our current provision for income taxes and also our deferred tax assets and liabilities and any valuation allowance to be recorded against a deferred tax asset.

Our assumptions, judgments and estimates relative to the current provision for income taxes and withholding taxes takes into account current tax laws, our interpretation of those laws and possible outcomes of current and future audits conducted by foreign and domestic tax authorities. We have established reserves for income taxes to address potential exposures for tax positions that could be challenged by tax authorities. Although we believe our assumptions, judgments and estimates are reasonable, changes in tax laws or our interpretation of tax laws and the resolution of potential tax audits could significantly impact the amounts provided for income taxes in our consolidated financial statements.

Our assumptions, judgments and estimates relative to the value of a deferred tax asset take into account predictions of the amount and category of future taxable income, such as income from operations or capital gains. Actual operating results and the underlying amount and category of income in future years could render our current assumptions, judgments and estimates of recoverable net deferred taxes inaccurate. Any of the assumptions, judgments and estimates mentioned above could cause our actual income tax obligations to differ from our estimates, thus materially impacting our financial position and results of operations.

Recent Accounting Pronouncements

Refer to Note 1 to our Notes to Consolidated Financial Statements included in this report for information regarding the effect of newly adopted accounting pronouncements on our financial statements.

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Results of Operations

Comparison of the Years Ended December 31, 2014 and 2013

Revenue, Cost of Revenue and Gross Profit

The table below sets forth the changes in revenue, cost of revenue and gross profit in 2014 from 2013 (in thousands, except percentage data):

	Year Ended December 31, 2014		Percentage of Revenue	Year Ended December 31, 2013		Percentage of Revenue	Increase (Decrease)		Percentage Change
Revenue:
Recurring	$	99,807	73%	$	81,734	73%	$	18,073	22%
Services and license	36,811		27%	30,603		27%	6,208		20%
Total revenue	$	136,618	100%	$	112,337	100%	$	24,281	22%
Cost of revenue:
Recurring	$	31,282	31%	$	28,741	35%	$	2,541	9%
Services and license	24,756		67%	19,048		62%	5,708		30%
Total cost of revenue	$	56,038	41%	$	47,789	43%	$	8,249	17%
Gross profit:
Recurring	$	68,525	69%	$	52,993	65%	$	15,532	29%
Services and license	12,055		33%	11,555		38%	500		4%
Total gross profit	$	80,580	59%	$	64,548	57%	$	16,032	25%

Revenue

Total Revenue. The increase in total revenue for 2014 compared to 2013 was due to higher volume of recurring revenue generated by our SaaS business driven by ACV growth, increased professional services revenue and acquisitions in 2014. This increase was partially offset by a decrease in license revenue.

Recurring Revenue. Recurring revenue consists of SaaS revenue and maintenance revenue. SaaS revenue increased to $83.7 million in 2014, representing an increase of $17.8 million or 27% from 2013. During the fourth quarter of 2014 our SaaS revenue increased $7.2 million or 42%. The increase in SaaS revenue was primarily due to continued ACV growth and revenue from our acquisitions. We believe our investment in expanding the sales force in recent years has positively impacted SaaS revenue growth. Maintenance revenue increased slightly in 2014 to $16.1 million from $15.8 million in 2013.

Services and License Revenue. Services and license revenue consists of integration and configuration services ("consulting services"), training and perpetual licenses. Service revenue increased by $10.0 million or 45% due to increased consulting services resulting from higher SaaS bookings. This increase was partially offset by license revenue which decreased by $3.8 million or 47%, as we closed a smaller number of on-premise license contracts in 2014.

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Cost of Revenue and Gross Profit

Cost of Recurring Revenue. The increase in cost of recurring revenue in 2014 was primarily driven by a $1.0 million royalty expense related to a litigation settlement with Versata, increased maintenance costs and depreciation on capital equipment purchases for our hosting facility to support our larger customer base.

Cost of Services and License Revenue. The increase in cost of services and license revenue in 2014 was primarily due to increased personnel and expanded use of third-party consultants required to meet customer demand for consulting services.

Recurring Revenue Gross Profit. The improvement in our recurring revenue gross profit in 2014 , was primarily due to increased SaaS revenue and economies of scale in our on-demand infrastructure costs, offset by $1.0 million royalty expense related to a litigation settlement with Versata.

Services and License Revenue Gross Profit. The increase in our services and license gross profit in 2014 was primarily due to increased consulting services revenue and improved utilization of consulting personnel, partially offset by a decrease in gross profit contribution from license fees resulting from lower license fee revenue.

Operating Expenses

The table below sets forth the changes in operating expenses in 2014 from 2013 (in thousands, except percentage data):

	Year Ended December 31, 2014			Percentage of Revenue	Year Ended December 31, 2013			Percentage of Revenue	Increase (Decrease)			Percentage Change
Operating expenses:
Sales and marketing	$	47,040		34%	$	34,916		31%	$	12,124		35%
Research and development	20,307			15%	17,143			15%	3,164			18%
General and administrative	26,255			19%	22,951			20%	3,304			14%
Income from settlement and patent licensing	(500		)	—%	(500		)	—%	—			—%
Restructuring and other	1,025			1%	1,699			2%	(674		)	(40)%
Total operating expenses	$	94,127		69%	$	76,209		68%	$	17,918		24%

Sales and Marketing. Higher sales and marketing expense in 2014 was primarily due to additional costs of $7.5 million associated with personnel costs related to sales and marketing, increased marketing events of $2.6 million such as our C3 conferences in Las Vegas, Japan and EMEA, and increased share-based compensation expense of $1.1 million.

Research and Development. The increase in research and development expenses in 2014, was driven primarily by a $2.8 million increase in personnel related costs as we continue to invest in headcount to support product development.

General and Administrative.   The increase in general and administrative expenses in 2014 was primarily due to a $2.2 million litigation related Versata settlement and a $2.3 increase to support our continued business growth, including an increase in personnel related costs as well as corporate insurance and maintenance expenses. This was in part offset by reduction in severance and recruiting fees of $1.2 million due to the departure and replacement of our chief financial officer in 2013.

Income from Settlement and Patent Licensing. On November 25, 2013, Xactly Corporation, Xactly's President and Chief Executive Officer and we entered into a settlement agreement that, among other things, includes an agreement by Xactly to pay us $2.0 million in license fee, which will be paid in four annual installments of $0.5 million which began in November 2013. Upon receipt of installment payments, we recorded the amount under operating expenses as an offset to legal fees. In each of 2013 and 2014, we recorded $0.5 million of offset to legal fees under operating expenses regarding this settlement.

Restructuring and Other. The decrease in restructuring and other expenses in 2014 is due to a larger scale of restructuring activities in 2013, which included the departure of our former general counsel and the realignment of our organization, including consolidation of our office locations. This decrease was partially offset by an increase in 2014 depreciation expense as a result of the change in estimated useful life of assets at current headquarters in Pleasanton, CA.

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Stock-Based Compensation

The following table summarizes our stock-based compensation expenses in 2014 and 2013 (in thousands, except percentage data).

	Year Ended December 31,				Increase (Decrease)			Percentage Change
	2014		2013
Stock-based compensation:
Cost of recurring revenue	$	911	$	783	$	128		16%
Cost of services revenue	1,026		1,060		(34		)	(3)%
Sales and marketing	3,518		2,420		1,098			45%
Research and development	2,012		1,797		215			12%
General and administrative	4,346		4,335		11			—%
Total stock-based compensation	$	11,813	$	10,395	$	1,418		14%

Total stock-based compensation expense increased in 2014 compared to 2013, due to a higher number of restricted stock units granted in 2014. We did not grant any stock options in 2014.

Other Items

The table below sets forth the changes in other items in 2014 and 2013 (in thousands, except percentage data):

	Year Ended December 31,						Increase (Decrease)			Percentage Change
	2014			2013
Other income (expense), net
Interest income and other income, net	$	3,504		$	264		$	3,240		1,227%
Interest expense	(506		)	(3,183		)	2,677			(84)%
Debt conversion expense	$	—		$	(4,776	)	$	4,776		(100)%
Other income (expense), net	$	2,998		$	(7,695	)	$	10,693		(139)%
Provision for income taxes	$	1,012		$	2,055		$	(1,043	)	(51)%

Interest Income and Other Income (Expense), net

The increase in interest income and other income in 2014 was primarily due to a $3.9 million gain on the sale of select domain names and trademarks offset by $0.3 million of foreign currency loss.

Interest Expense

Interest expense decreased in 2014 due to the debt conversion described below.

Debt Conversion Expense

During the fourth quarter of 2013, noteholders converted approximately $45.0 million principal amount of our 4.75% Convertible Senior Notes that were set to mature in July 2016 with an early call option in June 2014. In 2013, with the approval of our Board of Directors, management negotiated inducements with three noteholders to provide certainty of conversion and to strengthen the balance sheet. As an inducement for early conversion for 100% of our 4.75% the Convertible Senior Notes, we incurred $4.8 million of debt conversion expense, consisting of $4.4 million in cash and $0.4 million in stock premium. In 2014, noteholders converted the remaining $14.2 million after we exercised the call provisions of these notes and we did not incur an inducement for early conversion.

Provision for Income Taxes

Provision for income tax decreased in 2014 as compared to 2013. The decrease is primarily due to a decrease in foreign withholding taxes, and income taxes in foreign jurisdictions.

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Comparison of the Years Ended December 31, 2013 and 2012

Revenue, Cost of Revenue and Gross Profit

The table below sets forth the changes in revenue, cost of revenue and gross profit in 2013 from 2012 (in thousands, except percentage data):

	Year Ended December 31, 2013		Percentage of Revenue	Year Ended December 31, 2012		Percentage of Revenue	Increase (Decrease)			Percentage Change
Revenue:
Recurring	$	81,734	73%	$	70,919	75%	$	10,815		15%
Services and license	30,603		27%	24,033		25%	6,570			27%
Total revenue	$	112,337	100%	$	94,952	100%	$	17,385		18%
Cost of revenue:
Recurring	$	28,741	35%	$	30,039	42%	$	(1,298	)	(4)%
Services and license	19,048		62%	20,301		84%	(1,253		)	(6)%
Total cost of revenue	$	47,789	43%	$	50,340	53%	$	(2,551	)	(5)%
Gross profit:
Recurring	$	52,993	65%	$	40,880	58%	$	12,113		30%
Services and license	11,555		38%	3,732		16%	7,823			210%
Total gross profit	$	64,548	57%	$	44,612	47%	$	19,936		45%

Revenue

Total Revenue.   The increase the total revenue in 2013 was primarily due to higher volume of recurring revenue generated by our SaaS business due to our continued emphasis and focus on recurring revenue.

Recurring Revenue.   The increase in recurring revenue in 2013, which consists of SaaS revenue and maintenance revenue, was primarily due to the growth in our SaaS revenue which increased by 20% in 2013 compared to 2012. SaaS revenue growth is mainly driven by an increase in new business generated from our existing solutions and new business from our acquisitions. We believe our investment in expanding the sales force in recent years has positively impacted revenue growth. Maintenance revenue remained consistent in 2013 compared to 2012 at $15.8 million, primarily due to our conversion of customers from on-premise license to on-demand subscription service.

Services and License Revenue.  The increase in services and other revenue in 2013, consisting of integration and configuration services, training and perpetual licenses, was primarily due to a $4.1 million or 99% increase in our on-premise license revenue as compared to 2012. The increase in our perpetual license revenue primarily reflects new customers and up-selling to existing customers. In addition, there was $2.5 million or a 12% increase in our revenue generated from integration and configuration services, to $22.4 million in 2013 from $19.9 million in 2012. The increases in our revenue generated from integration and configuration services were primarily related to additional services revenue from our increased amount of revenue contracts.

Cost of Revenue and Gross Profit

Cost of Recurring Revenue.   The decrease in cost of recurring revenue in 2013 was primarily driven by a decrease of $2.8 million in professional fees due to our insourcing of operations in India that occurred in the fourth quarter of 2012, and a $0.8 million reduction in stock-based compensation expense as a result of less outstanding awards. These decreases were partially offset by $2.6 million of increased expense from expanding our data center, including equipment, maintenance and depreciation.

Cost of Services and Other Revenue.  Cost of services and other revenue decreased in 2013 primarily due to $1.4 million decrease in professional fees related to a fixed fee project that ended in the fourth quarter of 2012 and reduction in expenses related to third-party operations center.

Recurring Revenue Gross Profit.  Overall gross profit increased in 2013 because of increased SaaS revenue and lower third-party data center and personnel costs as we moved away from outsourcing our data center management for our core products and used our own internal resources, which included the transfer of personnel to our in-house facility in India in the fourth quarter of 2012.

Services and License Gross Profit. The increase in gross profit in 2013 was primarily due to increased revenue from perpetual license fees from on-premise customer purchases and decreased professional fees due to the end of a fixed fee project in integration and configuration services in 2012, and overall higher utilization of professional services personnel.

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Operating Expenses

The table below sets forth the changes in operating expenses in 2013 from 2012 (in thousands, except percentage data):

	Year Ended December 31, 2013			Percentage of Revenue	Year Ended December 31, 2012			Percentage of Revenue	Increase (Decrease)			Percentage Change
Operating expenses:
Sales and marketing	$	34,916		31%	$	32,442		34%	$	2,474		8%
Research and development	17,143			15%	16,643			18%	500			3%
General and administrative	22,951			20%	19,953			21%	2,998			15%
Income from settlement and patent licensing	(500		)	—%	—			—%	(500		)	100%
Acquisition-related contingent consideration	—			—%	(1,612		)	(2)%	1,612			(100)%
Restructuring expenses and other	1,699			2%	1,115			1%	584			52%
Total operating expenses	$	76,209		68%	$	68,541		72%	$	7,668		11%

Sales and Marketing.   The increase in sales and marketing costs in 2013 was primarily due to an additional $3.2 million in personnel-related costs related to the sales force expansion and commission expense, and $0.4 million increase in partner commission in our indirect channel. The increase was partially offset by a $1.4 million decrease in stock based compensation due to fewer outstanding awards compared to 2012.

Research and Development.  The increase in research and development costs in 2013 was primarily due to a $1.5 million net increase in personnel-related costs for bonus payments and insourcing of our operations in India. This insourcing resulted in a $1.2 million decrease in professional fees.

General and Administrative.  The increase in general and administrative costs in 2013 was primarily due to a $1.2 million increase in professional fees including increased audit, legal and contractor fees, a $1.1 million increase in personnel-related cost as a result of increased headcount and severance charges related to the departure of our former Chief Financial Officer, and a $0.8 million increase in sales tax and bad debt expense.

Income from Settlement and Patent Licensing. On November 25, 2013, Xactly Corporation, Xactly's President and Chief Executive Officer and we entered into a settlement agreement that, among other things, includes an agreement by Xactly to pay the Company $2.0 million in license fee, which will be paid in four annual installments of $0.5 million which began in November 2013. Upon receipt of installment payments, the Company will record the amount under operating expenses as an offset to legal fees. During 2013, the Company recorded $0.5 million of offset to legal fees under operating expenses regarding this settlement.

Acquisition-related Contingent Consideration.  The decrease in acquisition-related contingent consideration in 2013 was because there was no acquisition activity or change in contingent consideration during 2013.

Restructuring and Other.   The increase in restructuring and other expenses in 2013 as compared to 2012 is because we continued to centralize certain company functions to our headquarters facility, and outsourced certain IT functions during 2013.

Stock-Based Compensation

The following table summarizes our stock-based compensation expenses for 2013 and 2012 (in thousands, except percentage data).

	Year Ended December 31,				Increase (Decrease)			Percentage Change
	2013		2012
Stock-based compensation:
Cost of recurring revenue	$	783	$	1,550	$	(767	)	(49)%
Cost of services revenue	1,060		2,070		(1,010		)	(49)%
Sales and marketing	2,420		3,778		(1,358		)	(36)%
Research and development	1,797		1,782		15			1%
General and administrative	4,335		4,475		(140		)	(3)%
Total stock-based compensation	$	10,395	$	13,655	$	(3,260	)	(24)%

Total stock-based compensation expense decreased because of fewer outstanding awards and the timing of grants in 2013.

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Other Items

The table below sets forth the changes in other items from 2012 to 2013 (in thousands, except percentage data):

	Year Ended December 31,						Increase (Decrease)			Percentage Change
	2013			2012
Other income (expense), net
Interest income and other income (expense), net	$	264		$	70		$	194		277%
Interest expense	(3,183		)	(3,451		)	268			(8)%
Debt conversion expense	(4,776		)	—			(4,776		)	(100)%
	$	(7,695	)	$	(3,381	)	$	(4,314	)	128%
Provision (benefit) for income taxes	$	2,055		$	388		$	1,667		430%

Interest Income and Other Income (Expense), net

The increase in interest income and other income in 2013 was driven by interest income from investments and a release of accrual related to the purchase accounting of an acquisition.

Interest Expense

Interest expense decreased in 2013 due to the debt conversion described below.

Debt Conversion Expense

During the fourth quarter of 2013, we converted approximately $45.0 million principal amount of 4.75% Convertible Senior Notes that mature in July 2016 with an early call option in June 2014. In 2013, with the approval of our Board of Directors, management negotiated inducements with three noteholders to provide certainty of conversion and to strengthen the balance sheet. As an inducement for early conversion, the Company incurred $4.8 million of debt conversion expense, consisting of $4.4 million in cash and $0.4 million in stock premium.

Provision for (Benefit from) Income Taxes

Provision for income tax increased in 2013 due to an increase in foreign withholding taxes and income taxes in foreign jurisdiction.

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Liquidity and Capital Resources

As of December 31, 2014, our principal sources of liquidity were cash, cash equivalents and short-term investments totaling $37.0 million, and cash flow from operations, supplemented by a revolving line of credit.

During 2014, accounts receivable and deferred revenue increased significantly due to growth in SaaS revenue. We expect these trends to continue into 2015 as we expect to continue to achieve positive operating cash flows during 2015.

During 2014, an aggregate principal amount of $14.2 million of our 4.75% Convertible Notes was converted into 1,840,770 shares of common stock. As of December 31, 2014, the Company had no outstanding Convertible Notes.

In May 2014, we entered into a credit agreement with Wells Fargo Bank, National Association ("Wells Fargo"), under which Wells Fargo agreed to make a revolving loan ("Revolver") to us in an amount not to exceed $10.0 million, with an accordion feature that allows us to increase the maximum borrowing amount by not less than $5.0 million and not more than $10.0 million. The Revolver matures in May 2019. Outstanding borrowings under the Revolver bear interest, at our option, at a base rate plus an applicable margin. The applicable margin ranges between 0.75% and 2.25% depending on our leverage ratio. Interest is payable every three months. In September 2014, we exercised the accordion feature and increased the maximum borrowing amount to $15.0 million. As of December 31, 2014 we have borrowed $10.5 million under the Revolver.

We believe our existing cash, cash equivalents and short-term investments and cash provided by operating activities will be sufficient to meet our working capital and capital expenditure needs over the next 12 months.

The following table summarizes, for the periods indicated, selected items in our consolidated statements of cash flows (in thousands):

	Year Ended December 31,
	2014			2013			2012
Net cash (used in) provided by operating activities	$	9,151		$	13,749		$	(1,705	)
Net cash provided by (used in) investing activities	(14,004		)	2,474			1,704
Net cash (used in) provided by financing activities	11,041			(4,264		)	(1,004		)

In 2014, cash and cash equivalents increased by approximately $5.9 million primarily due to $9.2 million of cash provided by our operating activities and $11.0 million of cash provided by our financing activities, partially offset by $14.0 million of cash used by our investing activities.

Fiscal 2014

Net cash provided by operating activities was $9.2 million, $4.6 million lower compared to net cash provided by operating activities of $13.8 million in 2013. For the year ended December 31, 2014, the net loss of $11.6 million included a gain on sale of intangible assets of $3.9 million, offset by adjustments to net loss of $19.1 million primarily driven by $10.5 million of depreciation and amortization expense, and $11.8 million of stock based compensation expense. Changes in working capital provided cash of $1.7 million, which includes $11.4 million increase in deferred revenue, $6.7 million increase in accrued expenses and $1.1 million in accrued payroll expense, partially offset by $11.7 million increase in accounts receivable, $3.8 million increase in prepaid expenses, $1.1 million increase in non-current other assets, $0.8 million decrease in accounts payable and $0.2 million decrease in accrued restructuring and other expenses.

Net cash used in investing activities was $14.0 million, $16.5 million lower than net cash provided by investing activities of $2.5 million in 2013. The decrease in net cash used in investing activities was primarily due acquisitions of $15.5 million for LeadRocket, Inc. and Clicktools Ltd. and purchases of property and equipment of $7.1 million for our data center improvements and new facilities, partially offset by the net proceeds from maturities and sale of investments of $5.1 million and proceeds from sale of our domain name from LeadRocket, included in intangible assets, for $4.7 million.

Net cash provided by financing activities was $11.0 million, $15.3 million higher compared to net cash used in financing activities of $4.3 million in 2013. The increase in net cash provided by financing activities was primarily due to $10.5 million proceeds from the revolving line of credit and $3.1 million of proceeds net of purchases from the issuance of common stock pursuant to exercise and release of stock awards, partially offset by the $0.6 million payment on debt conversion, $0.6 million in payment of consideration related to acquisitions, and $1.3 million in payment of principal under capital leases.

Fiscal 2013

Net cash provided by operating activities was $13.7 million, $15.5 million higher compared to net cash used in operating activities of $1.7 million in 2012. The net loss of $21.4 million for the year ended December 31, 2013 was offset by adjustments to net loss of $26.0 million primarily driven by $9.3 million of depreciation and amortization expense, $10.4 million of stock based compensation expense, and $4.8 million of debt conversion expense. Changes in working capital also provided $9.1 million during the year ended December 31, 2013 primarily due to $17.5 million increase in deferred revenue and $2.0 million in accrued payroll and related expenses, partially offset by $7.6 million increase in accounts receivable, $1.3 million increase in non-current other assets, and $1.7 million decrease in accounts payable. Cash provided by operating activities was impacted by an increase in invoicing and collection effort that resulted in a

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decrease in gross days sales outstanding to 78 days in 2013 from 93 days in 2012.

Net cash provided by investing activities was $2.5 million, $0.8 million higher compared to net cash provided by investing activities of $1.7 million in 2012. The increase in net cash provided by investing activities was primarily due to net proceeds from maturities and sale of investments of $4.8 million, partially offset by purchases of property and equipment of $1.7 million for our data center and new facilities.

Net cash used in financing activities was $4.3 million, $3.3 million higher compared to net cash used in financing activities of $1.0 million in 2012. The increase in net cash used in financing activities was primarily due to $4.4 million payment on debt conversion, $2.9 million in payment of consideration related to acquisitions, $2.3 million in payment of principal under capital leases and $1.3 million in repurchase of common stock from senior management for payment of taxes on vesting of restricted stock units, partially offset by $6.6 million of net proceeds from issuance of common stock pursuant to exercise and release of stock award.

Contractual Obligations and Commitments

We have the following contractual cash obligations at December 31, 2014. Contractual cash obligations that are cancellable upon notice and without significant penalties are not included in the table.

	Payments due by Year (in thousands)
Contractual Obligations	2015		2016		2017		2018		2019		2020 and beyond		Total
Settlement agreement (1)
Principal payment	$	1,963	$	1,900	$	466	$	—	$	—	$	—	$	4,329
Interest payments	37		100		34		—		—		—		171
Operating lease commitments (5)	694		2,323		2,266		2,185		2,024		5,067		14,559
Capital lease obligations (6)	1,011		—		—		—		—		—		1,011
Unconditional purchase commitments (2) (3) (4)	9,271		223		—		—		—		—		9,494

_______________________________________________________________________________

(1) In November 2014, we entered into a settlement agreement with Versata and agreed to make payments of $0.5 million starting on January 31, 2015 and every three months thereafter until January 2017.

(2) Unconditional purchase commitments includes the financing arrangement we entered into in September 2014, for the purchase of storage equipment, primarily for data centers. The principal amount financed is $3.8 million and is payable in two installments of $2.6 million and $1.2 million in three months and one year, respectively, from November 2014.

(3) Unconditional purchase commitments includes the holdback payable to Clicktools Ltd. and LeadRocket Inc.

(4) Unconditional purchase commitments includes $2.7 million for leasehold improvements for our headquarters.

(5) We have facilities under several non-cancellable operating lease agreements that expire at various dates through 2018.

(6) We entered into non-cancellable capital leases with various expiration dates.

(7) The above table does not include the Revolver, because we are unable to make a reasonably reliable estimate of the amount and period in which the Revolver will be paid.

Outstanding borrowings under the Revolver bear interest, at our option, at a base rate plus an applicable margin. The applicable margin ranges between 0.75% and 2.25% depending on our leverage ratio. Interest is payable every three months. As of December 31, 2014 we borrowed $10.5 million under the Revolver.

We obtained a $0.2 million letter of credit in August 2014 for our leased space in Pleasanton, California. The letter of credit will expire on August 31, 2015.

We obtained a $1.1 million letter of credit in October 2014 for our leased space in Dublin, California. The letter of credit will expire on October 1, 2015.

As of December 31, 2014, the liability for uncertain tax positions was $3.2 million including interest. Due to the high degree of uncertainty regarding the timing of potential future cash flows associated with these liabilities, we are unable to make a reasonably reliable estimate of the amount and period in which these liabilities might be paid.

Our future capital requirements depend on many factors, including the amount of revenue we generate, the timing and extent of spending to support product development efforts, the expansion of sales and marketing activities, the timing of new product introductions and enhancements to existing products, our ability to offer on-demand service on a consistently profitable basis, the continuing market acceptance of our other products and future acquisitions or other capital expenditures we may make. However, based on our current business plan and revenue projections, we believe our existing cash and investment balances will be sufficient to meet our anticipated cash requirements as well as the contractual obligations listed above for at least the next twelve months.

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Off-Balance Sheet Arrangements

With the exception of items discussed under "Contractual Obligations and Commitments" above we do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, results of operations, liquidity or capital resources that are material to investors.

Related Party Transactions

For information regarding related party transactions, refer to Note 17 of our Notes to Consolidated Financial Statements.

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Item 7A.    Quantitative and Qualitative Disclosures about Market Risk

Market Risk. Market risk represents the risk of loss that may impact our financial position due to adverse changes in financial market prices and rates, as well as fluctuations in interest rates and foreign exchange rates.

We do not hold or issue financial instruments for trading purposes, and we invest in investment grade securities. We limit our exposure to interest rate and credit risk by establishing and monitoring clear policies and guidelines for our investment portfolios, which is approved by our Board of Directors. The guidelines establish, among others, credit quality standards and limits on exposure to: i) any one security issue or issuer and ii) the type of instrument.

Financial instruments that potentially subject us to market risk are trade receivables denominated in foreign currencies. We also mitigate market risk by monitoring ratings, credit spreads and potential downgrades on at least a quarterly basis. Based on our on-going assessment of counterparty risk, we will adjust our exposure to various counterparties as necessary.

Interest Rate Risk. We invest our cash in a variety of financial instruments, consisting primarily of investments in money market accounts, certificates of deposit, high quality corporate debt obligations, and U.S. government obligations.

Investments in both fixed-rate and floating-rate interest earning instruments carry a degree of interest rate risk. The fair market value of fixed-rate securities may be adversely affected by a rise in interest rates, while floating rate securities, which typically have a shorter duration, may produce less income than expected if interest rates fall. Due in part to these factors, our investment income may decrease in the future due to changes in interest rates. At December 31, 2014, the average maturity of our investments was approximately three months, and all investment securities had remaining maturities of less than 24 months. The following table presents certain information about our financial instruments at December 31, 2014 that are sensitive to changes in interest rates (in thousands, except for interest rates):

	Expected Maturity
	1 Year or Less			More Than 1 Year			Total Principal Amount		Total Fair Value
Available-for-sale securities	$	1,954		$	812		$	2,766	$	2,766
Weighted average interest rate	0.37		%	0.55		%

Foreign Currency Exchange Risk. Our revenue and our expenses, except those related to our non-United States operations, are generally denominated in U.S. Dollars. For our operations outside the United States, we may transact business in various other currencies. For 2014 and 2013, approximately 20% and 21%, respectively, of our total revenue was generated outside the United States. At December 31, 2014 and 2013, approximately 13% and 11%, respectively, of our total accounts receivable was denominated in foreign currency. A 5% change in foreign currency exchange rates as of December 31, 2014 could result in a $0.3 million change to our accounts receivable balance. Our exchange risks and foreign exchange exposure has been minimal to date. For the years ended December 31, 2014 and 2013, we recognized losses on foreign exchange transactions of $0.4 million and $0.1 million, respectively. We expect to continue to transact a majority of our business in U.S. Dollars. In 2014 and 2013, we did not have a foreign currency hedge program.

34

Item 8.    Financial Statements and Supplementary Data

CALLIDUS SOFTWARE INC.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

	Page
Report of Independent Registered Public Accounting Firm	36
Consolidated Balance Sheets as of December 31, 2014 and 2013	37
Consolidated Statements of Comprehensive Loss for the years ended December 31, 2014, 2013 and 2012	38
Consolidated Statements of Stockholders' Equity for the years ended December 31, 2014, 2013 and 2012	39
Consolidated Statements of Cash Flows for the years ended December 31, 2014, 2013 and 2012	40
Notes to Consolidated Financial Statements	41

35

Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders

Callidus Software, Inc.:

We have audited the accompanying consolidated balance sheets of Callidus Software, Inc. (the Company) and subsidiaries as of December 31, 2014 and 2013, and the related consolidated statements of comprehensive loss, stockholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2014. We also have audited the Company’s internal control over financial reporting as of December 31, 2014, based on criteria established in Internal Control - Integrated Framework(1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying management’s report on internal control over financial reporting appearing under Item 9A(b). Our responsibility is to express an opinion on these consolidated financial statements and an opinion on the Company’s internal control over financial reporting based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the consolidated financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Callidus Software, Inc. and subsidiaries as of December 31, 2014 and 2013, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2014, in conformity with U.S. generally accepted accounting principles. Also in our opinion, Callidus Software, Inc. maintained, in all material respects, effective internal control over financial reporting as of December 31, 2014, based on Internal Control - Integrated Framework(1992) issued by COSO.

/s/ KPMG LLP

Santa Clara, California

February 27, 2015

36

CALLIDUS SOFTWARE INC.

CONSOLIDATED BALANCE SHEETS

(In thousands except per share data)

	December 31,
	2014			2013
ASSETS
Current assets:
Cash and cash equivalents	$	34,200		$	28,295
Short-term investments	2,766			7,866
Accounts receivable, net of allowances of $1,063 and $650 at December 31, 2014 and 2013, respectively	41,623			29,216
Prepaid and other current assets	10,384			6,232
Total current assets	88,973			71,609
Property and equipment, net	18,755			11,351
Goodwill	46,970			31,207
Intangible assets, net	17,757			16,995
Deferred income taxes, noncurrent	440			405
Deposits and other assets	3,403			2,626
Total assets	$	176,298		$	134,193
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	2,056		$	2,987
Accrued payroll and related expenses	9,051			7,377
Accrued expenses	16,868			5,395
Deferred income taxes	1,475			1,159
Deferred revenue	61,427			46,222
Capital lease obligations	1,001			1,308
Total current liabilities	91,878			64,448
Deferred revenue, noncurrent	10,195			10,432
Deferred income taxes, noncurrent	561			155
Other liabilities	4,709			1,921
Capital lease obligations, noncurrent	—			987
Convertible notes	—			14,197
Revolving line of credit	10,481			—
Total liabilities	117,824			92,140
Commitments and contingencies (Note 9)
Stockholders' equity:
Preferred stock, $0.001 par value; 5,000 shares authorized; no shares issued or outstanding	—			—
Common stock, $0.001 par value; 100,000 shares authorized; 51,285 and 47,817 shares issued and 48,946 and 45,478 shares outstanding at December 31, 2014 and 2013, respectively	49			45
Additional paid-in capital	344,312			315,430
Treasury stock; 2,339 shares at December 31, 2014 and 2013	(14,430		)	(14,430		)
Accumulated other comprehensive income	(739		)	165
Accumulated deficit	(270,718		)	(259,157		)
Total stockholders' equity	58,474			42,053
Total liabilities and stockholders' equity	$	176,298		$	134,193

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

37

CALLIDUS SOFTWARE INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(In thousands except per share data)

	Year Ended December 31,
	2014			2013			2012
Revenue:
Recurring	$	99,807		$	81,734		$	70,919
Services and license	36,811			30,603			24,033
Total revenue	136,618			112,337			94,952
Cost of revenue:
Recurring	31,282			28,741			30,039
Services and license	24,756			19,048			20,301
Total cost of revenue	56,038			47,789			50,340
Gross profit	80,580			64,548			44,612
Operating expenses:
Sales and marketing	47,040			34,916			32,442
Research and development	20,307			17,143			16,643
General and administrative	26,255			22,951			19,953
Income from settlement and patent licensing	(500		)	(500		)	—
Acquisition-related contingent consideration	—			—			(1,612		)
Restructuring and other	1,025			1,699			1,115
Total operating expenses	94,127			76,209			68,541
Operating loss	(13,547		)	(11,661		)	(23,929		)
Interest income and other income (expense), net	3,504			264			70
Interest expense	(506		)	(3,183		)	(3,451		)
Debt conversion expense	—			(4,776		)	—
Loss before provision for income taxes	(10,549		)	(19,356		)	(27,310		)
Provision for income taxes	1,012			2,055			388
Net loss	$	(11,561	)	$	(21,411	)	$	(27,698	)
Net loss per share—basic and diluted
Net loss per share	$	(0.24	)	$	(0.55	)	$	(0.78	)
Shares used in basic and diluted per share computation	47,547			38,858			35,393
Comprehensive loss
Net Loss	$	(11,561	)	$	(21,411	)	$	(27,698	)
Unrealized gains (losses) on available-for-sale securities	(7		)	(11		)	26
Foreign currency translation adjustments	(897		)	(63		)	24
Comprehensive loss	$	(12,465	)	$	(21,485	)	$	(27,648	)

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

38

CALLIDUS SOFTWARE INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(In thousands)

	Common Stock						Treasury Stock				Accumulated Other Comprehensive Income (Loss)
				Additional Paid-in Capital										Accumulated Deficit			Total Stockholders' Equity
	Shares	Amount					Shares	Amount
Balance as of December 31, 2011	35,198	33		238,798			2,339	(14,430		)	189			(210,048		)	14,542
Exercise of stock options under stock incentive plans	715	1		3,682			—	—			—			—			3,683
Issuance of common stock under stock purchase plans	407	—		1,542			—	—			—			—			1,542
Restricted stock units acquired to settle employee withholding liability	2,218	—		(2,346		)	—	—			—			—			(2,346		)
Stock-based compensation	—	—		13,655			—	—			—			—			13,655
Unrealized gain on investments	—	—		—			—	—			26			—			26
Cumulative translation adjustment	—	—		—			—	—			24			—			24
Net loss	—	—		—			—	—			—			(27,698		)	(27,698		)
Balance as of December 31, 2012	38,538	34		255,331			2,339	(14,430		)	239			(237,746		)	3,428
Exercise of stock options under stock incentive plans	1,429	1		5,054			—	—			—			—			5,055
Issuance of common stock under stock purchase plans	435	1		1,573			—	—			—			—			1,574
Restricted stock units acquired to settle employee withholding liability	1,544	3		(1,300		)	—	—			—			—			(1,297		)
Stock-based compensation	—	—		10,395			—	—			—			—			10,395
Conversion of debt to equity	5,871	6		44,377			—	—			—			—			44,383
Unrealized loss on investments	—	—		—			—	—			(11		)	—			(11		)
Cumulative translation adjustment	—	—		—			—	—			(63		)	—			(63		)
Net loss	—	—		—			—	—			—			(21,411		)	(21,411		)
Balance as of December 31, 2013	47,817	$	45	$	315,430		2,339	$	(14,430	)	$	165		$	(259,157	)	$	42,053
Exercise of stock options under stock incentive plans	701	1		2,869			—	—			—			—			2,870
Issuance of common stock under stock purchase plans	319	—		1,983			—	—			—			—			1,983
Restricted stock units acquired to settle employee withholding liability	607	1		(1,723		)	—	—			—			—			(1,722		)
Stock-based compensation	—	—		11,813			—	—			—			—			11,813
Conversion of debt to equity	1,841	2		13,940			—	—			—			—			13,942
Unrealized loss on investments	—	—		—			—	—			(7		)	—			(7		)
Cumulative translation adjustment	—	—		—			—	—			(897		)	—			(897		)
Net loss	—	—		—			—	—			—			(11,561		)	(11,561		)
Balance as of December 31, 2014	51,285	$	49	$	344,312		2,339	$	(14,430	)	$	(739	)	$	(270,718	)	$	58,474

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

39

CALLIDUS SOFTWARE INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

	Year Ended December 31,
	2014			2013			2012
Cash flows from operating activities:
Net loss	$	(11,561	)	$	(21,411	)	$	(27,698	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation expense	5,503			4,458			3,114
Amortization of intangible assets	4,971			4,825			5,094
Provision for doubtful accounts	852			999			595
Stock-based compensation	11,813			10,395			13,655
Deferred income taxes	(86		)	237			195
Release of valuation allowance	(265		)	—			(350		)
Loss (gain) on disposal of property and equipment	43			3			(2		)
Amortization of convertible notes issuance cost	58			485			402
Gain on sale of intangible assets	(3,862		)	—			—
Net amortization on investments	27			79			358
Debt conversion expense	—			4,776			—
Acquisition-related contingent consideration	—			—			(1,612		)
Changes in operating assets and liabilities:
Accounts receivable	(11,746		)	(7,648		)	(1,112		)
Prepaid and other current assets	(3,749		)	486			(820		)
Other noncurrent assets	(1,088		)	(1,276		)	662
Accounts payable	(794		)	(1,702		)	914
Accrued expenses and other liabilities	6,696			106			(1,106		)
Accrued payroll and related expenses	1,149			1,971			987
Accrued restructuring and other expenses	(181		)	(503		)	443
Deferred revenue	11,371			17,469			4,576
Net cash provided by (used in) operating activities	9,151			13,749			(1,705		)
Cash flows from investing activities:
Purchases of investments	(2,784		)	(7,434		)	(16,536		)
Proceeds from maturities and sale of investments	7,850			12,250			38,841
Purchases of property and equipment	(7,121		)	(1,704		)	(6,692		)
Proceeds from sale of intangible assets, net of expenses	4,651			—			2
Purchases of intangible assets	(1,112		)	(638		)	(6,196		)
Acquisitions, net of cash acquired	(15,488		)	—			(7,715		)
Net cash provided by (used in) investing activities	(14,004		)	2,474			1,704
Cash flows from financing activities:
Proceeds from issuance of common stock	4,852			6,629			5,225
Restricted stock units acquired to settle employee withholding liability	(1,723		)	(1,297		)	(2,346		)
Payment of consideration related to acquisitions	(630		)	(2,903		)	(2,660		)
Payment on debt conversion	(645		)	(4,374		)	—
Proceeds from Revolver line of credit	10,481			—			—
Repayment of debt assumed through acquisition	—			—			(30		)
Payment of principal under capital leases	(1,294		)	(2,319		)	(1,193		)
Net cash (used in) provided by financing activities	11,041			(4,264		)	(1,004		)
Effect of exchange rates on cash and cash equivalents	(283		)	(64		)	22
Net increase (decrease) in cash and cash equivalents	5,905			11,895			(983		)
Cash and cash equivalents at beginning of period	28,295			16,400			17,383
Cash and cash equivalents at end of period	$	34,200		$	28,295		$	16,400
Supplemental disclosures of cash flow information:
Cash paid for interest on convertible debt	$	277		$	2,604		$	2,813
Cash paid for interest on capital leases	59			100			101
Cash paid for income taxes	$	182		$	162		$	—
Noncash investing and financing activities:
Conversion of convertible debt to equity	$	14,197		$	45,018		$	—
Reclassification of unamortized debt issuance cost to additional paid-in capital as a result of debt conversion	$	253		$	1,037		$	—
Common stock issued as a premium of debt conversion	$	—		$	402		$	—
Fixed assets acquired under capital lease	$	—		$	3,851		$	—
Purchases of property and equipment through accounts payable and other accrued liabilities	$	5,829		$	157		$	214

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

40

CALLIDUS SOFTWARE INC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1—The Company and Significant Accounting Policies

Description of Business

Callidus Software Inc. (referred to herein as "CallidusCloud", "Callidus", "we" and "our") is a provider of sales and marketing effectiveness software. The Company provides organizations with a complete suite of Lead-to-Money solutions that identify the right leads, ensure proper territory and quota distribution, train sales forces, automate quote and proposal generation, and streamline sales compensation.

Principles of Consolidation

The consolidated financial statements include the accounts of Callidus Software, Inc. and its wholly-owned subsidiaries (collectively, the Company), which include wholly-owned subsidiaries in Australia, Canada, Germany, Hong Kong, India, Malaysia, Mexico, New Zealand, Serbia, Singapore, Japan and the United Kingdom. All intercompany transactions and balances have been eliminated in the consolidation.

Use of Estimates

The consolidated financial statements are prepared in accordance with U.S. generally accepted accounting principles ("GAAP") as set forth in the Financial Accounting Standards Board’s ("FASB") Accounting Standards Codification ("ASC") and consider the various staff accounting bulletins and other applicable guidance issued by the U.S. Securities and Exchange Commission ("SEC"). These accounting principles require us to make certain estimates, judgments and assumptions. The Company believes that the estimates, judgments and assumptions upon which the Company relies are reasonable based upon information available to us at the time that these estimates, judgments and assumptions are made. These estimates, judgments and assumptions can affect the reported amounts of assets and liabilities as of the date of the financial statements as well as the reported amounts of revenues and expenses during the periods presented. To the extent there are differences between these estimates, judgments or assumptions and actual results, the Company's consolidated financial statements will be affected. In many cases, the accounting treatment of a particular transaction is specifically dictated by GAAP and does not require management’s judgment in its application. There are also areas in which management’s judgment in selecting among available alternatives would not produce a materially different result.

In addition, illiquid credit markets, volatile equity and foreign currency markets by companies have contributed to the increase in uncertainty in management estimates and assumptions. Also, future events, such as changes in economic environment, cannot be determined with precision, which would cause actual results to differ materially from management's estimates. Such changes in estimates will be reflected in the consolidated financial statements in future periods.

Foreign Currency Translation

The Company transact business in various foreign currencies. In general, the functional currency of a foreign operation is the local country’s currency. Accordingly, the foreign currencies are translated into U.S. Dollars using exchange rates in effect at period end for assets and liabilities and average rates during each reporting period for the results of operations. Adjustments resulting from the translation of the financial statements of the foreign subsidiaries are reported as a separate component of accumulated other comprehensive income (loss). Foreign currency transaction gains and losses are included in interest and other income (expense), net in the accompanying consolidated statements of comprehensive loss.

Cash and Cash Equivalents and Investments

The Company considers all highly liquid instruments with an original maturity on the date of purchase of three months or less to be cash equivalents. Cash equivalents as of December 31, 2014 and 2013 consisted of money market funds. The Company determines the appropriate classification of investment securities at the time of purchase and re-evaluates such designation as of each balance sheet date. As of December 31, 2014 and 2013, all investment securities were designated as "available-for-sale". The Company considers available-for-sale securities that have a maturity date longer than three months to be short-term investments, including those investments with a maturity date of longer than one year that are highly liquid and for which the Company does not have a positive intent to hold to maturity. These securities are carried at estimated fair value based on quoted market prices or other readily available market information, with the unrealized gains and losses included in other comprehensive income (loss). Recognized gains and losses are included in the consolidated statement of comprehensive loss. When the Company has determined that an other-than-temporary decline in fair value has occurred, the amount of the decline is recognized in earnings. Gains and losses are determined using the specific identification method.

41

Fair Value of Financial Instruments and Concentrations of Credit Risk

The fair value of certain of the Company's financial instruments that are not measured at fair value, including accounts receivable and accounts payable, approximates the carrying amount due to their short maturity. See Note 6 for discussion regarding the valuation of the Company's investments. Financial instruments that potentially subject us to concentrations of credit risk are short-term investments and trade receivables. The Company mitigates concentration of risk by monitoring the risk profiles of all bank counterparties on at least a quarterly basis. Based on the on-going assessment of counterparty risk, the Company will adjust its exposure to various counterparties.

The Company's customer base consists of businesses throughout the Americas, Europe, Middle East, Africa and Asia-Pacific. The Company performs ongoing credit evaluations of its customers and generally does not require collateral on accounts receivable. As of December 31, 2014 and 2013, the Company had no customers comprising greater than 10% of net accounts receivable or total revenue. Refer to Note 16 for information regarding revenue by geographic areas.

In May, 2014, the Company entered into a credit agreement with Wells Fargo Bank, National Association ("Wells Fargo"), under which Wells Fargo agreed to make a revolving loan ("Revolver") to us in an amount not to exceed $10.0 million, with an accordion feature that allows the Company to increase the maximum borrowing amount by not less than $5.0 million and not more than $10.0 million. The Revolver matures in May 2019. Outstanding borrowings under the Revolver bear interest, at the Company's option, at a base rate plus an applicable margin. The applicable margin ranges between 0.75% and 2.25% depending on the Company's leverage ratio. Interest is payable every three months. In September 2014 the Company exercised the accordion feature and increased the maximum amount of borrowing to $15.0 million. As of December 31, 2014 the Company had borrowed $10.5 million under the Revolver. The carrying value of total debt approximates fair market value.

Holdback Payable

The Company estimates the fair value of an indemnity holdback payable based on the contract value. The terms of the holdback payable includes standard representations and warranties.

Contingent Consideration

The Company estimates the fair value of the contingent consideration issued in business combinations using a probability-based income approach. The fair value of the Company liability-classified contingent consideration is remeasured at each reporting period, with any changes in the fair value recorded as income or expense. Contingent acquisition consideration payable is included in accrued liabilities on the Company's consolidated balance sheets.

Allowance for Doubtful Accounts

The Company reduces gross trade accounts receivable with its allowance for doubtful accounts. The allowance for doubtful accounts is the Company's estimate of the amount of probable credit losses in existing accounts receivable. Management analyzes accounts receivable and historical bad debt experience, customer creditworthiness, current economic trends and changes in customer payment history when evaluating the adequacy of the allowance for doubtful accounts. Provisions to the allowance for doubtful accounts are recorded in general and administrative expenses.

Below is a summary of the changes in the Company's allowance for doubtful accounts for 2014, 2013 and 2012 (in thousands):

	Balance at Beginning of Year		Additions (charges to expense)		Deductions			Balance at End of Year
Allowance for doubtful accounts
Year ended December 31, 2014	$	650	$	996	$	(583	)	$	1,063
Year ended December 31, 2013	481		830		(661		)	650
Year ended December 31, 2012	225		434		(178		)	481

Prepaid and Other Current Assets and Deposits and Other Assets

Included in prepaid and other current assets and deposits and other in long-term assets in the consolidated balance sheets at December 31, 2014 and 2013 is restricted cash totaling $0.2 million and $0.5 million, respectively, primarily related to security deposits on leases of the Company's facilities. The restricted cash represents investments in certificates of deposit required by landlords to meet security deposit requirements for the leased facilities. Restricted cash is included in prepaid and other current assets in short-term assets and deposits and other assets in long-term assets based on the contractual term for the release of the restriction.

42

Property and Equipment, net

Property and equipment, net is stated at cost, net of accumulated depreciation. 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 assets' estimated useful lives or the related lease terms. Expenditures for maintenance and repairs are expensed as incurred. Cost and accumulated depreciation of assets sold or retired are removed from the respective property accounts and any resulting gain or loss is reflected in the consolidated statements of comprehensive loss.

Goodwill, Intangible Assets, Long-Lived Assets and Impairment Assessments

Goodwill represents the excess of the purchase price over the fair value of net assets acquired in connection with business combinations. Goodwill is not amortized, but instead goodwill is required to be tested for impairment annually and under certain circumstances. The Company performs such testing of goodwill in the fourth quarter of each year, or as events occur or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount.

The Company conducts a two-step test for impairment of goodwill. The first step of the test for goodwill impairment compares the fair value of the applicable reporting unit with its carrying value. If the fair value of a reporting unit is less than the reporting unit's carrying value, the Company will perform the second step of the test for impairment of goodwill. During the second step of the test for impairment of goodwill, the Company will compare the implied fair value of the reporting unit's goodwill with the carrying value of that goodwill. If the carrying value of the goodwill exceeds the calculated implied fair value, the excess amount will be recognized as an impairment loss. The Company has one reporting unit and evaluates goodwill for impairment at the entity level. Based upon the results of the step one testing, the Company concluded that no impairment existed as December 31, 2014, and did not perform the second step of the goodwill impairment test.

Intangible assets with finite lives are amortized over their estimated useful lives of one to twelve years. Generally, amortization is based on the higher of a straight-line method or the pattern in which the economic benefits of the intangible asset will be consumed.

The Company also evaluates the recoverability of its long-lived assets for possible impairment whenever events or circumstances indicate that the carrying amount of such assets may not be recoverable. If such review indicates that the carrying amount of long-lived assets is not recoverable, the carrying amount of such assets is reduced to fair value. There were no impairment charges recorded during the years ended December 31, 2014, 2013 and 2012.

Business Combinations

The Company recognizes assets acquired, liabilities assumed, and contingent consideration at their fair value on the acquisition date. The Company’s estimates are inherently uncertain and subject to refinement. As a result, during the measurement period, which may be up to one year from the acquisition date, the Company may record adjustments to the fair value of assets acquired and liabilities assumed, with a corresponding offset to goodwill. Upon the conclusion of the measurement period or final determination of the fair value of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recorded to the Company's consolidated statements of operations. See Note 3 to the Company's consolidated financial statements, for a discussion of the Company's acquisitions during 2014.

In addition, uncertainties in income tax and tax related valuation allowances assumed in connection with a business combination are initially estimated as of the acquisition date. The Company continues to gather information and evaluate these items and records any adjustments to the preliminary estimates to goodwill when the estimates are within the measurement period. Subsequent to the measurement period, changes to these income tax uncertainties and tax related valuation allowances will affect the Company's provision for income taxes in its consolidated statements of comprehensive loss.

Revenue Recognition

            The Company generates revenue by providing software applications as a service through on-demand subscription, perpetual and term licenses and related software maintenance, and professional services. Amounts that have been invoiced are recorded in accounts receivable and in deferred revenue or revenue, depending on whether the revenue recognition criteria have been met.

Recurring Revenue. Recurring revenue, which includes SaaS revenue and maintenance revenue, are recognized as revenue ratably over the stated contractual period. SaaS revenue consists of subscription fees from customers accessing our cloud-based service offerings. Maintenance revenue consists of fees from customers purchasing subscriptions and receiving support for on-premise solutions. The Company also recognizes revenue associated with customers using its products in excess of contracted usage. This customer excess use is primarily attributed to SaaS products and are recorded in SaaS revenue. Revenue related to customer excess use was immaterial during 2014 and 2013.

           Service and Other Revenue. Service and other revenue primarily consist of training, integration, and configuration services. Generally, the Company's professional services arrangements are on a time-and-materials basis. Time and material services are recognized as revenue as the services are rendered based on inputs to the project, such as billable hours incurred. For fixed-fee professional service arrangements, the Company recognizes revenue under the proportional performance method of accounting and estimates the proportional performance on a monthly basis, utilizing hours incurred to date as a percentage of total estimated hours to complete the project. If the Company does not have a sufficient basis to measure progress toward completion, revenue is recognized upon completion. Service and other revenue also includes license revenue from perpetual licenses which are recognized upon delivery of the product, using the residual method, assuming all the other conditions for revenue recognition have been met.

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            In certain arrangements with non-standard acceptance criteria, the Company defers the revenue until the acceptance criteria are satisfied. Reimbursements, including those related to travel and out-of-pocket expenses, are included in services and other revenue, and an equivalent amount of reimbursable expenses is included in cost of services and other revenue.

In general, recurring revenue agreements are entered into for twelve to thirty-six months, and the professional services are performed within nine months of entering into a contract with the customer, depending on the size of integration.

SaaS agreements provide specified service level commitments, excluding scheduled maintenance. The failure to meet this level of service availability may require the Company to credit qualifying customers a portion of their subscription and support fees. Based on the Company's historical experience meeting its service level commitments, the Company does not currently have any liabilities on its balance sheet for these commitments.

The Company recognizes revenue when all of the following conditions are met:

• Persuasive evidence of an arrangement exists;

• Delivery has occurred or services have been rendered;

• The fees are fixed or determinable; and    

• Collection of the fees is reasonably assured.

If the Company determines that any one of the four criteria is not met, it will defer recognition of revenue until all the criteria are met.

Multiple-deliverable arrangements with on-demand subscription. For on-demand subscription agreements with multiple-deliverables, the Company evaluates each element to determine whether it represents a separate unit of accounting. The Company determines the best estimated selling price of each deliverable in an arrangement based on a selling price hierarchy of methods contained in Financial Accounting Standards Board (“FASB”) Accounting Standards Update (“ASU”) No. 2009-13, Revenue Recognition (Accounting Standards Codification (“ASC”) Topic 605)-Multiple-Deliverable Revenue Arrangements. The best estimated selling price for a deliverable is based on its vendor-specific objective evidence (“VSOE”), if available, third-party evidence (“TPE”), if VSOE is not available, or estimated selling price (“ESP”), if neither VSOE nor TPE is available. Total arrangement fees are allocated to each element using the relative selling price method. The Company has currently established VSOE for most deliverables, except for fixed fee service arrangements.

The Company considered all of the following factors to establish the ESP for fixed fee service arrangements when sold with its on-demand services: the weighted average actual sales prices of professional services sold on a standalone basis for on-demand services; average billing rate for fixed fee service agreements when sold with on-demand services, cost plus a reasonable mark-up and other factors such as gross margin objectives, pricing practices and growth strategy. The Company is currently using cost plus a reasonable mark-up to establish ESP for fixed fee service.

Multiple-deliverable arrangements with on-premise license. For arrangements with multiple-deliverables, including license, professional services and maintenance, the Company recognizes license revenue using the residual method of accounting pursuant to the requirements of the guidance contained in ASC 985-605, Software Revenue Recognition. Under the residual method, revenue is recognized when VSOE for fair value exists for all of the undelivered elements in the arrangement, but does not exist for one or more of the delivered elements in the arrangement. If evidence of fair value cannot be established for the undelivered elements, all of the revenue is deferred until evidence of fair value can be established, or until the items for which evidence of fair value cannot be established are delivered. For maintenance and certain professional services, the Company has established VSOE as a consistent number of standalone sales of this deliverable have been priced within a reasonably narrow range. The Company's revenue arrangements generally do not include a general right of return relative to the delivered products.

For the Company's term-based licenses, included in services and licenses, that are typically bundled with maintenance for the entire duration of the license, if the only undelivered element is maintenance, then the entire amount of revenue is recognized over the maintenance period, as maintenance is not typically sold separately.

Sales and other taxes collected from customers to be remitted to government authorities are excluded from revenue.

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Deferred Revenue

Deferred revenue consists of invoicing and payments received in advance of revenue recognition and is recognized as the revenue recognition criteria are met. The Company invoices its customers annually, quarterly, or in monthly installments. Deferred revenue that will be recognized during the succeeding twelve month period is recorded as current deferred revenue, and the remaining portion is recorded as non-current deferred revenue.

Cost of Revenue

Cost of recurring revenue consists primarily of salaries, benefits, allocated overhead costs related to on-demand operations and technical support personnel, as well as allocated amortization of purchased technology. Cost of services revenue consists primarily of salaries, benefits, travel and allocated overhead costs related to consulting, training and other professional services personnel, including cost of services provided by third-party consultants engaged by the Company. Cost of license revenue consists primarily of amortization of purchased technology.

Deferred Commissions

The deferred commissions on the Company's consolidated balance sheets totaled $5.6 million and $4.8 million at December 31, 2014 and December 31, 2013, respectively. As of December 31, 2014 and 2013 $4.2 million and $3.4 million of the deferred commissions are included in prepaid and other current assets in short-term assets with the remaining amounts included in deposits and other assets in long-term assets in the consolidated balance sheets. The deferred costs mainly represent commission payments to the Company's direct sales force for on-demand subscription and maintenance agreements, which the Company amortizes as sales and marketing expense over the non-cancellable term of the contract as the related revenue is recognized. The commission payments are a direct and incremental cost of the revenue arrangements.

Restructuring and Other Expenses

Restructuring and other expenses are comprised primarily of employee termination costs related to headcount reductions, costs related to properties abandoned in connection with facilities consolidation including estimated losses related to excess facilities based upon the Company's contractual obligations, net of estimated sublease income and related write-downs of leasehold improvements. The Company reassess the liability for excess facilities periodically based on market conditions.

Research and Development

The Company expenses the cost of research and development as incurred. Research and development expenses consist primarily of expenses for research and development staff, the cost of certain third-party service providers and allocated overhead.

Stock-Based Compensation

The Company measures and recognizes compensation expense for stock-based awards made to employees and directors including employee stock options and employee stock purchases under the Company's Employee Stock Purchase Plan ("ESPP") based on estimated fair values on the date of grant using the Black-Scholes option pricing model. Stock-based compensation expense for restricted stock units ("RSU"), relating to both performance and service-based awards, is estimated based on the market value of the Company's stock on the date of grant.

The Company granted performance-based share award ("PSUs") to select executives and other key employees.  The Company's PSUs are in the form of restricted stock units, the vesting of which is based on achievement of specified company or other goals. In 2014, the Company granted PSUs with vesting contingent on its absolute SaaS revenue growth over the three year period from 2014 to 2016, and the Company's relative total shareholder return over the three year period from 2014 through 2016 compared to an index of 17 SaaS companies. PSU awards based on SaaS revenue growth will, to the extent the performance criteria are achieved, vest on the third anniversary of the grant date. PSU awards based on total shareholder return is recognized as compensation costs over the requisite service period, if rendered, even if the market condition is never satisfied. In determining the fair value of PSUs based on total shareholder return the Company considered the achievement of the market condition in the estimated fair value.

Income Taxes

The Company is subject to income and foreign withholding taxes in both the United States and foreign jurisdictions and the Company uses estimates in determining its provision for income taxes. This process involves estimating actual current tax assets and liabilities together with assessing temporary differences resulting from differing treatment of items for tax and accounting purposes. These differences result in deferred tax assets and liabilities, which are recorded on the consolidated balance sheets. Net deferred tax assets are recorded to the extent the Company believes that these assets will more likely than not be realized. In making such determination, all available positive and negative evidence is considered, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax planning strategies and recent financial operations. With the exception of the net deferred tax assets of two of the Company's foreign subsidiaries, it maintained a full valuation allowance against its net deferred tax assets at December 31, 2014 because the Company believes that it is not more-likely-than-not that the gross deferred tax assets will be realized. While the Company has considered future taxable income and ongoing prudent and feasible tax planning strategies in assessing the need for a valuation allowance, in the event the Company was able to determine that it would be able to realize the deferred tax assets in the future, an adjustment to the deferred tax assets would increase net income in the period such determination was made.

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Income tax positions must meet a more-likely-than-not recognition threshold at the effective date to be recognized upon the adoption of accounting for uncertainty in income taxes and in subsequent periods. This interpretation also provides guidance on measurement, derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. The Company recognizes interest and penalties related to unrecognized tax benefits in income tax expense in the accompanying consolidated statement of comprehensive loss. Accrued interest and penalties are included in other liabilities.

Advertising Costs

The Company expenses advertising costs in the period incurred. Advertising expense was $1.2 million, $227,000, and $146,000 for 2014, 2013 and 2012, respectively.

Comprehensive Income (Loss)

Comprehensive income (loss) is the total of net income (loss), unrealized gains and losses on investments and foreign currency translation adjustments. Unrealized gains and losses on investments and foreign currency translation adjustment amounts are excluded from net loss and are reported in accumulated other comprehensive income (loss) in the accompanying consolidated financial statements.

Recent Accounting Pronouncements

In May 2014, the FASB issued Accounting Standards Update No. 2014-09 (ASU 2014-09) "Revenue from Contracts with Customers." ASU 2014-09 supersedes the revenue recognition requirements in “Revenue Recognition (Topic 605)”, and requires entities to recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services. ASU 2014-09 is effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. Early adoption is not permitted. The Company is currently in the process of evaluating the impact of the adoption of ASU 2014-09 on the consolidated financial statements.

Note 2—Restructuring and Other

On June 30, 2014, management approved and initiated restructuring plans to realign the Company's resources to improve cost efficiencies. Restructuring and other expenses primarily consist of costs associated with exit of excess facilities, employee terminations and incremental depreciation expense as a result of the change in the estimated useful life of assets to be abandoned.

The Company incurred restructuring and other expenses of $1.0 million, $1.7 million, and $1.1 million for the year ended December 31, 2014, 2013 and 2012, respectively.

The following table sets forth a summary of accrued restructuring expenses for 2014 and 2013 (in thousands):

	December 31, 2013		Additions		Adjustments		Cash Payments			December 31, 2014
Severance and termination-related costs	$	141	$	70	$	—	$	(211	)	$	—
Facilities related costs	234		162		20		(222		)	194
Total accrued restructuring expenses	$	375	$	232	$	20	$	(433	)	$	194

	December 31, 2012		Additions		Adjustments			Cash Payments			December 31, 2013
Severance and termination-related costs	$	589	$	1,706	$	(7	)	$	(2,147	)	$	141
Facilities related costs	289		—		—			(55		)	234
Total accrued restructuring expenses	$	878	$	1,706	$	(7	)	$	(2,202	)	$	375

In 2014, the Company incurred $0.8 million of non-cash expense, primarily related to incremental depreciation as a result of the change in the estimated useful life of assets at the Company's office space at Pleasanton, California.

Note 3—Acquisitions

Clicktools Ltd.

On September 16, 2014, the Company acquired Clicktools Ltd. (“Clicktools”), a provider of premium, cloud-based survey products and services for businesses. The purchase consideration was $16.4 million , which included $14.8 million paid in cash and a one million British Pounds indemnity holdback payable upon the one year closing anniversary. This amount is translated to U.S. Dollars to $1.6 million at the prevailing exchange rate on December 31, 2014.

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The preliminary purchase price allocation for Clicktools is summarized as follows (in thousands):

	Fair Value
Net liabilities assumed	$	(1,270	)
Intangible assets	3,000
Goodwill	14,675
Total purchase price	$	16,405

The excess of purchase consideration over the fair value of net tangible liabilities assumed and identifiable intangible assets acquired was recorded as goodwill. The estimated fair values of assets acquired and liabilities assumed, specifically current and noncurrent income taxes payable and deferred taxes, may be subject to change as additional information is received and certain tax returns are finalized. Thus the provisional measurements of fair value set forth above are subject to change.

Goodwill is primarily attributed to the anticipated synergies from the acquisition and expanded market opportunities with respect to the integration of Clicktools' business-to-business survey management platform with the Company's other solutions. The goodwill balance is not deductible for U.S. or U.K income tax purposes.

The following table sets forth the components of identifiable intangible assets acquired and their estimated useful lives as of the date of the Clicktools acquisition (in thousands). The intangible assets are reported in British Pounds and will be translated to U.S. Dollars at December 31, 2014.

	Fair Value		Useful Life
Developed technology	$	1,300	3 years
Domain names and trademarks	600		3 years
Customer relationships	1,100		3 years
Total intangible assets subject to amortization	$	3,000

Pro forma results of operations for the Clicktools acquisition have not been presented because the acquisition is not material.

LeadRocket, Inc.

On February 4, 2014, the Company acquired all of the common stock of LeadRocket, Inc. (“LeadRocket”), a privately-held company providing marketing automation and demand generation solutions that enable both marketing and sales users to identify and connect with leads efficiently. The Company acquired LeadRocket to strengthen its social engagement and digital marketing platform. The purchase consideration was $3.0 million, which included $2.5 million paid in cash and $0.5 million as indemnity holdback payable upon the one year closing anniversary. As of December 31, 2014, $0.3 million of the indemnity holdback remains accrued for potential indemnification claims.

The purchase price allocation for LeadRocket is summarized as follows (in thousands):

	Fair Value
Net liabilities assumed	$	(1,224	)
Intangible assets	2,640
Goodwill	1,584
Total purchase price	$	3,000

The excess of purchase consideration over the fair value of net tangible liabilities assumed and identifiable intangible assets acquired was recorded as goodwill. The fair values assigned to tangible and identifiable intangible assets acquired and liabilities assumed are based on management’s estimates and assumptions. The estimated fair values of assets acquired and liabilities assumed, specifically current and noncurrent income taxes payable and deferred taxes, may be subject to change as additional information is received and certain tax returns are finalized. Thus the provisional measurements of fair value set forth above are subject to change.

The goodwill balance is primarily attributed to the anticipated synergies from the acquisition and expanded market opportunities with respect to the integration of LeadRocket’s digital marketing platform with the Company's other solutions. The goodwill balance is not deductible for U.S. income tax purposes.

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The following table sets forth the components of identifiable intangible assets acquired and their estimated useful lives as of the date of the LeadRocket acquisition (in thousands):

	Fair Value	Useful Life
Developed technology	570	2-4 years
Patents	1,060	10 years
Domain names and trademarks	850	5 years
Customer relationships	160	3 years
Total intangible assets subject to amortization	2,640

Pro forma results of operations for the LeadRocket acquisition have not been presented because the acquisition is not material.

Note 4—Goodwill and Intangible Assets

Goodwill

The changes in the carrying amount of goodwill for the fiscal years ended December 31, 2014 and 2013 are as follows (in thousands):

	Goodwill
Balance as of December 31, 2012 and 2013	$	31,207
Acquisitions	16,259
Foreign currency translation impact	(496		)
Balance as of December 31, 2014	$	46,970

In February 2014, the Company recorded goodwill of $1.6 million related to the acquisition of LeadRocket Inc. and in the last quarter of 2014, the Company recorded goodwill of $14.7 million related to the acquisition of Clicktools Ltd. Refer to Note 3, Acquisitions for further details.

Based on the Company's annual impairment review in the fourth quarter of 2014, 2013 and 2012, it concluded that goodwill was not impaired in any of the years presented.

Intangible assets

Intangible assets consisted of the following as of December 31, 2014 and 2013 (in thousands):

	December 31, 2013 Cost		December 31, 2013 Net		Net Additions (1)		Foreign currency translation impact			Amortization Expense			December 31, 2014 Net		Weighted Average Amortization Period (Years)
Developed technology	$	21,187	$	9,669	$	3,906	$	(53	)	$	(3,271	)	$	10,251	4.1
Customer relationships	8,154		4076		1,260		(41		)	(1,025		)	4,270		3.6
Tradenames	1,522		828		686		(25		)	(298		)	1,191		3.6
Favorable lease	53		—		—		—			—			—		N/A
Patents and licenses	3,059		2393		—		—			(348		)	2,045		6.7
Other	142		29		—		—			(29		)	—		N/A
Total	$	34,117	$	16,995	$	5,852	$	(119	)	$	(4,971	)	$	17,757

(1) Included in the additions are the intangibles acquired for Clicktools of $3.0 million and LeadRocket of $2.6 million as discussed in Note 3 to the consolidated financial statements and other purchased technology as part of the normal course of operations.

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	December 31, 2012 Cost		December 31, 2012 Net		Net Additions		Foreign currency translation impact		Amortization Expense			December 31, 2013 Net		Weighted Average Amortization Period (Years)
Developed technology	$	20,576	$	12,384	$	611	$	—	$	(3,326	)	$	9,669	4.3
Customer relationships	8,154		4,952		—		—		(876		)	4,076		4.9
Tradenames	1,522		1,040		—		—		(212		)	828		5.2
Favorable lease	40		1		13		—		(14		)	—		N/A
Patents and licenses	3,059		2,744		—		—		(351		)	2,393		7.6
Other	142		75		—		—		(46		)	29		0.5
Total	$	33,493	$	21,196	$	624	$	—	$	(4,825	)	$	16,995

Amortization expense related to intangible assets was $5.0 million, $4.8 million and $5.1 million in 2014, 2013 and 2012, respectively, and was charged to cost of revenue for purchased technology, tradenames and patents and licenses; sales and marketing expense for customer relationships; and general and administrative expense for the favorable lease and other. The Company's intangible assets are amortized over their estimated useful lives of one to twelve years. Total future expected amortization is as follows (in thousands):

	Developed Technology		Customer Relationships		Tradenames		Patents and Licenses
Year Ending December 31:
2015	$	2,828	$	1,290	$	382	$	346
2016	2,741		1,290		353		346
2017	2,417		1,019		285		346
2018	1,519		491		96		313
2019	311		74		32		180
2020 and beyond	435		106		43		514
Total expected amortization expense	$	10,251	$	4,270	$	1,191	$	2,045

Note 5—Financial Instruments

As of December 31, 2014, all marketable debt securities are classified as available-for-sale and carried at estimated fair value, which is determined based on the inputs discussed below.

The Company classifies all highly liquid instruments with an original maturity on the date of purchase of three months or less as cash and cash equivalents. The Company classifies available-for-sale securities that have a maturity date longer than three months to be short-term investments, including those investments with a maturity date of longer than one year that are highly liquid and for which the Company does not have a positive intent to hold to maturity.

Interest income is included within interest income and other income (expense), net in the accompanying consolidated statements of comprehensive loss. Realized gains and losses are calculated using the specific identification method. As of December 31, 2014 and 2013, the Company had no short-term investments in an unrealized loss position for a duration greater than 12 months.

The components of the Company's marketable debt securities classified as available-for-sale were as follows at December 31, 2014 (in thousands):

December 31, 2014	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair value
Cash	$	27,890	$	—	$	—		$	27,890
Cash equivalents:
Money market funds	6,310		—		—			6,310
Total cash equivalents	6,310		—		—			6,310
Total cash and cash equivalents	$	34,200	$	—	$	—		$	34,200
Short-term investments:
Corporate notes and obligations	2,773		—		(7		)	2,766
Total short-term investments	$	2,773	$	—	$	(7	)	$	2,766

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For investments in securities classified as available-for-sale, market value and the amortized cost of debt securities have been classified in accordance with the following maturity groupings based on the contractual maturities of those securities as of December 31, 2014 (in thousands):

Contractual maturity	Amortized Cost		Estimated Fair value
Less than 1 year	$	1,956	$	1,954
Between 1 and 2 years	817		812
Total	$	2,773	$	2,766

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The components of the Company's marketable debt securities classified as available-for-sale were as follows for December 31, 2013 (in thousands):

December 31, 2013	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair value
Cash	$	21,989	$	—	$	—	$	21,989
Cash equivalents:
Money market funds	6,306		—		—		6,306
Total cash equivalents	6,306		—		—		6,306
Total cash and cash equivalents	$	28,295	$	—	$	—	$	28,295
Short-term investments:
U.S. government and agency obligations	6,115		—		—		6,115
Corporate notes and obligations	1,751		—		—		1,751
Total short-term investments	$	7,866	$	—	$	—	$	7,866

For investments in securities classified as available-for-sale, estimated fair value and the amortized cost of debt securities have been classified in accordance with the following maturity groupings based on the contractual maturities of those securities as of December 31, 2013 (in thousands):

Contractual maturity	Amortized Cost		Estimated Fair value
Less than 1 year	$	5,066	$	5,066
Between 1 and 2 years	2,800		2,800
Total	$	7,866	$	7,866

The Company had no realized losses on sales of its investments during the years ended December 31, 2014, 2013, and 2012, respectively. The Company had proceeds, net of purchases of investments, of $5.1 million and $4.8 million from maturities and sales of investments for 2014 and 2013, respectively.

The short-term investments in government obligations or highly rated credit securities generally have minor to moderate fluctuations in the fair values from period to period. The Company monitors credit ratings, downgrades and significant events surrounding these securities so as to assess if any of the impairments will be considered other-than-temporary. The Company did not identify any government obligations or highly rated credit securities held as of December 31, 2014 and 2013 for which the fair value declined significantly below amortized cost and were considered other-than-temporary impairments.

Note 6—Fair Value Measurements

The Company measures financial assets at fair value on an ongoing basis. The estimated fair value of the Company's financial assets was determined using the following inputs at December 31, 2014 and 2013 (in thousands):

	Fair Value Measurements at Reporting Date Using
December 31, 2014	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Money market funds (1)	$	6,310	$	6,310	$	—	$	—
Corporate notes and obligations (2)	2,766		—		2,766		—
Total	$	9,076	$	6,310	$	2,766	$	—

_______________________________________________________________________________

(1) Included in cash and cash equivalents on the consolidated balance sheet.

(2) Included in short-term investments on the consolidated balance sheet.

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	Fair Value Measurements at Reporting Date Using
December 31, 2013	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Money market funds(1)	$	6,306	$	6,306	$	—	$	—
Corporate notes and obligations(2)	6,115		—		6,115		—
U.S. government and agency obligations(2)	1,751		—		1,751		—
Total	$	14,172	$	6,306	$	7,866	$	—

_______________________________________________________________________________

(1) Included in cash and cash equivalents on the consolidated balance sheet.

(2) Included in short-term investments on the consolidated balance sheet.

During 2014 and 2013 the Company had no Level 3 instruments.

Valuation of Investments

Level 1 and Level 2

The Company's available-for-sale securities include money market funds, U.S. Treasury bills, commercial paper, corporate notes and obligations, and U.S. government and agency obligations. The Company values these securities using a pricing matrix from a pricing service provider, who may use quoted prices in active markets for identical assets (Level 1 inputs) or inputs other than quoted prices that are observable either directly or indirectly (Level 2 inputs). The Company classifies all of its available-for-sale securities, except for money market funds and U.S. Treasury, as having Level 2 inputs. The Company validates the estimated fair value of certain securities from a pricing service provider on a quarterly basis. The valuation techniques used to measure the fair value of the financial instruments having Level 2 inputs, all of which have counterparties with high credit ratings, were derived from the following: non-binding market consensus prices that are corroborated by observable market data, quoted market prices for similar instruments or pricing models, with all significant inputs derived from or corroborated by observable market data.

Level 3

The Company did not have any transfers between Level 1, Level 2 and Level 3 fair value measurements during the year ended December 31, 2014 as there were no changes in the composition in Level 1, 2 or 3.

Note 7—Balance Sheet Components

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

	Estimated Useful Life	As of December 31,
		2014		2013
Equipment	3 years	$	24,189	$	16,616
Purchased software	5 years	6,784		6,648
Furniture and fixtures	3 years	1,772		1,612
Leasehold improvements	Lease term up to 5 years	1,947		1,872
Construction in progress		3,724		72
Property and equipment, gross		38,416		26,820
Less: Accumulated depreciation		19,661		15,469
Property and equipment, net		$	18,755	$	11,351

Depreciation expense for 2014, 2013 and 2012 was $4.8 million, $4.5 million and $3.1 million, respectively.

In 2014, the Company improved its data center and incurred equipment costs. In addition, the Company moved its headquarters from Pleasanton, California to Dublin, California in February 2015 and incurred construction in progress costs related to furniture, fixtures and leasehold improvements.

Property and equipment includes assets that were acquired under capital leases of $6.9 million and $7.3 million for the years ended December 31, 2014 and 2013, respectively. Accumulated amortization relating to these assets acquired under capital leases were $4.3 million and $3.5 million for the years ended December 31, 2014 and 2013, respectively. Amortization expense for these assets have been included in depreciation expense.

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Total prepaid and other current assets consisted of the following (in thousands):

	As of December 31,
	2014		2013
Foreign withholding tax	$	177	$	403
Convertible debt issuance costs, current portion	—		129
Deferred commissions	4,215		3,381
Prepaid expenses	5,856		1,945
Other current assets	136		374
Total prepaid and other current assets	$	10,384	$	6,232

Accrued payroll and related expenses consisted of the following (in thousands):

	As of December 31,
	2014		2013
Vacation accrual	$	2,793	$	2,139
Commissions	2,387		2,177
Bonus	1,628		1,262
ESPP	966		686
Severance liability	—		252
Accrued payroll related expenses	1,277		861
Total accrued payroll related expenses	$	9,051	$	7,377

Accrued expenses consisted of the following (in thousands):

	As of December 31,
	2014		2013
Sales tax payable	$	733	$	1,099
Income taxes payable	125		87
Restructuring facility liability	148		98
Versata settlement	1,963		—
Holdback payable	1,922		—
Customer payments	998		438
Equipment financing arrangement	3,775		—
Accrued expenses	7,204		3,673
Total accrued expenses	$	16,868	$	5,395

Note 8—Convertible Notes

The Convertible Notes contain an optional redemption feature which allows the Company, any time after June 6, 2014, to redeem all or part of the Convertible Notes for cash if the last reported sale price per share of common stock (as defined below) had been at least 130% of the conversion price then in effect for at least 20 trading days during any 30 consecutive trading-day period ending within 5 trading days prior to the date on which the Company provides notice of redemption. The redemption price would be 100% of the principal amount of the notes being redeemed, plus accrued and unpaid interest.

During 2014, the remaining aggregate principal amount of $14.2 million of the Company's 4.75% Convertible Senior Notes (“Convertible Notes”) were converted into 1,840,770 shares of common stock. The Company paid accrued interest of $0.3 million and reclassified $0.3 million of deferred debt issuance costs to additional paid-in capital in connection with the conversion of the Convertible Notes. As of December 31, 2014, the Company had no outstanding Convertible Notes or related deferred debt issuance costs.

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During the fourth quarter of 2013, the Company entered into agreements with three existing holders of its Convertible Notes pursuant to which such holders converted $45.0 million aggregate principal amount of the Convertible Notes into 5,837,015 shares of the Company’s common stock. In addition to issuing the requisite number of shares of the Company’s common stock pursuant to the terms of the Convertible Notes, the Company also paid accrued interest of $0.3 million, associated broker cost, cash and stock premium of $4.8 million. The cash and stock premium recognized as Debt Conversion Expense on the Consolidated Statement of Comprehensive Loss for the twelve months ended December 31, 2013. Additionally, in 2013 the Company reclassified $1.0 million of deferred debt issuance costs to additional paid-in capital in connection with the conversion of the Convertible Notes. The current balance of the debt issuance costs associated with the issuance of the Convertible Notes was recorded within prepaid and other current assets, and the non-current balance was recorded within deposits and other assets, and has been amortized to interest expense over the terms of the Convertible Notes. As of December 31, 2013, $0.1 million of the debt issuance costs were included in prepaid and other current assets, with the remaining amount of $0.2 million recorded in deposits and other.

Note 9—Contractual Obligations, Commitments and Contingencies

Contractual Obligations and Commitments

For each of the next five years and beyond, the Company has the following contractual obligations, long-term operating and capital lease obligations and unconditional purchase commitments (in thousands):

	Settlement Payable (1)				Unconditional purchase commitments (2) (3) (4)		Operating lease commitments (5)		Capital lease obligations (6)
	Principal		Interest
Year Ending December 31:
2015	$	1,963	$	37	$	9,271	$	694	$	1,011
2016	1,900		100		223		2,323		—
2017	466		34		—		2,266		—
2018	—		—		—		2,185		—
2019	—		—		—		2,024		—
2020 and beyond	—		—		—		5,067		—
Future minimum payments	$	4,329	$	171	$	9,494	$	14,559	1,011
Less: amount representing interest									(10		)
Present value of capital lease obligations									$	1,001

(1) In November 2014, the Company entered into a settlement agreement with Versata and agreed to make payments of $0.5 million starting on January 31, 2015 and every three months thereafter to January 2017.

(2) Unconditional purchase commitments includes the financing arrangement that the Company entered into in 2014, for the purchase of storage equipment, primarily for the Company's data centers. The principal amount financed is $3.8 million and is payable in two installments of $2.6 million and $1.2 million in three months and one year, respectively, from November 2014.

(3) Unconditional purchase commitments includes indemnity holdback payables for Clicktools Ltd. and LeadRocket, Inc.

(4) Unconditional purchase commitments includes $2.7 million for leasehold improvements for the Company's headquarters.

(5) The Company has facilities under several non-cancellable operating lease agreements that expire at various dates through 2018. The Company's rent expense for the years ended December 31, 2014, 2013 and 2012 was $2.1 million, $1.9 million and $1.5 million, respectively.

(6) The Company entered into non-cancellable capital leases with various expiration dates.

(7) The above table does not include the Wells Fargo Revolver, because the Company was unable to make a reasonably reliable estimate of the amount and period in which the Revolver will be paid.

Included in non-current deposits and other assets in the consolidated balance sheets at December 31, 2014 and 2013 is restricted cash and rental deposits totaling $0.2 million and $0.5 million, respectively,related to security deposits on leased facilities and a customer letter of credit. The restricted cash represents investments in certificates of deposit and secured letters of credit required by landlords to meet security deposit requirements for the leased facilities.

As of December 31, 2014, the liability for uncertain tax positions was $3.0 million including interest. Due to the high degree of uncertainty regarding the timing of potential future cash flows associated with these liabilities, the Company is unable to make a reasonably reliable estimate of the amount and period in which these liabilities might be paid.

In October 2014, the Company entered into a sublease agreement ("Sublease") with Oracle America, Inc. (“Sublandlord”) for office space located at 4140 Dublin Boulevard, Dublin, California 94568 ("Subleased Premises"), to replace the Company’s current corporate headquarters.

The term of the Sublease commences in February 2015, when the Sublandlord delivers possession of the Subleased Premises to the Company and expires on May 15, 2022. Base rent will be abated from the commencement of the Sublease until November 30, 2015. Thereafter, monthly base rent will be $149,928 for 2015 and increase annually as set forth in the Sublease, up to $184,411 in 2022. The total cash obligation for base rent over the term of the Sublease is approximately $15.1 million, without rent abatement, and is included in the operating lease commitment in the table above. In addition to base rent, the Company will be required to pay its pro rata share of building operating costs including utilities, insurance, repair and personnel costs, along with real estate taxes in excess of the amounts for certain base years.

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Letter of Credit

The Company obtained a $0.2 million letter of credit in August 2014 for its leased space in Pleasanton, California. The letter of credit will expire on August 31, 2015.

The Company obtained a $1.1 million letter of credit in October 2014 for its leased space in Dublin, California. The letter of credit will expire on October 1, 2015.

Warranties and Indemnification

The Company generally warrants that its software will perform to standard documentation. Under the Company's standard warranty, should a software product not perform as specified in the documentation within the warranty period, it will repair or replace the software or refund the license fee paid. To date, the Company has not incurred any costs related to warranty obligations for its software.

The Company's product license and on-demand agreements typically include a limited indemnification provision for claims by third parties relating to its intellectual property. To date, the Company has not incurred and has not accrued for any costs related to such indemnification provisions.

Intellectual Property Litigation

Versata Software, Inc., Versata Development Group, Inc. and Versata Inc. v. Callidus Software, Inc - Settled

On July 19, 2012, Versata Software, Inc. and Versata Development Group, Inc. (collectively, “Versata”) filed suit against the Company in the United States District Court for the District of Delaware (“Delaware District Court”). The suit asserted that the Company infringed U.S. Patent Nos. 7,904,326, 7,908,304 and 7,958,024. On May 30, 2013, the Company answered the complaint and filed a counterclaim in the Delaware District Court. The Company's counterclaim asserted that Versata infringed U.S. Patent Nos. 6,269,355, 6,850,924 and 6,473,748. On August 30, 2013, the Company filed petitions with the United States Patent and Trademark Office Patent Trial and Appeal Board (“PTAB”) for covered business method (“CBM”) patent review of U.S. Patent Nos. 7,904,326, 7,908,304 and 7,958,024, which Versata filed responses to on December 12, 2013. The Company also filed a motion with the Delaware District Court on August 30, 2013 to stay the litigation pending completion of the patent review proceedings with the PTAB (“Motion to Stay”). On January 8, 2014, the Company was granted leave by the Delaware District Court to add Versata Inc. (included in the above definition of “Versata”) as a counterclaim defendant. On March 4, 2014, the PTAB instituted covered business method patent review of each of Versata’s patents, namely, U.S. Patent Nos. 7,904,326, 7,908,304 and 7,958,024, finding it more likely than not that the Company would prevail in establishing that the challenged claims were not patentable. After requesting the PTAB to reconsider its decision to institute, which was denied, Versata filed a petition for writ of mandamus with the Court of Appeals for the Federal Circuit (“CAFC”) on April 11, 2014 asking that Court to deny institution of CBM patent review by the PTAB. The CAFC denied Versata’s petition for writ of mandamus on May 5, 2014. On April 17, 2014, the Company filed additional petitions with the PTAB for CBM patent review to address all of the remaining claims not previously covered in the prior petitions with respect to U.S Patent Nos. 7,908,304 and 7,958,024. On May 8, 2014, the Delaware District Court: (i) granted our Motion to Stay in part with respect to U.S. Patent No. 7,904,326, and (ii) denied the Company's Motion to Stay in part with respect to U.S. Patent Nos. 7,908,304 and 7,958,024. On May 8, 2014, the Company appealed to the CAFC the Delaware District Court’s denial of the Motion to Stay with respect to U.S. Patent Nos. 7,908,304 and 7,958,024. On October 2, 2014, the PTAB instituted covered business method patent review of the remaining claims covered in the second set of petitions for U.S Patent Nos. 7,908,304 and 7,958,024. On October 21, 2014, the Company engaged in a mediation with Versata and on November 13, 2014, entered into an agreement with Versata to settle and dismiss the pending district court litigation and patent office proceedings, to extend patent cross-licenses and covenants not to sue to one another, and the Company was appointed as an authorized reseller of certain Versata products. Under the agreement, each party covenanted not to sue the other (and its related entities) for infringement of any patents now owned (including pending patents) or later acquired by either party. In addition, each party granted to the other a fully paid-up, irrevocable, nonexclusive, worldwide license to certain patents (including the patents asserted in the pending district court litigation) for specified products of each party. The agreement also contained a release for any past infringement or claim between the parties and dismissal of the civil pending in the Delaware District Court, as well as the five covered business method patent review proceedings then-pending before the PTAB. Pursuant to the agreement, the Company agreed to pay to Versata $4.5 million in nine equal quarterly installments, commencing on January 31, 2015. The fair value of these payments was $4.3 million, of which the Company recognized a charge to earnings for $2.9 million in 2014 and capitalized $1.4 million for the value of the patent license. The $1.4 million will be amortized to expense over the average life span of the associated patents of approximately 9.5 years. The difference between the installment payment and the fair value will be charged to interest as incurred.

Callidus Software, Inc. v. Xactly Corporation - Settled

On August 31, 2012, the Company filed suit against Xactly Corporation (“Xactly”) in the United States District Court for the Central District of California. The suit alleged that Xactly infringed U.S. Patents 8,046,387 and 7,774,378. On October 24, 2012, the Company amended its complaint to add Xactly's President and Chief Executive Officer as a defendant and to add claims for trademark infringement, false advertising, false and misleading advertising, trade libel, defamation, intentional interference with prospective economic advantage, intentional interference with contractual relations, breach of contract and unfair competition, in addition to patent infringement. On January 28, 2013, the Company further amended its complaint to allege that Xactly also infringed U.S. Patent 6,473,748 and dismissed its intentional interference with contractual relations claim. On March 14, 2013, the case was transferred to the United States District Court in the Northern District of California. On May 31, 2013, the Company and Xactly entered into a stipulated dismissal of the Company's trademark infringement claim whereby Xactly agreed that it would not use the Company's trademarks-in-suit in certain of Xactly's marketing and advertising activities going forward. On November 25, 2013, Callidus, Xactly and Xactly's President and Chief Executive Officer entered into a Settlement, Release, and License Agreement that, among other things, included an agreement by Xactly to pay the Company $2.0

55

million in license fee, which will be paid in four equal annual installments of $0.5 million beginning November 2013. Upon receipt of installment payments, the Company will record the amount under operating expenses as an offset to legal fees.

TQP Development, LLC v. Callidus Software, Inc. - Settled

On December 14, 2012, TQP Development, LLC (“TQP”) filed suit against Callidus in the United States District Court for the Eastern District of Texas Marshall Division (“Texas District Court”). The suit asserted that Callidus infringed U.S. Patent No. 5,412,730. The Company filed a petition with the PTAB on October 11, 2013 for covered business method patent review of U.S. Patent No. 5,412,730. On December 2, 2013, the Company entered into a Settlement Agreement with TQP for no monetary consideration. Pursuant to the Settlement Agreement, 1) TQP dismissed, with prejudice, its outstanding suit against the Company in the Texas District Court on December 4, 2013, and 2) the PTAB accepted the parties’ joint motion to terminate the covered business method patent review proceeding on December 11, 2013.

Other matters

In addition to the above litigation matters, the Company from time to time is a party to other various litigation and customer disputes incidental to the conduct of its business. At the present time, the Company believes that none of these matters are likely to have a material adverse effect on the Company's future financial results.

The Company records a liability when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. The Company reviews the need for any such liability on a quarterly basis and records any necessary adjustments to reflect the effect of ongoing negotiations, contract disputes, settlements, rulings, advice of legal counsel, and other information and events pertaining to a particular case in the period they become known. At December 31, 2014, the Company has not recorded any such liabilities in accordance with accounting for contingencies. However, litigation is subject to inherent uncertainties and the Company's view on these matters may change in the future.

Note 10—Revolving Line of Credit

In May 2014, the Company entered into a credit agreement with Wells Fargo Bank, National Association ("Wells Fargo"), under which Wells Fargo agreed to make a revolving loan ("Revolver") to us in an amount not to exceed $10.0 million, with an accordion feature that allows us to increase the maximum borrowing amount by not less than $5.0 million and not more than $10.0 million. In September 2014, the Company increased the maximum borrowing amount to $15.0 million. The Revolver matures in May 2019.

Pursuant to the agreement, the Company is required to maintain a leverage ratio of 3.00:1.00 and a minimum liquidity of $7.5 million.

Outstanding borrowings under the Revolver bear interest, at the Company's option, at a base rate plus an applicable margin. The applicable margin ranges between 0.75% and 2.25% depending on the Company's leverage ratio. A fee of 0.25% per annum is payable with respect to the unused portion of the commitment. Interest is payable every three months. As of December 31, 2014 the Company had borrowed $10.5 million under the Revolver. The carrying value of total debt approximates fair market value. Interest rate at December 31, 2014 was 2%.

Note 11—Net Loss Per Share

Basic net loss per share is calculated by dividing net loss for the period by the weighted average common shares outstanding during the period. Diluted net loss per share is calculated by dividing the net loss for the period by the weighted average common shares outstanding, adjusted for all dilutive potential common shares, which includes shares issuable upon the conversion of the Convertible Notes, the exercise of outstanding common stock options, the release of restricted stock, and purchases of shares under the Employee Share Purchase Plan (ESPP) to the extent these shares are dilutive. For 2014, 2013 and 2012, the diluted net loss per share calculation was the same as the basic net loss per share calculation as all potential common shares were anti-dilutive.

Diluted net loss per share does not include the effect of the following potential weighted average common shares because to do so would be anti-dilutive for the periods presented (in thousands):

	Years Ended December 31,
	2014	2013	2012
Restricted stock	2,379	1,918	3,543
Stock options	1,630	2,490	3,299
ESPP	39	42	67
Convertible notes	829	7,129	7,680
Total	4,877	11,579	14,589

The weighted average exercise price of stock options excluded for 2014, 2013 and 2012 was $4.09, $4.42 and $4.74, respectively.

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Note 12—Stock-Based Compensation

Stockholder-Approved Stock Option and Incentive Plans

In June 2013, the 2013 Stock Incentive Plan ("2013 Plan") became effective upon the approval of the Company's Board of Directors and stockholders, and as a result, the 2003 Stock Incentive Plan ("2003 Plan") was expired and replaced. All outstanding shares available for grant under the 2003 Plan expired upon the adoption of the 2013 Plan.

The Company was authorized to issue 3,469,500 shares of common stock under the 2013 Plan. Under the 2013 plan, the Company's Board of Directors (or an authorized subcommittee) may grant stock options or other types of stock awards, such as restricted stock, restricted stock units, stock bonus awards or stock appreciation rights. Incentive stock options may be granted only to the Company's employees. Nonstatutory stock options and other stock-based awards may be granted to employees, consultants or non-employee directors. These options vest as determined by the board of directors (or an authorized subcommittee), generally over four years. The restricted stock units also vest as determined by the board, generally over three years.

Shares Available for Grant

A summary of the Company's shares available for grant and the status of options and awards are as follows:

	Years Ended December 31,
	2014		2013		2012
	(Number of Shares)
Beginning Available	2,478,798		2,578,940		2,014,218
Authorized	—		3,469,500		1,756,431
Granted	(1,913,499	)	(2,024,798	)	(2,519,851	)
Cancelled	383,549		1,335,591		1,328,142
Expired	(178,337	)	(2,880,435	)	—
Ending Available	770,511		2,478,798		2,578,940

Expense Summary

Stock-based compensation expenses of $11.8 million, $10.4 million and $13.7 million was recorded during the years ended December 31, 2014, 2013 and 2012, in the consolidated statement of comprehensive loss. The table below sets forth a summary of stock-based compensation expense for the years ended December 31, 2014, 2013 and 2012 (in thousands).

	Years Ended December 31,
	2014		2013		2012
Stock-based compensation:
Stock Options	$	790	$	866	$	838
Restricted Stock Units
Performance-based Awards	2,370		1,097		444
Service-based Awards	7,705		7,835		11,571
ESPP	948		597		802
Total stock-based compensation	$	11,813	$	10,395	$	13,655

The table below sets forth the functional classification of stock-based compensation expense for the years ended December 31, 2014, 2013 and 2012 (in thousands):

	Years Ended December 31,
	2014		2013		2012
Stock-based compensation:
Cost of recurring revenue	$	911	$	783	$	1,550
Cost of services and other revenue	1,026		1,060		2,070
Sales and marketing	3,518		2,420		3,778
Research and development	2,012		1,797		1,782
General and administrative	4,346		4,335		4,475
Total stock-based compensation	$	11,813	$	10,395	$	13,655

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Determination of Fair Value    

The fair value of service-based awards is estimated based on the market value of the Company’s stock on the date of grant. A portion of the performance-based awards granted during 2014 are based on relative stockholder return and therefore are subject to a market condition. As a result, the fair value of performance awards is calculated using a Monte Carlo simulation model that estimates the distribution of the potential outcomes of the grants of performance awards based on simulated future index of the peer companies.

The fair value of each stock option is estimated on the date of grant and the fair value of each ESPP share is estimated on the beginning date of the offering period using the Black-Scholes-Merton valuation model and the assumptions noted in the following table.

	Years Ended December 31,
	2014	2013	2012
Stock Option Plans
Expected life (in years)	—	5.0 to 6.1	5.0 to 6.0
Risk-free interest rate	—	1.41% to 1.93%	0.72% to 1.33%
Volatility	—	61% to 63%	60% to 65%
Dividend Yield	—	—	—
Employee Stock Purchase Plan
Expected life (in years)	0.5 to 1.0	0.5 to 1.0	0.5 to 1.0
Risk-free interest rate	0.05% to 0.12%	0.08% to 0.17%	0.13% to 0.20%
Volatility	47% to 50%	41% to 62%	56% to 62%
Dividend Yield	—	—	—

Expected Dividend Yield—The Company has never paid dividends and do not expect to pay dividends.

Risk-Free Interest Rate—The risk-free interest rate was based on the implied yield currently available on U.S. Treasury zero-coupon issues with a remaining term equivalent to the expected term.

Expected Term—Expected term represents the period that the Company's stock-based awards are expected to be outstanding. The Company's assumptions about the expected term have been based on historical experience, giving consideration to the contractual terms of the stock-based awards, vesting schedules and expectations of future employee behavior as influenced by changes to the terms of its stock-based awards. The expected term for stock options was estimated using the simplified method allowed under SEC guidance.

Expected Volatility—Expected volatility is based on the historical volatility over the expected term.

Stock Options

As of December 31, 2014, the Company had $1.8 million of unrecognized compensation expense, net of forfeitures, which it expects to recognize over a weighted average period of 2.5 years. No stock options were granted during the year ended December 31, 2014. For the years ended December 31, 2013, the weighted-average fair value of stock options granted by the Company was $3.87 per share. The total intrinsic value of stock options exercised was $5.9 million, $6.2 million and $1.4 million for 2014, 2013 and 2012, respectively. The total cash received from employees as a result of stock option exercises was $2.9 million, $5.1 million and $3.7 million for 2014, 2013 and 2012, respectively.    

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Stock option activity is summarized below:

	Number of Shares		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (Years)	Aggregate Intrinsic Value (in thousands)
Outstanding as of December 31, 2011	4,403,003		$	4.71
Granted	120,200		5.86
Exercised	(714,820	)	5.16			$	1,358
Forfeited	(134,346	)	3.52
Expired	(638,555	)	7.64
Outstanding as of December 31, 2012	3,035,482		4.09
Granted	815,500		6.79
Exercised	(1,427,456	)	3.54			6,151
Forfeited	(108,306	)	5.10
Expired	(367,006	)	5.30
Outstanding as of December 31, 2013	1,948,214		5.34
Granted	—		—
Exercised	(701,220	)	4.09			5,940
Forfeited	(44,407	)	7.40
Expired	(26,626	)	10.17
Outstanding as of December 31, 2014	1,175,961		$	5.89	5.99	$	12,278
Vested and Expected to Vest as of December 31, 2014	1,100,528		$	5.82	5.83	$	11,566
Exercisable as of December 31, 2014	730,899		$	5.33	4.60	$	8,039

As of December 31, 2014, the range of exercise prices and weighted average remaining contractual life of outstanding options are as follows:

		Options Outstanding			Options Exercisable
Range of Exercise Prices	Number of Shares	Weighted Average Remaining Contractual Life (Years)	Weighted Average Exercise Price		Number of Shares	Weighted Average Exercise Price
$3.11 - $4.14	133,132	0.53	$	3.63	133,132	$	3.63
$4.15 - $4.15	140,000	0.92	4.15		140,000	4.15
$4.31 - $5.27	140,061	5.53	4.93		109,695	5.03
$5.70 - $5.70	60,000	1.42	5.70		60,000	5.70
$6.01 - $6.01	122,000	8.41	6.01		48,291	6.01
$6.25 - $6.42	80,700	8.37	6.26		79,900	6.26
$6.59 - $6.59	231,407	8.49	6.59		70,989	6.59
$6.67 - $6.74	42,334	8.50	6.67		14,604	6.67
$7.69 - $7.69	207,327	8.66	7.69		68,622	7.69
$9.17 - $10.35	19,000	8.80	9.98		5,666	9.96
$3.11 - $10.35	1,175,961	5.99	$	5.89	730,899	$	5.33

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Restricted Stock Units

As of December 31, 2014, the Company had $16.1 million of unrecognized compensation expense, net of forfeitures, which it expect to recognize over a weighted average period of 1.7 years.

Restricted stock unit activity is summarized below:

	Number of Shares		Weighted Average Remaining Contractual Term (Years)	Aggregate Intrinsic Value (in thousands)
Unreleased as of December 31, 2011	3,859,292
Granted	2,399,651
Released	(2,597,880	)
Forfeited	(551,380	)
Unreleased as of December 31, 2012	3,109,683
Granted	1,209,298
Released	(1,754,872	)
Forfeited	(856,695	)
Unreleased as of December 31, 2013	1,707,414
Granted	1,913,499
Released	(736,269	)
Forfeited	(183,607	)
Unreleased as of December 31, 2014	2,701,037		1.02	$	43,487
Vested and Expected to Vest as of December 31, 2014	2,700,828		1.02	$	40,169

Restricted stock units granted to employees are not considered outstanding at the time of grant, as the holders of these units are not entitled to dividends and voting rights. Unvested restricted stock units are not considered outstanding in the computation of basic net loss per share.

Performance-based Awards

The Company includes performance-based award activity with restricted stock units.

In 2014 the Company granted performance-based awards with vesting contingent on absolute SaaS revenue growth over the three year period from 2014 to 2016, and the Company's relative total shareholder return over the three year period from 2014 through 2016 versus an index of 17 SaaS companies. In 2014, $1.9 million of expense, net of forfeiture, was recognized.

In 2013, the Company granted performance-based awards with vesting contingent on successful attainment of pre-set SaaS revenue growth and recurring revenue gross profit target. In 2014 $0.5 million expense, net of forfeiture, was recognized.

Employee Stock Purchase Plan

The Company's Employee Stock Purchase Plan (ESPP), which was adopted in 2003 and amended and restated in 2013, qualifies as an "employee stock purchase plan" under Section 423 of the Internal Revenue Code. The ESPP is designed to enable eligible employees to purchase shares of the Company's common stock at a discount on a periodic basis through payroll deductions. Each offering period under the ESPP covers 12 months and consists of two consecutive six-month purchase periods. The purchase price for shares of common stock purchased under the ESPP is 85% of the lesser of the fair market value of the Company's common stock on the first day of the applicable offering period and the fair market value of the Company's common stock on the last day of each purchase period. The Company issued approximately 319,000, 435,000 and 407,000 shares during the years ended December 31, 2014, 2013 and 2012 under the ESPP. The weighted-average fair value of stock purchase rights granted under the ESPP during 2014, 2013 and 2012 was $3.59 per share, $1.96 per share and $1.76 per share, respectively.

As of December 31, 2014, the Company had $0.5 million of unrecognized compensation expense related to ESPP subscriptions that will be recognized over 0.6 years.

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Note 13—Stockholders' Equity

Preferred Stock

The Company's certificate of incorporation authorizes 5,000,000 shares of undesignated preferred stock with a par value of $0.001, of which no shares were outstanding as of December 31, 2014 and 2013.

Note 14—Income Taxes

The following is a geographical breakdown of consolidated loss before income taxes by income tax jurisdiction (in thousands):

	2014			2013			2012
United States	$	(11,557	)	$	(20,675	)	$	(27,796	)
Foreign	1,008			1,319			486
Total	$	(10,549	)	$	(19,356	)	$	(27,310	)

The provision for income taxes for 2014, 2013 and 2012 consists of the following (in thousands):

	2014			2013		2012
Current:
Federal	$	(25	)	$	—	$	4
State	3			—		—
Foreign	1,138			1,815		559
Deferred:
Federal	78			159		(185		)
State	(89		)	—		(22		)
Foreign	(93		)	81		32
Total provision for income taxes	$	1,012		$	2,055	$	388

The decrease in provision for income taxes in 2014 from 2013 was primarily due to a net decrease in foreign withholding taxes offset by an increase in income taxes in foreign jurisdiction.

The provision for income taxes differs from the expected tax benefit computed by applying the statutory federal income tax rates to consolidated loss before income taxes as follows (in thousands):

	Year Ended December 31,
	2014			2013			2012
Federal tax at statutory rate	$	(3,587	)	$	(6,581	)	$	(9,286	)
State taxes, net of benefit	3			—			—
Non-deductible expenses	453			1,248			2,416
Foreign taxes	703			1,447			427
Current year net operating losses and other deferred tax assets for which no benefit has been recognized	4,828			7,320			7,181
Research and experimentation credit	(1,239		)	(1,379		)	—
Tax benefit due to the recognition of acquired deferred tax liabilities	(149		)	—			(350		)
Total provision for income taxes	$	1,012		$	2,055		$	388

Deferred income taxes reflect the net tax effect of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amount used for income tax purposes. Net deferred tax assets consist of the following (in thousands):

61

	As of December 31,
	2014			2013
Deferred tax assets
Net operating loss carryforwards	$	54,712		$	53,902
Accrued expenses	5,420			2,161
Unrealized gain/loss on investments	916			915
Research and experimentation credit carryforwards	12,609			10,884
Capitalized research and experimentation costs	14,072			18,100
Deferred stock compensation	3,956			2,223
Gross deferred tax assets	91,685			88,185
Less valuation allowance	(90,598		)	(86,604		)
Total deferred tax assets, net of valuation allowance	1,087			1,581
Deferred tax liabilities
Property and equipment and intangibles	(1,699		)	(1,602		)
Goodwill	(1,024		)	(887		)
Net deferred tax liabilities	$	(1,636	)	$	(908	)

In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Based on the level of historical taxable income and projections for future taxable income over the period in which the temporary differences are deductible, the Company recorded a valuation allowance against the deferred tax assets for which it believes it is not more likely than not to be realized. As of December 31, 2014 and 2013, a valuation allowance has been recorded on all deferred tax assets, except the deferred tax assets related to two of its foreign subsidiaries, based on the analysis of profitability for those subsidiaries.

The net changes for valuation allowance for years ended December 31, 2014 and 2013 were an increase of $4.0 million and $7.8 million, respectively.

The Company recorded approximately $0.9 million and no additional net deferred tax liabilities related to the various acquisitions completed during 2014 and 2013, respectively. The additional deferred tax liabilities create a new source of taxable income, thereby requiring the Company to release a portion of its deferred tax asset valuation allowance with a related reduction in income tax expense.

As of December 31, 2014, the Company had net operating loss carryforwards for federal and California income tax purposes of $169.0 million and $38.0 million, respectively, available to reduce future income subject to income taxes. The federal net operating loss carryforwards, if not utilized, will expire over 20 years beginning in 2017. The California net operating loss carryforward, began to expire in 2014.

Not included in the deferred income tax asset balance at December 31, 2014 is approximately $8.9 million, which pertains to certain net operating loss carryforwards resulting from the exercise of employee stock options. When recognized, the tax benefit of these losses will be accounted for as a credit to additional paid-in capital rather than a reduction of the income tax provision.

The Company also has research credit carryforwards for federal and California income tax purposes of approximately $8.4 million and $8.7 million, respectively, available to reduce future income taxes. The federal research credit carryforward, if not utilized, will expire over 20 years beginning in 2019. The California research credit carries forward indefinitely.

Federal and California tax laws impose restrictions on the utilization of net operating loss and tax credit carryforwards in the event of an ownership change, as defined in Section 382 of the Internal Revenue Code. The Company's ability to utilize its net operating loss and tax credit carryforwards are subject to limitations under these provisions.

The Company has not provided for federal income taxes on all of the non-U.S. subsidiaries' undistributed earnings as of December 31, 2014 of $2.7 million, because such earnings are intended to be indefinitely reinvested. The residual U.S. tax liability, if such amounts were remitted, would be nominal.

62

The activity related to the Company's unrecognized tax benefits is set forth below (in thousands):

	Amount
Balance at January 1, 2013	$	2,478
Increases related to prior year tax positions	175
Increases related to current year tax positions	222
Reductions to unrecognized tax benefits as a result of a lapse of applicable statute of limitations	(32		)
Balance at December 31, 2013 (1)	2,843
Increases related to prior year tax positions	(44		)
Increases related to current year tax positions	270
Reductions to unrecognized tax benefits as a result of a lapse of applicable statute of limitations	(32		)
Balance at December 31, 2014 (2)	$	3,037

(1) $2.6 million million of the unrecognized tax benefits reduced deferred tax assets and $0.3 million was included in accrued expenses on the consolidated balance sheet.

(2) $2.7 million of the unrecognized tax benefits reduced deferred tax assets and $0.3 million was included in accrued expenses on the consolidated balance sheet.

If recognized, $0.3 million of the unrecognized tax benefits at December 31, 2014 would reduce the Company's annual effective tax rate. The Company also accrued potential penalties and interest of $0.1 million related to these unrecognized tax benefits during 2014, and in total, as of December 31, 2014, the Company recorded a liability for potential penalties and interest of $0.2 million. The Company recognized interest and penalties related to unrecognized tax benefits within the income tax expense line in the accompanying consolidated statement of comprehensive loss. Accrued interest and penalties are included within the related tax liability line in the consolidated balance sheet. The Company classified the unrecognized tax benefits as a noncurrent liability, as the Company does not expect any payment of incremental taxes over the next 12 months. The Company also does not expect its unrecognized tax benefits to change significantly over the next 12 months.

The Company files U.S., state, and foreign income tax returns in jurisdictions with varying statutes of limitations. All tax years generally remain subject to examination by federal and most state tax authorities. In foreign jurisdictions, the 2004 through 2014 tax years generally remain subject to examination by their respective tax authorities.

Note 15—Employee Benefit Plan

In 1999, the Company established a 401(k) tax-deferred savings plan ("401(k) plan"), whereby eligible employees may contribute a percentage of their eligible compensation up to the maximum allowed under IRS rules. The Company's contributions are discretionary, and no such contributions have been made since the inception of this plan up until December 31, 2011. Beginning January 1, 2012, the Company contributed 50% of each dollar that an employee contributed to their 401(k) plan up to a maximum of $1,000 annually, and the vesting of the Company's contributions is based on years of service. During the years ended December 31, 2014 and 2013, the Company recognized approximately $272,000 and $220,000, respectively in expense related to the 401(k) plan match.

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Note 16—Segment, Geographic and Customer Information

The accounting principles guiding disclosures about segments of an enterprise and related information establishes standards for the reporting by business enterprises of information about operating segments, products and services, geographic areas, and major customers. The method of determining which information is reported is based on the way that management organizes the operating segments within the Company for making operational decisions and assessments of financial performance. The Company's chief operating decision maker is considered to be the Company's chief executive officer (CEO). The CEO reviews financial information presented on a consolidated basis for purposes of making operating decisions and assessing financial performance. By this definition, the Company operates in one reportable segment, which is the development, marketing and sale of enterprise software and related services.

The following table summarizes revenue for the years ended December 31, 2014, 2013 and 2012 by geographic areas (in thousands):

	2014		2013		2012
United States	$	106,194	$	88,684	$	74,477
EMEA	15,162		12,241		11,578
Asia Pacific	8,400		5,379		4,943
Other	6,862		6,033		3,954
	$	136,618	$	112,337	$	94,952

No individual country, outside of the U.S. accounted for more than 10% of the Company's property, plant and equipment as of December 31, 2014 and 2013.

As of December 31, 2014, the Company's goodwill balance was $47.0 million, of which $11.4 million was located in U.K. (EMEA) and intangible asset balance of $17.8 million, and $2.5 million was located in U.K. (EMEA). No individual country, outside the U.S. accounted for more than 10% of goodwill and intangible asset balance as of December 31, 2013.

In 2014, 2013 and 2012, no customer accounted for more than 10% of total revenue.

Note 17—Related Party Transactions

In June 2013, in the normal course of business, the Company entered into agreements with Lithium Technologies, Inc. (“Lithium”). The Chief Financial Officer of Lithium is a member of the Company's Board of Directors. The Company purchased an annual subscription for Lithium's social media management solutions in the amount of $120,000 and renewed in 2014. During 2013 and 2014, the Company paid the entire annual fee of $120,000 in each year, for Lithium’s social media management solution. For the 2013 fee, $62,000 was expensed in 2013 and $58,000 was expensed in 2014. For the 2014 fee, $62,000 was expensed in 2014 and $58,000 was included in prepaid expenses in current assets, as of December 31, 2014. In 2013, Lithium entered into a two-year web hosting agreement with the Company in the amount of $113,000. During 2013, the Company recognized approximately $52,000 in revenue under this agreement. In addition, during 2013, the Company entered into an agreement with Lithium in the amount of $143,550 under which it provided professional services, of which approximately $120,000 was recognized in 2013 and the remaining balance of $23,550 was recognized in 2014.

In 2014, the Company purchased a one-time annual subscription from Lithium for Social Success Services for $40,000, which amount was paid in full in October 2014. As of December 31, 2014, $17,000 of this amount was expensed and $23,000 was included in prepaid expenses. Also in 2014, the Company purchased an annual subscription from Lithium for Community Administration for $45,000, which was paid in full in January 2015.

Webcom Inc., a wholly-owned subsidiary of the Company, uses the services of a third-party vendor to perform product modeling and maintenance of certain equipment. The third-party vendor is owned by a relative of Webcom's senior management. For the year ended December 31, 2014 and 2013, the Company paid approximately $149,000 and $143,000, respectively, to this vendor.

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Supplementary Data (unaudited)

The following tables set forth unaudited supplementary quarterly financial data for the two year period ended December 31, 2014. In management's opinion, the unaudited data has been prepared on the same basis as the audited information and includes all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation of the data for the periods presented.

	First Quarter			Second Quarter		Third Quarter			Fourth Quarter			Total
Year ended December 31, 2014
Total revenue	$	30,977		$	32,515	$	35,000		$	38,126		$	136,618
Gross profit	$	18,579		$	19,385	$	19,354		$	23,262		$	80,580
Net income (loss)	$	(2,467	)	$	250	$	(5,235	)	$	(4,109	)	$	(11,561	)
Basic and diluted net income (loss) per share	$	(0.05	)	$	—	$	(0.11	)	$	(0.08	)	$	(0.24	)
Weighted average common shares (basic)	45,944			46,648		48,564			48,987			47,547
Weighted average common shares (diluted)	45,944			48,061		48,564			48,987			47,547

	First Quarter			Second Quarter			Third Quarter			Fourth Quarter			Total
Year ended December 31, 2013
Total revenue	$	25,542		$	25,930		$	30,678		$	30,187		$	112,337
Gross profit	$	12,867		$	14,260		$	18,900		$	18,521		$	64,548
Net loss	$	(6,603	)	$	(6,415	)	$	(1,413	)	$	(6,980	)	$	(21,411	)
Basic and diluted net loss per share	$	(0.18	)	$	(0.17	)	$	(0.04	)	$	(0.17	)	$	(0.55	)
Weighted average common shares (basic and diluted)	37,139			37,813			38,648			41,778			38,858

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

None.

Item 9A.    Controls and Procedures

(a)   Disclosure Controls and Procedures

Our Chief Executive Officer and our Chief Financial Officer, after evaluating the effectiveness of our "disclosure controls and procedures" (as defined in the Securities Exchange Act of 1934 (Exchange Act) Rules 13a-15(e) or 15d-15(e)) as of the end of the period covered by this annual report, have concluded that our disclosure controls and procedures are effective based on their evaluation of these controls and procedures required by paragraph (b) of Exchange Act Rules 13a-15 or 15d-15.

Our management, including our Chief Executive Officer and Chief Financial Officer, do not expect that our disclosure controls and procedures or our internal controls will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within our company have been detected.

(b)   Management's Annual Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934, as amended). Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2014. In making this assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO") in Internal Control—Integrated Framework (1992). Our management has concluded that, as of December 31, 2014, our internal control over financial reporting is effective based on these criteria. In addition, our independent registered public accounting firm has issued an attestation report on the Company's internal control over financial reporting as of the reporting date.

65

(c)   Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting during the fourth quarter of 2014 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Item 9B.    Other Information

None.

PART III

The information required by Part III of Form 10-K is incorporated by reference to our Proxy Statement for the 2015 annual meeting of stockholders to be filed with the Securities and Exchange Commission within 120 days of the fiscal year ended December 31, 2014.

PART IV

Item 15.    Exhibits and Financial Statement Schedules

(a)   Consolidated financial statements, consolidated financial statements schedule and exhibits

1.    Consolidated financial statements.    The consolidated financial statements as listed in the accompanying "Index to Consolidated Financial Information" are filed as part of this Annual Report on Form 10-K.

2.     All schedules not listed in the accompanying index have been omitted as they are either not required or not applicable, or the required information is included in the consolidated financial statements or the notes thereto.

3.    Exhibits.    The exhibits listed in the accompanying Exhibit Index are filed or incorporated by reference as part of this Annual Report on Form 10-K.

66

EXHIBIT INDEX

Exhibit Number	Description
2.1	Agreement, dated September 15, 2014, between the vendors set forth therein, Callidus Software Inc. and Dorset Acquisition Corp (incorporated by reference to Exhibit 2.1 to the Registrant’s Form 8-K filed with the Commission on September 17, 2014).
3.1	Amended and Restated Certificate of Incorporation (incorporated by reference to Exhibit 3.1 to the Registrant's Registration Statement on Form S-1 (File No. 333-109059) filed with the Commission on September 23, 2003, and declared effective on November 19, 2003).
3.2	Second Amended and Restated Bylaws (incorporated by reference to Exhibit 3.2 to the Registrant's Form 10-Q filed with the Commission on November 5, 2010)
4.1	Specimen Stock Certificate (incorporated by reference to Exhibit 4.1 to Amendment No. 4, filed with the Commission on November 7, 2003, to the Registrant's Registration Statement on Form S-1 (File No. 333-109059) filed with the Commission on September 23, 2003, and declared effective on November 19, 2003)
10.1	Office Lease Agreement between 6200 Stoneridge Mall Road Investors LLC and Callidus Software Inc. dated March 30, 2010 (incorporated by reference to Exhibit 10.25 to the Registrant's Form 10-Q filed with the Commission on May 7, 2010)
10.2	Second Amendment to Office Lease Agreement between 6200 Stoneridge Mall Road Investors LLC and Callidus Software Inc. dated December 27, 2011 (incorporated by reference to Exhibit 10.2 to the Registrant's Form 10-K filed with the Commission on March 13, 2012)
10.3	Third Amendment to Office Lease Agreement between 6200 Stoneridge Mall Road Investors LLC and Callidus Software Inc. dated October 1, 2014 (incorporated by reference to Exhibit 10.1 to the Registrant's Form 10-Q filed with the Commission on November 5, 2014)
#10.4	Sublease between Oracle America, Inc. and Callidus Software Inc. dated October 3, 2014
10.5+	1997 Stock Option Plan (incorporated by reference to Exhibit 10.6 to the Registrant's Registration Statement on Form S-1 (File No. 333-109059) filed with the Commission on September 23, 2003, and declared effective on November 19, 2003)
10.6+	Amended and Restated 2003 Stock Incentive Plan (incorporated by reference to Exhibit 10.3.1 to the Company's Form 10-Q filed with the Commission on August 9, 2010)
10.7+	Forms of Stock Option Agreement and Restricted Stock Unit Agreement under the 2003 Stock Incentive Plan (incorporated by reference to Exhibit 10.5 to the Registrant's Form 10-K filed with the Commission on March 10, 2014)
10.8+	2013 Stock Incentive Plan and Forms of Restricted Stock Unit Agreement and Stock Option Agreement (incorporated by reference to Exhibit 99.1 to the Registrant's Form S-8 (File No. 333-189416) filed with the Commission on June 18, 2013)
10.9+	Amended and Restated Employee Stock Purchase Plan, and enrollment forms (incorporated by reference to Exhibit 10.7 to the Registrant's Form 10-K filed with the Commission on March 10, 2014)
10.10+	Executive Incentive Bonus Plan, effective January 27, 2014 (incorporated by reference to Exhibit 99.1 to the Registrant's Form 8-K filed with the Commission on January 31, 2014)
10.11	Form of Non-Employee Director Offer Letter (incorporated by reference to Exhibit 10.2 to the Registrant's Form 10-Q filed with the Commission on August 4, 2014)
#10.12+	Form of Executive Change of Control Agreement
#10.13+	Form of Director Change of Control Agreement
#10.14	Form of Indemnification Agreement
10.15+	Amendment dated November 20, 2007 to Offer Letter Between Callidus Software Inc. and Leslie J. Stretch (incorporated by reference to Exhibit 10.16 to the Registrant's Form 10-K filed with the Commission on March 10, 2014)
#10.16+	Offer Letter with Jimmy Duan dated September 24, 2008
10.17+	Employment Agreement with Bob L. Corey dated April 30, 2013 (incorporated by reference to Exhibit 10.2 to the Registrant's Form 10-Q filed with the Commission on November 7, 2013)
10.18	Credit Agreement by and among Wells Fargo Bank, National Association, as administrative agent, the lender that is a party thereto, and Callidus Software Inc., dated as of May 13, 2014 (incorporated by reference to Exhibit 99.1 to the Registrant’s Form 8-K filed with the Commission on May 13, 2014)
#10.19*	Agreement between Callidus Software Inc. and Versata Software, Inc., Versata Development Group, Inc., and Versata, Inc. dated November 13, 2014
#23.1	Consent of Independent Registered Public Accounting Firm
#31.1	Certifications of Chief Executive Officer Pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as adopted by Section 302 of the of the Sarbanes-Oxley Act of 2002

67

#31.2	Certifications of Chief Financial Officer Pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as adopted by Section 302 of the of the Sarbanes-Oxley Act of 2002
#32.1	Certifications of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. section 1350, as adopted by Section 906 of the Sarbanes-Oxley Act of 2002
#101	Interactive Data Files Pursuant to Rule 405 of Regulations S-T (XBRL)

_________________________________________________________________________________________________________________

#    Filed herewith

+    Management contract or compensatory plan or arrangement

* Registrant is requesting confidential treatment with respect to portions of this exhibit.

68

SIGNATURES

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 on February 27, 2015.

CALLIDUS SOFTWARE INC.
By:	/s/ BOB L. COREY
	Bob L. Corey, Senior Vice President, Chief Financial Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated below.

Signature	Title	Date
/s/ LESLIE J. STRETCH		February 27, 2015
Leslie J. Stretch	President, Chief Executive Officer and Director (Principal Executive Officer)
/s/ BOB L. COREY		February 27, 2015
Bob L. Corey	Senior Vice President, Chief Financial Officer (Principal Financial Officer, Principal Accounting Officer)
/s/ CHARLES M. BOESENBERG		February 27, 2015
Charles M. Boesenberg	Chairman of the Board
/s/ WILLIAM B. BINCH		February 27, 2015
William B. Binch	Lead Independent Director
/s/ MARK A. CULHANE		February 27, 2015
Mark A. Culhane	Director
/s/ KEVIN M. KLAUSMEYER		February 27, 2015
Kevin M. Klausmeyer	Director
/s/ DAVID B. PRATT		February 27, 2015
David B. Pratt	Director
/s/ MURRAY RODE		February 27, 2015
Murray Rode	Director
/s/ MICHELE VION		February 27, 2015
Michele Vion	Director

69

70

EX-10.4

EXHIBIT 10.4

SUBLEASE

BETWEEN

ORACLE AMERICA, INC.

AND

CALLIDUS SOFTWARE INC.,

DOING BUSINESS AS CALLIDUSCLOUD

4140 Dublin Boulevard, Dublin, CaliforniaThird (3rd) and Fourth (4th) Floor Premises

SUBLEASE

THIS SUBLEASE (“Sublease”) is entered into as of October 3, 2014 (the “Effective Date”), by and between ORACLE AMERICA, INC., a Delaware corporation (“Sublandlord”), and CALLIDUS SOFTWARE, INC., a Delaware corporation, doing business as CallidusCloud (“Subtenant”), with reference to the following facts:

A.    Pursuant to that certain Lease dated March 16, 2006 (the “Original Lease”), as the same has been amended by that certain First Amendment to Lease dated January __, 2011 (the “First Amendment”), that certain Second Amendment to Lease dated September 12, 2011 (the “Second Amendment”), that certain Third Amendment to Lease dated September 12, 2011 (the “Third Amendment”), and that certain Fourth Amendment to Lease dated April 3, 2012 (the “Fourth Amendment”, and together with the Original Lease, First Amendment, Second Amendment and Third Amendment, the “Master Lease”) (a copy of the Master Lease is attached hereto as Schedule 1), Dublin Corporate Center Acquisition LLC, a Delaware limited liability company (as successor in interest to Dublin Corporate Center Two, L.P., a Delaware limited partnership) (“Landlord”), Landlord leases to Sublandlord (as successor in interest toTaleo Corporation), as Tenant, certain space (the “Master Lease Premises”) located on the first (1st), third (3rd) and fourth (4th) floors of the Building located at 4140 Dublin Boulevard, Dublin, California (the “Building”).

B.    Subtenant wishes to sublease from Sublandlord, and Sublandlord wishes to sublease to Subtenant, a portion of the Master Lease Premises containing approximately thirty-seven thousand four hundred ninety (37,490) rentable square feet known as Suite 300 and located on the third (3rd) floor of the Building, and approximately thirty-seven thousand four hundred seventy-four (37,474) rentable square feet known as Suite 400 and located on the fourth (4th) floor of the Building, for a total of approximately seventy-four thousand nine hundred sixty-four (74,964) rentable square feet, said space being more particularly identified and described on the floor plans attached hereto as Exhibit A and incorporated herein by reference (the “Subleased Premises”).

NOW, THEREFORE, in consideration of the foregoing, and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged by the parties, Sublandlord and Subtenant hereby agree as follows:

1.Sublease; Definitions. Sublandlord hereby subleases to Subtenant and Subtenant hereby subleases from Sublandlord for the term, at the rental, and upon all of the conditions set forth herein, the Subleased Premises. Capitalized terms used in this Sublease which are not otherwise defined herein, shall have the meanings assigned to them in the Master Lease.

2.Term.

(a)Generally. The term of this Sublease (the “Term”) shall commence on the date (the “Commencement Date”) that is the later to occur of (x) September 1, 2014, (y) the date that Sublandlord delivers possession of the Subleased Premises to Subtenant and (z) the date upon which Sublandlord procures Landlord’s consent to this Sublease (the “Consent”, and the date upon which Sublandlord procures the Consent being the “Consent Date”) and end on May 15, 2022 (the “Expiration Date”), unless sooner terminated pursuant to any provision hereof. Upon the determination of the Commencement Date, Sublandlord and Subtenant will enter into a letter agreement in the form of Exhibit B attached hereto.

(b)Automatic Extension. Notwithstanding the Expiration Date set forth in Section 2(a) above, the Term shall be automatically extended through May 31, 2022, the scheduled date of expiration of the Master Lease, which shall be deemed to be the Expiration Date for all purposes of this Sublease if Subtenant (i) is not in default hereunder (beyond notice and the passage of applicable grace periods) and (ii) has entered into an agreement with Landlord providing for Subtenant to occupy the Subleased Premises on a “direct” basis beyond the Expiration Date (a “Direct Occupancy Agreement”) and (iii) has notified the Sublandlord of the existence of such Direct Occupancy Agreement at least three (3) months prior to the initially scheduled Expiration Date, and (iv) if required by Sublandlord, has delivered to Sublandlord, prior to the initially scheduled Expiration Date, a release executed by Landlord, in form and substance satisfactory to Sublandlord, pursuant to which Sublandlord is released from any obligation to remove installations, alterations, additions, partitions or fixtures from the Subleased Premises upon the expiration of the Master Lease.

(c)Early Access. Subtenant and Subtenant’s representatives shall have the right to enter the Subleased Premises from and after the later to occur of
(i) the Consent Date and (ii) the date upon which Subtenant delivers to Sublandlord (A) the pre-paid Base Rent required pursuant to Section 3.1(a) below, (B) the Letter of Credit (as defined below), and (C) evidence of Subtenant’s procurement of all insurance coverage required hereunder (the date upon which Subtenant first has such access to the Subleased Premises being referred to herein as the “Early Access Date”) for the sole purposes of occupancy and installation of the Initial Subtenant Improvements (as defined below), signage, equipment, furniture, fixtures, voice and data cabling, and other personal property, all subject to the terms, conditions and requirements of the Master Lease. All of the rights and obligations of the parties under this Sublease (other than Subtenant’s obligation to pay Base Rent, but expressly including without limitation Subtenant’s obligation to pay excess utility charges, carry insurance, and indemnification obligations) shall commence upon the Early Access Date. Subtenant shall coordinate such entry with Sublandlord, and such entry shall be made in compliance with all terms and conditions of this Sublease, the Master Lease and the rules and regulations attached to the Master Lease.

3.Rent.

3.1Rent Payments.

(a)Generally. Subtenant shall pay to Sublandlord as base rent for the Subleased Premises during the Term (“Base Rent”) the following:

Period	Rate Per Rentable Square Foot Per Month	Monthly Base Rent
Commencement Date - December 31, 2015*	$2.00	$149,928.00
January 1, 2016 - December 31, 2016	$2.06	$154,425.84
January 1, 2017 - December 31, 2017	$2.12	$158,923.68
January 1, 2018 - December 31, 2018	$2.19	$164,171.16
January 1, 2019 - December 31, 2019	$2.25	$168,669.00
January 1, 2020 - December 31, 2020	$2.32	$173,916.48
January 1, 2021 - December 31, 2021	$2.39	$179,163.96
January 1, 2022 - Expiration Date	$2.46	$184,411.44

* Subject to abatement pursuant to Section 3.1(b) below.

Base Rent shall be paid on the first day of each month of the Term, except that Subtenant shall pay one (1) month’s Base Rent to Sublandlord upon execution of this Sublease and delivery of this Sublease to Sublandlord; said pre-paid Base Rent will be applied to the first (1st) month’s Base Rent due and payable hereunder following the Abatement Period, defined below. If the Term does not begin on the first day of a calendar month or end on the last day of a month, the Base Rent and Additional Rent (hereinafter defined) for any partial month shall be prorated by multiplying the monthly Base Rent and Additional Rent by a fraction, the numerator of which is the number of days of the partial month included in the Term and the denominator of which is the total number of days in the full calendar month. All Rent (hereinafter defined) shall be payable in lawful money of the United States, by regular bank check of Subtenant, to Sublandlord at the following address:

1001 Sunset Boulevard

Rocklin, CA 95765

Attn: Lease Administration

or to such other persons or at such other places as Sublandlord may designate in writing.

(b)Abatement. Notwithstanding anything in Section 3.1(a) above to the contrary, so long as Subtenant is not in default under this Sublease, Subtenant shall be entitled to an abatement of Base Rent starting on the Commencement Date and continuing until November 30, 2015 (the “Abatement Period”). The total amount of Base Rent abated during the Abatement Period is referred to herein as the “Abated Rent.” If Subtenant is in default hereunder at any time during the Term, then, following any applicable notice and cure periods, if such default occurs prior to the expiration of the Abatement Period, there will be no further abatement of Base Rent pursuant to this Section 3.1(b). In the event of bankruptcy, all then-unamortized Abated Rent (assuming amortization of all Abated Rent on a straight-line basis over the Term) shall immediately become due and payable. The payment by Subtenant of the Abated Rent in the event of a default shall not limit or affect any of Sublandlord’s other rights, pursuant to this Sublease or at law or in equity. During the Abatement Period, only Base Rent shall be abated, and all other costs and charges specified in this Sublease shall remain as due and payable pursuant to the provisions of this Sublease.

3.2Operating Costs.

(a)Definitions. For purposes of this Sublease and in addition to the terms defined elsewhere in this Sublease, the following terms shall have the meanings set forth below:

(1)“Additional Rent” shall mean the sums payable pursuant to Section 3.2(b) below.

(2)“Base Operating Costs” shall mean Operating Costs payable by Sublandlord to Landlord for the Master Lease Premises during the Base Year.

(3)“Base Tax Expenses” shall mean Tax Expenses payable by Sublandlord to Landlord for the Master Lease Premises during the Base Year.

(4)“Base Year” shall mean the calendar year 2015.

(5)“Operating Costs” shall mean Operating Costs (as defined in the Master Lease) charged by Landlord to Sublandlord pursuant to the Master Lease.

(6)“Rent” shall mean, collectively, Base Rent, Additional Rent, and all other sums payable by Subtenant to Sublandlord under this Sublease, whether or not expressly designated as “rent,” all of which are deemed and designated as rent pursuant to the terms of this Sublease.

(7)“Subtenant’s Percentage Share” shall mean 51.25%.

(8)“Tax Expenses” shall mean Real Estate Taxes (as defined in the Master Lease) payable by Sublandlord to Landlord for the Master Lease Premises during the Base Year.

(b)Payment of Additional Rent. In addition to the Base Rent payable pursuant to Section 3.1 above, from and after the expiration of the Base Year, for each calendar year of the Term, Subtenant, as Additional Rent, shall pay (i) Subtenant’s Percentage Share of the amount by which Operating Costs payable by Sublandlord for the then current calendar year exceed Base Operating Costs, plus (ii) Subtenant’s Percentage Share of the amount by which Tax Expenses payable by Sublandlord for the then current calendar year exceed Base Tax Expenses. Sublandlord shall give Subtenant written notice of Sublandlord’s estimate of the amount of Additional Rent per month payable pursuant to this Section 3.2(b) for each calendar year after the Base Year promptly following the Sublandlord’s receipt of Landlord’s estimate of the Operating Costs payable under the Master Lease. Thereafter, the Additional Rent payable pursuant to this Section 3.2(b) shall be determined and adjusted in accordance with the provisions of Section 3.2(c) below.

(c)Procedure. The determination and adjustment of Additional Rent payable hereunder shall be made in accordance with the following procedures:

(1)Delivery of Estimate; Payment. Upon receipt of a statement from Landlord specifying the estimated Operating Costs to be charged to Sublandlord under the Master Lease with respect to each calendar year, or as soon after receipt of such statement as practicable, Sublandlord shall give Subtenant written notice of its estimate of Additional Rent payable under Section 3.2(b) for the ensuing calendar year, which estimate shall be prepared based on the estimate received from Landlord (as Landlord’s estimate may change from time to time), together with a copy of the statement received from Landlord. On or before the first day of each month during each calendar year, Subtenant shall pay to Sublandlord as Additional Rent one-twelfth (1/12th) of such estimated amount together with the Base Rent.

(2)Sublandlord’s Failure to Deliver Estimate. In the event Sublandlord’s notice set forth in Subsection 3.2(c)(1) is not given on or before December 15 of the calendar year preceding the calendar year for which Sublandlord’s notice is applicable, as the case may be, then until the calendar month after such notice is delivered by Sublandlord, Subtenant shall continue to pay to Sublandlord monthly, during the ensuing calendar year, estimated payments equal to the amounts payable hereunder during the calendar year just ended. Upon receipt of any such post-December notice Subtenant shall (i) commence as of the immediately following calendar month, and continue for the remainder of the calendar year, to pay to Sublandlord monthly such new estimated payments and (ii) if the monthly installment of the new estimate of such Additional Rent is greater than the monthly installment of the estimate for the previous calendar year, pay to Sublandlord within thirty (30) days after the receipt of such notice an amount equal to the difference of such monthly installment multiplied by the number of full and partial calendar months of such year preceding the delivery of such notice.

(d)Year End Reconciliation. Following the receipt by Sublandlord of a final statement of Operating Costs from Landlord with respect to each calendar year, Sublandlord shall deliver to Subtenant a statement of the adjustment to be made pursuant to Section 3.2 above for the calendar year

just ended, together with a copy of any corresponding statement received by Sublandlord from Landlord. If on the basis of such statement Subtenant owes an amount that is less than the estimated payments actually made by Subtenant for the calendar year just ended, Sublandlord shall credit such excess to the next payments of Rent coming due or, if the term of this Sublease is about to expire, promptly refund such excess to Subtenant. If on the basis of such statement Subtenant owes an amount that is more than the estimated payments for the calendar year just ended previously made by Subtenant, Subtenant shall pay the deficiency to Sublandlord within thirty (30) days after delivery of the final statement from Sublandlord to Subtenant.

(e)Audit.  Section 4.5 of the Original Lease is hereby incorporated in this Sublease, as amended by this Section 3.2(e).  Pursuant to Section 4.5 of the Original Lease, Sublandlord has the right to examine Landlord’s books and records for any period for which Landlord has given Sublandlord a statement of Operating Costs and Real Estate Taxes and other charges under the Master Lease. If, within fifteen (15) business days after receipt of an Operating Expense Statement from Sublandlord, Subtenant notifies Sublandlord that Subtenant desires to review Landlord’s records and identifies for Sublandlord those items Subtenant wishes to challenge, Sublandlord shall forward to Landlord within the time period set forth in Section 4.5 of the Original Lease Subtenant’s challenge, and Sublandlord further agrees to exercise the review rights granted to Sublandlord under such Section 4.5 with respect thereto; provided, that the following terms and conditions are met: (i) Subtenant has not received notice from Sublandlord of a default under this Sublease which has occurred and is continuing at the time of making such request, and (ii) Subtenant shall be responsible for all of out-of-pocket costs and expenses paid by Sublandlord to perform such review and to comply with the results of such review, which costs and expenses shall be paid by Subtenant no later than thirty (30) days after receipt of written demand therefor.  Notwithstanding the foregoing, Sublandlord shall have no obligation or liability to Subtenant if Landlord disputes the result of Subtenant’s challenge, other than pursuing arbitration as provided in Section 4.5.3 of the Original Lease if so elected by Sublandlord in its sole but reasonable discretion; provided, however, if Sublandlord so elects to arbitrate, Sublandlord and Subtenant shall each bear the cost of such arbitration in proportion to their respective interests in the Subleased Premises and Master Lease Premises, as applicable. Further, Sublandlord shall have the right to require Subtenant to deposit with Sublandlord an amount equal to Subtenant’s share of the arbitration costs before such arbitration commences. Sublandlord and Subtenant shall share in any reduction, refund or credit obtained or realized in connection with any such examination or arbitration based on their respective interests in the Subleased Premises and Master Lease Premises, as applicable.

(f)Survival. The expiration or earlier termination of this Sublease shall not affect the obligations of Sublandlord and Subtenant pursuant to Subsection 3.2(d), and such obligations shall survive, remain to be performed after, any expiration or earlier termination of this Sublease.

4.Letter of Credit

(g)Initial Letter of Credit. Concurrently with Subtenant’s execution and delivery to Sublandlord of this Sublease, Subtenant has delivered to Sublandlord, as collateral for the full performance by Subtenant of all of its obligations under this Sublease and for all losses and damages Sublandlord may suffer as a result of Subtenant’s failure to comply with one or more provisions of this Sublease, including, but not limited to, any post lease termination damages under section 1951.2 of the California Civil Code an unconditional, irrevocable, transferable standby letter of credit (the “Initial Letter of Credit”) in the form attached hereto as Exhibit Din the amount of One Million One Hundred Six Thousand Four Hundred Sixty Eight AND 64/100 Dollars ($1,106,468.64) (the “Letter of Credit Amount”), issued by a financial institution (the “Issuing Bank”) acceptable to Sublandlord. Subtenant shall cause the Letter of Credit to be continuously maintained in effect (whether through a Replacement

Letter of Credit (defined below), amendment, renewal or extension) through the date (the “Final Letter of Credit Expiration Date”) that is the later to occur of (i) the date that is forty-five (45) days after the scheduled expiration date of the Term and (ii) the date that is forty-five (45) days after Subtenant vacates the Subleased Premises and completes any restoration or repair obligations.

(h)Drawing Under Letter of Credit. Without prejudice to any other remedy available to Sublandlord under this Sublease or at law, Sublandlord may draw upon the Initial Letter of Credit or any Replacement Letter of Credit on or after the occurrence of either: (i) an uncured event of default under this Sublease; (ii) any failure by Subtenant to deliver to Sublandlord a Replacement Letter of Credit as and when required pursuant to this Section 4; (iii) an uncured failure by Subtenant to perform one or more of its obligations under this Sublease and the existence of circumstances in which Sublandlord is enjoined or otherwise prevented by operation of law from giving to Subtenant a written notice which would be necessary for such failure of performance to constitute an event of default, or (iv) the appointment of a receiver to take possession of all or substantially all of the assets of Subtenant, or an assignment of Subtenant for the benefit of creditors, or any action taken or suffered by Subtenant under any insolvency, bankruptcy, reorganization or other debtor relief proceedings, whether now existing or hereafter amended or enacted; provided that in the event of (i) or (iii), Sublandlord may, at Sublandlord’s sole option, draw upon a portion of the face amount of the Initial Letter of Credit or any Replacement Letter of Credit, as applicable, as required to compensate Sublandlord for damages incurred (with subsequent demands at Sublandlord’s sole election as Sublandlord incurs further damage).

(i)Delivery of Replacement Letter of Credit. Subtenant shall deliver to Sublandlord a new letter of credit (a “Replacement Letter of Credit”) (the Initial Letter of Credit and/or any Replacement Letter of Credit being referred to herein as a “Letter of Credit”) at least thirty (30) days prior to the expiry date of the Initial Letter of Credit or of any Replacement Letter of Credit held by Sublandlord. Each Replacement Letter of Credit delivered by Subtenant to Sublandlord shall: (i) be issued by a banking institution acceptable to Sublandlord; (ii) be in the same form as the letter of credit attached to this Sublease as Exhibit D; (iii) bear an expiry date not earlier than one (1) year from the date when such Replacement Letter of Credit is delivered to Sublandlord; and (iv) be in an amount not less than the Letter of Credit Amount. Upon the delivery to Sublandlord of a Replacement Letter of Credit as described in this Section 4, Sublandlord shall return to Subtenant the Initial Letter of Credit or any previous Replacement Letter of Credit then held by Sublandlord.

(j)Proceeds of Draw. All proceeds of a draw upon any Letter of Credit shall constitute Sublandlord’s sole and separate property (and not Subtenant’s property or the property of Subtenant’s bankruptcy estate) and Sublandlord may immediately upon any draw permitted hereunder (after Sublandlord has made such draw, Sublandlord shall endeavor to provide Subtenant with notice of such draw; provided, however, Sublandlord’s failure to provide such notice shall not render Sublandlord in default of its obligations hereunder) and apply or offset the proceeds of the Letter of Credit: (i) against any Rent payable by Subtenant under this Sublease that is not paid when due following any applicable notice and cure periods; (ii) against all losses and damages that Sublandlord has suffered, including any damages arising under section 1951.2 of the California Civil Code following termination of this Sublease, to the extent permitted by this Sublease; (iii) against any costs incurred by Sublandlord permitted to be reimbursed pursuant to this Sublease (including reasonable attorneys’ fees); and (iv) against any other amount that Sublandlord may spend or become obligated to spend by reason of Subtenant’s default for which Sublandlord shall be entitled to seek reimbursement in accordance with this Sublease.

(k)Sublandlord’s Transfer. If Sublandlord conveys or transfers its interest in the Subleased Premises and, as a part of such conveyance or transfer, Sublandlord assigns its interest in this Sublease: (i) any Letter of Credit shall be transferred to Sublandlord’s successor; (ii) Sublandlord

shall be released and discharged from any further liability to Subtenant with respect to such Letter of Credit; and (iii) any Replacement Letter of Credit thereafter delivered by Subtenant shall state the name of the successor to Sublandlord as the beneficiary of such Replacement Letter of Credit and shall contain such modifications in the text of the Replacement Letter of Credit as are required to appropriately reflect the transfer of the interest of Sublandlord in the Premises.

(l)Additional Covenants of Subtenant. If, as result of any application or use by Sublandlord of all or any part of the Letter of Credit, the amount of the Letter of Credit plus any cash proceeds previously drawn by Sublandlord and not applied pursuant to this Section 4 shall be less than the Letter of Credit Amount (subject to any reduction permitted in accordance with Section 4(h) below), Subtenant shall, within fifteen (15) days thereafter, provide Sublandlord with additional letter(s) of credit in an amount equal to the deficiency (or a replacement or amended letter of credit in the total Letter of Credit Amount), and any such additional (or replacement or amended) letter of credit shall comply with all of the provisions of this Section 4; if Subtenant fails to timely comply with the foregoing, then notwithstanding anything to the contrary contained in this Sublease, the same shall constitute a default by Subtenant without the necessity of additional notice or the passage of additional grace periods. Subtenant further covenants and warrants that it will neither assign nor encumber the Letter of Credit or any part thereof and that neither Sublandlord nor its successors or assigns will be bound by any such assignment, encumbrance, attempted assignment or attempted encumbrance.

(m)Nature of Letter of Credit. Sublandlord and Subtenant (1) acknowledge and agree that in no event or circumstance shall the Letter of Credit or any renewal thereof or substitute therefor or any proceeds thereof be deemed to be or treated as a “security deposit” under any law applicable to security deposits in the commercial context including Section 1950.7 of the California Civil Code (as now existing or hereafter amended or succeeded, “Security Deposit Laws”), (2) acknowledge and agree that the Letter of Credit (including any renewal thereof or substitute therefor or any proceed thereof) is not intended to serve as a security deposit, and the Security Deposit Laws shall have no applicability or relevancy thereto, and (3) waive any and all rights, duties and obligations either party may now or, in the future, will have relating to or arising from the Security Deposit Laws.

(n)Reduction in Letter of Credit Amount. Provided that Subtenant is not in default (beyond all applicable notice and cure periods) at the time of such request, the Letter of Credit Amount may be reduced as follows: (i) to Seven Hundred Thirty-Seven Thousand Six Hundred Forty-Five AND 76/100 Dollars ($737,645.76), at any time after December 31, 2017; and (ii) to Three Hundred Sixty-Eight Thousand Eight Hundred Twenty-Two AND 88/100 Dollars ($368,822.88), at any time after December 31, 2019. Any reduction in the Letter of Credit Amount shall be accomplished by Subtenant providing Sublandlord with a substitute letter of credit or amendment thereto in the reduced amount. In no event shall the Letter of Credit Amount be reduced below Three Hundred Sixty-Eight Thousand Eight Hundred Twenty-Two AND 88/100 Dollars ($368,822.88) during the Term.

5.Use and Occupancy.

5.1Use. The Subleased Premises shall be used and occupied only for the uses set forth in Section 5.1 of the Original Lease and Section 22(f) of the Second Amendment, and for no other use or purpose.

5.2Compliance with Master Lease. Subtenant will occupy the Subleased Premises in accordance with the terms of the Master Lease and will not suffer to be done, or omit to do, any act which may result in a violation of or a default under the Master Lease, or render Sublandlord liable for any damage, charge or expense thereunder. Subtenant will indemnify, defend protect and hold

Sublandlord harmless from and against any loss, cost, damage or liability (including reasonable attorneys’ fees) of any kind or nature arising out of, by reason of, or resulting from, Subtenant’s failure to perform or observe any of the terms and conditions of the Master Lease or this Sublease. Sublandlord convenants and agrees (x) to comply with all provisions of the Master Lease applicable to the Subleased Premises so as to not cause an Event of Default under the Master Lease with respect to this Sublease, (y) not to enter into any agreement amending or modifying the Master Lease in a way that would adversely affect Subtenant’s rights under this Sublease, or (z) not to terminate the Master Lease other than a termination expressly permitted pursuant to the terms of the Master Lease or a partial termination that does not adversely affect Subtenant’s rights under this Sublease (collectively, the “Modification Covenants”). In the event that Sublandlord is in breach of the Modification Covenants, Subtenant expressly reserves all of its rights and remedies at equity and under applicable law with respect to such breach. Any other provision in this Sublease to the contrary notwithstanding, Subtenant shall pay to Sublandlord as Rent hereunder any and all sums which Sublandlord may be required to pay the Landlord arising out of a request by Subtenant for, or the use by Subtenant of, additional or over-standard Building services from Landlord (for example, but not by way of limitation, charges associated with after-hour HVAC usage and overstandard electrical charges).

5.3Landlord’s Obligations. Subtenant agrees that Sublandlord shall not be required to perform any of the covenants, agreements and/or obligations of Landlord under the Master Lease and, insofar as any of the covenants, agreements and obligations of Sublandlord hereunder are required to be performed under the Master Lease by Landlord thereunder, Subtenant acknowledges and agrees that Sublandlord shall be entitled to look to Landlord for such performance. In addition, Sublandlord shall have no obligation to perform any repairs or any other obligation of Landlord under the Master Lease. Sublandlord shall not be responsible for any failure or interruption, for any reason whatsoever, of the services or facilities that may be appurtenant to or supplied at the Building by Landlord or otherwise, including, without limitation, heat, air conditioning, ventilation, life-safety, water, electricity, elevator service and cleaning service, if any; and no failure to furnish, or interruption of, any such services or facilities shall give rise to any (i) abatement, diminution or reduction of Subtenant’s obligations under this Sublease, or (ii) liability on the part of Sublandlord. Notwithstanding the foregoing, Sublandlord shall promptly take such action as may reasonably be indicated, under the circumstances, to secure such performance upon Subtenant’s request to Sublandlord to do so and shall thereafter diligently prosecute such performance on the part of Landlord.

6.Master Lease and Sublease Terms.

6.1Subject to Master Lease. This Sublease is and shall be at all times subject and subordinate to the Master Lease. Subtenant acknowledges that Subtenant has reviewed and is familiar with all of the terms, agreements, covenants and conditions of the Master Lease. Additionally, Subtenant’s rights under this Sublease shall be subject to the terms of the Consent. During the Term and for all periods subsequent thereto with respect to obligations which have arisen prior to the termination of this Sublease, Subtenant agrees to perform and comply with, for the benefit of Sublandlord and Landlord, the obligations of Sublandlord under the Master Lease which pertain to the Subleased Premises and/or this Sublease, except for those provisions of the Master Lease which are directly contradicted by this Sublease, in which event the terms of this Sublease document shall control over the Master Lease.

6.2Incorporation of Terms of Master Lease. The terms, conditions and respective obligations of Sublandlord and Subtenant to each other under this Sublease shall be the terms and conditions of the Master Lease, except for those provisions of the Master Lease which are directly contradicted by the provisions of this Sublease and the exclusion set forth in Section 6.3(e) below, in which event the terms of this Sublease shall control over the Master Lease. Therefore, for the purposes of

this Sublease, wherever in the Master Lease the word “Landlord” is used it shall be deemed to mean Sublandlord and wherever in the Master Lease the word “Tenant” is used it shall be deemed to mean Subtenant.

6.3Any right of Landlord under the Master Lease (a) of access or inspection, (b) to do work in the Master Lease Premises or in the Building, (c) in respect of rules and regulations, which is incorporated herein by reference, shall be deemed to inure to the benefit of Sublandlord.

6.4Modifications. For the purposes of incorporation herein, the terms of the Master Lease are subject to the following additional modifications:

(a)Approvals. In all provisions of the Master Lease (under the terms thereof and without regard to modifications thereof for purposes of incorporation into this Sublease) requiring the approval or consent of Landlord, Subtenant shall be required to obtain the approval or consent of both Sublandlord and Landlord.

(b)Deliveries. In all provisions of the Master Lease requiring Tenant to submit, exhibit to, supply or provide Landlord with evidence, certificates, or any other matter or thing, Subtenant shall be required to submit, exhibit to, supply or provide, as the case may be, the same to both Landlord and Sublandlord.

(c)Damage; Condemnation. Sublandlord shall have no obligation to restore or rebuild any portion of the Subleased Premises after any destruction or taking by eminent domain.

(d)Insurance. In all provisions of the Master Lease requiring Tenant to designate Landlord as an additional or named insured on its insurance policy, Subtenant shall be required to so designate Landlord and Sublandlord on its insurance policy.

(e)Exclusions. Notwithstanding the terms of Section 6.2 above, Subtenant shall have no rights or obligations under the following parts, Sections and Exhibits of the Master Lease:

(1)Original Lease: Basic Lease Information, Section 1.1, Sections 1.2.1 and 1.2.2 (except to the extent referenced by Section 16 below), Section 1.4 (last two (2) sentences only), Article 2, Articles 3 and 4 (except Section 3.4 and to the extent referenced and incorporated pursuant to the provisions of Section 3 above), The second (2nd) paragraph of Section 6.1 (except the first sentence of such paragraph), Section 8.2, Article 10 (except to the extent referenced by Section 20 below), Article 18 (as to rent abatement only, except to the extent Sublandlord actually receives an abatement of rent allocable to the Subleased Premises from Landlord, minus Sublandlord’s reasonable administrative fees and expenses) Article 24, Article 26 (except to the extent referenced by Article 14 below), Article 30, Section 31.5(g) (except to the extent Sublandlord actually receives an abatement of rent allocable to the Subleased Premises from Landlord, minus Sublandlord’s reasonable administrative fees and expenses), Section 34.13, Section 34.16, Exhibit A, Exhibit B, Exhibit C, Exhibit E, Exhibit I, Exhibit J, Exhibit K, Exhibit L.

(2)First Amendment: All.

(3)Second Amendment: Article 1 (except for Section 1(c)), Articles 2 through 5, Article 6 (except to the extent referenced by Section 16 below), Article 7 through 10, Article 11 (except to the extent referenced by Section 20 below), Section 14(a), Article 15 through Article 17, Section 22(a) (to the extent referenced and incorporated pursuant to the provisions of Section 3 above), Section 22(h) (as to rent abatement only, except to the extent Sublandlord actually receives an

abatement of rent allocable to the Subleased Premises from Landlord, minus Sublandlord’s reasonable administrative fees and expenses), Exhibit A, Exhibit B, Exhibit C, Exhibit D, Exhibit E.

(4)Third Amendment: All.

(5)     Fourth Amendment: All.

7.Assignment and Subletting. Subtenant shall not assign this Sublease or further sublet all or any part of the Subleased Premises except subject to and in compliance with all of the terms and conditions of the Master Lease (including, without limitation, Section 6 of the Original Lease and Section 21 of the Second Amendment), and Sublandlord (in addition to Landlord) shall have the same rights with respect to assignment and subleasing as Landlord has under the Master Lease. Subtenant shall pay all fees and costs payable to Landlord pursuant to the Master Lease in connection with any proposed assignment, sublease or transfer of the Subleased Premises, together with all of Sublandlord’s reasonable out-of-pocket costs relating to Subtenant’s request for such consent, regardless of whether such consent is granted, and the effectiveness of any such consent shall be conditioned upon Landlord’s and Sublandlord’s receipt of all such fees and costs.

8.Default. Except as expressly set forth herein, Subtenant shall perform all obligations in respect of the Subleased Premises that Sublandlord would be required to perform pursuant to the Master Lease. Subtenant shall be in default hereunder if Subtenant fails to perform any obligation hereunder (including, without limitation, the obligation to pay Rent), or any obligation of the Master Lease which has been incorporated herein by reference, and, in each instance, Subtenant has not remedied such failure (i) in the case of any monetary default, three (3) business days after delivery of written notice and (ii) in the case of any other default, ten (10) calendar days after delivery of written notice.

9.Remedies. In the event of any default hereunder by Subtenant, Sublandlord shall have all remedies provided to the “Landlord” in the Master Lease as if a default had occurred thereunder and all other rights and remedies otherwise available at law and in equity. Sublandlord may resort to its remedies cumulatively or in the alternative.

10.Right to Cure Defaults. If Subtenant fails to perform any of its obligations under this Sublease after expiration of applicable grace or cure periods, then Sublandlord may, but shall not be obligated to, perform any such obligations for Subtenant’s account. All costs and expenses incurred by Sublandlord in performing any such act for the account of Subtenant shall be deemed Rent payable by Subtenant to Sublandlord upon demand, together with interest thereon at the lesser of (i) ten percent (10%) per annum or (ii) the maximum rate allowable under law from the date of the expenditure until repaid. If Sublandlord undertakes to perform any of Subtenant’s obligations for the account of Subtenant pursuant hereto, the taking of such action shall not constitute a waiver of any of Sublandlord’s remedies. Subtenant hereby expressly waives its rights under any statute to make repairs at the expense of Sublandlord.

11.Consents and Approvals. In any instance when Sublandlord’s consent or approval is required under this Sublease, Sublandlord’s refusal to consent to or approve any matter or thing shall be deemed reasonable if, among other matters, such consent or approval is required under the provisions of the Master Lease incorporated herein by reference but has not been obtained from Landlord. Except as otherwise provided herein, Sublandlord shall not unreasonably withhold, or delay its consent to or approval of a matter if such consent or approval is required under the provisions of the Master Lease and Landlord has consented to or approved of such matter.

12.Limitation of Liability; Sublandlord Default

12.1Limitation of Liability. Notwithstanding any other term or provision of this Sublease, the liability of Sublandlord to Subtenant for any default in Sublandlord’s obligations under this Sublease shall be limited to actual, direct damages, and under no circumstances shall Subtenant, its partners, members, shareholders, directors, agents, officers, employees, contractors, sublessees, successors and/or assigns be entitled to recover from Sublandlord (or otherwise be indemnified by Sublandlord) for (a) any losses, costs, claims, causes of action, damages or other liability incurred in connection with a failure of Landlord, its partners, members, shareholders, directors, agents, officers, employees, contractors, successors and/or assigns to perform or cause to be performed Landlord’s obligations under the Master Lease, (b) lost revenues, lost profit or other consequential, special or punitive damages arising in connection with this Sublease for any reason, or (c) any damages or other liability arising from or incurred in connection with the condition of the Subleased Premises or suitability of the Subleased Premises for Subtenant’s intended uses. Subtenant shall, however, have the right to seek any injunctive or other equitable remedies as may be available to Subtenant under applicable law. Notwithstanding any other term or provision of this Sublease, no personal liability shall at any time be asserted or enforceable against Sublandlord’s shareholders, directors, officers, or partners on account of any of Sublandlord’s obligations or actions under this Sublease. As used in this Sublease, the term “Sublandlord” means the holder of the tenant’s interest under the Master Lease and “Sublandlord” means the holder of sublandlord’s interest under this Sublease. In the event of any assignment or transfer of the Sublandlord’s interest under this Sublease, which assignment or transfer may occur at any time during the Term in Sublandlord’s sole discretion, Sublandlord shall be and hereby is entirely relieved of all covenants and obligations of Sublandlord hereunder accruing subsequent to the date of the transfer and it shall be deemed and construed, without further agreement between the parties hereto, that any transferee has assumed and shall carry out all covenants and obligations thereafter to be performed by Sublandlord hereunder. Sublandlord may transfer and deliver any then-existing security deposit to the transferee of Sublandlord’s interest under this Sublease, and thereupon Sublandlord shall be discharged from any further liability with respect thereto.

12.2Sublandlord shall be in default hereunder only if Sublandlord has not commenced and pursued with reasonable diligence the cure of any failure of Sublandlord to meet its obligations hereunder within twenty (20) days after the receipt by Sublandlord of written notice from Subtenant of the alleged failure to perform in strict accordance with Section 17. Failure to provide the requisite notice and cure period by Subtenant under this paragraph shall be an absolute defense by Sublandlord against any claims, counterclaims or defenses of Subtenant based on the alleged failure by Sublandlord to perform any of its obligations. In no event shall Subtenant have the right to terminate or rescind this Sublease as a result of Sublandlord’s default as to any covenant or agreement contained in this Sublease. Subtenant hereby waives such remedies of termination and rescission and hereby agrees that Subtenant’s remedies for default hereunder and for breach of any promise or inducement shall be limited to a suit for damages and/or injunction.

13.Attorneys’ Fees. If Sublandlord or Subtenant brings an action to enforce the terms hereof or to declare rights hereunder, the prevailing party who recovers substantially all of the damages, equitable relief or other remedy sought in any such action on trial and appeal shall be entitled to receive from the other party its costs associated therewith, including, without limitation, reasonable attorney’s fees and costs from the other party. Without limiting the generality of the foregoing, if Sublandlord utilizes the services of an attorney for the purpose of collecting any Rent due and unpaid by Subtenant or in connection with any other breach of this Sublease by Subtenant, Subtenant agrees to pay Sublandlord reasonable actual attorneys’ fees for such services, irrespective of whether any legal action may be

commenced or filed by Sublandlord. If any such work is performed by in-house counsel for Sublandlord, the value of such work shall be determined at a reasonable hourly rate for comparable outside counsel.

14.Delivery of Possession.

14.1Generally. Sublandlord shall deliver, and Subtenant shall accept, possession of the Subleased Premises in their “AS IS” but broom clean condition as the Subleased Premises exists on the date hereof. Sublandlord shall have no obligation to furnish, render or supply any work, labor, services, materials, furniture other than the Furniture (defined below), fixtures, equipment, decorations or other items to make the Subleased Premises ready or suitable for Subtenant’s occupancy. In making and executing this Sublease, Subtenant has relied solely on such investigations, examinations and inspections as Subtenant has chosen to make or has made and has not relied on any representation or warranty concerning the Subleased Premises or the Building, except as expressly set forth in this Sublease. Subtenant acknowledges that Sublandlord has afforded Subtenant the opportunity for full and complete investigations, examinations and inspections of the Subleased Premises and the common areas of the Building. Subtenant acknowledges that it is not authorized to make or do any alterations or improvements in or to the Subleased Premises except as permitted by the provisions of this Sublease and the Master Lease and that upon termination of this Sublease, Subtenant shall deliver the Subleased Premises to Sublandlord in the same condition as the Subleased Premises were at the commencement of the Term, reasonable wear and tear excepted; Subtenant acknowledges that Subtenant shall, at either Sublandlord’s or Landlord’s election, and at Subtenant’s sole cost and expense, remove from the Subleased Premises some or all of the Subtenant Improvements constructed therein by Subtenant, except any Subtenant Improvements as to which restoration has been waived at the time Landlord approved the same; additionally, at Subtenant’s cost, Subtenant will remove all telecommunications and data cabling installed by or for the benefit of Subtenant after the Early Access Date.

14.2Subtenant’s Improvements.

(a)Initial Subtenant Improvements. In anticipation of Subtenant’s occupancy of the Subleased Premises, Subtenant desires to construct initial improvements within the Subleased Premises (the “Initial Subtenant Improvements”), which shall be carried out in accordance with this Sublease, the applicable provisions of the Master Lease, and in accordance with the Work Agreement for Initial Subtenant Improvements (the “Work Agreement”) attached hereto as Exhibit E. Sublandlord and Landlord will have the right to approve the plans and specifications for the Initial Subtenant Improvements, as well as any contractors whom Subtenant proposes to retain to perform such work, as more particularly set forth in the Work Agreement. Prior to the Early Access Date, Subtenant shall submit to Sublandlord and Landlord the Space Plan (as defined in the Work Agreement). Sublandlord, at no cost to Sublandlord, shall use commercially reasonable efforts to obtain permission from Landlord to allow Subtenant to leave in the Subleased Premises some or all of the Initial Subtenant Improvements (as shown on the Space Plan) at the expiration or earlier termination of this Sublease; provided however, should Landlord require that some or all of the Initial Subtenant Improvements be removed from the Subleased Premises, Subtenant shall, at its sole cost and expense, remove the Initial Subtenant Improvements as required by Landlord and surrender the Subleased Premises in accordance with the terms of this Sublease and the Master Lease.

(b)Additional Subtenant Improvements. If Subtenant desires to construct additional improvements within the Subleased Premises (“Subtenant Improvements”), all Subtenant Improvements shall also be carried out in accordance with the applicable provisions of the Master Lease. Sublandlord will have the right to approve the plans and specifications for any proposed Subtenant Improvements, as well as any contractors whom Subtenant proposes to retain to perform such work.

Subtenant will submit all such information for Sublandlord’s review and written approval prior to commencement of any such work; Sublandlord will similarly submit such plans to Landlord for review and approval. Promptly following the completion of any Subtenant Improvements or subsequent alterations or additions by or on behalf of Subtenant, Subtenant will deliver to Sublandlord a reproducible copy of “as built” drawings of such work together with a CAD file of the “as-built” drawings in the then-current version of AutoCad.

(c)Code-Required Work. If the performance of any Subtenant Improvements or other work by Subtenant within the Subleased Premises “triggers” a requirement for code-related upgrades to or improvements of any portion of the Building, Subtenant shall be responsible for the cost of such code-required upgrade or improvements.

15.Holdover. If Subtenant fails to surrender the Subleased Premises at the expiration or earlier termination of this Sublease, occupancy of the Subleased Premises after the termination or expiration shall be that of a tenancy at sufferance. Subtenant’s occupancy of the Subleased Premises during the holdover shall be subject to all the terms and provisions of this Sublease and Subtenant shall pay an amount (on a per month basis without reduction for partial months during the holdover) equal to 150% of the sum of the Base Rent and Additional Rent due for the period immediately preceding the holdover. No holdover by Subtenant or payment by Subtenant after the expiration or early termination of this Sublease shall be construed to extend the Term or prevent Sublandlord from immediate recovery of possession of the Subleased Premises by summary proceedings or otherwise. In addition to the payment of the amounts provided above, if Sublandlord is unable to deliver possession of the Subleased Premises to a new subtenant or to Landlord, as the case may be, or to perform improvements for a new subtenant, as a result of Subtenant’s holdover, Subtenant shall be liable to Sublandlord for all damages, including, without limitation, consequential damages, that Sublandlord suffers from the holdover; Subtenant expressly acknowledges that such damages may include all of the holdover rent charged by Landlord under the Master Lease as a result of Subtenant’s holdover, which Master Lease holdover rent may apply to the entire Master Lease Premises.

16.Parking. Subject to the terms of the Master Lease and Landlord’s consent, during the Term, Subtenant shall be permitted to use Two Hundred Eighty Four (284) of the total parking spaces allocated to Sublandlord in the Master Lease, of which five (5) parking spaces shall be located at the entrance on the east side of the Building and an additional five (5) parking spaces shall be located at the entrance of the west side of the Building, all as more particularly depicted on Exhibit F attached hereto.

17.Notices: Any notice by either party to the other required, permitted or provided for herein shall be valid only if in writing and shall be deemed to be duly given only if (a) delivered personally, or (b) sent by means of Federal Express, UPS Next Day Air or another reputable express mail delivery service guaranteeing next day delivery, or (c) sent by United States certified or registered mail, return receipt requested, addressed: (i) if to Sublandlord, at the following addresses:

Oracle America, Inc.
c/o Oracle Corporation
1001 Sunset Boulevard
Rocklin, California 95765
Attn:	Lease Administration

with a copy to:

Oracle America, Inc.
c/o Oracle Corporation
500 Oracle Parkway
Box 5OP7
Redwood Shores, California 94065
Attn:	Legal Department

and (ii) if to Subtenant, at the following address:

Callidus Software Inc.
4140 Dublin Boulevard, Suite 300/400
Dublin, California 94568
Attn:	Legal Department

or at such other address for either party as that party may designate by notice to the other. A notice shall be deemed given and effective, if delivered personally, upon hand delivery thereof (unless such delivery takes place after hours or on a holiday or weekend, in which event the notice shall be deemed given on the next succeeding business day), if sent via overnight courier, on the business day next succeeding delivery to the courier, and if mailed by United States certified or registered mail, three (3) business days following such mailing in accordance with this Section.

18.Furniture.

18.1Excess Furniture. Within ten (10) business days after the Effective Date, Subtenant shall provide Sublandlord with written notice (the “Furniture Notice”) of any furniture and equipment currently in the Subleased Premises that Subtenant will desire to have removed therefrom (the “Excess Furniture”). Sublandlord shall remove the Excess Furniture from the Subleased Premises within thirty (30) days after the receipt of Subtenant’s notice.

18.2Furniture. During the Term, at no charge to Subtenant, Subtenant shall be permitted to use the remaining existing modular and office furniture located in the Subleased Premises and described in more particular detail in Exhibit C attached hereto (the “Office Furniture”) as well as all equipment and associated data cabling existing in the Subleased Premises (the Office Furniture together with any equipment and data cabling, being referred to collectively as the “Furniture”). Subtenant shall accept the Furniture in its current condition without any warranty of fitness from Sublandlord (Subtenant expressly acknowledges that no warranty is made by Sublandlord with respect to the condition of any cabling currently located in or serving the Subleased Premises or with respect to the fitness of such cabling for Subtenant’s intend use thereof). For purposes of documenting the current condition of the Office Furniture, Subtenant and Sublandlord shall, within ten (10) days after Sublandlord’s receipt of the Furniture Notice, conduct a joint walk-through of the Subleased Premises in order to inventory items of damage or disrepair. Subtenant shall use the Furniture only for the purposes for which such Furniture is intended and shall be responsible for the proper maintenance, insurance, care and repair of the Furniture, at Subtenant’s sole cost and expense. Subtenant shall not modify, reconfigure or relocate any of the Furniture except with the advance written notice to Sublandlord, and any work of modifying any Furniture (including, without limitation, changing the configuration of, “breaking down”

or reassembly of cubicles or other modular furniture) shall be performed at Subtenant’s sole cost. No item of Furniture shall be removed from the Subleased Premises without Sublandlord’s prior written consent.

18.3Automatic Transfer of Furniture to Subtenant. In consideration of One Dollar ($1.00) and Subtenant’s performance of its obligations under this Sublease, as of the date that is thirty (30) days prior to the Expiration Date (the “Furniture Transfer Date”), all of Sublandlord’s right, title and interest in and to the Furniture shall automatically be transferred to Subtenant. The Furniture shall be so transferred to Subtenant on an “as is” basis with no representation or warranty of any kind from, and no recourse against, Sublandlord; provided, however, that Sublandlord represents and warrants as of the Furniture Transfer Date that it owns all of the Furniture free and clear of all liens and encumbrances and has the authority to so transfer the Furniture. Thereafter, Subtenant shall be solely responsible for the proper removal of the Furniture from the Subleased Premises and the Building in accordance with the terms and provisions of the Master Lease. Sublandlord and Subtenant confirm that the transfer of ownership of the Furniture shall occur automatically on the Furniture Transfer Date and that this Sublease shall constitute a bill of sale evidencing the transfer of the Furniture on the Furniture Transfer Date unless otherwise agreed to in a writing signed by both Sublandlord and Subtenant. Notwithstanding the foregoing provisions of this Section 18 to the contrary, if prior to the Furniture Transfer Date Subtenant is in default hereunder, then at Sublandlord’s election, the automatic transfer of all of Sublandlord’s right, title and interest in and to the Furniture shall be voidable by Sublandlord. If Sublandlord so elects to void such transfer, then Sublandlord shall provide notice of such election to Subtenant. In such event, (i) prior to or promptly following the expiration or earlier termination of the Sublease, Sublandlord shall conduct a walk-through of the Subleased Premises to catalog any items of damage, disrepair, misuse or loss among the Furniture (reasonable wear and tear excepted), and (ii) Subtenant shall be responsible, at Subtenant’s sole cost and expense, for curing any such items (including, with respect to loss, replacing any lost item with a substantially similar item reasonably acceptable to Sublandlord).

19.Security System. Subtenant acknowledges that Sublandlord currently has a security system monitoring access to the Master Lease Premises. Subtenant acknowledges that there are card readers installed throughout the Subleased Premises which are part of Sublandlord’s security system (the “Security System”). The Security System shall be deemed part of the Furniture (but shall in no event constitute Excess Furniture), and shall be transferred to Subtenant in accordance with Section 18.3 above. Subtenant shall have the right to use the Security System governing access to the Subleased Premises and shall be solely responsible for obtaining all security cards necessary for use in connection with the same. To the fullest extent permitted under applicable law, Subtenant hereby acknowledges that except for making the card key reader system available to Subtenant as part of the Furniture, Sublandlord shall not be responsible for maintaining and/or repairing the Security System, or providing security services to Subtenant. Subtenant shall be solely responsible for providing its own security service and for all maintenance and repair of the Security System. Further, Subtenant shall, at its sole cost and expense, be solely responsible for the proper removal of the Security System from the Subleased Premises and the Building at the expiration or early termination of this Sublease in accordance with the terms and provisions of the Master Lease.

20.Signage. Subtenant hereby acknowledges that pursuant to Section 11(d) of the Second Amendment, the rights to install Exterior Signs and Monument Signs as defined in the Master Lease are not available to any assignee, or any sublessee or other transferee of Sublandlord, and are conditioned on Sublandlord not leasing more than fifty percent (50%) of the Master Lease Premises. Subtenant shall have the right to install Exterior Signs and Monument Signs as agreed to by Master Landlord in the Consent, and upon such terms and conditions as Master Landlord may require. Additionally, Subtenant,

subject to and upon procurement of Landlord’s consent, shall have the right to install signage identifying Subtenant at the entrance to the Subleased Premises and in the Building’s lobby directory. Subtenant shall have no right to install marquee or pole signage. Subtenant’s rights to install signage as set forth in this Section 20 shall at all times be subject to the Master Lease, including, without limitation, the obligation that Subtenant, at its sole cost and expense, (a) install and maintain all signage provided hereunder, and (b) at the expiration or earlier termination of this Sublease, remove all such signage and repair any damage caused by the removal of the same.

21.Additional Provisions: Notwithstanding anything to the contrary contained in this Sublease, in the event of any conflict with another provision of this Sublease, the provisions of this Section 21 shall take precedence and govern.

21.1Violations of Legal Requirements. Notwithstanding anything contained in this Sublease to the contrary, Subtenant shall not be liable to Sublandlord or responsible for the costs of correcting any violation of or noncompliance with applicable Legal Requirements with respect to the Subleased Premises if such violation or noncompliance exists on the Commencement Date.

21.2Sublandlord Alterations. Subtenant shall not be required to remove any alterations or additions performed by Sublandlord prior to the Commencement Date (“Sublandlord Alterations”), or to restore the Subleased Premises to its condition prior to the making of such Sublandlord Alterations. If Sublandlord is required under the Master Lease to remove any Sublandlord Alterations installed prior to the Commencement Date, Subtenant shall permit Sublandlord to enter the Subleased Premises for a reasonable period of time prior to the expiration date of the Master Lease for the purpose of removing Sublandlord Alterations and restoring the Subleased Premises as required under the Master Lease.

21.3No Master Lease Assumption. By entering into this Sublesae, Subtenant is not assuming any obligations under the Master Lease with respect to the Master Lease Premises (other than its obligations with respect to the Subleased Premises), and, for the avoidance of doubt, Subtenant shall not be liable or responsible for any acts or omissions of Sublandlord as Tenant under the Master Lease for any portion of the Master Lease Premises other than with respect to the Subleased Premises.

21.4Master Lease. Sublandlord represents and warrants that the Master Lease attached hereto as Schedule 1 is a true and complete copy thereof.

22.Brokers. Subtenant represents that it has dealt directly with and only with Cushman & Wakefield (“Subtenant’s Broker”), as a broker in connection with this Sublease. Sublandlord represents that it has dealt directly with and only with Colliers International (“Sublandlord’s Broker”), as a broker in connection with this Sublease. Sublandlord and Subtenant shall indemnify and hold each other harmless from all claims of any brokers other than Subtenant’s Broker and Sublandlord’s Broker claiming to have represented Sublandlord or Subtenant in connection with this Sublease. Subtenant and Sublandlord agree that Subtenant’s Broker and Sublandlord’s Broker shall be paid commissions by Sublandlord in connection with this Sublease pursuant to a separate agreement.

23.Complete Agreement. There are no representations, warranties, agreements, arrangements or understandings, oral or written, between the parties or their representatives relating to the subject matter of this Sublease which are not fully expressed in this Sublease. This Sublease cannot be changed or terminated nor may any of its provisions be waived orally or in any manner other than by a written agreement executed by both parties.

24.Interpretation. Irrespective of the place of execution or performance, this Sublease shall be governed by and construed in accordance with the laws of the State of California. If any provision of this Sublease or the application thereof to any person or circumstance shall, for any reason and to any extent, be invalid or unenforceable, the remainder of this Sublease and the application of that provision to other persons or circumstances shall not be affected but rather shall be enforced to the extent permitted by law. The table of contents, captions, headings and titles, if any, in this Sublease are solely for convenience of reference and shall not affect its interpretation. This Sublease shall be construed without regard to any presumption or other rule requiring construction against the party causing this Sublease or any part thereof to be drafted. If any words or phrases in this Sublease shall have been stricken out or otherwise eliminated, whether or not any other words or phrases have been added, this Sublease shall be construed as if the words or phrases so stricken out or otherwise eliminated were never included in this Sublease and no implication or inference shall be drawn from the fact that said words or phrases were so stricken out or otherwise eliminated. Each covenant, agreement, obligation or other provision of this Sublease shall be deemed and construed as a separate and independent covenant of the party bound by, undertaking or making same, not dependent on any other provision of this Sublease unless otherwise expressly provided. All terms and words used in this Sublease, regardless of the number or gender in which they are used, shall be deemed to include any other number and any other gender as the context may require. The word “person” as used in this Sublease shall mean a natural person or persons, a partnership, a corporation or any other form of business or legal association or entity.

25.USA Patriot Act Disclosures. Subtenant is currently in compliance with and shall at all times during the Term remain in compliance with the regulations of the Office of Foreign Asset Control (“OFAC”) of the Department of the Treasury (including those named on OFAC’s Specially Designated and Blocked Persons List) and any statute, executive order (including the September 24, 2001, Executive Order Blocking Property and Prohibiting Transactions with Persons Who Commit, Threaten to Commit, or Support Terrorism), or other governmental action relating thereto.

26.Counterparts. This Sublease may be executed in multiple counterparts, each of which is deemed an original but which together constitute one and the same instrument. This Sublease shall be fully executed when each party whose signature is required has signed and delivered to each of the parties at least one counterpart, even though no single counterpart contains the signatures of all of the parties hereto. This Sublease may be executed in so-called “pdf” format and each party has the right to rely upon a pdf counterpart of this Sublease signed by the other party to the same extent as if such party had received an original counterpart.

IN WITNESS WHEREOF, the parties hereto hereby execute this Sublease as of the Effective Date.

SUBLANDLORD:    ORACLE AMERICA, INC.

a Delaware corporation

By:    /s/ Michael R. Bangs__________

Name:    Michael R. Bangs_____________

Title:    VP, HQ Real Estate & Facilities__

SUBTENANT:    CALLIDUS SOFTWARE, INC.,

a Delaware corporation

By:    /s/ Bob L. Corey___________

Name:    Bob L. Corey______________

Title:    SVP, CFO________________

EXHIBIT A

Subleased Premises

Third Floor:

Fourth Floor:

EXHIBIT B

Commencement Date Letter

Date ______________________

Subtenant Callidus Software, Inc.

Address ______________________

______________________

______________________

Re: Commencement Letter with respect to that certain Sublease dated as of __________, 2014, by and between ORACLE AMERICA, INC., a Delaware corporation, as Sublandlord, and CALLIDUS SOFTWARE, INC., a Delaware corporation, doing business as CallidusCloud, as Subtenant, for 74,964 rentable square feet on the third (3rd) and fourth (4th) floors of the Building located at 4140 Dublin Boulevard, Dublin, California.

Dear    __________________:

In accordance with the terms and conditions of the above referenced Sublease, Subtenant accepts possession of the Subleased Premises and agrees:

1.    The Commencement Date is ________________________;

2.    The Abatement Period is the period commencing as of the Commencement Date and expiring as of November 30, 2015;

3.    The Expiration Date is May 15, 2022, subject to extension pursuant to Section 2(b) of the Sublease.

Please acknowledge your acceptance of possession and agreement to the terms set forth above by signing all 3 counterparts of this Commencement Letter in the space provided and returning 2 fully executed counterparts to my attention.

Sincerely,

___________________________________

Sublandlord Authorized Signatory

Agreed and Accepted:

Subtenant: ______________________

By: [EXHIBIT - - DO NOT SIGN]

Name: __________________________

Title: __________________________

Date: __________________________

EXHIBIT C

Furniture

Third Floor:

Fourth Floor:

EXHIBIT D

Form of Letter of Credit

FORM OF LETTER OF CREDIT

ISSUING BANK

ADDRESS OF ISSUING BANK

DATE: ___________

IRREVOCABLE STANDBY LETTER OF CREDIT NUMBER: ________

BENEFICIARY:                    APPLICANT:

____________________                ___________________

____________________                ___________________

AMOUNT: USD $_______________

EXPIRATION: ____________ AT OUR COUNTERS

WE HEREBY ESTABLISH IN YOUR FAVOR OUR IRREVOCABLE STANDBY LETTER OF CREDIT NUMBER ________ WHICH IS AVAILABLE WITH [ISSUING BANK] BY PAYMENT AGAINST PRESENTATION OF THE ORIGINAL OF THIS LETTER OF CREDIT AND YOUR DRAFTS AT SIGHT DRAWN ON [ISSUING BANK] AT THE ADDRESS ABOVE, ACCOMPANIED BY THE DOCUMENTS DETAILED BELOW:

A LETTER SIGNED BY A PURPORTED AUTHORIZED REPRESENTATIVE OF THE BENEFICIARY STATING THAT BENEFICIARY IS ENTITLED TO DRAW ON THIS LETTER OF CREDIT PURSUANT TO THAT SUBLEASE BETWEEN __________________ AND __________________, AS IT MAY BE AMENDED.

THIS LETTER OF CREDIT CANNOT BE MODIFIED OR REVOKED WITHOUT YOUR WRITTEN CONSENT OF BENEFICIARY.

SPECIAL CONDITIONS:

THIS LETTER OF CREDIT SHALL AUTOMATICALLY RENEW WITHOUT AMENDMENT FOR AN ADDITIONAL ONE YEAR PERIOD FROM THE CURRENT OR FOR ANY FUTURE EXPIRATION DATE, UNLESS WE SHALL NOTIFY YOU IN WRITING BY CERTIFIED MAIL, RETURN RECEIPT REQUESTED OR OVERNIGHT COURIER AT LEAST 60 DAYS PRIOR TO THE THEN CURRENT EXPIRATION DATE THAT THIS LETTER OF CREDIT WILL NOT BE RENEWED. FOLLOWING SUCH NOTIFICATION AND PRIOR TO THE EXPIRATION OF THIS LETTER OF CREDIT, YOU MAY DRAW UPON THIS LETTER OF CREDIT BY PRESENTATION OF THE SIGHT DRAFT(S) MENTIONED ABOVE, ACCOMPANIED BY A LETTER SIGNED BY A PURPORTED AUTHORIZED REPRESENTATIVE OF BENEFICIARY STATING THAT BENEFICIARY HAS NOT BEEN PRESENTED WITH A SUBSTITUTE LETTER OF CREDIT IN THE SAME PRINCIPAL AMOUNT, AND ON THE SAME TERMS AS THIS LETTER OF CREDIT FROM AN ISSUER REASONABLY SATISFACTORY TO YOU.

THIS LETTER OF CREDIT IS TRANSFERABLE AND MAY BE TRANSFERRED ONE OR MORE TIMES BY THE NAMED BENEFICIARY HEREUNDER OR BY ANY TRANSFEREE HEREUNDER TO A SUCCESSOR TRANSFEREE. TRANSFER OF THIS LETTER OF CREDIT IS SUBJECT TO OUR RECEIPT OF BENEFICIARY’S INSTRUCTIONS IN THE FORM ATTACHED AS EXHIBIT A, ACCOMPANIED BY THE ORIGINAL LETTER OF CREDIT AND AMENDMENT(S), IF ANY.

PARTIAL DRAWS ARE ALLOWED UNDER THIS LETTER OF CREDIT.

THIS LETTER OF CREDIT IS SUBJECT TO THE UNIFORM CUSTOMS AND PRACTICE FOR DOCUMENTARY CREDITS (1993 REVISION), INTERNATIONAL CHAMBER OF COMMERCE PUBLICATION NO. 590 AND ENGAGES US PURSUANT TO THE TERMS THEREIN.

[ISSUING BANK]

AUTHORIZED SIGNATURE                AUTHORIZED SIGNATURE

IRREVOCABLE STANDBY LETTER OF CREDIT NO. __________

Dated:    _______________, 20___

EXHIBIT A to Form of Letter of Credit

DATE:

TO: [ISSUING BANK]

Re:    Irrevocable Standby Letter of Credit No. __________

Gentlemen:

For value received, the undersigned Beneficiary hereby irrevocably transfers to:

____________________________________________________________

(Name of Transferee)

____________________________________________________________

(Address)

All rights of the undersigned beneficiary to draw under the above Letter of Credit up to its available amount as shown above as of the date of this transfer.

By this transfer, all rights of the undersigned Beneficiary in such Letter of Credit are transferred to the Transferee. Transferee shall have the sole rights as Beneficiary thereof, including sole rights relating to any amendments, whether increases or extensions or other amendments, and whether now existing or hereafter made. All amendments are to be advised direct to the Transferee without necessity of any consent of or notice to the undersigned Beneficiary.

The original of such Letter of Credit is returned herewith, and we ask you to endorse the transfer on the reverse thereof, and forward it directly to the Transferee with your customary Notice of Transfer.

Sincerely,

____________________________________

(Signature of Beneficiary)

____________________________________

(Beneficiary’s Name)

____________________________________

(Beneficiary’s Name and Title)

EXHIBIT E

Work Agreement for Initial Subtenant Improvements

THIS WORK AGREEMENT (“Work Agreement”) supplements the Sublease executed concurrently herewith by and between by and between ORACLE AMERICA, INC., a Delaware corporation, as Sublandlord, and CALLIDUS SOFTWARE INC., a Delaware corporation, doing business as CallidusCloud, as Subtenant. All capitalized terms not defined herein shall have the same meanings as set forth in the Master Lease.

The installation and construction of the Initial Subtenant Improvements (as defined below) contemplated by this Work Agreement shall be subject to Landlord’s and Sublandlord’s prior written approval and performed in accordance with the Master Lease or the Sublease, as context should provide.

1.Sublandlord’s Work. Sublandlord shall deliver the Sublease Premises to Subtenant on the Early Access Date in their current “AS-IS” condition pursuant to Section 14.1 of the Sublease. Neither Landlord nor Sublandlord shall be required to construct any of the Initial Subtenant Improvements or any other improvements in the Subleased Premises.

2.Improvements. All improvements necessary to prepare the Subleased Premises for Subtenant’s occupancy and use (the “Initial Subtenant Improvements”) shall be performed by Subtenant, and Subtenant shall be solely responsible for all costs of constructing the Initial Subtenant Improvements of every nature (the “Subtenant Improvement Costs”), subject to the Subtenant Improvement Allowance, with Subtenant’s own contractor. The term “Subtenant Improvement Costs” shall include each and every cost of designing, constructing, engineering, permitting and approving the Initial Subtenant Improvements which shall include, but not be limited to, the following: (i) all payments to the Contractor for materials, labor, overhead, etc., for the construction of the Initial Subtenant Improvements; (ii) all payments to the Engineers and Architects to design the Initial Subtenant Improvements; (iii) approval costs; (iv) taxes, fees, charges, and levies by any governmental agency for permits, inspections or approvals of the Initial Subtenant Improvements; (v) utilities incurred in the course of the construction of the Initial Subtenant Improvements; (vi) premiums for all insurance to be carried by Subtenant under this Work Agreement; and (vii) any and all costs incurred to comply with laws related to the Subleased Premises; (viii) costs of sprinkler, electrical, HVAC and ADA compliance with laws and distribution to meet Subtenant’s Approved Working Drawings; (ix) all costs incurred interior to the Subleased Premises for life-safety compliance, and (x) the cost of Subtenant’s signage, security systems, relocation, cabling, fixtures, furniture and equipment. All matters which are not Subtenant Improvement Costs may not be paid for, or used from the Subtenant Improvement Allowance.

3.Plans and Specifications.

3.1Preliminary Plans. Concurrent with its execution of the Sublease, Subtenant shall submit to Landlord and Sublandlord for their approval the plans and specification for the Initial Subtenant Improvements, as well as a list of all contractors whom Subtenant proposes to retain to perform such work (the “Space Plan”).

3.2Final Space Plan. Prior to the commencement of the installation and construction of the Initial Subtenant Improvements, Landlord, Sublandlord and Subtenant shall approve the final Space Plan for the Initial Subtenant Improvements (the “Final Space Plan”). The Final Space Plan shall include a layout and designation of all offices, rooms and other partitioning, their intended use, and equipment to be contained therein. Sublandlord may request clarification or more specific drawings for special use items not included

in the Final Space Plan. Sublandlord’s and Landlord’s review and approval of the Final Space Plan is not a representation that such proposed Initial Subtenant Improvements: (i) can be accommodated by the Subleased Premises; (ii) comply with laws; or (iii) can be constructed for any certain price, and specifically, Sublandlord makes no representation or warranty that the proposed Initial Subtenant Improvements can be constructed within the Subtenant Improvement Allowance.

3.3Final Working Drawings. Subtenant shall obtain from Sublandlord or Landlord and supply the Engineers with a complete listing of standard and non-standard equipment and specifications, including, without limitation, B.T.U. calculations, electrical requirements and special electrical receptacle requirements for the Subleased Premises, to enable the Engineers and the Architect to complete the Final Working Drawings (as that term is defined below) in the manner as set forth below. Subtenant shall cause the approved Final Space Plan to be converted by the Architect and the Engineers to complete architectural and engineering drawings for the Subleased Premises, and Architect shall compile a fully coordinated set of architectural, structural, mechanical, electrical and plumbing working drawings in a form which is complete to allow subcontractors to bid on the work and to obtain all applicable permits (collectively, the “Final Working Drawings”) and shall submit the same to Sublandlord and Landlord for their approval. Subtenant shall supply Sublandlord and Landlord with four (4) copies each signed by Subtenant of such Final Working Drawings. Sublandlord and Landlord shall each advise Subtenant within three (3) business days after receipt of the Final Working Drawings for the Subleased Premises, or at a reasonably time thereafter, if the same is unsatisfactory or incomplete in any respect. If Subtenant is so advised, Subtenant shall immediately revise the Final Working Drawings in accordance with such review and any disapproval of Sublandlord and/or Landlord in connection therewith.

3.4    Sublandlord and Subtenant acknowledge that the Final Space Plan may not depict certain structural elements of the Building and/or various elements of the Building systems which may result in material modifications to the Final Working Drawings (“Space Plan Modifications”). Furthermore, the Final Space Plan for the construction of the Initial Subtenant Improvements may require modification to account for the requirements of building codes and other legal requirements of applicable governmental entities, including, but not limited to, Title 24 and the Americans with Disabilities Act (collectively the “Building Codes”). The Final Working Drawings shall materially conform to the Final Space Plan, taking into account (i) Space Plan Modifications, (ii) the requirements of the Building Codes, (iii) other modifications resulting from physical constraints of the Subleased Premises and (iv) modifications requested by Subtenant and consented to by Sublandlord and Landlord, which consent Sublandlord shall not unreasonably withhold. Subtenant agrees that, in addition to other factors and considerations Sublandlord and Landlord, as applicable, may take into account, it shall not be unreasonable for Sublandlord or Landlord to withhold their consent to any matters set forth in the Final Working Drawings and not contained in the Final Space Plan, (i) if such requested modifications would not comply with the Building Codes or any laws, (ii) subject to Section 7 below if such requested modifications would cause the anticipated cost of the Initial Subtenant Improvements to exceed the Subtenant Improvement Allowance (as to Sublandlord only), (iii) if such requested modifications would not increase the value of the Initial Subtenant Improvements, (iv) if such requested modifications would increase the burden on the Building systems, either during construction or after completion of same.

3.5Approved Working Drawings. The Final Working Drawings shall be submitted for approval to Sublandlord and Landlord prior to the commencement of construction of the Subtenant Initial Improvements by Subtenant. Subtenant may simultaneously submit the same to the City of Dublin for all applicable building permits. The term “Approved Working Drawings” shall mean Final Working Drawings that have been approved in writing by Sublandlord and Landlord. Notwithstanding anything to the contrary in the Sublease, Subtenant shall not commence work on the Initial Subtenant Improvements until Subtenant

has obtained Sublandlord’s and Landlord’s written approval of the Final Working Drawings. Subtenant hereby agrees that neither Sublandlord nor Landlord, nor any of their respective consultants shall be responsible for obtaining any building permit or certificate of occupancy for the Subleased Premises and that obtaining the same shall be Subtenant’s responsibility; provided, however, that Sublandlord shall cooperate with Subtenant in executing permit applications and performing other ministerial acts reasonably necessary to enable Subtenant to obtain any such permit or certificate of occupancy and shall use its good faith, commercially reasonable efforts to obtain Landlord’s cooperation, if necessary. No changes, modifications or alterations in the Approved Working Drawings may be made without the prior written consent of Sublandlord and Landlord, which consent Sublandlord may not unreasonably withhold, except that Subtenant agrees that it shall be reasonable for Sublandlord and Landlord to withhold their consent if the any of the items set forth in sections (i) through (iv) of Section 3.4 are applicable.

4.Contractors.

4.1The general contractor selected by Subtenant (the “Contractor”) shall be subject to the approval of Sublandlord and Landlord, which approval Sublandlord shall not unreasonably withhold. Subtenant’s Contractor shall employ engineers and subcontractors that are licensed and insured to perform all structural, mechanical, electrical, life-safety and plumbing work in the Subleased Premises, all of whom are subject to the approval of Sublandlord and Landlord, which approval Sublandlord shall not unreasonably withhold. Subtenant shall pay all costs incurred directly or indirectly by reason of Subtenant’s selection of a Contractor, including, without limitation, any costs for supervision and inspection of the construction of the Initial Subtenant Improvements required by Sublandlord or Landlord. The form of construction contract entered into by Subtenant with its general contractor shall be subject to the reasonable approval of Sublandlord and Landlord, which approval Sublandlord shall not unreasonably withhold, and shall be no less favorable than an AIA form of construction contract. Furthermore, all architects and engineers selected by Subtenant (the “Engineers” and “Architects”, respectively) shall be subject to the approval of Sublandlord and Landlord, which approval Sublandlord shall not unreasonably withhold. With respect to the construction of any Initial Subtenant Improvements which tie into Building or Master Lease Premises systems: (i) Subtenant shall provide Sublandlord and Landlord with written notice of all such work, and afford Sublandlord and Landlord a reasonable opportunity to inspect such work; (ii) Sublandlord and Landlord shall be entitled to approve of the Contractor, which approval Sublandlord shall not unreasonably withhold, and recommend contractors which each are familiar with, and who are familiar with the Master Lease Premises and the Building; and (iii) Subtenant shall solely be liable and responsible for any system damage to the Master Lease Premises or the Building, and interruptions of any Building services or utilities to all tenants who are adversely impacted.

4.2All persons employed by Subtenant shall be subject to Sublandlord’s and Landlord’s policies, rules, regulations, schedules and administrative control and shall conduct their work in such a way as not to hinder, cause any disharmony with or delay any work or other improvements in the Master Lease Premises and/or the Building. Subtenant shall cause its suppliers and contractors to engage only labor that is harmonious and compatible with other labor working in the Master Lease Premises and the Building. In the event of any labor disturbance caused by persons employed by Subtenant or Subtenant’s contractor, Subtenant shall immediately take all actions necessary to eliminate such disturbance. If at any time any supplier, contractor, workman or mechanic performing Subtenant’s work hinders or delays any other work of improvement in the Building or the Master Lease Premises, or performs any work which may or does impair the quality, integrity or performance of any portion of the Building (including the Master Lease Premises), Subtenant shall cause any such supplier, contractor, workman or mechanic to leave the Building and remove all tools, equipment and materials immediately upon written notice delivered to Subtenant, and Subtenant shall reimburse Sublandlord or Landlord, as applicable, for any repairs or corrections resulting

from the work of any supplier, contractor, workman or mechanic performing any work in the Subleased Premises. Subtenant and its contractors shall strictly comply with the Conditions for Construction as set forth in the Master Lease.

4.3In addition to any other conditions contained herein with respect to Subtenant making any Initial Subtenant Improvements, before commencing construction of any Initial Subtenant Improvements, Subtenant shall (a) deliver to Sublandlord and Landlord evidence satisfactory to Sublandlord and Landlord that Subtenant shall cause the construction of the Initial Subtenant Improvements (the “Construction Activities”) for which Subtenant Improvement Allowance will be used (as defined below) to be performed by contractors who shall employ craft workers who are members of unions that are affiliated with The Building and Construction Trades Department, AFL-CIO (“Union Labor”), and such work shall conform to traditional craft jurisdictions as established in the area (the “Construction Labor Covenant”), (b) include the Construction Labor Covenant in each of its contracts for the Construction Activities, (c) provide such evidence as Sublandlord and Landlord may require, from time to time during the course of the Construction Activities, that the Construction Labor Covenant is being fully and faithfully observed and Subtenant shall include the obligation to provide such evidence in each contract entered into by Subtenant for the Construction Activities, and (d) incorporate the foregoing requirements in any sub-sublease, license, or occupancy agreement relating to all or any part of the Subleased Premises. Subtenant shall require that all contractors and subcontractors, of whatever tier, performing Construction Activities agree to submit all construction jurisdictional disputes (i.e., disputes about which union is the appropriate union to perform a given contract) to final and binding arbitration through the procedures of the jointly administered “Plan for the Settlement of Jurisdictional Disputes in the Construction Industry,” a dispute resolution plan established and administered by The Building and Construction Trades Department, AFL-CIO, and various construction industry employer associations. If a resolution to a construction-related jurisdictional dispute cannot be obtained through The Building and Construction Trades Department, AFL-CIO, contractors and subcontractors, of whatever tier, shall agree to submit all such disputes to final and binding arbitration procedures to be administered by the American Arbitration Association (“AAA”) and in conformity with AAA’s Commercial Arbitration Rules, Expedited Procedures, with an arbitrator who is an experienced labor arbitrator and is a member of the National Academy of Arbitration.

5.Prior to Commencement of Construction.     Prior to the commencement of construction of the Initial Subtenant Improvements, Subtenant shall submit to Sublandlord and to Landlord the following:

5.1All Permits and governmental approvals required to commence construction of the Initial Subtenant Improvements, including but not limited to approved building permits. Notwithstanding the proceeding sentence, with the prior written consent of Landlord, and provided Subtenant has submitted Final Working Drawings to the City of Dublin prior to construction (and obtained Sublandlord’s and Landlord’s approval of such Final Working Drawings), Subtenant may commence construction strictly in accordance with the City of Dublin permit application conditions. Subtenant shall be responsible for any and all modifications or changes to work performed while its permit application is pending if the City of Dublin requires changes to the Final Working Drawings in order to issue approved building permits. Subtenant shall indemnify, defend and hold harmless Sublandlord and Landlord from and against any and all claims, liabilities, causes of actions, fines or judgments in any way related to Subtenant commencing construction of the Initial Subtenant Improvements prior to receiving formal unconditional approval and building permits from the City of Dublin.

5.2Certification of the date on which construction of the Initial Subtenant Improvements will commence, the estimated date of completion of the Initial Subtenant Improvements and the construction schedule provided by the general contractor.

5.3Evidence of the insurance, in a form acceptable to Sublandlord and Landlord, required pursuant to the Conditions for Construction, and this Work Agreement.

5.4Funding commitments or evidence of other satisfactory financial arrangements to pay for construction of the Initial Subtenant Improvements, to the extent any bid is in excess of the Subtenant Improvement Allowance.

6.Construction of Improvements. All work performed shall comply with all applicable ordinances, codes and regulations and shall be performed in a good and workmanlike manner. Subtenant shall deliver copies to Sublandlord and Landlord of all permits and all periodic governmental inspection reports with respect to the Initial Subtenant Improvements promptly after receipt thereof by Subtenant or Subtenant’s contractor. Sublandlord and Landlord should be notified in advance of requested inspections and may attend inspections to observe on behalf of the Building or the Master Lease Premises. At all times during construction of the Initial Subtenant Improvements, Sublandlord and Landlord, and each of their respective employees and agents shall have the right to enter the Subleased Premises to inspect the work. No inspection or approval by Sublandlord and Landlord of any such work shall constitute an endorsement thereof with any governmental ordinances, codes or regulations, and Subtenant shall be fully responsible and liable therefor. Subtenant shall reimburse Sublandlord and Landlord, as applicable, for any repairs or corrections of any portion of the Building or the Master Lease Premises caused by any contractor, subcontractor, supplier, workman or mechanic performing any work in the Subleased Premises. Upon completion of the construction of the Initial Subtenant Improvements, Subtenant shall provide Sublandlord and Landlord with marked copies of the construction drawings indicating to the extent possible the actual Initial Subtenant Improvements in the Subleased Premises, a certificate of occupancy and the results of any inspections and/or approvals given or required by any governmental agency. Subtenant’s and Subtenant’s agent’s construction of the Initial Subtenant Improvements shall comply with the following: (i) the Initial Subtenant Improvements shall be constructed in strict accordance with the Approved Working Drawings; (ii) Subtenant’s agents shall submit schedules of all work relating to the Initial Subtenant Improvements to the general contractor and the general contractor shall, within five (5) business days of receipt thereof, inform Subtenant’s agents of any changes which are necessary thereto, and Subtenant’s agents shall adhere to such corrected schedule; (iii) Subtenant shall abide by all rules made by Sublandlord, Landlord and/or the Building manager with respect to the use of freight, loading dock and service elevators, storage of materials, coordination of work with the contractors of other tenants, or of Sublandlord or Landlord, and any other matter in connection with this Work Agreement, including, without limitation, the construction of the Initial Subtenant Improvements; and (iv) Subtenant and its agents and contractors shall strictly comply with the Conditions for Construction. Subtenant shall pay to Landlord any and all fees assessed by Landlord relating to the supervision and/or coordination of the construction of the Initial Subtenant Improvements coordination. Sublandlord shall not charge Subtenant any supervision or coordinate fees in connection with the Initial Subtenant Improvements.

7.Subtenant Improvement Allowance. Sublandlord shall provide Subtenant with an improvement allowance in amount equal to Nine Hundred Ten Thousand Eight Hundred Twelve and 60/100 Dollars ($910,812.60) for the cost of constructing the Initial Subtenant Improvements (the “Subtenant Improvement Allowance”). Sublandlord and Subtenant agree and acknowledge that the Subtenant Improvement Allowance will be used only for the Subtenant Improvements Costs and that the Subtenant Improvement Allowance, and all of it, shall be utilized only for the benefit of the Subleased Premises. If any unused or unfunded portion of the Subtenant Improvement Allowance remains on December 1, 2015, at the written request of Subtenant delivered to Sublandlord, Subtenant shall have the right to credit all or a portion of such unused or unfunded Subtenant Improvement Allowance toward Subtenant’s payment of monthly Base Rent. Any cost incurred in the design or construction of the Initial Subtenant Improvements in excess of the Subtenant Improvement Allowance shall be borne solely by Subtenant.

8.Payment of the Subtenant Improvement Allowance.

8.1Subtenant shall pay directly and in full the cost of constructing the Initial Subtenant Improvements, including the costs of labor and materials supplied by the general contractor or subcontractors, and shall be responsible for removing any mechanics’ liens and obtaining mechanics’ lien waivers from the general contractor and any subcontractor or supplier of any tier.

8.2 Sublandlord shall pay Subtenant the Subtenant Improvement Allowance in two disbursements as follows:

(a)    The first disbursement in an amount equal to 50% of the Subtenant Improvement Allowance shall be paid within thirty (30) days after Subtenant’s completion of Subtenant Improvements having a cost of not less than $455,000 and submittal of such invoices marked paid and other evidence as Sublandlord shall reasonably require of the cost of the design of the Subtenant Improvements already constructed; provided that: (i) Sublandlord has reasonably and timely determined that all of the Subtenant Improvements constructed to date have been substantially completed in accordance with the Approved Working Drawings, based upon certifications reasonably satisfactory to Sublandlord delivered by Subtenant and/or Subtenant’s Architect; and (ii) Subtenant has delivered to Sublandlord unconditional partial lien releases from Subtenant’s Contractor and from any subcontractors with respect to the requested disbursement.

    (b) The balance of the Subtenant Improvement Allowance shall be paid within thirty (30) days after Subtenant’s completion of the Initial Subtenant Improvements (which will be constructed prior to Subtenant’s occupancy of the Subleased Premises) and delivery of: (i) a recorded notice of completion; (ii) final unconditional lien releases from all persons who might have mechanic’s lien rights; (iii) an affidavit from Subtenant’s general contractor that all debts have been paid with respect to the Initial Subtenant Improvements in a form equivalent to AIA 0706; (iv) as built drawings of the Initial Subtenant Improvements; (v) inspection reports or, at Sublandlord’s election, inspection by Sublandlord, of the Initial Subtenant Improvements and confirmation that the work is first class in nature, and the work is in compliance with the Approved Working Drawings; (vi) evidence that Subtenant has paid for the entire cost of constructing the Initial Subtenant Improvements, including labor and materials; and (vii) any other evidence reasonably required by Sublandlord or Landlord to ensure the Subleased Premises and the Building are lien free.

9.Indemnity/Insurance. Subtenant’s indemnity of Sublandlord as set forth in the Sublease shall also apply with respect to any and all costs, losses, damages, injuries and liabilities related in any way to any act or omission of Subtenant or Subtenant’s agents, or anyone directly or indirectly employed by any of them in the construction or design of the Initial Subtenant Improvements, or in connection with Subtenant’s non-payment of any amount arising out of the Initial Subtenant Improvements and/or Subtenant’s disapproval of all or any portion of any request for payment. Contractor(s) shall maintain all insurance specified in the Conditions for Construction. Subtenant shall maintain builders risk insurance on the Initial Subtenant Improvements, with coverage in the amount of the replacement cost of the Initial Subtenant Improvements, and shall be in a form and with deductibles reasonably acceptable to Sublandlord. In the event the Building or Subleased Premises are damaged or destroyed, Subtenant shall use all available insurance proceeds to rebuild the Initial Subtenant Improvements, unless either of the parties terminates the Sublease pursuant to the termination provisions set forth therein.

10.Contractor Warranties. Each of Subtenant’s agents shall guarantee to Subtenant and for the benefit of Sublandlord and Landlord that the portion of the Initial Subtenant Improvements for which it is responsible shall be free from any defects in workmanship and materials for a period of not less than one (1) year from the date of completion thereof. Each of Subtenant’s agents shall be responsible for the replacement or repair, without additional charge, of all work done or furnished in accordance with its contract that shall become defective within one (1) year after the later to occur of (i) completion of the work performed by such contractor or subcontractors and (ii) December 1, 2015. The correction of such work shall include, without additional charge, all additional expenses and damages incurred in connection with such removal or replacement of all or any part of the Initial Subtenant Improvements, and/or the Building and/or common areas that may be damaged or disturbed thereby. All such warranties or guarantees as to materials or workmanship of or with respect to the Initial Subtenant Improvements shall be contained in the contract or subcontract and shall be written such that such guarantees or warranties shall inure to the benefit of Landlord, Sublandlord and Subtenant, as their respective interests may appear, and can be directly enforced by either. Subtenant covenants to give to Sublandlord and Landlord any assignment or other assurances which may be necessary to effect such right of direct enforcement.

11.Subtenant’s Representative. Subtenant has designated Bob Corey and Chris Beasley as its representatives with respect to the matters set forth in this Work Agreement, who shall have full authority and responsibility to act on behalf of Subtenant as required in this Work Agreement.

12.Sublandlord’s Representative. Sublandlord has designated Tim Roche, as its sole representative with respect to the matters set forth in this Work Agreement, who, until further notice to Subtenant, shall have full authority and responsibility to act on behalf of Sublandlord as required in this Work Agreement.

13.Time of the Essence in This Work Agreement. Unless otherwise indicated, all references herein to a “number of days” shall mean and refer to calendar days. If any item requiring approval is timely disapproved by Sublandlord, the procedure for preparation of the document and approval thereof shall be repeated until the document is approved by Sublandlord.

14.Subtenant’s Sublease Default. Notwithstanding any provision to the contrary contained in the Sublease, if an event of default as described in the Sublease or this Work Agreement has occurred at any time on or before the substantial completion of the Subleased Premises, then (i) in addition to all other rights and remedies granted to Sublandlord pursuant to the Sublease, Sublandlord shall have the right to withhold payment of all or any portion of the Subtenant Improvement Allowance, and (ii) all other obligations of Sublandlord under the terms of this Work Agreement shall be forgiven until such time as such default is cured pursuant to the terms of the Sublease.

14.1Inspections. Sublandlord shall have the right to inspect the Initial Subtenant Improvements upon at least one (1) day prior written notice, provided however, that except as otherwise set forth in the Sublease, Sublandlord’s failure to inspect the Initial Subtenant Improvements shall in no event constitute a waiver of any of Sublandlord’s rights hereunder nor shall Sublandlord’s inspection of the Initial Subtenant Improvements constitute Sublandlord’s approval of the same. Should Sublandlord disapprove any portion of the Initial Subtenant Improvements, Sublandlord shall notify Subtenant in writing of such disapproval and shall specify the items. Any defects or deviations in, and/or disapproval by Sublandlord of, the Initial Subtenant Improvements shall be addressed by Subtenant at no expense to Sublandlord, provided however, that in the event Sublandlord determines that a defect, deviation or exists in connection with any portion of the Initial Subtenant Improvements and such defect, deviation or might adversely affect the mechanical, electrical, plumbing, heating, ventilating and air conditioning or life-safety systems of the Master Lease Premises or the Building, the structure or exterior appearance of the same or any other tenant’s use of such other tenant’s leased premises, Sublandlord may, after notice and cure periods (if any) take such action as Sublandlord deems necessary, at Subtenant’s expense and without incurring any liability on Sublandlord’s part, to correct any such defect, deviation and/or matter, including, without limitation, causing the cessation of performance of the construction of the Initial Subtenant Improvements until such time as the defect, deviation and/or matter is corrected to Sublandlord’s satisfaction. For the avoidance of doubt, Landlord shall have the same rights given to Sublandlord in this Section 11.5.

14.2Force Majeure. This Work Letter and the obligations and rights of the parties hereunder are expressly subject to the force majeure provisions of the Master Lease.

Exhibit 1 to Work Agreement

Final Space Plan

[To be provided]

EXHIBIT F

Parking

[To be provided]

SCHEDULE 1

Master Lease

LEASE

BIT HOLDINGS FIFTY-SIX, INC.,

a Maryland corporation,

Landlord,

and

Taleo Corporation,

a Delaware corporation

Tenant

Dated: March 16, 2006

LEASE

THIS LEASE (“this Lease”) is made and entered into as of March 16, 2006 by Landlord and Tenant.

1. BASIC LEASE INFORMATION

LANDLORD: BIT Holdings Fifty-Six, Inc.,

a Maryland corporation

LANDLORD’S ADDRESS FOR AFL-CIO Building Investment Trust

NOTICES: Two Hopkins Plaza, Suite 804

Baltimore, MD 21201

Attn: Asset Manager, Dublin Corporate Center

With a concurrent copy to:

ING Clarion Partners

1900 Macarthur Boulevard, Suite 225

Irvine, California 92612

Attn: Asset Director, Dublin Corporate Center

With a concurrent copy to:

Berding & Weil LLP

3240 Stone Valley Road West

Alamo, CA 94507

Attn: Scott Singer, Esq.

TENANT: Taleo Corporation, a Delaware corporation

GUARANTOR: Not Applicable

TENANT’S NOTICE ADDRESS:

Before taking occupancy: Taleo Corporation

525 Market Street, 8^th Floor

San Francisco, California 94105

Attention: Josh Faddis, Esq.

Attention: Ms. Debbie Shotwell

Following occupancy: Taleo Corporation

John Faddis, Esq., Vice President and Corporate Counsel

4140 Dublin Blvd, Suite 400

Dublin, California 94568

Fax Number [Tenant to Provide]

With a concurrent copy to:

Condon & Forsyth LLP

Times Square Tower

7 Times Square

New York, New York 10036

Attention: Katherine B. Posner, Esq.

LAND: The “Land” consists of the Project and all real property making

up on the common areas.

BUILDING: 4140 Dublin Boulevard, Dublin, California 94568.

PROJECT: The office buildings known as Dublin Corporate Center located at 4120 Dublin Boulevard, 4140 Dublin Boulevard, and 4160 Dublin Boulevard, collectively in the City of Dublin, California 94568, Alameda County. The Project is deemed to consist of a total of four hundred and fifteen thousand four hundred and ninety two (415,492) square feet of Gross Rentable Area.

PROPERTY: The Buildings and the Land.

PREMISES: The premises located on the fourth (4^th) floor of the Building, known as Suite 400, as more fully described in Section 1 (Premises) and shown on the floor plans attached as Exhibit A to this Lease, and deemed to contain thirty five thousand four hundred and twenty four (35,424) square feet of Gross Rentable Area per BOMA Standards (as defined below).

GROSS OFFICE RENTABLE AREA OF THE BUILDING: Deemed to be one hundred and thirty eight thousand one hundred and thirty six (138,136) square feet, as determined by Landlord’s architect pursuant to the American National Standard Method of Measuring Floor Area in Office Buildings, ANSI/BOMA Z65.1-1996, published by the Building Owners and Managers Association International (“BOMA Standards”). All references to “Gross Rentable Area” mean measurements prepared pursuant to the BOMA Standards.

LEASE COMMENCEMENT DATE: June 15, 2006 and to be confirmed in the form of Exhibit E.

LEASE EXPIRATION DATE: Expiration of the initial seven (7) year Term measured from the Lease Commencement Date and to be confirmed in the form of Exhibit E to this Lease.

TERM: Seven (7) years.

EXTENSION TERM: One (1) Extension Term of five (5) years.

BASE RENT:

Month
	Rent
1—12	$ 52,427.52/month
13—24	$ 76,161.60/month
25—36	$ 77,932.80/month
37—48	$ 79,704.00/month
49—60	$ 81,475.20/month
61—72	$ 83,246.40/month
73—84	$ 85,017.60/month

ADVANCE RENT:	Seventy Six Thousand One Hundred Sixty One Dollars and Sixty Cents ($76,161.60) upon Lease execution.
BASE YEAR FOR OPERATING COSTS:	Calendar year 2006.
BASE YEAR FOR REAL ESTATE TAXES:	Calendar year 2006.
TENANT’S PROPORTION-ATE SHARE OF OPERATING COSTS:	25.644		%
TENANT’S PROPORTION-ATE SHARE OF AND REAL ESTATE TAXES	25.644		%
CASH SECURITY DEPOSIT:	$	—
LETTER OF CREDIT BROKER(S):	One million dollars ($1,000,000.00). Colliers International, representing Landlord and Newmark Knight Frank, representing Tenant.

TENANT WORK ALLOWANCE (IF ANY):	See Work Agreement attached as Exhibit B.
BUILDING HOURS:	7:00 a.m. to 6:00 p.m., Monday through Friday (except Holidays), or such other hours as Landlord reasonably determines from time to time. The term “Holidays” means any federally designated holidays.
PARKING SPACES:	Three and eight tenths (3.8) spaces per one thousand (1,000) Gross Rentable Area of the Premises, located within the Building’s parking lot. If the Gross Rentable Area of the Premises is not exactly divisible by one thousand (1,000), the area of the Premises shall be rounded to the next highest number that is divisible by one thousand (1,000) and the calculation of the number of parking spaces shall be made on the basis of such higher number. Parking shall be subject to the terms and conditions of this Lease. Therefore, Tenant shall be entitled to one hundred and thirty five (135) parking spaces in the Building’s Parking Area.
RIGHT OF FIRST OFFER:	Tenant shall have a limited ongoing Right of First Offer to lease additional space in the Building, as detailed in Section 1.3 of the Lease.

EXHIBITS

Exhibit A	Floor Plan Showing Premises
Exhibit B	Work Agreement
Exhibit C	Plans
Exhibit D	Rules and Regulations
Exhibit E	Form of Lease Commencement Agreement
Exhibit F	Conditions for Construction
Exhibit G	Intentionally Omitted
Exhibit H	AFL-CIO Building Investment Trust Participants
Exhibit I	Building Standard Improvements
Exhibit J	Tenant’s Monument Signage
Exhibit K	Tenant’s Building Signage
Exhibit L	Joint Escrow Agreement

ADDENDA

Addendum #1 Letter of Credit

The Basic Lease Information is incorporated into and made a part of this Lease. Each reference in this Lease to any information or definitions contained in the Basic Lease Information means and refers to the information and definitions set forth in the Basic Lease Information. References in this document to the term “Lease” mean the Basic Lease Information, the body of this Lease, and any Exhibits, Addenda, or Riders thereto. The provisions of the body of this Lease will be read to implement the Basic Lease Information. In the event of any inconsistency between the wording in the body of the Lease and the wording in the Basic Lease Information, the wording in the body of the Lease shall prevail and be controlling.

1. PREMISES AND PARKING.

1.1 General. Landlord leases the Premises to Tenant, and Tenant leases the Premises from Landlord, for the Term (as herein defined) and on the conditions hereafter provided. No easement for light and air is incorporated in the Premises. The Gross Rentable Area of the Premises set forth in the Basic Lease Information is deemed to be the Gross Rentable Area of the Premises for purposes of this Lease, and is final and binding on Landlord and Tenant, and Tenant shall have no right to remeasure the Gross Rentable Area of the Premises.

1.2 Parking.

1.2.1 Non Exclusive Parking. During the Term of this Lease (as defined below), Tenant will be entitled to the non-exclusive, unreserved, use of the number of parking spaces specified in the Basic Lease Information (the “Parking Spaces”), in the parking lot directly adjacent to the Building and intended to service the Building and serving the Project, (the “Parking Area”). Use of all Parking Spaces and the Parking Area will be subject to the rules and regulations established by Landlord in its reasonable discretion. Tenant understands and acknowledges that the Parking Area serves all tenants in the Project. The rules and regulations may be altered at any time and from time to time during the Term of the Lease after giving Tenant reasonable notice. Landlord does not intend to restrict or designate the location of Tenant’s Parking Spaces. However, Landlord reserves the right to designate the location of Tenant’s Parking Spaces in Landlord’s reasonable discretion. Neither Tenant nor Tenant’s agents will at any time use more parking spaces than the number allocated to Tenant pursuant to the Basic Lease Information. Tenant, and Tenant’s agents will not park, or permit the parking of, their vehicles in any portion of the Parking Area not designated by Landlord as a non-exclusive parking area. Tenant and Tenant’s agents will not have the exclusive right to use any specific parking space.

1.2.2 Availability of Parking. Notwithstanding the number of Parking Spaces held by Tenant hereunder for Tenant’s non-exclusive use, in the event Landlord is required to reduce the number of parking spaces in the Parking Area by reason of any Applicable Law relating to or affecting parking at the Parking Area, or any cause beyond Landlord’s reasonable control, Landlord will have the right to proportionately reduce the number of Tenant’s Parking Spaces and the non-exclusive parking spaces of other tenants of the Building. Landlord reserves the right in its absolute discretion to have any vehicles owned by Tenant or Tenant’s agents and parked in violation of the provisions of this Section of the Lease or Landlord’s rules and regulations relating to parking, towed away at Tenant’s cost, after giving Tenant reasonable notice. In the event Landlord elects or is required by any Applicable Law to limit or control parking in the Parking Area, by validation of parking tickets or any other method, Tenant agrees to participate in such validation or other program under such reasonable rules and regulations as are from time to time established by Landlord. Landlord will have the right to close all or any portion of the Parking Area at reasonable times if reasonably required, including, without limitation, the prevention of a dedication thereof, or the accrual of rights in any person or the public therein. Employees of Tenant will be required to park in areas designated for employee parking, if any. The Parking Area will not be used by Tenant or Tenant’s agents for any purpose other than the parking of motor vehicles and the ingress and egress of pedestrians and motor vehicles.

1.2.3 No Liability. Landlord does not guaranty that Tenant will be able to use the Parking Spaces in case of a casualty, act of God, or other Force Majeure event or condemnation affecting the Parking Area. Landlord will not be liable for damage to any vehicle using the Parking Area pursuant to this Lease, including theft, collision, fire, or any other damage to such vehicle; Landlord will not be responsible for articles left in such vehicles; Landlord will not be liable for loss of use of any such vehicles that are damaged while using the Parking Area. Except to the extent caused by the gross negligence or intentional misconduct of Landlord its employees or agents, Landlord will not be liable for any injury to any person using the Parking Area regardless of the cause of such injury; all persons using the Parking Area will do so at their own risk.

1.2.4 No Assignment or Sublease. Tenant may not assign its right to use the Parking Spaces, except (a) in conjunction with a permitted assignment of this Lease or sublease of the Premises and (b) for periodic use by Tenant’s clients and affiliates.

1.3. Right of First Offer.

1.3.1 Advice Space/Advice Notice. Not more than one (1) time per calendar year during the Term (excluding the Option to Extend), Tenant shall have the right to send to Landlord a notice (“Request Notice”) advising Landlord that Tenant is interested in leasing space in the Building, which additional space will be leased for the remainder of the Lease Term (the

“Advice Space”). Within thirty (30) days of receipt of a Request Notice, subject to the superior rights of other tenants, to which Tenant’s rights are secondary and subordinate, Landlord shall notify Tenant in writing of if, when and what such Advice Space is or will be so available within the next twelve (12) months, for the applicable term, without liability to Landlord for any errors or omissions, and Landlord’s determination of the applicable fair market rent for the available space (“Landlord’s Advice Notice”). Landlord’s Active Notice shall include the following: (a) fair market rent; (b) applicable term of Advice Space; (c) Tenants Proportionate share inclusive of the Advice Space; (d) any other concession Landlord is willing to offer; and (e) the anticipated date of delivery of the Advice Space to Tenant. Tenant shall pay one hundred percent (100%) of the fair market rent. Tenant thereupon shall have the right for a period of five (5) business days from the receipt of the Landlord’s Advice Notice to lease all or a portion of such Advice Space only upon the terms and conditions contained in Landlord’s Advice Notice, including Landlord’s determination of fair market rent, and except that Tenant shall have no such right, if the (i) Tenant is then in default, beyond applicable notice and cure periods, pursuant to Section 20 of this Lease; (ii) the Tenant has been in material default two (2) times or more during the Lease Term; (iii) the portion of the Advice Space not leased by Tenant is not reasonably leaseable in Landlord’s reasonable determination; or (iv) Tenant has subleased, assigned or transferred more than twenty five percent (25%) of the Premises. For purposes of this provision, the Advice Space shall not be deemed to become available if the space is: (a) subleased by the current tenant of the space; (b) re-leased by the current tenant of the space by renewal, extension, or renegotiation; (c) leased by a tenant with an existing right to the space as of the Effective Date of this Lease, for example, an expansion right, first of first offer, refusal or negotiation, etc., or (e) not leased to a tenant as of the Effective Date of this Lease.

1.3.2 Delivery of Advice Space. If Tenant timely and properly exercises its rights to the Advice Space, Landlord shall deliver the Advice Space to Tenant upon the date such space is available in its current “As Is” condition, and shall prepare an amendment to this Lease adding the Advice Space to the Premises on the date of delivery and amending the Base Rent, Tenant’s Percentage Share of Operating Expenses and Real Property Taxes (and all other applicable financial obligations under the Lease shall be appropriately increased), which amendment shall be delivered to Tenant promptly after exercise and executed by Tenant within five (5) business days after Tenant’s receipt of same from Landlord. Rent shall commence with respect to the Advice Space sixty (60) days after the date of delivery of possession by Landlord, and Landlord shall not be liable or responsible in any way for any delay in delivery of the Advice Space. If Landlord does not deliver the Advise Space within one hundred and eighty 180 days of the anticipated date of delivery set forth in the Landlord’s Advice Notice, then Tenant, upon written Notice to Landlord, shall have the right to cancel the Request Notice. Landlord shall have no responsibility for construction of improvements in the Advice Space, and Landlord is not providing a tenant improvement allowance with respect to the Advice Space. If Tenant fails to respond to Landlord’s Advice Notice within the five (5) business day period above, or declines to exercise its rights to the Advice Space during the five (5) business day period above, Landlord shall be free to market and lease the Advice Space to any person or entity (or to withhold such space from the market), and Tenant shall have no further rights of any kind or nature whatsoever to such Advice Space, and Landlord shall have no liability of any kind or nature whatsoever to Tenant. The Base Year for operating costs and Real Estate taxes shall be the first full calendar year of the term of the Advice Space.

1.3.3. Advice SpaceParking. During the term of the Lease with respect to any Advice Space, Tenant shall be entitled to 3.8 Parking Spaces per 1,000 square feet of Gross Rentable Area of the Advice Space, subject to the provisions of Section 1.2 of this Lease.

1.3.4. Tenant’s right of first offer to Lease Advice Space shall be continuous throughout the term of this Lease without regard to Tenant’s decision not to lease Advice Space as it becomes available (except to the extent Tenant does not have any further rights to a specific Advice Space that was offered to Tenant and Tenant did not lease, pursuant to Section 1.3.2).

1.4. AS IS Condition of the Premises/Construction of Tenant Improvements. Except as set forth in Section 5.1 of this Lease, Landlord shall deliver the Premises to Tenant, as of the Effective Date, in AS IS condition. Tenant represents and warrants that is has inspected the Premises and hereby accepts the Premises in their current AS IS condition. Landlord and Tenant agree and acknowledge that Landlord is not responsible for the construction of any initial improvements in the Premises. Landlord is providing Tenant with a Tenant Improvement Allowance, and Tenant shall construct all of the Tenant Improvements thought its own contractor. The construction of the Tenant Improvements is expressly governed and subject to the Work Agreement, attached hereto as Exhibit B, and incorporated herein in full by this reference, and the Conditions for Construction, attached hereto as Exhibit F, and incorporated herein in full by this reference.

2. TERM.

2.1 Determination of Lease Commencement Date. The term of this Lease (the “Term”), and Tenant’s obligation to pay Rent, shall commence on the Lease Commencement Date as set forth in the Basic Lease Information, provided however, Landlord may conclusively establish the Lease Commencement Date in a factually correct Notice of Commencement Date in the form of Exhibit E (the “Lease Commencement Date”). Unless sooner terminated as hereinafter provided, or as provided by Applicable Law, the Lease Term shall end on the date set forth in the Basic Lease Information for the Lease Expiration (the “Lease Expiration Date”). If Landlord, for any reason whatsoever, cannot deliver possession of the Premises to Tenant on the Effective Date, whether due to strikes, lockouts, labor disputes, shortages of material or labor, fire or other casualty, acts of God, acts or threatened acts of terrorism, or any other cause beyond the control of Landlord, this Lease shall not be void or voidable, nor shall Landlord be liable to Tenant for any loss or damage of any kind whatsoever resulting therefrom including, but not limited to, incidental damages, consequential damages, holdover expenses or relocation expenses incurred by Tenant due to such delays, or loss of business. No delay in delivery of possession shall operate to extend the Term hereof or amend or modify Tenant’s obligations hereunder. For purposes of this Lease, the term “Effective Date” shall mean the date the last of Landlord or Tenant executes this Lease and delivers it fully executed to the other party. Notwithstanding the Lease Commencement Date, all provisions of this Lease (except for the payment of Rent) shall be effective and binding as of the Effective Date.

2.2 Confirmation of Lease Commencement Date. Within forty-five (45) days after the Lease Commencement Date, Landlord and Tenant agree to execute and deliver a Lease Commencement Agreement (substantially in the form of Exhibit E) setting forth the Lease Commencement Date and Lease Expiration Date.

2.3 Extension Option.

2.3.1 Extension Option. Tenant is granted the right (the “Extension Option”) to extend the Term for one (1) additional period of five (5) consecutive years (the “Extension Period”), provided that (a) Tenant gives written notice to Landlord of Tenant’s election to exercise such Extension Option no more than two hundred and seventy (270) days and no less than one hundred and eighty (180) days before the expiration of the initial Term, (b) Tenant has not assigned this Lease and is then in possession of and occupying one hundred percent (100%) of the Premises, and (c) no material Event of Default has occurred and no material Event of Default occurs after such notice.

2.3.1.1 Rent for Extension Term(s). All terms and conditions of this Lease, including all provisions governing the payment of Additional Rent, will remain in full force and effect during the Extension Period, except that initial Base Rent payable during the Extension Period will be at an amount equal to ninety five percent (95%) of the Fair Market Rent

(as defined in Section 2.3.3 [Fair Market Rent]) during the Extension Period (as determined no more than ninety (90) days before the start of the Extension Period) but in no event less than the fully escalated Base Rent in effect for the calendar month immediately before the start of the Extension Period. In the event that Fair Market Rent for the Extension Period is not determined at the commencement of the Extension Period, then Tenant shall continue to pay the same Rent during the Extension Period as it was paying during the last month of the Term of the Lease, until the Fair Market Rent is determined, at which time Tenant shall pay Landlord, as Additional Rent, any amounts owed. Landlord may require an additional security deposit from Tenant if Landlord determines that Tenant is not then as financially responsible as Tenant is on the date hereof, or that Tenant’s then financial capacity and creditworthiness indicates that Tenant may not be able to undertake and perform all the obligations of Tenant under this Lease through the Extension Period. The Base Year for Real Estate Taxes and the Base Year for Operating Costs set forth in the Basic Lease Information shall be adjusted to the first full calendar year during which the Extension Period commences.

2.3.1.2 Confirmation of Base Rent Amount. On the determination of the Fair Market Rent, an amendment modifying the Lease to set forth the Base Rent for the Premises during the Extension Period will be executed by Landlord and Tenant within thirty (30) days of such determination.

2.3.1.3 Other Obligations. Notwithstanding anything to the contrary contained in this Section 2.3.1, the Extension Option is subject to any contractual obligations of Landlord for space in the Building existing as of the date on which this Lease is fully executed, including any renewal rights, and rights of first negotiation, refusal, and/or expansion.

2.3.3 Fair Market Rent. For purposes of this Lease, the term “Fair Market Rent” means the net or base annual rate of rent, expressed in dollars per square foot of rental area, reserved in leases most recently consummated for office space in comparable first class office buildings in the Dublin/Pleasanton area (the “Comparable Buildings”) with tenants of similar creditworthiness and stature to Tenant, for comparable space (taking into account the location of the floor and the building) for leases of similar duration inclusive of the prevailing market conditions for the renewal of existing leases in existing buildings for existing tenants.

2.3.3.1 Mutual Agreement. Landlord and Tenant will negotiate in good faith to determine the Fair Market Rent for the applicable period within forty five (45) days of the date of (a) the end of a recapture period under Section 7.1.1 (Initial Sublet; Recapture; Termination), or (b) Landlord’s receipt of Tenant’s written notice of Tenant’s election to exercise the Extension Option. If Landlord and Tenant cannot agree on the Fair Market Rent within such forty five (45) day period, Tenant may elect to proceed with the process for determining the Fair Market Rent provided in Section 2.3.3.2 (Fair Market Rent Determination).

2.3.3.2 Fair Market Rent Determination. If Tenant elects to proceed with the process for determining the Fair Market Rent, then the Fair Market Rent shall be determined in accordance with the following procedures. Within fifteen (15) days after Tenant delivers notice to Landlord of Tenant’s election to so proceed, Landlord and Tenant shall each select a real estate professional (based on the criteria set forth in this Section 2.3.3.7). Within thirty (30)

days of their selection, each professional shall make a written determination to Landlord and Tenant of the Fair Market Rent. All determinations of the Fair Market Rent shall be in writing. The party appointing each professional shall be obligated, promptly after receipt of the valuation report prepared by the professional appointed by such party, to deliver a copy of such valuation report to the other party.

2.3.3 Calculation. If the Fair Market Rent determinations of the professional designated by Landlord is within five percent (5%) of the Fair Market Rent determination of the professional designated by Tenant, then the Fair Market Rent shall be the average of the two Fair Market Rent determinations.

2.3.3.4 Variance in Determinations. If the Fair Market Rent determinations of the two professionals vary by more than five percent (5%), then a third professional shall be selected by the initial two professionals within fifteen (15) days after the initial two valuation reports have been delivered to the parties (the third professional also having the qualifications set forth in this Section 2.3.3.7). If a third professional is appointed, the third professional shall review the valuation reports of the initial two professionals and shall select the one of the initial two valuation reports that reflects such criteria for the Fair Market Rent. The third professional shall promptly deliver a written report of his or her determination to each of the parties within fifteen (15) days of receipt of the initial two (2) Fair Market Rent determinations.

2.3.3.5 Binding Effect. The determination of the Fair Market Rent pursuant to this Section 2.3.3 shall be final and binding on Landlord and Tenant.

2.3.3.6 Expenses. The expenses of each of the first two professionals appointed under this Section 2.4.3 shall be borne by the party appointing such professional. The expenses of the third professional appointed under this Section 2.3.3 shall be paid one-half (1/2) by Landlord and one-half (1/2) by Tenant.

2.3.3.7 Qualification of Professionals. The real estate professionals selected by Landlord and Tenant shall have the following qualifications: (a) must be an independent and licensed real estate broker in the Dublin/Pleasanton area; (b) must have a minimum of ten (10) years’ experience in commercial office leasing in the Dublin/Pleasanton area; (c) in the case of the third professional only, is not then representing either Landlord or Tenant; and (d) in the case of the third professional only, has not been involved in any disputes with Landlord, Tenant, or either of the other professionals.

3. BASE RENT; ADDITIONAL RENT; LETTER OF CREDIT.

3.1 Definitions; Increases. The term “Base Rent” means the amount set forth in the Basic Lease Information. The term “Additional Rent” means any rent, payments, or any other monetary sums, other than Base Rent, payable under this Lease, whether due and payable immediately or in monthly installments. Throughout this Lease, Base Rent and Additional Rent are sometimes collectively called “Rent”. All sums due under this Lease shall be “Rent” for collection purposes.

3.2 Payment of Rent. Commencing on the Lease Commencement Date, Rent is due and payable, in advance, in equal, consecutive monthly installments. If the Term begins or ends on a date other than on the first day of a calendar month, Rent for the first month of the Term and/or the last month of the Term, as the case may be, will be prorated on a daily basis based on a thirty (30) day month and will be paid in advance. All payments of Base Rent for the month in question will be due on or before the first (1^st) day of the calendar month during the Term for which Base Rent is due and payable. All payments of Additional Rent are due by the first day of each calendar month during the Term (unless otherwise expressly provided in other Sections of this Lease). Tenant will pay all Rent without deduction, set off, or counterclaim, and, except as otherwise expressly set forth herein, without demand, notice, or invoice. If Landlord at any time or times accepts Rent after it becomes due and payable, such acceptance will not excuse a delay on any subsequent occasion, or constitute, or be construed as, a waiver of any of Landlord’s rights hereunder, including the right to sue for possession and sue for any amounts which remain outstanding.

3.3 Payment Address. Tenant will pay to Landlord, at Landlord’s Address for Notices set forth in the Basic Lease Information (or such other place or to such agents as Landlord may from time to time designate to Tenant in writing), all installments of Base Rent and Additional Rent (whether such Additional Rent is being paid on an installment or other basis) by

the date the Rent becomes due in lawful money of the United States of America that is legal tender for the payment of public and private debts.

3.4 Delinquent Rent Payments. If any installment of Base Rent or Additional Rent is not paid within five (5) days of when due (whether such Additional Rent is being paid on an installment or other basis), then such unpaid installment of Rent will bear interest five (5) days from the date such installment of Rent became due to the date of the payment thereof by Tenant at a rate (the “Default Rate”) equal to the lesser of (a) five percent (5%) annually over the prime rate of interest announced, from time to time, by Bank of America, N.A., or if at any time Bank of America, N.A. or its successor in interest does not announce its prime rate of interest, then the prime rate of interest published from time to time in The Wall Street Journal, Eastern Edition, in the section entitled “Money Rates” (the “Prime Rate”), or (b) the maximum interest rate then allowed by Applicable Laws. If Tenant fails to pay any such installment of Rent within five (5) days of the date when such installment was due, Tenant will also pay to Landlord a late payment charge equal to five percent (5%) of the amount of such installment of Rent. Any interest or late payment charges paid by Tenant will not relieve Tenant from its obligation to pay any other amounts due under this Section 3 or any other provision of this Lease. Such interest and late payment charges will constitute Additional Rent due with the next monthly installment of Base Rent and, where applicable, Additional Rent. If Landlord does not bill Tenant for such interest or such late payment charges at the time of their respective accruals, such fact will not constitute Landlord’s waiver of its right to accumulate such interest and charges and to invoice Tenant on a periodic basis, nor will Landlord’s acceptance of any payment from, or by Landlord’s furnishing services to, a party other than Tenant constitute Landlord’s waiver of its right to such interest and charges or to any other amount owed or that becomes payable to it hereunder.

3.5 Letter of Credit. Tenant shall post the Letter of Credit pursuant to the terms, provisions and obligations of Addendum No. 1.

3.6 Tenant’s Right to Offset Rent. Tenant shall have the right to offset against Rent otherwise payable by Tenant pursuant to the Lease for the following limited purposes:

(i) Any excess amounts prepaid by Tenant for Operating Costs and Real Property Taxes based on Landlord’s estimate, and Tenant’s monthly estimated installment payment, provided, such overpayment may be credited against Tenant’s next accruing Operating Cost and Real Property Tax obligations only (and not Base Rent), and provided Landlord has not timely paid such amount to Tenant pursuant to the terms of this Lease after notice and opportunity to cure; and

(ii) Any allowance or credit to which Tenant is entitled pursuant to this Lease that is not timely paid by Landlord after twenty (20) days notice and opportunity to cure.

(iii) If Landlord does not pay the Tenant Improvement Allowance in accordance with the terms set forth in the Work Agreement.

4. OPERATING COSTS AND REAL ESTATE TAXES.

4.1 Operating Costs—Base Year. Beginning on the first day of the second (2^nd) calendar year (i.e. January 1, 2007), Tenant shall pay as Additional Rent Tenant’s estimated Proportionate Share (as defined below) of the amount by which Operating Costs (as defined below) for each calendar year falling entirely or partly within the Term exceed a base amount (the “Operating Costs Base Amount”) equal to the “Operating Costs” incurred during the Base Year for Operating Costs. In the event the Operating Costs Base Amount as otherwise determined in this Section is abnormally high in comparison to the historical average of Operating Costs for the prior five (5) calendar years, taking into account year-by-year increases, the Operating Costs Base Amount shall be determined by taking the Building’s average Operating Costs for the prior five (5) calendar years and increasing such average Operating Costs by the average annual increase in the Building’s Operating Costs. For purposes of this Lease, “Tenant’s Proportionate Share” for Operating Costs has been calculated to be that percentage that is equal to a fraction, the numerator of which is the number of square feet of Gross Rentable Area in the Premises, and the denominator of which is the number of square feet of the Gross Rentable Area set forth in the Basic Lease Information. To the extent Landlord, at the Effective Date, carries earthquake, terrorism and/or mold insurance coverage, such coverage shall be included in the Operating Costs Base Amount, and Tenant shall be responsible for increases above the Operating Costs Base Amount consistent with this Section 4.1. To the extent Landlord elects, in its sole discretion to carry earthquake, terrorism and/or mold insurance coverage (and Landlord did not maintain such coverage at the Effective Date of this Lease), then Landlord shall increase the Operating Costs Base Amount by the per square foot costs attributable to the premiums payable for the first full calendar year that such coverage is purchased, and thereafter, increases in premiums shall be includable in Operating Costs.

4.1.1 Estimated Monthly Payments of Operating Costs. Tenant shall make estimated monthly payments to Landlord on account of the amount by which Operating Costs that are expected to be incurred during each subsequent calendar year (or portion thereof) would exceed the Operating Costs Base Amount. On or about the first day of the second (2^nd) calendar year (i.e. January 1, 2007), and at the beginning of each calendar year thereafter, Landlord may submit a statement setting forth

Landlord’s reasonable estimate of such excess and Tenant’s Proportionate Share thereof. Tenant shall pay to Landlord on the first day of each month after receipt of such statement, until Tenant’s receipt of the succeeding annual statement, an amount equal to one-twelfth (1/12^th) of such share (estimated on an annual basis without proration. From time to time during any calendar year, but not more than two (2) times in any calendar year, Landlord may revise its estimate and adjust Tenant’s monthly payments to reflect Landlord’s revised estimate.

4.1.2 Definition of Operating Costs. The term “Operating Costs” means any costs associated with the operation, management, maintenance, repair, replacement, and protection of the Building including, without limitation, costs of heating; cooling; utilities (including any taxes or impositions thereon); insurance; parking lot maintenance, repair, repaving, resurfacing and re-stripping; re-roofing; janitorial and cleaning service; lobby host, if any is provided by Landlord; security services, if any are provided by Landlord; salaries, wages, and other personnel costs of engineers, superintendents, watchmen, and other Building employees, and other employees of Landlord and the employees of Landlord’s agents and contractors allocable to Building or Project-related matters (provided, however, that to the extent that employees of Landlord or employees of Landlord’s agents are not assigned exclusively to the Building or the Project, then Operating Costs will include only the portion of their salaries, wages, and other personnel costs that Landlord allocates to the Building or the Project); charges under all Building and Project maintenance and service contracts, including contracts for chilled water and hot water, boilers, controls, elevators, security systems, exterior window cleaning, landscaping (including new plantings and irrigation), common areas, public areas, lobbies, and Building, Project and Land maintenance; costs of all maintenance and repair, including costs of all warranties included in contracts for the provision of materials or services to the Building to the extent the cost of such warranty is separately stated in such contract; costs of enforcing warranties; costs of supplies that are deducted (and not capitalized) for federal income tax purposes; management fees that are not in excess of the prevailing market rate management fees paid to management organizations managing Comparable Buildings; accounting costs and fees; costs incurred for attorneys or other third parties to appeal or contest Real Estate Tax assessments (as more fully provided in this Section 4), including the costs incurred to review the feasibility thereof; costs of cleaning, decorating, repairing, maintaining, replacing and operating any common areas in the Project; all other costs Landlord incurs to operate, service, maintain, repair and replace the Building, Land and Project; the cost of any capital improvements made by Landlord to the Building and/or Project, or capital assets acquired by Landlord after the Lease Commencement Date in order to comply with any local, state or federal law, ordinance, rule, regulation, code or order of any governmental entity or insurance requirement, including but not limited to, the Americans with Disability Act (each a “Legal Requirement” and collectively, the “Legal Requirements”) with which the Building and/or Project was not required to comply at the Lease Commencement Date, or to comply with any amendment or other change to the

enactment or interpretation of any Legal Requirement from its enactment or interpretation at the time of the Lease Commencement Date; and the cost of any capital improvements made by Landlord to the Building and/or Project or capital assets acquired by Landlord after the Lease Commencement Date for the protection of health and safety of the occupants of the Building and/or Project or that are designed to reduce other Operating Costs; provided however, any and all costs of capital improvements or capital assets acquired which are includable in Operating Costs shall be amortized on a straight-line basis over the useful life of the asset, pursuant to Generally Accepted Accounting Principles. Notwithstanding anything to the contrary contained in this Lease, Tenant’s Proportionate Share of Operating Costs shall not include any costs and/or expenses incurred which solely benefit another building (and not the Building or Common Areas) in the Project.

4.1.3 Exclusions from Operating Costs. Operating Costs will not include the following: (a) original construction costs of the Building or Project; (b) Real Estate Taxes; (c) depreciation of the Building (except as otherwise provided herein); (d) payments of principal and interest on any mortgages, deeds of trust, or other encumbrances on the Building; (e) costs to paint, decorate, or renovate a specific tenant’s space (specifically excluding base building improvements and systems and the common areas of the Project), unless such items are similarly provided to, or benefit generally, other tenants in the Building; (f) costs to repair, restore, or replace any item in the Building, to the extent Landlord is actually reimbursed therefore by proceeds from insurance, warranties, condemnation, a tenant of the Building or a third party; (g) leasing commissions, attorneys’ fees, space planning costs, permitting costs, license and inspection costs, moving costs and advertising or promotional costs Landlord incurs to lease space in the Building to tenants or prospective tenants of the Building; (h) any ground lease rental; (i) the cost of any capital improvements made by Landlord to the Building and/or Project, or capital assets acquired by Landlord after the Lease Commencement Date in order to comply with any local, state or federal law, ordinance, rule, regulation, code or order of any governmental entity or insurance requirement, including but not limited to, the Americans with Disability Act (each a “Legal Requirement” and collectively, the “Legal Requirements”) with which the Building and/or Project was required to comply at the Lease Commencement Date; (j) attorneys’ fees with respect to disputes with other tenants in the Building or Project; (k) all items or services for which another tenant of the Building reimburses Landlord (other than through Operating Costs); (l) Landlord’s general corporate overhead (except to the extent management/administrative fees are otherwise permitted in this Lease); (m) electric power costs for which any tenant directly contracts with the local public utility service; (n) all costs of Landlord’s political or charitable contributions; (o) interest or penalties arising from Landlord’s late payment of any costs relating to the Project (unless resulting from Tenant’s late payment

to Landlord); (p) costs, fees, and charges paid to Landlord or Landlord’s affiliates for services in connection with the Building or Project to the extent such charges exceed the charges for comparable services rendered by an unrelated or unaffiliated thirty party of comparable skill and competence; (q) bad debt losses, rent losses or reserves for same (except for Landlord’s insurance costs relating to same); (r) entertainment expenses or the cost of gifts to tenants or employees; (s) costs incurred in connection with the sale, financing, or refinancing of the Building or Project including brokerage commissions, consultants, attorneys’ and accountants’ fees, closing costs, title insurance costs, transfer taxes and interest charges (provided nothing herein shall limit or restrict in any manner whatsoever Landlord’s right to increase Real Property

Taxes and/or Tenant’s Proportionate Share of Real Property Taxes, due to any reassessment of the Building or Project due to the sale, transfer, or any other event which results in a reassessment or increase in Real Property Taxes allocable to the Building or Project); (t) damage or repairs needed due to the gross negligence or willful misconduct of Landlord or its agents; and (u) costs incurred by Landlord in connection with correction of defects in design and construction of the Building or Project.

4.2 Real Estate Taxes—Base Year. Commencing on the first day of the second (2^nd) calendar year (i.e. January 1, 2007), Tenant shall pay as Additional Rent Tenant’s Proportionate Share of the total increase, if any, in Real Estate Taxes (as defined below) for each Expense Year (as defined below) over the amount of Real Estate Taxes for the Base Year (“Real Estate Taxes Base Amount”). “Expense Year” means the twelve (12) calendar month period commencing on the first day following the end of the Base Year and continuing for each succeeding twelve (12) calendar month period; the second and each subsequent Expense Year will commence on the first day following the end of the preceding Expense Year and will continue for the next succeeding twelve (12) calendar months. Landlord shall provide Tenant with reasonable substantiation of such cost on written request from Tenant. Tenant’s Proportionate Share for Real Estate Taxes has been calculated to be that percentage that is equal to a fraction, the numerator of which is the number of square feet of Gross Rentable Area of the Premises, and the denominator of which is the number of square feet of the Gross Rentable Area of the Building as set forth in the Basic Lease Information. Landlord will not collect more than one hundred percent (100%) of the Real Property Taxes attributable to the Building.

4.2.1 Estimated Monthly Payments of Real Estate Taxes. Tenant shall make estimated monthly payments to Landlord on account of the amount by which Real Estate Taxes that are expected to be incurred during each calendar year would exceed the Real Estate Taxes Base Amount. On or about the first day of the second (2^nd) calendar ear and, at the beginning of each calendar year thereafter, Landlord may submit a statement setting forth Landlord’s reasonable estimate of such amount and Tenant’s Proportionate Share thereof. Tenant shall pay to Landlord on the first day of each month after receipt of such statement, until Tenant’s receipt of the succeeding annual statement, an amount equal to one-twelfth (1/12^th) of each such share (estimated on an annual basis without proration). From time to time during any calendar year, but not more than two (2) times in any calendar year, Landlord may revise Landlord’s estimate and adjust Tenant’s monthly payments to reflect Landlord’s revised estimate.

4.2.2 Definition of Real Estate Taxes. The term “Real Estate Taxes” means any taxes, fees, charges, and assessments (including any payments to a business improvement district or similar entity) allocable to the Building, Land and Proportionate Share of the common areas of the Project, general and special, ordinary and extraordinary, foreseen or unforeseen, assessed, levied, or imposed on the Building, Land, and Proportionate Share of the common areas and Project, by any governmental authority. Except for the taxes, fees, charges, and assessments described in the next succeeding sentence, Real Estate Taxes do not include Landlord’s federal, state, or local income or inheritance, estate, trust, gift, franchise, mortgage, capital gains, or succession taxes. If at any time during the Term any governmental authority

imposes a gross receipts tax or other tax, fee, charge, and/or assessment of any kind or nature on or against the Base Rent and/or Additional Rent payable under this Lease or otherwise received from the Building or Project, either in substitution of all or any part of the taxes, fees, charges, and assessments levied or assessed against the Building or Project, or in addition thereto, Tenant will pay promptly the entire amount of such gross receipts tax or other tax, fee, charge, or assessment payable on account of the Base Rent and/or Additional Rent (as Landlord reasonably determines) whether such gross receipts tax or other tax, fee, charge, or assessment is imposed nominally on Landlord or Tenant, such payment to be made either directly to the appropriate governmental authority (if such is required by such governmental authority) or indirectly, by payment as Additional Rent to Landlord, which will in turn promptly pay over amounts received by it pursuant to the foregoing provisions to such authority.

4.2.3 Assessment. If during any calendar year (including the Real Estate Taxes Base Year) the Building or Project is not fully assessed for tax purposes, then Landlord shall include in Real Estate Taxes for such year all additional taxes, as reasonably estimated by Landlord, which would have been incurred during such year if the Building had been fully assessed. If Landlord successfully obtains a reduction in the Real Estate Taxes after the establishment of the Real Estate Taxes Base Amount (as more fully provided in Section 4.7 [Real Estate Tax Contests]), the Real Estate Taxes Base Amount will be appropriately adjusted to reflect the revised Real Estate Taxes Base Amount, provided that Landlord adjusts its statement of Real Estate Taxes for all subsequent calendar years of the term of this Lease by the actual amount that the Real Estate Taxes Base Amount is adjusted.

4.3 Partial Year. If the Term commences or expires on a day other than the first day or the last day of a calendar year, respectively, then Tenant’s liabilities pursuant to this Section 4 for such calendar year shall be apportioned by multiplying the respective amount of Tenant’s Proportionate Share thereof for the full calendar year by a fraction, the numerator of which is the number of days during such calendar year falling within the Lease Term, and the denominator of which is three hundred sixty-five (365).

4.4 Statement. Within approximately one hundred twenty (120) days after the end of each calendar year, or as soon thereafter as is feasible, Landlord shall submit one or more statements (individually and collectively, the “Statement”) showing (a) Tenant’s Proportionate Share of the amount by which Operating Costs incurred during the preceding calendar year exceeded or was less than the Operating Costs Base Amount, (b) the aggregate amount of Tenant’s estimated payments made on account of Operating Costs during such year, (c) Tenant’s Proportionate Share of the amount by which Real Estate Taxes incurred during the preceding calendar year exceeded or was less than the Real Estate Taxes Base Amount, and (d) the aggregate amount of Tenant’s estimated payments made on account of Real Estate Taxes during such year. If the Statement indicates that the aggregate amount of such estimated payments exceeds Tenant’s actual liability, then Landlord shall, at its sole election, either credit the net overpayment toward Tenant’s next estimated payment(s) pursuant to this Section or remit such net overpayment to Tenant by means of a check. If such statement indicates that Tenant’s actual liability exceeds the aggregate amount of such estimated payments, then Tenant shall pay the amount of such excess as Additional Rent. Landlord shall pay Tenant if Real Estate Taxes and Operating Costs accruing during the Term are refunded after the Term has ended.

4.5 Review of Statement. After receipt of the Statement, Tenant shall have the right to conduct an audit of Landlord’s books and records relating to the Operating Costs and Real Estate Taxes and other charges under the Lease, for the calendar year just ended and to which the Statement relates, provided that Tenant strictly complies with the terms and conditions of this Section. No review shall be permitted at any time in which a material default exists under this Lease (including a default arising by virtue of Tenant’s failure to pay any such deemed Additional Rent, regardless of dispute as to the propriety of Landlord’s claim for payment). If a material default occurs at any time during the pendency of an audit of the Landlord’s books and records then Tenant’s audit shall immediately cease until such default is cured. No subtenant shall have the right to conduct any such review, and no assignee of Tenant shall have the right to conduct a review for a period before the assignment. To the extent Tenant’s audit of the Operating Costs for the calendar year just ended reveals an overcharge of six percent (6%) or more, and Landlord agrees with the results of Tenant’s audit, Tenant shall be entitled to audit the preceding two (2) calendar years’ Operating Costs, subject to the same terms and conditions of this Section 4.

4.5.1 Time Period. Tenant shall exercise its audit right on not less than fifteen (15) days’ prior written notice, given at any time within ninety (90) days after Tenant’s receipt of a Statement (time being of the essence). Any such audit shall be conducted by Tenant or by a bona fide independent certified public accountant of Tenant’s choosing that is not being compensated by Tenant on a contingency fee basis. If Tenant employs such an accountant then as a condition precedent to such audit, Tenant shall deliver to Landlord a true and complete copy of Tenant’s agreement with such accountant that shall include the following statements: (a) the accountant will not in any manner solicit or agree to represent any other tenant of the Building for a review of Landlord’s accounting records at the Building, and (b) the accountant will maintain in strict confidence all information obtained in connection with the audit and will not disclose the facts of the review or any results of it to any person or entity other than to Tenant and its agents and consultants, who shall agree to be bound by such confidentiality. Any such audit shall be conducted at the Building during normal business hours. Landlord shall provide Tenant with reasonable accommodation for the audit and reasonable use of office equipment, but may make a reasonable charge (as Additional Rent) for Tenant’s telephone calls and photocopies.

4.5.2 Results. Tenant shall deliver to Landlord a copy of the results of any such audit within fifteen (15) days after its completion or receipt by Tenant and will maintain in strict confidence all information obtained in connection with the audit and will not disclose the fact of the review or any results of it to any person or entity. A dispute over the Statement or any error by Landlord in interpreting or applying the provisions of this Lease respecting Operating Costs and Real Estate Taxes or in calculating the amounts in the Statement shall not be a breach of this Lease by Landlord, and even if any legal proceeding over the Statement is resolved against Landlord this Lease shall remain in full force and effect and Landlord shall not be liable for any consequential damages. Pending the determination of any such dispute Tenant shall pay amounts billed with respect to such Statement as Additional Rent, without prejudice to Tenant’s position, and subject to rebate of any amounts subsequently found to have been charged to Tenant in error.

4.5.3 Arbitration of Disputes. With respect to any dispute regarding the results of Tenant’s audit, the parties agree to participate in binding arbitration (the “Arbitration”). The Arbitration may be initiated by either party upon written notice to the other, and both parties shall operating in good faith to complete the Arbitration within sixty (60) days from the date it is initiated in writing. The Arbitration shall be conducted at the office of the American Arbitration Association (“AAA”) nearest to the Project (currently, Walnut Creek, California). The arbitrator shall be chosen by AAA, and shall be experience in commercial lease disputes. The arbitrator shall award prevailing attorneys fees, and will issue a final, non-appealable order.

4.6 Gross-Up. If the Building is not at least 95% occupied during all or a portion of any calendar year, then Landlord shall make an appropriate adjustment for the Base Year for Operating Costs and each subsequent calendar year to determine what the Operating Costs would have been for such year as if the Building had been 95% occupied, and the amount so determined shall be deemed to be the amount of Operating Costs for the calendar year. Such adjustment shall be made by Landlord by increasing those variable components of such variable costs included in the Operating Costs which vary based on the level of occupancy of the Building (i.e., janitorial contract, electricity and management fees).

4.7 Real Estate Tax Contests. Landlord shall have no obligation to contest, object to, or litigate the levying, assessment, or imposition of Real Estate Taxes, and may settle, compromise, consent to, waive, or otherwise determine any such Real Estate Taxes without consent of or notice to Tenant. In all events, Landlord shall have the right to employ a tax consulting firm to attempt to assure a fair tax burden on the Building or Project. Tenant shall pay to Landlord on demand from time to time, as Additional Rent, Tenant’s Proportionate Share of the cost of such service. Landlord shall have the right to retain legal counsel and expert witnesses to assist in such contest and otherwise to incur reasonable expenses in such contest, and Tenant shall pay on demand Tenant’s Proportionate Share of any fees, expenses, and costs incurred by Landlord in contesting any assessments, levies, or tax rate applicable to the Building or portions thereof regardless of whether such contest is successful. If such contest results in a refund of Real Estate Taxes in any year, Tenant shall be entitled to receive its share of such refund (based on Tenant’s Proportionate Share), prorated for the period with respect to which Tenant paid its share of Real Estate Taxes for such year, after deducting from the refund all fees, expenses, and costs incurred by Landlord in such contest.

5. USE OF PREMISES.

5.1 General. Tenant will use the Premises solely for general office purposes consistent with a first-class office building in the Dublin/Pleasanton area, and in accordance with the use permitted under applicable zoning regulations. Tenant may not use the Premises for any other purposes. Tenant may not use or occupy the Premises for any unlawful purpose. Tenant will, at its sole cost, comply with, and make any Alterations to and within the Premises in the manner allowed under Section 9 (Alterations and Mechanics’ Liens) as are necessary to comply with any present and future laws, rules, regulations, ordinances, or orders of any governmental authority, including the Americans with Disabilities Act (collectively, the “Applicable Laws”)

except Tenant shall not be required to make any alterations to the Building core or Building systems in order to comply with Applicable Laws (unless caused by Tenant’s use or Tenant’s construction of Alterations or the initial Tenant Improvements). If Landlord alters any part of the Project to comply with the requirements of any of the Applicable Laws and such requirements are a result of Tenant’s particular business or use of the Premises, or as a result of Alterations or improvements performed by Tenant, then Tenant will reimburse Landlord on demand for the cost thereof as Additional Rent. Tenant warrants that it has entered into this Lease entirely for a business or commercial purpose and that it will not use the Premises for any residential or retail purposes. Tenant may not do or permit anything to be done in or about the Premises that will in any way obstruct or interfere with the rights of other tenants of the Building, or injure or annoy them; use or allow the Premises to be used for any improper or objectionable purposes; cause, maintain, or permit any nuisances in, on, or about the Premises; or commit or allow to be committed any waste in, on, or about the Premises. Tenant will keep closed all doors leading from the Premises to the rest of the Building when the Premises are not in use. Landlord represents that it shall comply with any Applicable Laws with respect to the Building, Land, Project and Property (provided however, Landlord will be able to include such costs in Operating Costs as provided elsewhere in this Lease).

5.2 Impermissible Uses. In addition to and not in limitation of the other restrictions on use of the Premises set forth in this Section 5, the following uses of the Premises are not considered to be “office use” and will not be permitted: (a) any use of the Premises by an organization or person enjoying sovereign or diplomatic immunity; (b) any use of the Premises by or for any medical, mental health, or dental practice; (c) any use of the Premises by or for an employment agency or bureau; (d) any use of the Premises by or for any user that distributes governmental or other payments, benefits, or information to persons that personally appear at the Premises; and (e) any other use of the Premises or any portion of the Project by any user that will attract a volume, frequency, or type of visitor or employee to the Premises or any portion of the Project or the Buildings that is inconsistent with the standards of a high quality, first-class office building in the Dublin/Pleasanton area or that will in any way impose an excessive demand or use on the facilities or services of the Premises, Building, or Project.

6. ASSIGNMENT OR SUBLETTING.

6.1 Tenant shall not assign, mortgage, pledge, encumber, or hypothecate this Lease or any interest herein (directly, indirectly, voluntarily or involuntarily, by operation of law, or otherwise) or sublet the Premises or any part thereof, or permit the use of the Premises by anyone other than Tenant without the prior written consent of Landlord first being obtained. If Tenant is a corporation or a partnership, the transfer (as a consequence of a single transaction or any number of separate transactions) of fifty-one percent (51%) or more of the beneficial ownership interest of the voting stock of Tenant issued and outstanding as of the date hereof or partnership interests in Tenant, as the case may be, shall constitute an assignment hereunder for which such consent is required. Further, Tenant shall not assign this Lease or sublet the Premises or any portion thereof to any corporation which controls, is controlled by or is under common control with Tenant, or to any corporation resulting from merger or consolidation with Tenant, or to any person or entity which acquires all the assets as a going concern of the business of Tenant that is being conducted on the Premises, without the prior written consent of Landlord.

Any of the foregoing acts without such consent shall be void and, at the sole option of Landlord, constitute an Event of Default entitling Landlord to terminate this Lease and to exercise all other remedies available to Landlord under this Lease and at law. The provisions of Section shall not apply to transactions entered into by Tenant with (i) an “Affiliate” (as herein defined) or (ii) a corporation into or with which Tenant is merged or consolidated or with an entity to which substantially all of Tenant’s assets are transferred (whether directly or by virtue of the transfer of substantially all of Tenant’s capital stock), (a “Permitted Transferee”) provided (a) such merger, consolidation or transfer of assets is not principally for the purpose of transferring the leasehold estate created hereby, and (b) such Permitted Transferee has net worth equal to Tenant as of the date of this Lease For the purposes of this Section, an Affiliate means (i) a corporation controlled by, controlling or under the common control with tenant (an “affiliated corporation”) or (ii) a partnership or joint venture in which Tenant or an affiliated corporation owns at least 30% of the general partnership or joint venture interests therein and Tenant or such affiliated corporation of Tenant has actual control of such partnership or joint venture. Without limiting the generality of the foregoing, a corporation shall not be deemed controlled by another entity unless at least 30% of each class of its outstanding capital stock is owned, both beneficially and of record, by such entity and such entity has actual control of such corporation. The provisions regarding the transfer of the capital stock of a corporate tenant set forth in Section 6 shall not apply to any corporation where all of its outstanding capital stock is listed on a national securities exchange (as defined in the Securities Exchange Act of 1934, as amended) or is traded in the “over the counter” market with quotations reported by the National Association of Securities Dealers.

6.2 In the event that Tenant should desire to sublet the Premises or any part thereof, or assign this Lease, Tenant shall provide Landlord with written notice of such desire at least sixty (60) days in advance of the proposed effective date of such subletting or assignment. Such notice shall include: (i) the name of the proposed sublessee or assignee, (ii) the nature of business to be conducted by the proposed sublessee or assignee in the Premises, (iii) the terms and conditions of the proposed assignment or sublease including but not limited to a detailed description of all compensation in cash or otherwise which Tenant would be entitled to receive in connection with such assignment or sublease, and (iv) the most recent financial statements or other financial information concerning the proposed sublessee or assignee as Landlord may require. At any time within twenty (20) days following receipt of Tenant’s notice, Landlord may by written notice to Tenant elect to: (i) terminate this Lease as to the space affected by the proposed subletting or assignment, effective ninety (90) days from the date of Landlord’s notice, (ii) consent to the proposed subletting of the Premises or assignment of this Lease or (iii) disapprove of the proposed subletting or assignment. Landlord may elect to terminate this Lease as to the space affected by the proposed assign or subletting in its sole and absolute discretion. If Landlord does not elect to terminate this Lease, however, Landlord shall not unreasonably withhold its consent to a proposed subletting or assignment. Without limiting other situations in which it may be reasonable for Landlord to withhold its consent to any proposed assignment or sublease, Landlord and Tenant agree that it shall be reasonable for Landlord to withhold its consent in any one or more of the following situations: (i) in Landlord’s reasonable judgment, the proposed subtenant or assignee or the proposed use of the Premises would detract from the status of the Building as a first-class office building or would generate foot traffic or density materially in excess of the amount generated by Tenant’s business or would otherwise be in

excess of that customary for the Building or would impose a materially greater load upon elevator, janitorial, security or other services than is generated by Tenant’s business or would otherwise in excess of that be customary for the Building; (ii) in Landlord’s reasonable judgment, the financial worth of the proposed subtenant or assignee does not meet the credit standards applied by Landlord in considering other tenants under leases with comparable terms, or Tenant shall have failed to provide Landlord with reasonable proof of the financial worth of the proposed subtenant or assignee; (iii) in Landlord’s reasonable judgment, the business history and reputation in the community of the proposed subtenant or assignee does not meet the standards applied by Landlord in considering other tenants in the Building; or (iv) the proposed subtenant or assignee shall be a then existing or prospective tenant of the Building, provided that in any event Landlord shall be entitled to exercise its right of termination in lieu of consenting to a transfer, as set forth above. Subject to obtaining Landlord’s consent in accordance with the requirements of this Section, in order for any assignment or sublease to be binding on Landlord, Tenant must deliver to Landlord, promptly after execution thereof, an executed copy of such sublease or assignment whereby the sublessee or assignee shall expressly assume all obligations of Tenant under this Lease as to the portion of the Premises subject to such assignment or sublease. Any purported sublease or assignment will be of no legal force or effect unless and until the proposed sublease has been consented to, in writing, by Landlord and a fully executed copy thereof has been received by Landlord.

6.3 Landlord and Tenant agree that fifty percent (50%) of any Rent or other consideration received or to be received by or on behalf of or for the benefit of Tenant as a result of any assignment or subletting, in excess of the Additional Rent, Base Rent and Operating Costs and Real Estate Taxes which Tenant is obligated to pay Landlord under this Lease (prorated to reflect obligations allocable to that portion of the Premises subject to such sublease or assignment), and after deducting reasonable assignment or subletting fees, which will include, but are not limited to marketing costs, legal fees, brokerage fees, construction costs and other leasing concessions, shall be payable to Landlord as Additional Rent under this Lease without affecting or reducing any other obligation of Tenant hereunder (“Excess Rent”). Landlord’s share of such Excess Rent or other consideration shall be paid by the Tenant directly to Landlord at the same time as such rent or other consideration is paid to Tenant. Concurrently with the payment of Excess Rent by Tenant to Landlord, Tenant shall furnish Landlord with a complete statement, certified by an independent certified public accountant of Tenant’s choice, setting forth in detail the computation of any and all Excess Rent.

6.4 Regardless of Landlord’s consent, no subletting or assignment shall release Tenant or any guarantor of Tenant, of its or their obligations, or alter the primary liability of Tenant and its guarantor(s), if any, to pay Rent and to perform all other obligations to be performed by Tenant hereunder. The acceptance of payments by Landlord from any other person shall not be deemed to be a waiver by Landlord of any provision hereof. Consent to one assignment or subletting shall not be deemed consent to any subsequent or further assignment, subletting, hypothecation or third party use or occupancy. In the event of default by any assignee or successor of Tenant in the performance of any of the terms hereof, Landlord may proceed directly against Tenant and/or its guarantor(s), if any, without the necessity of exhausting remedies against said assignee or successor. Landlord may consent to subsequent assignments or subletting of this Lease or amendments or modifications to this Lease with assignees of Tenant,

without notifying Tenant and/or its guarantor(s), if any, or any successor of Tenant, and without obtaining its or their consent thereto and such action shall not relieve Tenant and/or its guarantor(s), if any, or any successor of Tenant of liability under this Lease.

6.5 Tenant shall pay to Landlord, as Landlord’s cost of processing each proposed assignment or subletting, whether or not Landlord consents to the proposed transfer, and whether or not an assignment or sublease is eventually entered into, an amount equal to the sum of: (i) Landlord’s attorneys’ and other professional fees up to the amount of $2,500.00; and (ii) the amount of all actual costs and expenses incurred by Landlord arising from the assignee or sublessee taking occupancy of the subject space (including, without limitation, costs of freight elevator operation for moving and furnishings and trade fixtures, janitorial and cleaning service, additional security services, and rubbish removal service).

6.6 Subject to Section 23 of this Lease, Landlord shall have the unconditional right to sell, encumber, pledge, convey, transfer, and/or assign any and all of its rights and obligations under the Lease without the consent of or notice to Tenant or any guarantor(s) of Tenant’s obligations hereunder.

7. INTENTIONALLY OMITTED.

8. MAINTENANCE OBLIGATIONS.

8.1 By Tenant. Subject to Landlord’s obligation to provide certain janitorial services to the Premises under Section 16.5 (Other Services), Tenant will, at its sole cost, keep the Premises and the fixtures, improvements, equipment, and finishes and any Alterations therein in clean, safe, and sanitary condition and in good order and repair, will take good care thereof (collectively, the “Maintenance Activities” and, individually, the “Maintenance Activity”) and will cause no waste or injury thereto. As part of the Maintenance Activities, Tenant shall be solely responsible to maintain and repair such finishes and equipment, including kitchen appliances and fixtures, modular furniture, showers and bathroom fixtures, supplemental air-conditioning equipment, computers, or any other type of equipment or improvements, together with related plumbing, electrical, or other utility services in the Premises whether installed by Tenant or by Landlord on Tenant’s behalf and whether installed at Tenant’s or Landlord’s cost, and Landlord has no obligation in connection therewith.

Tenant shall use Union Labor (as defined in Section 9.7 below) for all Maintenance Activities (the “Maintenance Labor Covenant”), except that the Maintenance Labor Covenant shall not apply to the services for the installation, operation, maintenance, and repair of personal property owned exclusively by Tenant (e.g., computer systems, telephones, and furniture other than modular furniture) or for any of Tenant’s specialized equipment. To the extent Union Labor is not available in the market to perform a specific Maintenance Activity, Tenant shall not be in default of the Maintenance Labor Covenant. Tenant shall (a) include the Maintenance Labor Covenant in each of its service contracts, (b) provide such evidence as Landlord may reasonably require, from time to time during the Term, that the Maintenance Labor Covenant is being fully and faithfully observed and Tenant shall include the obligation to provide such evidence in each service contract entered into by Tenant for such services, and (c) incorporate the foregoing requirements in any sublease, license, or occupancy agreement relating to all or any part of the Premises.

8.2 By Landlord. Landlord shall keep and maintain the exterior and demising walls, foundations, roof, and common areas that form a part of the Building and the Project, and the mechanical, electrical, HVAC, and plumbing systems, pipes, and conduits that are provided by Landlord in the operation of the Building or, on a non-exclusive basis, the Premises in clean, safe, sanitary, and operating condition in accordance with standards customarily maintained by Comparable Buildings, and will make all required repairs thereto, the costs of all of which shall be included as Operating Costs unless expressly excluded in Section 4.1.3 of this Lease. All common or public areas of the Project (including, but not limited to, the lobby areas and the exterior landscaping) shall be maintained by Landlord in accordance with standards customarily maintained by Comparable Buildings. All costs associated with this Section 8.2 shall be included in operating costs, unless expressly excluded in Section 4.1.3. Tenant shall promptly provide Landlord with written notice of any defect or need for repairs in or about the Building of which Tenant is aware; provided, however, Landlord’s obligation to repair hereunder shall not be limited to matters of which it has been given notice by Tenant.

9. ALTERATIONS AND MECHANICS’ LIENS.

9.1 General. Tenant shall not make or permit any improvements, additions, alterations, decorations, substitutions, replacements, or modifications, structural or otherwise, to the Premises or to the Premises (the “Alterations”) without the prior written consent of Landlord in each instance. Tenant shall not under any circumstances be permitted to make Alterations anywhere on the Building. Alterations include, without limitation, the Tenant Improvements, pursuant to the Work Agreement, the installation or modification of floor coverings, partitions, doors, air conditioning ducts, plumbing, condenser water equipment, piping, lighting fixtures, wiring of any kind, ceilings and wall coverings. If Landlord consents to any Alterations, Landlord will impose requirements listed in Section 9.7 (Performance of Work) and may impose any other conditions it deems reasonably appropriate, including, but not limited to, the approval of plans and specifications (which approval shall not be unreasonably withheld, conditioned, or delayed), supervision of the work by Landlord’s architect or contractor, and satisfactory evidence from Tenant of Tenant’s ability to pay for such Alterations. If any Alteration is made without the prior written consent of Landlord, Landlord may correct or remove the Alteration at Tenant’s sole cost and expense, and all costs and expenses incurred by Landlord in connection with such correction or removal shall be payable as Additional Rent on demand by Landlord.

9.2 Conditions to Consent. As a condition precedent to obtaining Landlord’s written consent for any Alterations, (a) Landlord may require Tenant to pay Landlord a reasonable fee to reimburse Landlord for overhead and administrative costs Landlord incurs in connection with its supervision of Tenant’s Alterations (not to exceed five percent (5%) of the cost of such Alterations), and (b) Tenant agrees to obtain and deliver to Landlord conditional and unconditional waivers of mechanics’ liens on the Land and Building for all work, labor, and services to be performed, and materials to be furnished, by Tenant’s contractors and suppliers for the Alterations. All Alterations must conform to all Applicable Laws, must conform harmoniously with the Building’s design and interior decoration, and, except as approved by

Landlord for a proposed Alteration, must not require any changes to or modifications of any of the Building’s structural components or mechanical, electrical, HVAC, plumbing, or other systems. Tenant shall keep the Building and Project lien free in the construction of any Alterations.

9.3 Inspection of Work. Tenant will allow Landlord or its designated agent to inspect the work from time to time during the period of construction of all Alterations. Such inspections shall be performed promptly without material interference with Tenant’s construction of its Alterations. Landlord may stop work on any Alterations if Landlord or its designated agent determines that the work is not being done: (a) in a good and workmanlike manner, (b) in compliance with all Applicable Laws, (c) according to the plans and specifications provided to and approved by Landlord, (d) using new materials and installations, at least equal in quality to the original Building materials and installations, free from any defects or deficiencies, (e) in a way that avoids interfering with, or disturbing the quiet enjoyment of, the other tenants, (f) with due diligence, (g) in a manner to keep the Premises lien free. If Landlord stops such work, Tenant will promptly correct the problem(s) that gave rise to the work stoppage. If Tenant fails to correct such problem(s) within a time period Landlord determines to be reasonable, then Landlord may, at its sole option, correct the problem(s), complete the Alterations, and Tenant will be liable for the costs of such action as Additional Rent. On completion of any Alterations, Tenant will (i) deliver to Landlord complete as-built mylar drawings or CAD drawings of the Alterations, and (ii) furnish “as built” plans and specifications for all Alterations within a reasonable period of time after completion of the Alterations, and pay to Landlord or its designated agent as Additional Rent a reasonable fee for updating the master reproducible Building blueprint to show the Alterations.

9.4 Indemnification. Any Alterations will be made on Tenant’s behalf and not on Landlord’s behalf. Tenant will indemnify, hold harmless, and defend Landlord from and against any loss, damage, lien or cost (including reasonable attorneys’ fees and all court costs) Landlord incurs that may or might arise because of the making of or removal of any Alterations. If any Alteration is made without Landlord’s prior written consent, Landlord may correct or remove the same, and Tenant will be liable for any loss, damage, or cost (including reasonable attorneys’ fees and all court costs) Landlord incurs to perform this work.

9.5 Title to Alterations. All Alterations (including flooring, wall-to-wall carpet and wall covering) will become, at Landlord’s election, immediately upon completion of their installation Landlord’s property without payment therefore by Landlord and will remain on and be surrendered with the Premises as a part thereof at the end of the Term; provided, however, that if Tenant is not in default in the performance of any of its obligations under this Lease, then, before the Term of this Lease ends, Tenant may remove, at Tenant’s sole cost, all movable furniture, furnishings, or equipment not affixed to or in the Premises. To the extent Landlord does not elect that any of the Alterations (including any vaults, safes, file systems, raised floors, cabling, wiring, or interior staircases between floors) remain on and be surrendered with the Premises at the end or termination of the Term, Tenant will, at its sole cost, remove the same, restore the affected area to the condition existing before the construction or installation of any such Alteration, and repair any damage caused by such removal. Landlord shall make its election whether the Alterations are to be removed at the end of the Term, or remain in the

Premises, at the time Landlord provides its written consent to such Alterations. If Tenant fails to remove any such Alteration (which Tenant is required to remove), to restore and repair the affected area, or repair any damage caused by any such removal, Landlord may undertake such removal, restoration, and repair at Tenant’s sole cost and Tenant will reimburse Landlord for the cost thereof as Additional Rent, together with any damages (including reasonable attorneys’ fees and all court costs) that Landlord may sustain because of such default by Tenant.

9.6 Contractors and Performance of Work. If Landlord consents to Alterations by Tenant, Landlord must approve all contractors and subcontractors that Tenant proposes to use for the Alterations, which approval may be granted or withheld in the sole and absolute subjective discretion of Landlord. Tenant, or its contractors and subcontractors, as Landlord may direct, will provide such insurance, bonding, and/or indemnifications of Landlord as Landlord may reasonably require and will comply with any rules and regulations applicable to Alterations as Landlord may promulgate from time to time including at a minimum the “Performance of Work” clause. Before undertaking any Alterations, Tenant will furnish to Landlord duplicate original policies or certificates thereof of worker’s compensation insurance (covering all persons to be employed by Tenant and Tenant’s contractors and subcontractors in connection with such Alterations), builder’s all-risk insurance, and commercial general liability insurance (including reasonable property damage coverage) in such form, with such companies, for such periods, and in the amounts and deductibles equal to that Tenant is required to maintain under Section 12 (Insurance), naming Landlord, its management agent and any Mortgagee (as defined below) as additional insureds. Tenant shall strictly comply with the Conditions for Construction attached hereto as Exhibit F, and shall cause its contractor to strictly comply with the same.

9.7 Performance of Work. In addition to any other conditions contained herein with respect to Tenant making any Alterations, before making any Alterations, Tenant shall (a) deliver to Landlord evidence satisfactory to Landlord that Tenant shall cause the Alterations (“Construction Activities”) to be performed by contractors who shall employ craft workers who are members of unions that are affiliated with The Building and Construction Trades Department, AFL-CIO (“Union Labor”), and such work shall conform to traditional craft jurisdictions as established in the area (the “Construction Labor Covenant”), (b) include the Construction Labor Covenant in each of its contracts for the Construction Activities, (c) provide such evidence as Landlord may reasonably require, from time to time during the course of the Construction Activities, that the Construction Labor Covenant is being fully and faithfully observed and Tenant shall include the obligation to provide such evidence in each contract entered into by Tenant for the Construction Activities, and (d) incorporate the foregoing requirements in any sublease, license, or occupancy agreement relating to all or any part of the Premises. Tenant shall require that all contractors and subcontractors, of whatever tier, performing Construction Activities agree to submit all construction jurisdictional disputes (i.e., disputes about which union is the appropriate union to perform a given contract) to final and binding arbitration through the procedures of the jointly administered “Plan for the Settlement of Jurisdictional Disputes in the Construction Industry,” a dispute resolution plan established and administered by The Building and Construction Trades

Department, AFL-CIO, and various construction industry employer associations. If a resolution to a construction-related jurisdictional dispute cannot be obtained through The Building and Construction Trades Department, AFL-CIO, contractors and subcontractors, of whatever tier, shall agree to submit all such disputes to final and binding arbitration procedures to be administered by the American Arbitration Association (“AAA”) and in conformity with AAA’s Commercial Arbitration Rules, Expedited Procedures, with an arbitrator who is an experienced labor arbitrator and is a member of the National Academy of Arbitration.

9.8 Mechanics’ Liens. Tenant shall keep the Premises, Buildings and Project free from any liens arising out of any work performed, materials furnished or obligations incurred by Tenant, including but not limited to mechanic liens, materialman liens, or other liens of any character, type or nature whatsoever. Should Tenant fail to remove any such lien within five (5) business days of notice to do so from Landlord, and without waiving its rights based on such breach, Landlord may, in addition to any other remedies, record a bond pursuant to California Civil Code Section 3143 and all amounts incurred by Landlord in so doing shall become immediately due and payable by Tenant to Landlord as Additional Rent. Furthermore, without waiving any rights based on such breach, Landlord may pay and satisfy any such liens, without inspection, and in such an event, the sums so paid by Landlord shall be due and payable by Tenant immediately, with interest from the date paid by Landlord, through the date Tenant pays Landlord, at the maximum interest rate allowable by Applicable Law. All sums paid pursuant to the preceding sentence by Landlord shall be due and payable as Additional Rent. Landlord shall have the right to post and keep posted on the Premises any notices that may be provided by law or which Landlord may deem to be proper for the protection of Landlord, the Premises and the Building from such liens. And any and all reasonable attorneys’ fees incurred by Landlord in connection with any liens allowed to be taken against the Premises on the Building by Tenant, shall be recoverable by Landlord as Additional Rent.

Tenant agrees to indemnify, defend and hold Landlord harmless from and against any claims, demands, causes of action, damages, judgments or liabilities for mechanics’, materialman’s or other liens in connection with any Alterations, repairs or any work performed, materials furnished or obligations incurred by or for Tenant.

9.9 Government Health and Safety Requirements. If (a) the insurance services office or any other similar body or any governmental authority requires that any specific system, equipment, or other health or safety item or procedure, including a sprinkler system, be installed in or implemented for the Building or the Premises, or that any changes, modifications, alterations (including sprinkler heads or other equipment) be made or supplied because of Tenant’s business or its use of the Premises, or that the location of partitions, trade fixtures, or other contents of the Premises be changed or modified, or (b) any such installations, changes, modifications, alterations, additional sprinkler heads, or other equipment become necessary to prevent the imposition of a penalty or charge against the full allowance for such a system in the fire insurance or other insurance rates as fixed by such office, or by any fire or other insurance company, Tenant will at Tenant’s sole cost (provided such requirements are not the result of Landlord’s acts or omissions), promptly make and supply such installation, changes, modifications, alterations, additional sprinkler heads, or other equipment at its sole cost and at the direction and under the supervision of Landlord.

9.10 Telecommunications Carrier’s Access. Tenant’s right to select and use a telecommunications and data carrier (the “Carrier”) shall be conditioned on the execution by the Carrier a license agreement, in the form used by Landlord from time to time, pursuant to which Landlord shall grant to the Carrier a license (which license shall be coextensive with the rights and privileges granted to Tenant under this Lease) to install, operate, maintain, repair, replace, and remove cable and related equipment within the Premises and specified vertical and horizontal pathways within the Building but outside of the Premises that are necessary to provide telecommunications and data services to Tenant at the Premises.

9.10.1 No Exclusive Rights. The license contemplated herein to be granted to the Carrier shall permit the Carrier to provide services only to Tenant and not to any other tenants or occupants of the Building and shall require all of the Carrier’s equipment (other than connecting wiring) to be located in the Premises. The license shall not grant an exclusive right to Tenant or to the Carrier. Landlord reserves the right, at its sole and absolute subjective discretion, to grant, renew, or extend licenses to other telecommunications and data carriers for the purposes of locating telecommunications equipment in the Building that may serve Tenant or other tenants or occupants in the Building.

9.10.2 No Greater Rights. Except to the extent expressly set forth in this Lease, nothing in this Lease shall grant to the Carrier any greater rights or privileges than Tenant is granted pursuant to the terms of this Lease or diminish Tenant’s obligations or Landlord’s rights hereunder.

9.10.3 Tenant Ensures Carrier’s Compliance. Tenant shall be responsible for ensuring that the Carrier complies with the terms and conditions of the license agreement relating to the use of the Premises or the making of any physical Alterations imposed on Tenant under this Lease to the extent the Carrier operates or maintains any equipment or delivers any services in or to the Premises. Any failure by the Carrier to observe and comply with such terms, conditions, agreements, and covenants on behalf of Tenant, to the extent the Carrier operates or maintains any equipment or delivers any services in the Premises or other portions of the Building, shall be an Event of Default under this Lease.

10. SIGNS; FURNISHINGS.

10.1 Signs; Directory. Tenant may not inscribe, paint, affix, or display any sign, advertisement, or notice on any part of the outside or the inside of the Building or within the Premises if the same is visible from outside of the Premises, except as otherwise provided herein. If any such sign, advertisement, or notice is nevertheless exhibited by Tenant, Landlord may remove the same and Tenant will be liable for any costs (including reasonable attorneys’ fees and all court costs) as Additional Rent Landlord incurs in such connection. Landlord will post nameplates identifying Tenant on the Building directory (or displayed electronically) and on the suite entry door(s) of the Premises (or adjacent to the suite door), in such places, number, size, color, and style as Landlord determines. Such nameplates and letters will conform harmoniously with the Building’s design and interior decoration, and shall be standardized for all tenants. After the Lease Commencement Date Landlord will make, in its sole and absolute discretion and at Tenant’s sole cost, any additions or changes for Tenant either to the Building

directory listing or the nameplate on or adjacent to the suite entry door(s) of the Premises. Landlord may prohibit any advertisement of Tenant in, on, or about the Building or naming the Building or its address that in Landlord’s opinion tends to impair the reputation of the Building or its desirability as a high-quality building for offices for financial, professional services, insurance, and other institutions of similar kind, and, on written notice from Landlord, Tenant will immediately refrain from and discontinue any such advertisement. Directory listing and/or signs for approved assignees or approved subtenants will be at Landlord’s sole and absolute subjective discretion based on the availability of space. Tenant acknowledges that it has been provided with the Dublin Corporate Center Signage Program (the “Signage Program”) prior to execution of the Lease.

10.2 Monument Signage. Tenant shall have the right provided it occupies one hundred (100%) percent of the Premises, to install, at its sole cost and expense, and subject to Landlord’s reasonable consent, a monument sign on the existing Building monument. Tenant’s monument signage will be consistent and harmonious with other Tenants monument signage and the general design and theme of the monument sign itself. The location of tenant’s sign panel on the monument and general design shall be as depicted on Exhibit J to this Lease, to be approved by Landlord, such approval not to be unreasonably withheld (subject to compliance with the Signage Program and all applicable laws). Tenant shall be responsible for its pro-rata share of the lighting, operation and maintenance, which is hereby approved by Landlord of the monument. For purposes of this provision, Tenant’s pro-rata share shall be a ratio, the numerator of which is the area of Tenant’s sign panel, and the denominator of which is the area of all tenant’s sign panels located on the monument. All such signage shall comply with all applicable laws, the Signage Program, and Tenant shall obtain any and all approvals or permits required at its sole cost and expense. Tenant shall remove its signage on such monument at its sole cost and expense upon expiration or earlier termination of this Lease and repair any damage resulting therefrom. Within fifteen (15) days of mutual execution of this Lease, Tenant shall present to Landlord monument sign drawings for Landlord’s approval, not to be unreasonably withheld. Landlord and Tenant agree that Landlord may withhold its consent if the proposed monument signage does not comply with the Sign Program, or does not comply with all applicable laws.

10.3 Building Signage. Tenant shall have the right, provided it occupies one hundred (100%) percent of the Premises, to install at its sole cost and expense, and subject to Landlord’s reasonable consent, Building signage on one (1) side of the Building; and in the size, color, location and design depicted on Exhibit K to this Lease which is to be approved by Landlord, such approval not to be unreasonably withheld (subject to compliance with the Signage Program and all applicable laws). Tenant shall maintain and repair such sign at its sole cost and expense, and will maintain the sign in a first class manner consistent with the standards of the Building. Tenant shall remove such signage at its sole cost and expense upon expiration or earlier termination of this Lease, and repair and damage resulting therefrom. All such signage shall comply with all applicable laws, the Signage Program, and Tenant shall obtain any and all approvals or permits required at its sole cost and expense. Within fifteen (15) days of mutual execution of this Lease, Tenant shall present to Landlord Building sign drawings for Landlord’s approval, not to be unreasonably withheld. Landlord and Tenant agree that Landlord may withhold its consent if the proposed Building signage does not comply with the Sign Program, or does not comply with all applicable laws.

10.4 Moving of Furnishings. Landlord may prescribe the weight and position of safes and other heavy equipment or fixtures. Tenant will repair, at its sole cost and under Landlord’s direction, any damage or injury to the Premises or the rest of the Building caused by moving Tenant’s property into, in, or out of the Premises, or due to the same being on the Premises. All moving of furniture, equipment, and other material within any public area of the Building will be at such times and conducted in such manner as Landlord may reasonably require in the interest of all tenants within the Building and any restrictions on access to the loading dock area of the Building.

11. INSPECTION. Tenant will permit Landlord, or its representative, on reasonable prior written notice (except in the case of an emergency when no such notice will be required), to enter the Premises or the Premises, Building and Project at any reasonable time, without charge to Landlord and without diminution of Rent payable by Tenant, to (a) examine, inspect, or protect the Premises; (b) prevent damage to the Premises and/or to any other portion of the Building; (c) alter, add to, improve, and repair the Building or the Premises as Landlord deems necessary or desirable, or as any governmental authority may require, provided Landlord uses reasonable methods; or (d) exhibit the Premises to prospective tenants, purchasers of the Building, or lenders (as to prospective tenants only during the last year of the Term or Extension Period, as applicable). None of the above will be construed as an actual or constructive eviction of Tenant. Landlord will use commercially reasonable efforts to minimize disruption to Tenant’s business because of such activities, and unless doing so is impractical or unreasonable because of an emergency, will notify Tenant that Landlord intends to enter the Premises.

12. INSURANCE.

12.1 General. Tenant may not conduct or permit to be conducted any activity nor place any equipment in or about the Premises or the Project that will, in any way, increase the rate of, or cause the cancellation of, any policy of insurance of any kind covering any or all of the Project or any liability of Landlord in connection therewith. If any insurance company or the applicable insurance rating bureau states that any increase in the rate of insurance is due to any Tenant’s activity or equipment in or about the Premises or the Project, such statements will be conclusive evidence that the increase in such rate is due to such activity or equipment and, as a result thereof, Tenant will be liable for such increase and will reimburse Landlord therefore on demand. Any such sum due Landlord will be Additional Rent payable hereunder. If any activity, equipment, or improvement done, installed, or constructed by Tenant in or to the Premises violates any requirements of Landlord’s insurer(s), Tenant will take prompt action to comply with such requirements at Tenant’s sole cost.

12.2 Coverages Tenant Required to Maintain. Tenant will maintain at its sole cost throughout the Term the following:

12.2.1 Liability. Commercial general liability insurance covering bodily injury, property damage, and personal and advertising injury occurring within the Premises or arising out of the use thereof by Tenant or its agents, employees, officers, or invitees, visitors, and guests with limits of not less than Two Million Dollars ($2,000,000) per occurrence and Two

Million Dollars ($2,000,000) general aggregate, Two Million Dollars ($2,000,000) products and completed operations aggregate, and Two Million Dollars ($2,000,000) personal injury and advertising liability aggregate. If this insurance applies to more than one location of the insured, then a per location endorsement must be attached to the policy.

12.2.2 Property. All risk property coverage or its equivalent form for the full insurable replacement value of (a) all Tenant’s furniture, fixtures, equipment, personal property, or other removable property or any Alterations made by Tenant under the provisions of this Lease, and (b) all Non-Building Standard Improvements Landlord or Tenant installs in the Premises.

12.2.3 Business Income. Business Income insurance of not less four and half million dollars ($4,500,000.00). The term “Business Income” means (a) net income, net profit, or loss before income taxes that would have been earned or incurred; and (b) continuing normal operating costs, including payroll, incurred.

12.2.4 Worker’s Compensation. Worker’s compensation insurance in accordance with the Applicable Laws, and employer’s liability insurance with a limit of at least Five Hundred Thousand Dollars ($500,000) for bodily injury by accident (per accident), Five Hundred Thousand Dollars ($500,000) for bodily injury by disease (policy limit), and Five Hundred Thousand Dollars ($500,000) for bodily injury by disease (each person).

12.2.5 Excess Liability. Excess Liability insurance in an amount of not less than Five Million Dollars ($5,000,000).

12.3 Requirements. Tenant’s insurance will be underwritten by a company or companies licensed to do business in the state in which the Premises are located and rated not lower than “Class A-VIF,” as rated in the most recent edition of the Alfred M. Best Company, Inc.’s Key Rating Guide for insurance companies, and will be in minimum amounts as set forth in Section 12.2 (Coverages Tenant Required to Maintain). Such liability insurance policy will name Landlord and Landlord’s designated management agency (and, at Landlord’s request, the Mortgagee) as additional insureds, and will contain an endorsement that such insurance will remain in full force and effect notwithstanding that the insured has waived its right of action against any party before the occurrence of a loss. A current certificate of insurance and endorsements (in form and substance acceptable to Landlord) from such insurer will be delivered to Landlord’s agent not less than thirty (30) days before the Lease Commencement Date and renewals thereof will be delivered to Landlord’s agent not less than thirty (30) days before the expiration of any such policy. Each policy will contain an endorsement prohibiting its cancellation before the expiration of thirty (30) days after written notice to Landlord or its Mortgagee of such proposed cancellation and will include an endorsement stating that such insurance will remain in full force and effect notwithstanding the fact that the insurer has waived its right of subrogation before the occurrence of a loss.

12.4 Increase in Insurance. The amounts of insurance coverage Tenant is required to maintain under this Lease are subject to review at the end of each two (2) year period after the Lease Commencement Date. At each review, if necessary to maintain the same level of coverage that existed on the Lease Commencement Date, the amounts of coverage shall be increased to the amounts of coverage carried by prudent landlords and tenants of Comparable Buildings.

12.5 Mutual Waiver of Subrogation. Whenever (a) any loss, damage, or cost resulting from fire, explosion, or any other casualty or occurrence is incurred by either of the parties to this Lease, or anyone claiming by, through, or under it in connection with the Premises, and (b) such party is then covered in whole or in part by insurance against such loss, damage, or

cost and is required under this Lease to be so insured, then the party so insured (or so required) releases the other party from any liability such other party may have because of such loss, damage, or cost the extent of any amount recovered because of such insurance (or that could have been recovered had such insurance been carried as so required) and waives any right of subrogation that might otherwise exist in or accrue to any person on account thereof.

12.6 Landlord’s Insurance. Landlord will, as part of Operating Costs, keep the Building (but not any of Tenant’s furniture, fixtures, equipment, personal property, or other removable property or any Alterations, Non-Building Standard Improvements, or any other leasehold improvements made in the Premises) insured against loss or damage caused by fire or other casualty (a “Casualty”), as any Mortgagee may from time to time require (or provide such greater insurance coverage as Landlord may determine in its sole and absolute subjective discretion). Landlord will, as part of Operating Costs, maintain rental interruption insurance in commercially reasonable amounts.

13. INDEMNITY. Except as may be the direct result of Landlord’s gross negligence or willful misconduct, and regardless of Landlord’s insurance coverage, Tenant will indemnify, hold harmless, and defend (with counsel satisfactory to Landlord) Landlord, its members (and the members of its members), and their respective officers, directors, agents, employees, and invitees (collectively, the “Indemnified Parties”) from any loss, damage, liability, or cost (including reasonable attorneys’ fees and all court costs) incurred by the Indemnified Parties and occasioned by or in any way related to or based on (a) the use and occupancy of the Premises or the Project by Tenant, its agents, employees, invitees, and any other persons who gain access to the Premises, including any violation of the Americans with Disabilities Act and any zoning, health, environmental or other Applicable Laws of any governmental authority, (b) the negligence or the intentionally wrongful acts or omissions of Tenant, its agents, employees and invitees, (c) any default, breach or violation of this Lease by Tenant, its agents, employees and invitees, (d) injury or death to individuals or damage to property sustained in or about the Premises, Building or Project, or (e) injury or death to individuals or damage to property sustained in or about the Premises, Building or Project and incurred in connection with Tenant and/or its agent’s construction of the Tenant Improvements.

14. LIABILITY OF LANDLORD.

14.1 General. Except for damages directly caused by Landlord’s gross negligence or willful misconduct, Landlord will not be liable to Tenant, its employees, agents, business invitees, licensees, customers, clients, family members, guests, or trespassers for any damage, compensation, or claim arising from (a) the repairing of any portion of the Building or

Project, (b) any interruption in the use of the Premises, Building or Project, (c) accident or damage resulting from the use or operation (by Landlord, Tenant, or any other person or persons whatsoever) of elevators, escalators, or heating, cooling, electrical, or plumbing equipment or apparatus, (d) the termination of this Lease because of the destruction of the Premises or Building, or a taking or sale in lieu thereof by eminent domain, (e) any Casualty, robbery, theft, criminal act, or unexplained disappearance, (f) any leakage in any part of the Premises or the rest of the Building (including areas occupied by other tenants and occupants of the Building), or from water, rain, or snow that may leak into, or flow from, any part of the Premises or the rest of the Building, or from drains, pipes or plumbing work in or about the Building, or (g) any other cause whatsoever. Notwithstanding anything contained in this Lease to the contrary, in no event will Landlord have any liability to Tenant for any claims for the interruption of or loss to Tenant’s business or for any indirect damages or consequential losses.

14.2 No Reduction. Except as provided in Section 17 (Damage by Fire or Casualty), Tenant may not abate or reduce Base Rent or Additional Rent as a result of any of the occurrences set forth in Section 14.1 (General), nor will any of such occurrences release Tenant from its obligations hereunder or constitute an eviction. Notwithstanding any provisions in this Lease to the contrary, any goods, property, or personal effects stored or placed by Tenant in or about the Premises or the rest of the Building or the Project will be at the sole risk of Tenant, and Landlord will not be liable to Tenant for any loss or damage thereto.

14.3 Package Deliveries. Landlord’s employees are prohibited from receiving any packages or other articles delivered to the Building for Tenant, and if any such employee receives any such package or articles, such employee will be the agent of Tenant and not of Landlord. Landlord will not be obligated to provide or maintain any security patrol or lobby host. However, if Landlord elects to provide either of the foregoing, Tenant agrees that Landlord will not be responsible for the quality of such of the foregoing that may be provided hereunder or for damage or injury to Tenant, its employees, invitees or others due to the failure, action or inaction of either of same.

15. TENANT’S EQUIPMENT.

15.1 General. Tenant may not install or operate in the Premises any electrically operated equipment or other machinery, other than standard desk top office equipment ordinarily found in the Comparable Buildings, without first obtaining Landlord’s prior written consent, which consent shall not be unreasonably withheld, delayed, or conditioned.

15.2 Excessive Electricity Consumption. Tenant shall have electricity consumption of three and a half (3.5) watts per square foot of the Premises (exclusive of electrical power for HVAC and lights in the Premises) during the Building Hours at no additional charge. Landlord may charge Tenant for the cost of Tenant’s electricity consumption in excess of three and a half (3.5) watts per square foot of the Premises (based on reasonable evidence that Tenant is exceeding the 3.5 watt per square foot limitation)(exclusive of electrical power for HVAC and lights in the Premises) during Business Hours and for any electrical consumption not during Business Hours, and for the cost of any additional wiring or other improvements to the Building as may be occasioned by or required as a result of any such excess

use, but Landlord does not represent or warrant that electricity capacity in excess of three and a half (3.5) watts per square foot of the Premises (exclusive of electrical power for HVAC and lights in the Premises) will be available.

15.3 Excessive Water Consumption. Tenant may not use or consume water other than for drinking, lavatory, and toilet purposes, or in unusual quantities (of which fact Landlord will reasonably judge), without first obtaining Landlord’s prior written consent, which consent shall not be unreasonably withheld, delayed, or conditioned.

15.4 Excessive Utilities Consumption. Tenant may not install any equipment of any kind or nature whatsoever (including electric space heaters and supplementary air-conditioning units) that will or may necessitate any changes, replacements, or additions to, or in the use of, the water system, heating system, plumbing system, HVAC system, or electrical system of the Premises or the rest of the Building. Landlord may condition its consent to Tenant’s request to install or use any equipment or machinery or to consume excess utilities on Tenant’s agreement to pay Additional Rent to compensate Landlord for any excess consumption of utilities and for the cost of additional wiring, piping, or other improvements to the Building as may be occasioned by the operation of such equipment or machinery or by such excess use of utilities. If any excessive consumption of any utilities occurs (including any consumption beyond Building Hours), Landlord may require Tenant to install in the Premises (at Tenant’s sole cost and in a location Landlord approves) meters or submeters to measure Tenant’s utility consumption for the Premises or for any specific equipment causing excess consumption, as Landlord may require; in which case, Tenant will maintain in good order and repair (and replace, if necessary) such meters or submeters. If separate meters are installed to measure Tenant’s use of any utilities, then Tenant will pay directly to the appropriate utility company the charges for such utilities. If submeters are installed to measure Tenant’s consumption of any utilities, Tenant will pay to Landlord as Additional Rent the costs of the same as well as a reasonable administrative processing fee to defray the expenses incurred by Landlord in reading such submeters and in processing the requisite invoices, within fifteen (15) days of its receipt of a bill therefore based on such submeter readings.

15.5 No Vibration. Tenant’s business machines and mechanical equipment that cause noise or vibration that may be transmitted to the structure of the Building or to any space therein to such a degree as to be objectionable to Landlord or to any tenant in the Building will be installed and maintained by Tenant, at Tenant’s sole cost, on vibration eliminators or other devices sufficient to eliminate such noise and vibration, which fact Landlord will reasonably judge. Whenever heat generating machines or equipment are used in the Premises, Landlord may require Tenant to install supplementary air conditioning units in the Premises and Tenant will pay any cost associated therewith, including any cost to install, operate, and maintain them.

15.6 Lien on Personal Property. Tenant hereby expressly grants to Landlord a security interest in and an express contractual lien upon Tenant’s or any other party’s furniture, furnishings, equipment, and articles of personal property of every kind and nature whatsoever (“Personalty”), situated in or on the Premises, including all after-acquired Personalty (“Secured Property”) to secure the performance by Tenant of its obligations under this Lease, if an Event of Default occurs after all applicable notice and cure periods. The Secured Property will not be

removed from the Premises by Tenant without the prior written consent of Landlord until all Rents then due to Landlord have first been paid, except for the sale of inventory in the ordinary course of Tenant’s business so long as such inventory is replaced by Tenant. Tenant hereby appoints Landlord as Tenant’s attorney-in-fact, and authorized Landlord to execute and to file financing statements signed only by Landlord (as attorney-in-fact) covering such security or to otherwise take such action as may be necessary to perfect such security interest and/or contractual lien. Upon termination of this Lease, Landlord may, in addition to any other remedies, enter upon the Premises and take possession of the Secured Property situated on the Premises without liability for trespass or conversion, and sell the same with notice at public or private sale, with or without having such property at the sale, at which Landlord or its assigns may purchase, and may apply the proceeds thereof less any and all expenses connected with the taking of possession and sale of the Secured Property, as a credit against any sums due by Tenant to Landlord. Any surplus will be paid to Tenant provided Landlord has been paid in full, and Tenant agrees to pay any deficiency forthwith, after demand. Landlord, at its option may foreclose the security interest and/or contractual lien in the manner provided by Applicable Law. The security interest and contractual lien granted to Landlord is in addition to Landlord’s lien that may now or at any time hereafter be provided by Applicable Law.

16. SERVICES AND UTILITIES.

16.1 Electricity. Landlord will furnish electricity to the Premises, subject to the restrictions contained at Section 15.2 of this Lease.

16.2 HVAC Service; Hours of Operation. Landlord will furnish air-conditioning or heat (during those respective seasons of the year in which they are necessary) to or for the benefit of the Premises during the Building Hours as, in Landlord’s reasonable judgment, is required for the comfortable use and occupancy of the Premises. During Building Hours Landlord will provide air-conditioning and heat based on standard electrical energy requirements of not more than an average of three and a half (3.5) watts per square foot of the Premises (exclusive of electricity for general power uses and lights in the Premises) and a human occupancy of not more than one person for each 120 square feet of Gross Rentable Area of the Premises. Landlord reserves the right to charge Tenant for air-conditioning or heat consumption in excess of such levels during Building Hours. Landlord will operate the heating, ventilating, and air-conditioning (“HVAC”) system in the most energy-efficient manner possible within the limits established in the Building design, and according to any directive, policy, or request of a governmental authority. To control electrical demand and energy consumption, Landlord may install a computerized energy-management system that operates the HVAC system in on-off cycles. Extra hours of heating, ventilating, and air-conditioning (i.e., all times other than during Building Hours) will be provided to Tenant on Tenant’s request with at least 24 hours’ advance notice on a previous Business Day. Landlord will charge Tenant for Landlord’s cost of such service based on Landlord’s estimate of additional utility consumption and any other costs associated with such extra service, and Tenant will pay such amount as Additional Rent within fifteen (15) days of its receipt of a bill therefore. As of the date hereof, the estimated hourly cost per floor for HVAC service is an amount equal to Seventy Five Dollars ($75.00), with a two (2) hour minimum charge. Such amount shall be subject to periodic change based on actual costs incurred by Landlord from time to time.

16.3 Lighting. Landlord will provide reasonably adequate electricity (not to exceed three 3 watts per square foot of the Premises exclusive of electrical power for HVAC and general power uses in the Premises) as is normal and customary in the Comparable Buildings. Landlord will provide and install all original fluorescent tubes for those lighting fixtures within the Premises that are building standard improvement lighting fixtures. Landlord will provide and install all replacement tubes for the Building Standard Improvement lighting fixtures as part of the Operating Costs. Tenant is required to provide and install, at Tenant’s sole cost, all bulbs and tubes for other than Building Standard Improvement lighting fixtures.

16.4 Elevator Service. Landlord will provide elevator service by automatically operated elevators. Landlord may remove elevators from service as the same are required to move freight, or to service or maintain the elevators and/or the Building; provided, however, that at least one elevator will remain in service 24 hours per day, 7 days a week.

16.5 Other Services. Landlord will (a) furnish cold water from public water mains for normal drinking, lavatory, and toilet purposes drawn through fixtures Landlord installs, and hot water for lavatory purposes from the regular Building supply, (b) provide reasonably adequate lavatory supplies for public restrooms, (c) provide exterior window cleaning service and char and janitorial service as is normal and customary in Comparable Buildings; provided, however, that char and janitorial service required for any Non-Building Standard Improvements in the Premises, such as glass partitions, wood flooring, kitchens, and private showers and restrooms, will be subject to additional charges, and (d) provide char and janitorial services after 6:00 p.m. Monday through Friday only, except Holidays.

16.6 Interruptions. Landlord does not warrant that any utilities or services Landlord supplies may not be interrupted or delayed. Landlord and its agents will not be liable for a failure to furnish, or for delay or suspension in furnishing or providing, any of the utilities or services Landlord is required to furnish or provide whether such failure is caused by breakdown, maintenance, repairs, strikes, scarcity of labor and/or materials, acts of God, or any other cause or reason whatsoever. If the Building equipment should cease to function properly, Landlord will use commercially reasonable efforts to repair the same promptly. Landlord’s failure or inability to furnish the utilities or services required under this Lease will not be construed as an eviction, actual or constructive, of Tenant from the Premises and will not entitle Tenant to terminate this Lease or to abate any Rent payable under this Lease, except as provided in the following sentence. If, as a result of Landlord’s gross negligence or willful misconduct (excluding a Force Majeure event), any utilities are not furnished to the Premises, rendering the Premises, or any part thereof, unusable for a period of five (5) consecutive days, and the interruption of such utilities is specific to the Project only, then Base Rent and Additional Rent payable for such portion of the Premises which Tenant does not so use shall abate for the period starting on the commencement of the sixth (6^th) day and expiring on the date the utilities are restored or Tenant is able to resume use of the Premises or such part thereof, as the case may be.

16.7 24/7 Access. Tenant will have access to the Premises 24 hours per day, 7 days per week. Landlord will provide an electronic access system with computerized card

access at the lobby entrance of the Building and controlled access to each floor of the Building through elevator card access controls. Tenant shall be entitled to three (3) access cards per one thousand (1,000) square feet of Gross Rentable Area of the Premises. Any additional or replacement cards shall be at the then prevailing rate charged by Landlord. The current rate for access cards is ten dollars ($10.00) per card. On weekdays (excluding Holidays) after regular office hours, at approximately 6:00 p.m., access to the office space in the Building is intended to be electronically sealed until 7:00 a.m. the following weekday morning. During weekends and Holidays, the electronic security system is intended to be in operation 24 hours a day. Landlord will provide Tenant, at Tenant’s sole cost and as Additional Rent, any additional access control system or equipment Tenant desires for the Premises. Landlord will not be liable for the functionality, quality, action, or inaction of the Building access system or for any damage or injury to Tenant, its employees, invitees, or others, or their property, resulting from any failure, action, or inaction of the Building access system.

16.8 Landlord’s Rights to Building Maintenance and Renovations. Landlord will have the following rights to maintain, repair, and renovate the Building and Project:

16.8.1 Routine Maintenance. To enter the Premises at any time, on reasonable prior notice if possible, to perform routine maintenance and repairs.

16.8.2 Alterations. To change or alter from time to time the arrangement and/or location of public entrances, passageways, doors, common areas, Parking Areas, doorways, corridors, elevators, stairs, toilets, and all other parts of the Building and Project, to add to the Building and Project or areas of the Building and Project, and to change the name, street number, or designation by which the Building and Project may be known.

16.8.3 Renovation Program. To carry out a renovation program for the Building and Project. In the performance of a renovation program in the Building, Project or Premises, Landlord, its agents, contractors, and all persons retained in connection therewith, may enter the Premises to perform renovation work after Building hours, on at least one (1) day’s notice. Tenant will cooperate with Landlord in temporarily relocating furniture, fixtures, personal property, and personnel as required to complete the renovation work in the Building. Any work Landlord performs under this Section 16.8 will be with the minimum disruption practicable to Tenant’s occupancy, but such work will not entitle Tenant to abate Rent or otherwise fail to perform its obligations hereunder.

16.9 Energy Conservation and Governmental Policies. Landlord will be deemed to have observed and performed the terms and conditions to be performed by Landlord under this Lease, including those relating to the provisions of utilities and services, if in so doing it acts according to an Applicable Law, directive, policy, or request of a governmental authority in respect of energy conservation or security.

17. DAMAGE BY FIRE OR CASUALTY.

17.1 General. If a Casualty partially damages or destroys the Premises, Landlord will diligently proceed to fully repair and restore, at its own cost, the Building Standard

Improvements (Exhibit I) located in the Premises substantially to their condition before the Casualty, subject to the provisions of this Section 17 and if adequate insurance proceeds are available to Landlord. Due allowance, however, will be given for the time required to adjust and settle insurance claims, and for such other delays as may result from government restrictions, any controls on construction, and for strikes, emergencies, and other conditions beyond Landlord’s reasonable control. Tenant will diligently proceed to fully repair and restore, at Tenant’s sole cost, all Tenant Improvements (except the Building Standard Improvements) and Alterations in the Premises to their condition existing before their damage or destruction. If a Casualty partially damages or destroys the Premises, this Lease will continue in full force and effect, but if the damage or destruction is such so as to make the Premises or any substantial part thereof untenantable for ten (10) consecutive Business Days after the Casualty and Tenant ceases to use such untenantable area, then the Rent that Tenant is obligated to pay under this Lease will abate proportionately (based on the number of square feet made untenantable) as of the first Business Day after the Casualty until the earlier of the date that Tenant again uses such space or the date that the repair and/or restoration work that Landlord is obligated to perform hereunder has been Substantially Completed. If Tenant, its agents, servants, or invitees cause such damage or destruction, Tenant may not abate or reduce Base Rent.

17.2 Casualty—Building. If a Casualty makes untenantable more than one-half (1/2) of the Gross Office Rentable Area of the Building, then within sixty (60) days from the date of such Casualty Landlord may terminate this Lease by notice to Tenant, specifying an effective date, not less than twenty (20) days nor more than forty (40) days after the giving of such notice, on which the Term will expire as fully and completely as if such date were the date herein originally fixed for the expiration of the Term. If Landlord terminates this Lease pursuant to this Section 17.2, Base Rent will be apportioned as of the date of such termination.

17.3 Casualty—Premises. If (a) a Casualty damages the Premises, (b) the damage to the Premises is so extensive that the Premises are substantially untenantable, and (c) Landlord determines in the exercise of its reasonable judgment that the repair and/or restoration work that Landlord is obligated to perform hereunder cannot be substantially completed within one hundred eighty (180) days from the date such work starts, then either Landlord or Tenant within sixty (60) days from the date of such Casualty may terminate this Lease by notice to the other, specifying an effective date, not less than twenty (20) days nor more than forty (40) days after the giving of such notice, on which the Term will end as fully and completely as if such date were the date originally fixed for the end of the Term. If either Landlord or Tenant terminates this Lease pursuant to this Section 17.3, Rent will be apportioned as of the date of such Casualty.

17.4 Casualty Near End of Term. If a Casualty makes eighty percent (80%) or more of the Premises untenantable during the last six (6) months of the Term, Landlord or Tenant may terminate this Lease if it notifies the other party within ninety (90) days after such Casualty and specifies an effective date, not less than twenty (20) days nor more than forty (40) days after it notifies the other party, on which date the Term will expire as fully and completely as if such date were the date originally fixed for the Term to end. If either Landlord or Tenant terminates this Lease pursuant to this Section 17.4, Base Rent will be apportioned as of the date of such Casualty.

17.5 Proceeds. The proceeds payable under all fire and other hazard insurance policies Landlord maintains on the Building will belong to and are Landlord’s property, and Tenant has no right to such proceeds. Tenant will look only to its own fire and hazard insurance policies if Tenant’s personal property or any Non-Building Standard Improvements in the Premises (including such portions of Tenant Improvements that constitute Non-Building Standard Improvements) are damaged.

17.6 Limitations. No compensation, claim or diminution of Base Rent and Additional Rent will be allowed or paid by Landlord because of inconvenience, annoyance, or injury to business arising from the necessity of repairing the Premises or any portion of the Building, however the necessity may occur. Notwithstanding the provisions of this Section 17, if Landlord becomes obligated to repair the Premises, such repairs will be to only the Building Standard Improvements located in the Premises, and not to any Alterations, Non-Building Standard Improvements, or any other improvements in the Premises or Tenant’s furniture, fixtures, and equipment, or Tenant’s other personal property. At Landlord’s sole option, Landlord may repair and restore, on Tenant’s behalf, all (or any portion) of the Non-Building Standard Improvements and Alterations in the Premises that Tenant is required to repair and restore pursuant to Section 17.1 (General), in which case, Tenant will remit to Landlord for such use all of its insurance proceeds; provided, however, that Landlord will not be required to spend more on any such repair or restoration than the amount of insurance proceeds Landlord actually receives from Tenant. Landlord may require Tenant to pay Landlord a reasonable fee as Additional Rent to reimburse Landlord for overhead and administrative costs Landlord incurs for any such repair or restoration Landlord undertakes or supervises. Any Non-Building Standard Improvements, Alterations, or other improvements Tenant replaces in the Premises will be of at least comparable quality to the items damaged or destroyed.

18. CONDEMNATION.

18.1 General. If all or substantially all of the Premises are taken or condemned by any governmental authority for any public or quasi-public use or purpose (including sale under threat of such a taking) (a “Taking”), then the Term will end as of the date of the Taking, and all Rent will be abated as of such date. If less than substantially all of the Premises is the subject of a Taking, the Rent will be equitably adjusted as of the date of the Taking and this Lease will otherwise continue in full force and effect. Notwithstanding the foregoing, if a Taking occurs of so substantial a part of the Building that Landlord concludes, in its reasonable discretion, that it is impracticable to continue to operate the Building, then Landlord, at its option, may end this Lease by notifying Tenant and specifying a date not earlier than thirty (30) days after the date of such notice as of which date this Lease will end.

18.2 Proceeds. Tenant may not assert a claim against Landlord (or otherwise) for any portion of the amount that may be awarded as damages as a result of any Taking or for the value of any unexpired Term; provided, however, that Tenant may assert any claim that it may have against the condemning authority for compensation for any fixtures owned by Tenant and for any relocation costs compensable by Applicable Law, and receive such award therefor as may be allowed in the condemnation proceedings, if such award is in addition to and stated separately from the award made to Landlord for the Land and the Building or the part thereof so taken.

19. DAMAGE CAUSED BY TENANT. Tenant will promptly notify Landlord of any injury or damage to the Premises, Building or Project. Tenant will repair, at its sole cost at Landlord’s direction and under Landlord’s supervision, all injury or damage Tenant or its agents, employees, contractors, invitees, visitors, or licensees cause to the Premises, Building or Project; provided, however, that if any such injury or damage is to any of the Building systems or structures, including the mechanical, electrical, structural, HVAC, plumbing, elevator, sprinkler and/or life/safety systems, Tenant may not make any repairs thereto, but Landlord may in its sole and absolute subjective discretion make any such repairs at Tenant’s sole cost. Tenant will pay to Landlord any such cost Landlord incurs (in which event such cost will become Additional Rent payable with the installment of Base Rent next becoming due under the terms of this Lease). If Tenant fails to make any repairs it is required to make under this Lease, Landlord may, in its sole and absolute subjective discretion, make such repairs or replacements. Tenant will pay to Landlord any such cost Landlord incurs (in which event such cost will become Additional Rent payable with the installment of Base Rent next becoming due under the terms of this Lease). The Additional Rent referenced in this Section 19 will bear interest from the date Landlord incurs the costs to the date paid by Tenant at the Default Rate. This provision will be construed as an additional remedy granted to Landlord and not in limitation of any other rights and remedies that Landlord may have in such circumstances.

20. DEFAULT OF TENANT.

20.1 Events of Default. Each of the following constitute an “Event of Default” and breach of this Lease by Tenant:

20.1.1 Monetary Default. If Tenant fails to pay by the due date the Base Rent or Additional Rent, and Tenant fails to cure such nonpayment within three (3) days after receipt of written notice from Landlord.

20.1.2 Abandonment. If Tenant abandons or vacates the Premises.

20.1.3 Failure to Take Possession. If Tenant falls to take possession of the Premises within thirty (30) days after the date Landlord tenders possession of the Premises to Tenant.

20.1.4 Other Defaults. If Tenant fails to observe or perform any of its other obligations under the provisions of this Lease to be observed or performed by Tenant (except a term, agreement, or condition, the observation or performance of which is otherwise dealt with in this Section 20.1), and, such failure continues for a period of thirty (30) days after Landlord gives Tenant written notice thereof.

20.1.5 Bankruptcy. If Tenant makes any general assignment or general arrangement for the benefit of creditors; if there is filed by or against Tenant a petition to have Tenant adjudged a bankrupt or if a petition for reorganization or arrangement is filed under any

Applicable Law relating to bankruptcy (unless, in the case of a petition filed against Tenant, the petition is dismissed within sixty (60) days); if a trustee or receiver is appointed to take possession of all or substantially all of Tenant’s interest in this Lease; if all or substantially all of Tenant’s assets located at the Premises or Tenant’s interest in this Lease are attached, executed on, or otherwise subjected to other judicial seizure, where such seizure is not discharged within thirty (30) days; or if Tenant is generally not paying its debts as they become due; provided, however, that in no event may this Lease be assigned or assignable by operation of law or by voluntary or involuntary bankruptcy proceedings or otherwise, and in no event may this Lease or any rights or privileges hereunder be an asset of Tenant under any bankruptcy, insolvency, reorganization, or other debtor relief proceedings.

20.1.6 Chronic Default. If Tenant fails to pay the Base Rent or any Additional Rent by the due date thereof more than two (2) times during any calendar year (even if Tenant cures each such failure within the time provided in Section 20.1.1 [Monetary Default]).

20.1.7 Assignment. If an assignment or sublease occurs in violation of any provision contained in this Lease.

20.2 Remedies. In addition to any other remedies available at Applicable Law or in equity, Landlord will have the following rights: (a) to terminate this Lease and Tenant’s right to possession of the Premises; or (b) to continue this Lease in full force and effect even though Tenant may have defaulted in its obligations and abandoned the Premises.

20.2.1 Lease Termination. In the event that Landlord elects to terminate the Lease and Tenant’s right of possession of the Premises, then Landlord may recover from Tenant the following: (i) the worth at the time of award of any unpaid Rent which had been earned at the time of such termination; plus (ii) the worth at the 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 Rent loss Tenant proves could have been reasonably avoided; plus (iii) the worth at the time of award of the amount by which the unpaid Rent for the balance of the Term after the time of award exceeds the amount of such Rent loss that Tenant proves could have been reasonably avoided; plus (iv) any other amount necessary to compensate Landlord for all the detriment proximately caused by Tenant’s failure to perform its obligations under this Lease or which in the ordinary course of events would be likely to result therefrom including, without limitation, the unamortized portion of the Tenant Work Allowance amortized over the Term together with Default Interest and the costs or expenses as Landlord may incur or anticipate in connection with re-entering, ejecting, removing, dispossessing, cleaning, reletting, altering, repairing, marketing, redecorating, subdividing, or otherwise preparing the Premises for reletting, including brokerage and attorneys’ fees and court costs; and (v) at Landlord’s election, such other amounts in addition to or in lieu of the foregoing as may be permitted from time to time by the Applicable Law.

20.2.2 Lease Continuation. In the event Landlord elects to continue the Lease in full force and effect even though Tenant may have defaulted in its obligations and abandoned the Premises, then Landlord shall have the remedy available in Section 1951.4 of the California Civil Code, including the right to collect rent each month as it becomes due, and may

recover from Tenant all damages Landlord may sustain by reason of Tenant’s default, including the amount of damages set forth in (i) and (ii) of Section 20.2.1 of this Lease and may enforce all other rights and remedies under this Lease. In such event

Tenant will have the right, unless Landlord elects to terminate this Lease and Tenant’s right to possession of the Premises under Section 20.2.1 of this Lease to transfer its interest in this Lease or the Premises as provided in Article 6 of this Lease. If Landlord elects to terminate this Lease and Tenant’s possession of the Premises, Landlord at any time thereafter may relet the Premises, or any part or parts thereof for a term or terms which may, at Landlord’s option, be less than, exceed or equal the period of the remainder of the Term of this Lease. Landlord will receive the Rent from such reletting and will apply the Rent during the term of this Lease as follows: first, to the payment of any indebtedness other than Rent due hereunder from Tenant; second, to the payment of such expenses as Landlord may have incurred in connection with re-entering, ejecting, removing, dispossessing, reletting, altering, repairing, redecorating, subdividing, or otherwise preparing the Premises for reletting, including brokerage and reasonable attorneys’ fees; and third, to the fulfillment of the terms, covenants and conditions of this Lease to be performed by Tenant hereunder. Tenant hereby waives all claims to the surplus, if any. Any deficiency will be calculated and paid monthly by Tenant. Landlord will in no event be liable in any way whatsoever for the failure to relet the Premises or in the event of such reletting for failure to collect the Rents reserved thereunder and any such efforts to mitigate damages caused by Tenant’s default will not waive Landlord’s rights to recover damages. Landlord is hereby authorized and empowered to make such repairs, alterations, decorations, subdivisions, or other preparations for the reletting of the Premises as Landlord deems fit, advisable or necessary, without in any way releasing Tenant from any liability under this Lease.

No re-entry, taking possession, acts of maintenance or preservation or effects to relet the Premises by Landlord will be construed as an election on its part to terminate this Lease and Tenant hereby specifically waives any Applicable Law, statute, rule, decree or judgment of any court to the contrary. Notwithstanding any such re-entry without termination, Landlord reserves the right to elect to terminate this Lease for such previous breach. If Landlord elects to terminate this Lease and Tenant’s possession of the Premises, Landlord and Tenant covenant and agree that Landlord will have the right to immediately re-enter the Premises by summary proceedings, if necessary, and to dispossess Tenant and all other Occupants thereof and to remove and dispose of all property therein or to store such property in a public warehouse or elsewhere at the cost and for the account of Tenant without Landlord being deemed guilty of trespass or becoming liable for any loss or damage which may arise out of such action. Landlord will also have the right, at its election, to pursue any and all of such rights together with any other right to remedy which may be available to Landlord under any Applicable Law then in effect.

20.2.3 Other Remedies. In the event of any breach or threatened breach by Landlord or Tenant of any of the terms and provisions of this Lease, Landlord and Tenant will have the right to injunctive relief and declaratory relief as if no other remedies were provided for such breach. The rights and remedies herein reserved by or granted to Landlord and Tenant are distinct, separate and cumulative, and the exercise of any one of them will not be deemed to preclude, waive or prejudice their right to exercise any or all others. Additionally, any two (2) failures by Tenant to observe and perform any provision of this Lease for which a notice of

default has been delivered by Landlord to Tenant (without regard to the subsequent cure) during any twelve (12) month period of Term of this Lease will constitute a separate non-curable Event of Default that will entitle Landlord to cancel the Lease and take immediate possession of the Premises. In the alternative Landlord may require that Rent be paid quarterly in advance by certified check or cash. It is the intention of this provision to protect Landlord against habitual breaches of the Lease by Tenant.

21. LANDLORD’S RIGHT TO CURE TENANT’S DEFAULT; LANDLORD’S CONSENT.

21.1 Landlord’s Right to Cure. If Tenant fails to pay any amount or to do any act Tenant is required to perform under this Lease (other than to pay Base Rent), Landlord may, but will not be required to, pay such amount or do such act, and Tenant will reimburse Landlord for the total cost thereof, if paid or done by Landlord, with interest on such amount at the Default Rate from the date paid by Landlord, and such amount will constitute Additional Rent hereunder due and payable with the next monthly installment of Base Rent. Landlord’s paying such amount or doing such act will not operate to cure such default or to estop Landlord from pursuing any remedy to which Landlord would otherwise be entitled.

21.2 Landlord’s Consent. Where provision is made in this Lease for Landlord’s consent and Landlord shall fail or refuse to give such consent, except to the extent expressly provided herein to the contrary Tenant shall not be entitled to any damages for any withholding by Landlord of its consent, it being intended that Tenant’s sole and exclusive remedy shall be an action for specific performance or injunction and that such remedy shall be available only in those cases where Landlord has expressly agreed in writing not unreasonably to withhold its consent. Whenever in this Lease the consent or approval of Landlord or Tenant is required, such consent or approval shall (except to the extent that such consent or approval is specifically designated as being “within the sole and absolute subjective discretion” of a party, or words to that effect, in the applicable provision) not be unreasonably withheld, conditioned or delayed, shall be in writing, and shall be executed by a duly authorized officer or agent of the party granting such consent or approval; provided, however, that Landlord shall be deemed to have reasonably withheld its consent if any Mortgagee withholds its consent or otherwise objects to any proposed consent or approval.

22. ESTOPPEL CERTIFICATES. Tenant will, (a) within five (5) days after Tenant receives written notice from Landlord, from time to time, and (b) on the Lease Commencement Date simultaneous with the execution of the Lease Commencement Agreement, execute, acknowledge, and deliver to Landlord, at no cost to Landlord, a statement in writing (i) certifying that this Lease is unmodified and in full force and effect (or if there have been modifications, that this Lease is in full force and effect as modified and stating the modifications), (ii) stating the dates to which the Rent has been paid by Tenant, (iii) stating whether to the best knowledge of Tenant, Landlord has failed to fulfill any of its obligations under this Lease, and, if so, specifying each such failure of which Tenant has knowledge, (iv) stating that Tenant will give written notice to Landlord’s tender of any failure by Landlord to fulfill any of its obligations under this Lease, (v) stating the address to which notices to Tenant should be sent, (vi) for the estoppel certificate delivered on the Lease Commencement Date,

stating that Tenant accepts the Premises and the improvements therein, and (vii) providing any other such information Landlord reasonably requests relating to this Lease. Any owner of the Building, any prospective purchaser of the Building, any Mortgagee or prospective Mortgagee of the Building or of Landlord’s interest, or any prospective assignee of any such mortgage may be rely on any such statement delivered pursuant hereto. Tenant irrevocably appoints Landlord, as Tenant’s attorney-in-fact, to execute and deliver on Tenant’s behalf any estoppel certificate to which Tenant does not object with specificity in writing within five (5) days of Tenant’s receipt thereof. Tenant acknowledges and agrees that Tenant’s compliance with the requirements of this Section is necessary for Landlord to manage efficiently the financial and other aspects of owning and operating the Project (including facilitating the financing, refinancing, and/or sale of the Building or Project, any part thereof or any interest therein) and that any breach or other violation of the provisions of this Section will result in material damages to Landlord (including any damages to Landlord in connection with its financing, refinancing, or sale of the Project, any part thereof, or any interest therein that results from any such breach or violation). Any breach or other violation of any requirement of this Section will be a default hereunder, entitling Landlord to undertake immediately an action for the damages resulting therefrom (including any consequential, direct, and/or indirect damages) and pursue any other remedies available to Landlord on account of such default, including any remedies available under this Lease or at law or equity.

23. SUBORDINATION AND ATTORNMENT.

23.1 General. This Lease is subject and subordinate to the lien, operation, and effect of any mortgages (which term “mortgages” includes deeds of trust and similar security instruments; and the term “Mortgagee” means the holder of any such mortgage) that may now or hereafter encumber or otherwise affect the Land and/or Building, or Landlord’s interest therein, and to any renewals, extensions, modifications, or refinancings thereof, and to any current or future ground lease of the Land. To confirm such subordination, Tenant will, at Landlord’s request, promptly execute any requisite or appropriate subordination or other document. This clause is self-operative and no further act by Tenant is required to effectuate the foregoing subordination or the attornment specified herein. If any proceedings are brought to foreclose any mortgage, Tenant will attorn to the purchaser at such foreclosure sale, and recognize such purchaser as Landlord under this Lease. Tenant waives the provision of any statute or rule of law, now or hereafter in effect, that permits or purports to permit Tenant to end or otherwise adversely affect this Lease and the obligations of Tenant hereunder if any such foreclosure proceeding is prosecuted or completed. Notwithstanding the foregoing, Tenant agrees that the holders of any such mortgages may make this Lease superior to the lien, operation, and effect of such mortgage, by the filing of subordination statements or otherwise, and Tenant consents to any such filing. Landlord represents and warrants that currently the Project is not encumbered by any financing, and furthermore to the extent

Tenant is requested to subordinate to a future loan or mortgage (whether Landlord puts debt on the Project, or a purchaser acquires the Project or Building using debt), Tenant’s obligation to subordinate to such future loan or mortgage (and the deed of trust) will be subject to Tenant entering into a commercially reasonable subordination, non-disturbance and attornment agreement in a form reasonably acceptable to such future lender and Tenant.

23.2 Mortgagee Protection. Tenant agrees to give any Mortgagee, by certified mail, postage prepaid, return receipt requested, a copy of any notice of any failure by Landlord to fulfill any of Landlord’s obligations under this Lease served on Landlord by Tenant, provided that before such notice Tenant has been notified in writing (by way of notice of assignment of rents and leases, or otherwise) of the addresses of such Mortgagee. Tenant agrees that the Mortgagee will have such time as may be necessary to cure such failure as long as any Mortgagee has started and is diligently pursuing the remedies necessary to cure such failure (including time to take possession and/or start foreclosure proceedings, if necessary to effect such cure).

23.3 Lender Requested Changes. If any lender providing construction or permanent financing or any refinancing for all or any portion of the Building requires, as a condition of such financing, that modifications to this Lease be obtained, and provided that such modifications (a) are reasonable, (b) do not adversely affect in a material manner Tenant’s use and occupancy of the Premises as herein permitted, (c) do not increase the Rent and other sums to be paid by Tenant under this Lease, (d) do not reduce the services provided to Tenant under this Lease, (e) do not materially decrease Landlord’s obligations under this Lease, and (f) do not materially affect the rights and obligations of Tenant under this Lease, Landlord may submit to Tenant a written amendment to this Lease incorporating such required changes, and Tenant hereby covenants and agrees to execute, acknowledge, and deliver such amendment to Landlord within ten (10) days of Tenant’s receipt thereof.

23.4 Mortgagee Approval. [Intentionally Omitted]

24. BROKERS. Landlord will pay the commission payable to the Broker identified in the Basic Lease Information pursuant to a separate agreement between the Broker and Landlord. Landlord and Tenant each represent and warrant one to the other that if either has engaged any broker or agent (other than the Broker) in carrying on the negotiations relating to this Lease, it will pay any brokerage commission payable to such broker or agent. Tenant will indemnify, hold harmless, and defend Landlord from and against any claims, losses, damages, or costs (including reasonable attorneys’ fees and all court costs) arising out of any breach of the foregoing representation and warranty by Tenant or any purported or actual dealings by Tenant and any broker or agent other than the Broker. Any representation or statement by a leasing company or other third party (or employee thereof engaged by Landlord as an independent contractor) that is made about the Premises or to the rest of the Building or the Project will not bind Landlord nor modify this Lease and Landlord will have no liability therefor, except to the extent such representation is also contained herein.

25. FINANCIAL STATEMENTS. At any time during the Term that Tenant is not a “publicly traded company” (i.e., ownership interests are listed on a public securities exchange), then within one hundred and twenty (120) days after the end of each fiscal year of Tenant, Tenant shall furnish to Landlord a financial statement, in form and substance satisfactory to Landlord, showing the complete results of Tenant’s operations for its immediately preceding fiscal year. Such financial statements must be either certified by a certified public accountant or sworn to as to their accuracy by Tenant’s chief financial officer. Landlord will retain such statements in confidence, but may provide copies to Mortgagees and potential Mortgagees and

purchasers as required. If at anytime Tenant is in monetary default of this Lease, Landlord shall have the right to request and Tenant shall provide within (15) fifteen days of such request, the current financial statements as of the most recent month end in form and substance satisfactory to Landlord certified by a certified public accountant or sworn to as to their accuracy by Tenant’s (or the guarantor’s, if applicable) chief financial officer.

26. SURRENDER; HOLDING OVER.

26.1 Surrender. After the Term ends, (a) Tenant will surrender the Premises and all keys, locks, and fixtures and improvements thereto (except only Tenant’s personal property) in good order, repair, and condition, as the same are now or will be at the Lease Commencement Date, except for ordinary wear and tear, and (b) Tenant will remove from the Premises the personal property of Tenant, any of its subtenants, and any other persons or entities claiming by, through, or under Tenant and repair any damage to the Premises caused by the removal. Any personal property belonging to Tenant or any other person that is left in the Premises after the Term ends will be deemed to have been abandoned and will become Landlord’s property. In case of such deemed abandonment, Landlord may retain such personal property or may dispose of same at Tenant’s sole cost (including the cost of selling such property or storing same in a warehouse or elsewhere in accordance with Applicable Law), and promptly on demand Tenant will reimburse Landlord as Additional Rent for any costs Landlord incurs in connection therewith, including reasonable attorney’s fees and all court costs. Landlord will not be liable for trespass, conversion, negligence, or in an other way liable in connection with such property.

26.2 Holding Over. Without Landlord’s prior written consent, Tenant may not occupy or retain, or allow any subtenant to occupy or retain, possession of the Premises at any time after the Term ends. If without Landlord’s prior written consent Tenant holds over after the Term ends, Landlord may regain possession of the Premises by any legal process in force at such time. It will be conclusively presumed that the value to Tenant of remaining in possession of the Premises after the Term ends, and the loss or damage that Landlord may suffer as a result thereof, far exceed the Rent Tenant would have paid had the Term continued during the holdover period. If Tenant continues to occupy the Premises after the Term ends, then Tenant will be liable to pay to Landlord an amount equal to One Hundred Fifty Percent (150%) of the monthly installments of Base Rent being paid immediately before the Lease Expiration Date, plus escalations, Additional Rent, and any other charges paid on an installment basis, for each month or part of a month that Tenant occupies the Premises after the date the Term ends, plus any other Additional Rent or charges due, reasonable attorneys’ fees, and all court costs Landlord incurs in regaining possession of the Premises and/or to recover the foregoing amounts. Such damages for the first calendar month (or part thereof) during the holdover period will be due and payable on the day immediately following the end of the Term, and for each calendar month thereafter during the holdover period, such damages will be due and payable on the first day of such calendar month. If the holdover period ends on a date other than the last day of a calendar month, such damages for the entire calendar month in which the holdover period ends will be deemed earned by Landlord as of the first day of such month, and Tenant will not be entitled to a refund or reduction of Rent for any such partial month. Any security deposit provided to Landlord pursuant to the terms of this Lease will be forfeited. Holdover occupancy by Tenant

will be subject to all of the terms, agreements, and conditions of this Lease. Tenant acknowledges and agrees that Landlord intends to lease the Premises (in whole, in part, or as a part of a larger portion of the Building) to another tenant immediately after the Term ends and that any breach or other violation of the provisions of this Section 26.2 may result in material damages to Landlord (including any damages to Landlord in connection with its reletting of the Premises and/or other portions of the Building). Tenant will indemnify, hold harmless, and defend Landlord from all damages, losses, and costs (including reasonable attorneys’ fees and all court costs) that Landlord suffers as a result of Tenant’s holdover use and occupancy of the Premises.

27. WAIVER; NO ACCORD AND SATISFACTION. If Landlord waives Tenant’s breach of any condition or agreement contained in this Lease, such waiver will not operate as a waiver of such condition or agreement itself nor of any subsequent breach thereof. No payment by Tenant or receipt by Landlord of a lesser amount than the monthly installment of Base Rent or any Additional Rent will be other than on account of the earliest stipulated Base Rent and Additional Rent, nor will any endorsement or statement on any check or letter accompanying a check for payment of any Base Rent or Additional Rent be an accord and satisfaction. Landlord may accept such check or payment without prejudice to Landlord’s right to recover the balance of such Rent or to pursue any other remedy provided in this Lease. No reentry by Landlord, and no acceptance by Landlord of keys from Tenant, will be considered an acceptance of a surrender of this Lease. Tenant waives any right of redemption granted by or under any present or future Applicable Laws if Tenant is evicted or dispossessed for any cause, or if Landlord obtains possession of the Premises because Tenant violates any of the agreements and conditions of this Lease, or otherwise.

28. RULES AND REGULATIONS. Tenant, its agents, employees, contractors, and invitees will observe the rules and regulations contained in Exhibit D, and such other rules or regulations as Landlord may promulgate from time to time for the operation and maintenance of the Building and Project, with a copy sent to Tenant. Landlord shall have no duty or obligation to enforce such rules and regulations, or the terms, conditions, or agreements contained in any other lease, as against any other tenant. Landlord will not be liable to Tenant for violation of the same by any other tenant, its employees, agents, business invitees, licensees, customers, family members, or guests.

29. AGREEMENT OF QUIET ENJOYMENT. If Tenant pays the Rent and performs all of the agreements, terms, and conditions of this Lease to be performed by Tenant, then during the Term Tenant may, except as otherwise provided in this Lease, freely, peaceably, and quietly occupy and enjoy the full possession of the Premises without molestation or hindrance by Landlord or any party claiming by, through, or under Landlord.

30. NOTICES. All notices or other communications under this Lease will be in writing and will be deemed duly given if delivered by hand, or by a nationally recognized delivery service providing receipt evidencing such delivery, or by facsimile transmission the receipt of which is confirmed, or by certified mail, return receipt requested, first-class, postage prepaid, to the Address for Notices set forth in the Basic Lease Information unless notice of a change of address is given in writing pursuant to this Section. Notice will be deemed to have been given on receipt or at the time delivery is refused.

31. ENVIRONMENTAL MATTERS.

31.1 General. Tenant, its agents and employees, will not violate or cause to be violated any Applicable Laws relating to the environmental conditions on, under or about the Premises, Building, Project, or the Land, including soil and ground water conditions. Tenant, its agents and employees will not introduce, use, release, generate, store, accept, or dispose of on, under, or about the Premises, the Building, Project, or the Land or transport to or from the Premises, the Building, Project, or the Land any hazardous wastes, toxic substances, pollutants, or related materials (“Hazardous Materials”), except Landlord will permit Tenant to use and store office and cleaning supplies and other Hazardous Materials in such quantities as are necessary for and are typically found in normal office use, so long as the presence of such items does not violate any Environmental Laws governing the use, storage, transportation, or disposal of such items. The term Hazardous Materials includes substances defined as “hazardous substances” or “toxic substances” in the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended, 42 U.S.C. §§ 9061 et seq., the Hazardous Materials Transportation Act, 49 U.S.C. §§ 1802 et seq., and the Resource Conservation and Recovery Act of 1976, 42 U.S.C. §§ 6901 et seq., and any other substances considered hazardous, toxic, or the equivalent pursuant to any other Applicable Laws and in the regulations adopted and publications promulgated pursuant to such laws or any future laws or regulations (collectively, the “Environmental Laws”).

31.2 Remediation. Tenant will, at its sole cost, clean up, remediate, and remove or cause to be cleaned up and removed from, under, or about the Premises, the Building, Project, or the Land any Hazardous Materials it or its agents or employees have or have caused to be released or introduced, and will ensure that such removal is conducted in compliance with all applicable Environmental Laws.

31.3 Indemnification. Tenant will indemnify, defend, and hold Landlord, its successors and assigns harmless from any losses (including reasonable attorneys’ fees and all court costs) that Landlord, its successors and assigns may sustain or that may arise because of Tenant’s failure to comply with the requirements of this Section. This Section will survive the expiration or earlier termination of this Lease.

31.4 Mold.

(i) Tenant acknowledges the necessity of adopting and enforcing good housekeeping practices, ventilation and vigilant moisture control within the Premises (particularly in kitchen areas, janitorial closets, bathrooms, in and around water fountains and other plumbing facilities and fixtures, break rooms, in and around outside walls, and in and around HVAC systems and associated drains) for the prevention of mold (such measures, “Mold Prevention Practices”). Tenant will, at its sole cost and expense keep and maintain the Premises in good order and condition in accordance with the Mold Prevention Practices.

(ii) Tenant, at its sole cost and expense, shall:

(1) Regularly monitor the Premises for the presence of mold and any conditions that reasonably can be expected to give rise or be attributed to mold or fungus including, but not limited to, observed or suspected instances of water damage, condensation, seepage, leaks or any other water penetration (from any source, internal or external), mold growth, mildew, repeated complaints of respiratory ailments or eye irritation by Tenant’s employees or any other occupants of the Premises, or any notice from a governmental agency of complaints regarding the indoor air quality at the Premises (the “Mold Conditions”); and

(2) Promptly notify Landlord in writing if it observes, suspects, has reason to believe mold or Mold Conditions at the Premises.

(iii) In the event of suspected mold or Mold Conditions at the Premises, Landlord may cause an inspection of the Premises to be conducted, during such time as Landlord may designate, to determine if mold or Mold Conditions are present at the Premises.

(iv) Tenant hereby releases and relieves Landlord from any and all liability for bodily injury or damage to property and hereby waives any and all claims against Landlord related to or allegedly caused by or associated with any mold and Mold Conditions in or on the Premises, except to the extent such Mold Conditions were caused by Landlord.

(v) Tenant shall indemnify, defend and hold harmless Landlord from and against any and all Mold Conditions caused or contributed to by Tenant. Landlord shall indemnify, defend and hold harmless Tenant from and any and all Mold Conditions caused or contributed to by Landlord.

(vi) The provisions of this Paragraph 31 shall survive the expiration or earlier termination of this Lease.

31.5 Environmental Warranty. With regard to the Building and Project including without limitation the Premises, Landlord represents and warrants to Tenant that:

a.) No Hazard. To Landlord’s actual knowledge, with no duty of investigation, as of the Lease Commencement Date, no Hazardous Materials (as defined in Section 31.1 hereof) have been manufactured, refined, stored, disposed or, produced, or processed on or in any part of the Premises, Building or Project (except for customary construction products, and cleaning and maintenance products).

b.) Compliance. To Landlord’s actual knowledge with no duty of inquiry, Landlord is in compliance with all federal, state, county, or municipal environmental, pollution, health, safety, fire, or building code laws and has no knowledge and has received no notice of any federal, state, county, or municipal environmental, pollution, health, safety, fire, or building code violations.

c.) No Lawsuits. To Landlord’s actual knowledge, with no duty of inquiry, neither the Landlord nor any tenants in the Building or Project have been named as a party in any proceeding or lawsuit for violation of federal, state, county, or municipal environmental laws regarding the Total Premises.

d.) No Investigations. To Landlord’s actual knowledge, with no duty of inquiry, the Premises, Building and Project are not currently under investigation for alleged federal, state, county, or municipal environmental pollution, health, safety, fire, or building code violations.

e.) Remediation by Landlord. In the event any Hazardous Materials located, in, on, or upon the Premises and such Hazardous Materials was not introduced by Tenant or Tenant’s agents, employees, or invitees, Landlord shall, at its own expense, promptly remove and/or remediate such Hazardous Materials to the full extent required by applicable law. In the event Landlord is unable or unwilling to remediate such Hazardous Materials, Landlord may terminate this Lease effective upon sixty (60) days prior written notice to Tenant.

f.) Indemnity. Landlord will defend, indemnify, and hold harmless Tenant, its directors, officers, members, shareholders, partners, lenders, employees, agents, and any assignees, subtenants, or successors, from and against any and all demands, claims, causes of action, fines, penalties, damages (including, without limitation, consequential damages), losses, liabilities, judgments, and expenses (including, without limitation, attorney’s fees and court costs) resulting from any Hazardous Materials introduced into the Premises or Project by Landlord, or its agents, employees or representatives.

g.) Abatement and Termination. If any cleanup, repair, or similar actions is required by any governmental or quasi-governmental agency as a result of the storage, release, or disposal of hazardous substances materials by Landlord, and such action requires that the Tenant be completely or partially closed for business or that access to all or part of the Premises be denied for longer than a five (5) day period, then the Rent will be abated entirely during the period beyond five (5) days. If the closure or denial of access persists in excess of one hundred and twenty (120) days, then, at Tenant’s election by written notice to Landlord given within ten (10) days after the one hundred and twenty (120) day period, this Lease will terminate effective as of the date of Landlord’s receipt of said notice.

h.) Warranty Survives Expiration of Lease. The provisions of this Clause shall survive the expiration or sooner termination of this Lease.

32. Intentionally Omitted.

33. Relocation of Tenant. Upon prior written notice to Tenant, Landlord shall have the right to relocate Tenant to new space (the “Relocation Space”) within the Project that is comparable in size, utility, and condition to the Premises, including similar Tenant Improvements. Such relocation will be effective on a date specified by Landlord in its relocation notice, which

date will not be less than ninety (90) days after the date of such notice. If Landlord relocates Tenant, Landlord will reimburse Tenant for Tenant’s reasonable out-of-pocket

expenses for moving Tenant’s furniture, equipment, and supplies from the Premises to the Relocation Space, and other reasonable relocation costs. Tenant shall be entitled to concurrently occupy both the Premises and Relocation Space for a period not to exceed twenty (20) days in order to effectuate its relocation in a minimally non-disruptive manner. Upon such relocation, the Relocation Space will be deemed to be the Premises and the terms of this Lease will remain in full force and effect and apply to the Relocation Space. No amendment or other instrument shall be necessary to effectuate the relocation contemplated by this Section; however, if requested by Landlord, Tenant shall execute and deliver to Landlord an appropriate amendment document within twenty (20) days after Landlord’s request therefor. If Tenant fails to execute and deliver such relocation amendment within such time period, or if Tenant fails to relocate within the time period stated in Landlord’s relocation notice to Tenant (or, if the Relocation Space is not available on the date specified in Landlord’s relocation notice, as soon thereafter as the Relocation Space becomes available and is tendered to Tenant in the condition required by this Lease), then, in addition to Landlord’s other remedies set forth in this Lease, at law and/or in equity, Landlord may terminate this Lease by notifying Tenant in writing thereof at least sixty (60) days prior to the termination date contained in Landlord’s termination notice. Landlord’s exercise of its rights as permitted by this Section shall not (a) constitute a constructive eviction, an interference with Tenant’s right of quiet enjoyment, or a disturbance of Tenant’s right to use the Premises; and (b) subject Landlord to damages, including, but not limited to, damages for loss of goodwill, business, or profits. Time is of the essence with respect to Tenant’s obligations under this Section.

34. MISCELLANEOUS.

34.1 Agreements Running With the Land. This Lease is subject to any agreements now or hereafter recorded among the land records of the jurisdiction in which the Premises are located, as such agreements may be amended by Landlord from time to time.

34.2 Terms. In this Lease, unless otherwise indicated, (a) defined terms may be used in the singular or the plural and the use of any gender includes all genders, (b) the terms “agree” and “agreements” contained herein are intended to include and mean “covenant” and “covenants”, (c) the term “including” means “including, but not limited to”, (d) the term “day” means “calendar day” unless expressly stated otherwise, and (e) the term “Business Day” means Monday through Friday inclusive, excluding Holidays.

34.3 Benefit and Burden. Subject to the provisions of Sections 6 (Assignment) and 7 (Subletting) hereof, the provisions of this Lease will be binding on, and will inure to the benefit of, the parties hereto and each of their respective successors and assigns. Landlord may freely and fully transfer, assign, and convey its interest hereunder.

34.4 Landlord as Individual or Partnership. If Landlord or any successor in interest to Landlord is an individual, corporation, limited liability company, joint venture, tenancy in common, firm, or partnership, general or limited, no partner, successor, or affiliate of Landlord (regardless of whether an individual, corporation, or other entity) nor any employee, member, officer, director, or other individual of Landlord or of its successor, partner, or affiliate,

will have any personal liability for any of the provisions of this Lease or any obligation arising therefrom or in connection therewith. In such event, Tenant will look solely to the equity of the then owner of the Building in the Building for the satisfaction of any remedies of Tenant if Landlord or its successors breach any of their obligations hereunder.

34.5 Joint and Several Liability. If two or more individuals, corporations, partnerships, or other business associations (or any combination of two or more thereof) sign this Lease for Tenant, the liability of each such individual, corporation, partnership, or other business association to pay the Rent due under this Lease and to perform all other obligations hereunder will be deemed to be joint and several. All notices, payments, and agreements given or made by, with or to any one of such individuals, corporations, partnerships, or other business associations will be deemed to have been given or made by, with, or to all of them. In like manner, if Tenant is a partnership or other business association, the members of which are, by virtue or statute or federal law, subject to personal liability, the liability of each such member is joint and several.

34.6 No Partnership. Nothing contained in this Lease may be deemed or construed to create a partnership or joint venture of or between Landlord and Tenant, or to create any other relationship between the parties hereto other than that of landlord and tenant.

34.7 Modifications; Time of Essence; Counterparts. This Lease may not be modified, changed, amended, altered, or terminated in whole or in part in any manner other than by an agreement in writing duly executed by both parties hereto. Time is of the essence as to each provision of this Lease. Exhibits attached hereto are incorporated herein by reference. No person or entity purporting to represent Landlord (or otherwise have the authority to bind Landlord) will have any power or authority (apparent or otherwise) to execute this Lease or any amendment to this Lease or make any representation or warranty on behalf of Landlord or otherwise bind Landlord in any respect, except the individual or entity expressly and duly authorized

to do so by Landlord. This Lease may be executed in multiple counterparts, each of which constitute an original and all of which taken together constitute one and the same agreement.

34.8 No Representations by Landlord. Neither Landlord nor any agent or employee of Landlord has made any representations or promises about the Premises or the rest of the Project except as herein expressly set forth, and no rights, privileges, easements, or licenses are acquired by Tenant except as herein expressly set forth. This Lease will not be binding on the parties until and unless this Lease is fully executed and delivered by the parties hereto.

34.9 Authority to Execute. Before or on execution of this Lease, Tenant (unless Tenant is an individual) will deliver to Landlord, in a form reasonably satisfactory to Landlord, incumbency certificates and organizational status certificates and resolutions of the governing body of Tenant (and of any non-individual executing this Lease on behalf of Tenant) authorizing the execution of this Lease by the individual so executing.

34.10 Governing Law; Severability. This Lease will be construed under the internal laws of the State in which the Building is located and any action or proceeding arising under this Lease will be brought in the courts of the State (including both federal and state

courts) in which the Building is located. If a court of competent jurisdiction holds any provision of this Lease or the application thereof to any person or circumstances invalid or unenforceable, the remainder of this Lease, or the application of such provision to persons or circumstances other than those as to which it is invalid or unenforceable, will not be affected thereby, and each provision of this Lease will be valid and be enforced to the fullest extent permitted by Applicable Law.

34.11 Captions. The captions and underlining of specific words herein are for convenience of reference only and do not define, limit, or expand the meaning of the provisions of this Lease. The deletion of any printed, typed, or other portion of this Lease compared to a draft hereof does not evidence an intent to contradict such deleted portion. Such deleted portion will be deemed not to have been inserted in this Lease.

34.12 Recordation. This Lease may not be recorded without Landlord’s prior written consent. If this Lease is recorded by either party hereto, such party will bear the full cost of any transfer and recordation tax and any recording fee assessed in connection with such recordation. If, after the date of this Lease, it becomes necessary under the internal laws of the State in which the Building is located to record this Lease for the Lease to remain effective, Tenant will bear the full cost of any such taxes and fees incurred in connection therewith, all as Additional Rent.

34.13 Status of Tenant. If Tenant is a corporation, the persons executing this Lease on Tenant’s behalf agree and warrant that: Tenant is a duly constituted corporation qualified to do business in California; all of Tenant’s franchisee and corporate taxes have been paid to date; all future forms, reports, fees, and other documents necessary for Tenant to comply with Applicable Laws will be filed by Tenant when due; and such persons are duly authorized by the board of directors of such corporation to execute and deliver this Lease on behalf of the corporation. Tenant certifies that if it is operating under a fictitious name that such name has been duly recorded according to California law and has attached hereto a copy of such registration form.

34.14 Waiver of California Code Sections. Tenant waives the provisions of the following provisions of the Applicable Law: (i) California Code of Civil Procedure Section 1932(1) with respect to the termination of the Lease due to failure, interruption or inability of Landlord to provide the services set forth in Section 16 of this Lease; (ii) California Civil Code Sections 1932(2) and 1933(4) with respect to the destruction of the Premises; (iii) California Civil Code Sections 1941 and 1942 with respect to Landlord’s repair duties and Tenant’s right to repair; (iv) California Civil Code Section 1654 that provides that ambiguities are to be continued against the drafter of this Lease; and (v) California Code of Civil Procedure Section 1265.130, allowing either party to petition the Superior Court to terminate this Lease in the event of a partial taking of the Premises by condemnation. This waiver applies to amendments or modifications to the cited sections and any future statutes enacted in addition or in substitution to the statutes specified herein.

34.15 Confidentiality. Tenant agrees that the terms of this Lease are confidential and constitute proprietary information of Landlord, and that disclosure of the terms hereof could

adversely affect the ability of Landlord to negotiate with other tenants. Tenant and its partners, officers, directors, employees, agents, real estate brokers, and sales persons and attorneys shall not disclose the terms of this Lease to any other person without Landlord’s prior written consent (which consent may be denied in Landlord’s sole and absolute subjective discretion), except to (a) any accountants of Tenant in connection with the preparation of Tenant’s financial statements or tax returns, (b) to an assignee of this Lease or sublessee of the Premises, (c) to an entity or person to whom disclosure is required by Applicable Law or in connection with any action brought to enforce this Lease, (d) Tenant’s consultants, agents, architects, or attorneys representing Tenant in connection with this Lease, or (e) any governmental authority involved in any investigation into the compliance of the Premises or the Project with the Applicable Laws.

34.16 ERISA. Tenant represents and warrants to Landlord that neither Tenant nor any guarantor of Tenant’s obligations under this Lease is (a) a party in interest, as defined in Section 3(14) of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”), to the AFL-CIO Building Investment Trust (“Trust”), or any of the plans participating therein, a list of which plans has previously been delivered to Tenant, or (b) a disqualified person under Section 4975(e)(2) of the Internal Revenue Code of 1986, as amended (“Code”), with respect to the Trust or the plans participating therein. Neither Tenant nor any guarantor of Tenant’s obligations under this Lease shall take any action that would cause this Lease or the exercise by Landlord or the Trust of any rights hereunder, to be a non-exempt prohibited transaction under ERISA. Notwithstanding any contrary provision of this Lease, Tenant shall not assign this Lease or sublease all or any portion of the Premises unless (i) such assignee or subtenant delivers to Landlord a certification (in form and content satisfactory to Landlord) with respect to the status of such assignee or subtenant (and any guarantor of such assignee’s or subtenant’s obligations) as a party in interest and a disqualified person, as provided above; and (ii) such assignee or subtenant undertakes not to take any action that would cause this Lease or the exercise by Landlord or the Trust of any rights hereunder, to constitute a non-exempt prohibited transaction under ERISA.

34.17 UBIT. Notwithstanding any contrary provision of this Lease, Tenant shall not (a) sublease all or any portion of the Premises under a sublease in which the rent is based on the net income or net profits of any person, or (b) take any other action such that the revenues to be received by Landlord or the Trust from time to time in connection with this Lease would, as a result of such action, be subject to the Unrelated Business Income Tax under Sections 511 through 514 of the Code.

34.18 Incorporation. Tenant agrees that it shall incorporate the requirements of Sections 33.16 (ERISA) and 33.17 (UBIT) in any sublease of the Premises.

34.19 Prohibited Persons and Transactions. Tenant represents and warrants to Landlord that Tenant is currently in compliance with and shall at all times during the Term (including any extension thereof) remain in compliance with the regulations of the Office of Foreign Assets Control (“OFAC”) of the U.S. Department of Treasury (including those named on OFAC’s Specially Designated Nationals and Blocked Persons List) and any statute, executive order (including Executive Order 13224, dated September 24, 2001 and entitled “Blocking Property and Prohibiting Transactions with Persons Who Commit, Threaten to Commit, or Support Terrorism”), or other governmental action relating thereto.

34.20 Patriot Act.

(1) Tenant is not in violation of any Anti-Terrorism Law;

(2) Tenant is not, as of the date hereof:

(A) conducting any business or engaging in any transaction or dealing with any Prohibited Person, including the making or receiving of any contribution of funds, goods or services to or for the benefit of any Prohibited Person;

(B) dealing in, or otherwise engaging in any transaction relating to, any property or interests in property blocked pursuant to Executive Order No. 13224; or

(C) engaging in or conspiring to engage in any transaction that evades or avoids, or has the purpose of evading or avoiding, or attempts to violate any of the prohibitions set forth in, any Anti-Terrorism Law; and

(3) neither Tenant nor any of its affiliates, officers, directors, shareholders, members or lease guarantor, as applicable, is a Prohibited Person.

As used herein, “Anti-Terrorism Law” is defined as any law relating to terrorism, anti-terrorism, money-laundering or anti-money laundering activities, including without limitation the United States Bank Secrecy Act, the United States Money Laundering Control Act of 1986, Executive Order No. 13224, and Title 3 of the USA Patriot Act, and any regulations promulgated under any of them. As used herein “Executive Order No. 13224” is defined as Executive Order No. 13224 on Terrorist Financing effective September 24, 2001, and relating to “Blocking Property and Prohibiting Transactions With Persons Who Commit, Threaten to Commit, or Support Terrorism”, as may be amended from time to time. “Prohibited Person” is defined as (1) a person or entity that is listed in the Annex to Executive Order No. 13224, or a person or entity owned or controlled by an entity that is listed in the Annex to Executive Order No. 13224; (2) a person or entity with whom Landlord is prohibited from dealing or otherwise engaging in any transaction by any Anti-Terrorism Law; or (3) a person or entity that is named as a “specially designated national and blocked person” on the most current list published by the U.S. Treasury Department Office of Foreign Assets Control at its official website, http://www.treas.gov/ofac/t11sdn.pdf or at any replacement website or other official publication of such list. “USA Patriot Act” is defined as the “Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001” (Public Law 107-56), as may be amended from time to time.

34.21 Attorney’s Fees. Should either party bring an action against the other party, by reason of or alleging the failure of the other party to comply with any or all of its obligations hereunder, whether for declaratory or other relief, then the party which prevails in such action shall be entitled to its reasonable attorneys’ fees and expenses related to such action,

in addition to all other recovery or relief. A party shall be deemed to have prevailed in any such action (without limiting the generality of the foregoing) if such action is dismissed upon the payment by the other party of the sums allegedly due or the performance of obligations allegedly not complied with, or if such party obtains substantially the relief sought by it in the action, irrespective of whether such action is prosecuted to judgment.

34.22 WAIVER OF JURY TRIAL. LANDLORD AND TENANT HEREBY WAIVE TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO WHICH THEY OR ANY OF THEM MAY BE A PARTY ARISING OUT OF OR IN ANY WAY RELATED TO THIS LEASE. IT IS UNDERSTOOD THAT THIS WAIVER CONSTITUTES A WAIVER OF TRIAL BY JURY OF ALL CLAIMS AGAINST ALL PARTIES TO SUCH ACTIONS OR PROCEEDINGS. THIS WAIVER IS KNOWINGLY, WILLINGLY, AND VOLUNTARILY MADE BY LANDLORD AND TENANT, AND EACH PARTY REPRESENTS THAT NO REPRESENTATIONS OF FACT OR OPINION HAVE BEEN MADE BY ANY INDIVIDUAL TO INDUCE THIS WAIVER OF TRIAL BY JURY OR TO IN ANY WAY MODIFY OR NULLIFY ITS EFFECT. LANDLORD AND TENANT ACKNOWLEDGE AND AGREE THAT THIS PROVISION IS A SPECIFIC AND MATERIAL ASPECT OF THIS LEASE. LANDLORD AND TENANT EACH REPRESENT THAT IT HAS BEEN REPRESENTED (OR HAS HAD THE OPPORTUNITY TO BE REPRESENTED) IN THE SIGNING OF THIS LEASE AND IN THE MAKING OF THIS WAIVER BY INDEPENDENT LEGAL COUNSEL, AND THAT IT HAS HAD AN OPPORTUNITY TO DISCUSS THIS WAIVER WITH COUNSEL.

/s/ DS	/s/ DS
Landlord’s Initials	Tenant’s Initials

34.23. Force Majeure. The term “Force Majeure” shall mean actual delay in the performance of any obligations contained in this Lease (whether a Landlord or Tenant obligation) attributable to terrorist act, lightening, earthquakes, fire, storm, hurricane, tornado, flood, washout, explosion, act of god, or any other similar cause beyond the reasonable control of the party. If Landlord or Tenant, as a direct result of Force Majeure, fails to timely perform any obligation on its part to be performed, then such failure will be excused and not a breach of this Lease by the party in question, but only to the extent and for the time occasioned by such event, and only to the extent a Force Majeure event is specifically referenced in the applicable portions of the Lease. The provisions of this Section 34.23 of the Lease and Force Majeure do not apply to Tenant’s obligation to pay when due, the Rent or any Additional Rent or to adjust the Commencement Date or Expiration Date. In addition, lack of funds and inability to procure financing will not be deemed to be an event beyond the reasonable control of Tenant. In the event of such Force Majeure, and as a condition precedent to either party claiming or relying upon such delay, such party must give notice in writing describing such event to the other party within ten (10) days after the occurrence of such event.

34.24 ENTIRE AGREEMENT. THIS INSTRUMENT ALONG WITH ANY EXHIBITS AND ATTACHMENTS HERETO CONSTITUTES THE ENTIRE AGREEMENT

BETWEEN LANDLORD AND TENANT RELATIVE TO THE PREMISES AND THIS AGREEMENT, AND THE EXHIBITS AND ATTACHMENTS MAY BE ALTERED, AMENDED, OR REVOKED ONLY BY AN INSTRUMENT IN WRITING SIGNED BY BOTH LANDLORD AND TENANT. IT IS UNDERSTOOD THAT THIS LEASE SUPERSEDES AND CANCELS ANY AND ALL PREVIOUS NEGOTIATIONS, ARRANGEMENTS, BROCHURES, AGREEMENTS, OR REPRESENTATIONS, AND UNDERSTANDINGS, IF ANY, BETWEEN THE PARTIES HERETO.

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

LANDLORD:
BIT HOLDINGS FIFTY-SIX, INC., a Maryland corporation
By:	/s/ David C. Schenning
Name:	David C. Schenning
Title:	VP
TENANT:
TALEO CORPORATION, a Delaware corporation
By:	/s/ Divesh Sisodraker
Name:	Divesh Sisodraker
Title:	CFO
By:	/s/ Jonathan Faddis
Name:	Jonathan Faddis
Title:	Vice President and Corporate Counsel

EXHIBIT A

FLOOR PLAN SHOWING PREMISES

EXHIBIT B

THIS WORK AGREEMENT (“Work Agreement”) supplements the Lease executed concurrently herewith by and between BIT Holdings Fifty-Six, Inc., a Maryland corporation, as Landlord, and Taleo Corporation, a Delaware corporation, as Tenant. All capitalized terms not defined herein shall have the same meanings as set forth in the Lease.

1. Landlord’s Work. Landlord shall deliver the Premises to Tenant on the Effective Date in their current “AS-IS” and “WHEREAS” condition with “ALL FAULTS subject to Sections 1.4 and 5.1 of this Lease.” Landlord shall not be required to construct any of the Tenant Improvements in the Premises.

2. Improvements. All improvements necessary to prepare the Premises for Tenant’s occupancy and use (the “Tenant Improvements”) shall be performed by Tenant, and Tenant shall be solely responsible for all costs of constructing the Tenant Improvements of every nature (the “Tenant Improvement Costs”) (subject to the Tenant Improvement Allowance), with Tenant’s own contractor. The term “Tenant Improvement Costs” shall include each and every cost of designing, constructing, engineering and approving the Tenant Improvements which shall include, but not be limited to, the following: (i) all payments to the Contractor for materials, labor, overhead, etc., for the construction of the Tenant Improvements; (ii) all payments to the Engineers and Architects to design the Tenant Improvements; (iii) all construction management and supervision fees; (iii) permitting and approval costs; (iv) taxes, fees, charges, and levies by any governmental agency for permits, inspections or approvals of the Tenant Improvements; (v) utilities incurred in the course of the construction of the Tenant Improvements; (vi) premiums for all insurance to be carried by Tenant under this Work Agreement; (vii) the Coordination Fee; (viii) any and all costs incurred to comply with laws interior to the Premises; (ix) costs of sprinkler and HVAC compliance with laws and distribution to meet the Tenant’s Approved Working Drawings; and (x) all costs incurred interior to the Premises for life-safety compliance. All matters which are not Tenant Improvement Costs may not be paid for, or used from the Tenant Improvement Allowance, which shall include, but not be limited to furniture, fixtures and equipment.

3. Plans and Specifications.

3.1 Final Space Plan. Landlord and Tenant, prior to the execution of this Lease, have approved the space plans attached to this Lease as Exhibit C (the “Final Space Plan”). The Final Space Plan includes a layout and designation of all offices, rooms and other partitioning, their intended use, and equipment to be contained therein. Landlord may request clarification or more specific drawings for special use items not included in the Final Space Plan. Landlord’s review and approval of the Final Space Plan is not a representation that such proposed Tenant Improvements: (i) can be accommodated by the Premises; (ii) comply with laws; or (iii) can be constructed for any certain price, and specifically, Landlord makes no representation or warranty that the proposed Tenant Improvements can be constructed within the Tenant Improvement Allowance. Landlord shall pay for the actual costs incurred, not to exceed Two Thousand Dollars ($2,000.00) upon demand from Tenant, towards drafting of path by travel documents by Tenant’s Architect.

3.2 Final Working Drawings. Tenant shall supply the Engineers with a complete listing of standard and non-standard equipment and specifications, including, without limitation, B.T.U. calculations, electrical requirements and special electrical receptacle requirements for the Premises, to enable the Engineers and the Architect to complete the “Final Working Drawings” (as that term is defined below) in the manner as set forth below. Tenant shall cause the approved Final Space Plan to be converted by the Architect and the Engineers to complete architectural and engineering drawings for the Premises, and Architect shall compile a fully coordinated set of architectural, structural, mechanical, electrical and plumbing working drawings in a form which is complete to allow subcontractors to bid on the work and to obtain all applicable permits (collectively, the “Final Working Drawings”) and shall submit the same to Landlord for Landlord’s approval. Tenant shall supply Landlord with four (4) copies signed by Tenant of such Final Working Drawings. Landlord shall advise Tenant within five (5) business days after Landlord’s receipt of the Final Working Drawings for the Premises if the same is unsatisfactory or incomplete in any respect. If Tenant is so advised, Tenant shall immediately revise the Final Working Drawings in accordance with such review and any disapproval of Landlord in connection therewith.

Landlord and Tenant acknowledge that the Final Space Plans may not depict certain structural elements of the Building and/or various elements of the Building systems which may result in material modifications to the Final Working Drawings (“Space Plan Modifications”) Furthermore, the Final Space Plans for the construction of the Tenant Improvements may require modification to account for the requirements of building codes and other legal requirements of applicable governmental entities, including, but not limited to, Title 24 and the Americans with Disabilities Act (collectively the “Building Codes”). The Final Working Drawings shall materially conform to the Final Space Plans, taking into account (i) Space Plan Modifications, (ii) the requirements of the Building Codes, (iii) other modifications resulting from physical constraints of the Premises and (iv) modifications requested by Tenant and consented to by Landlord, which consent shall not be unreasonably withheld. Tenant agrees that, in addition to other factors and considerations Landlord may take into account, it shall not be unreasonable for Landlord to withhold its consent to any matters set forth in the Final Working Drawings and not contained in the Final

Space Plans, (i) if such requested modifications would not comply with the Building Codes or any laws, (ii) subject to Section 7 if such requested modifications would cause the anticipated cost of the Tenant Improvements to exceed the Tenant Improvement Allowance (unless Tenant agrees to be responsible for all such costs, and provide evidence satisfactory to Landlord of Tenant’s ability to pay such amounts, including escrow the funds if required by Landlord), (iii) if such requested modifications would not increase the value of the Tenant Improvements, (iv) if such requested modifications would increase the burden on the Building systems, either during construction or after completion of same.

3.3 Approved Working Drawings. The Final Working Drawings shall be submitted for approval to Landlord prior to the commencement of construction of the Premises by Tenant. Tenant may simultaneously submit the same to the City of Dublin for all applicable building permits. The term “Approved Working Drawings” shall mean Final Working Drawings that have been approved in writing by Landlord. Notwithstanding anything to the contrary in this Lease, Tenant shall not commence work on the Tenant Improvements until Tenant has obtained

Landlord’s written approval of the Final Working Drawings. Tenant hereby agrees that neither Landlord nor Landlord’s consultants shall be responsible for obtaining any building permit or certificate of occupancy for the Premises and that obtaining the same shall be Tenant’s responsibility; provided, however, that Landlord shall cooperate with Tenant in executing permit applications and performing other ministerial acts reasonably necessary to enable Tenant to obtain any such permit or certificate of occupancy. No changes, modifications or alterations in the Approved Working Drawings may be made without the prior written consent of Landlord, which consent may not be unreasonably withheld, except that Landlord and Tenant agree that it shall be reasonable for Landlord to withhold its consent if the any of the items set forth in Sections (i) through (iv) of the preceding paragraph are applicable.

4. Contractors.

(a) The general contractor selected by Tenant (the “Contractor”) shall be subject to the approval of Landlord, which approval shall not be unreasonably withheld. Tenant’s Contractor shall employ engineers and subcontractors that are licensed and insured to perform all structural, mechanical, electrical, life-safety and plumbing work in the Premises, all of whom shall be reasonably acceptable to Landlord. Tenant shall pay all costs incurred directly or indirectly by reason of Tenant’s selecting a Contractor other than Landlord’s general contractor, including, without limitation, Landlord’s reasonable costs for supervision and inspection of the construction of the Tenant Improvements such costs are included in the Coordination Fee (as defined in Section 6 below). The form of construction contract entered into by Tenant with its general contractor shall be subject to the reasonable approval of Landlord, and shall be no less favorable than an AIA form of construction contract. Furthermore, all architects and engineers selected by Tenant (the “Engineers” and “Architects”, respectively) shall be subject to the approval of Landlord, which approval shall not be unreasonably withheld. With respect to the construction of any Tenant Improvements which tie into Building systems: (i) Tenant shall provide Landlord with written notice of all such work, and afford the Landlord a reasonable opportunity to inspection such work (provided such inspections are done promptly and do not materially delay Tenant’s construction of Tenant’s Improvements; (ii) Landlord shall be entitled to reasonably approve of the Contractor, and recommend contractors which the Landlord is familiar with, and who are familiar with the Building; and (iii) Tenant shall be liable and responsible for any Building system damage, and interruptions of any Building services or utilities to all tenants who are adversely impacted.

(b) All persons employed by Tenant shall be subject to Landlord’s policies, rules, regulations, schedules and administrative control and shall conduct their work in such a way as not to hinder, cause any disharmony with or delay any work or other improvements in the Building. Tenant shall cause its suppliers and contractors to engage only labor that is harmonious and compatible with other labor working in the Building. In the event of any labor disturbance caused by persons employed by Tenant or Tenant’s contractor, Tenant shall immediately take all actions necessary to eliminate such disturbance. If at any time any supplier, contractor, workman or mechanic performing Tenant’s work hinders or delays any other work of improvement in the Building or performs any work which may or does impair the quality, integrity or performance of any portion of the Building, Tenant shall cause any such supplier, contractor, workman or

mechanic to leave the Building and remove all tools, equipment and materials immediately upon written notice delivered to Tenant, and Tenant shall reimburse Landlord for any repairs or corrections resulting from the work of any supplier, contractor, workman or mechanic performing any work in the Premises. Tenant and its contractors shall strictly comply with the Conditions for Construction attached hereto as Exhibit F.

(c) In addition to any other conditions contained herein with respect to Tenant making any Tenant Improvements, before constructing any Tenant Improvements, Tenant shall (a) deliver to Landlord evidence satisfactory to Landlord that Tenant shall cause the Tenant Improvements (“Construction Activities”) to be performed by contractors who shall employ craft workers who are members of unions that are affiliated with The Building and Construction Trades Department, AFL-CIO (“Union Labor”), and such work shall conform to traditional craft jurisdictions as established in the area (the “Construction Labor Covenant”), (b) include the Construction Labor Covenant in each of its contracts for the Construction Activities, (c) provide such evidence as Landlord may reasonably require, from time to time during the course of the Construction

Activities, that the Construction Labor Covenant is being fully and faithfully observed and Tenant shall include the obligation to provide such evidence in each contract entered into by Tenant for the Construction Activities, and (d) incorporate the foregoing requirements in any sublease, license, or occupancy agreement relating to all or any part of the Premises. Tenant shall require that all contractors and subcontractors, of whatever tier, performing Construction Activities agree to submit all construction jurisdictional disputes (i.e., disputes about which union is the appropriate union to perform a given contract) to final and binding arbitration through the procedures of the jointly administered “Plan for the Settlement of Jurisdictional Disputes in the Construction Industry,” a dispute resolution plan established and administered by The Building and Construction Trades Department, AFL-CIO, and various construction industry employer associations. If a resolution to a construction-related jurisdictional dispute cannot be obtained through The Building and Construction Trades Department, AFL-CIO, contractors and subcontractors, of whatever tier, shall agree to submit all such disputes to final and binding arbitration procedures to be administered by the American Arbitration Association (“AAA”) and in conformity with AAA’s Commercial Arbitration Rules, Expedited Procedures, with an arbitrator who is an experienced labor arbitrator and is a member of the National Academy of Arbitration.

5. Prior to Commencement of Construction. Prior to the commencement of construction of the Tenant Improvements, Tenant shall submit to Landlord the following:

(a) All Permits and governmental approvals required to commence construction of the Tenant Improvements, including but not limited to approved building permits. Notwithstanding the proceeding sentence, provided Tenant has submitted Final Working Drawings to the City of Dublin prior to construction (and obtained Landlord’s approval of such Final Working Drawings), Tenant may commence construction strictly to the City of Dublin permit application conditions. Tenant shall be responsible for any and all modifications or changes to work performed while its permit application is pending if the City of Dublin requires changes to the Final Working Drawings in order to issue approved building permits.

Tenant shall indemnify, defend and hold harmless Landlord from and against any and all claims, liabilities, causes of actions, fines or judgments in any way related to Tenant commencing construction of the Tenant Improvements prior to receiving formal unconditional approval and building permits from the City of Dublin.

(b) Certification of the date on which construction of the Tenant Improvements will commence, the estimated date of completion of the Tenant Improvements and the construction schedule provided by the general contractor.

(c) Evidence of the insurance, in a form acceptable to Landlord, required pursuant to the Conditions for Construction, and this Work Agreement.

(d) Funding commitments or evidence of other satisfactory financial arrangements to pay for construction of the Tenant Improvements, to the extent any bid is in excess of the Tenant Improvement Allowance.

6. Construction of Improvements. All work performed by Tenant’s contractor shall comply with all applicable ordinances, codes and regulations and shall be performed in a good and workmanlike manner. Tenant shall deliver copies of all permits and all periodic governmental inspection reports with respect to the Tenant Improvements promptly after receipt thereof by Tenant or Tenant’s contractor. Landlord should be notified in advance of requested inspections and may attend inspections to observe on behalf of the Building. At all times during construction of the Tenant Improvements, Landlord and Landlord’s employees and agents shall have the right to enter the Premises to inspect the work. Tenant shall not close-up any work affecting the life safety, heating, ventilation and air conditioning, plumbing or electrical systems in the Premises until the same have been inspected and approved by Landlord’s agents. Tenant shall provide Landlord reasonable notice of the date it intends to close up work affecting life safety, heating, ventilation and air conditioning, plumbing and electrical systems in the Premises. Landlord shall inspect the work to be closed up within three (3) business days of such notice. If Landlord does not inspect the work to be closed up within three (3) business days, Landlord shall be deemed to have waived its right to inspect. No inspection or approval by Landlord of any such work shall constitute an endorsement thereof with any governmental ordinances, codes or regulations, and Tenant shall be fully responsible and liable therefor. Tenant shall reimburse Landlord for any repairs or corrections of any portion of the Building caused by any contractor, subcontractor, supplier, workman or mechanic performing any work in the Premises. Upon completion of the construction of the Tenant Improvements, Tenant shall provide Landlord with marked copies of the construction drawings indicating to the extent possible the actual Tenant Improvements in the Premises, a certificate of occupancy and the results of any inspections and/or approvals given or required by any governmental agency. Tenant’s and Tenant’s agent’s construction of the Tenant Improvements shall comply with the following: (i) the Tenant Improvements shall be constructed in strict accordance with the Approved Working Drawings; (ii) Tenant’s Agents shall submit schedules of all work relating to the Tenant’s Improvements to the general contractor and the general contractor shall, within five (5) business days of receipt thereof, inform Tenant’s agents of any changes which are necessary thereto, and Tenant’s agents shall adhere to such corrected schedule; (iii) Tenant shall abide by all rules made by Landlord’s

Building manager with respect to the use of freight, loading dock and service elevators, storage of materials, coordination of work with the contractors of other tenants, and any other matter in connection with this Tenant Work Agreement, including,

without limitation, the construction of the Tenant Improvements; and (iv) Tenant and its agents and contractors shall strictly comply with the Conditions for Construction attached hereto as Exhibit F. Tenant shall pay a logistical coordination fee (the “Coordination Fee”) to Landlord in an amount equal to the product of (i) five percent (5%) multiplied by (ii) the sum of the Tenant Improvement Allowance, the Cost Overage, as such amount may be increased hereunder, and any other amounts expended by Tenant in connection with the design and construction of the Tenant Improvements, which Coordination Fee shall be for services relating to the coordination of the construction of the Tenant Improvements.

7. Tenant Improvement Allowance. Landlord shall pay cost associated with the Tenant Improvements depicted on the Approved Final Plans, an amount which is the lesser of: (i) One Million Sixty Two Thousand Seven Hundred Twenty Dollars and No Cents ($1,062,720.00); or (ii) the Tenant Improvement Costs of constructing the Tenant Improvements (the “Tenant Improvement Allowance”). Landlord and Tenant agree and acknowledge that the Tenant Improvement Allowance will be used only for the purpose of the work depicted in the Approved Working Drawings and that the Tenant Improvement Allowance, and all of it, shall be utilized only for the benefit of the Premises. The Tenant Improvement Allowance may only be utilized for hard costs of construction of the Tenant Improvements and may not be used for furniture, fixtures, equipment, or otherwise. Any used or unfunded portion of the Tenant Improvement Allowance shall be retained by Landlord, and without payment to Tenant, offset, deduction or otherwise. To the extent that: (i) the bid obtained based on the Approved Working Drawings exceeds the Tenant Improvement Allowance (exclusive of the Cabling Installation); or (ii) at any time the cost of construction of the Tenant Improvements is expected to exceed the Tenant Improvement Allowance (regardless of whether due to changes in the Approved Working Drawings, change orders, increases in costs, or otherwise) (collectively a “Cost Overage”); then Tenant shall immediately deposit into a third party escrow acceptable to Landlord a sum equal to one hundred and five percent (105%) of the Cost Overage. In such event, the parties shall enter into an escrow agreement substantially in the form of Exhibit L to this Lease.

8. Payment of the Tenant Improvement Allowance. Tenant shall pay directly and in full the cost of constructing the Tenant Improvements, including the costs of labor and materials supplied by the general contractor or subcontractors, and shall be responsible for removing any mechanics’ liens and obtaining mechanics’ lien waivers from the general contractor and any subcontractor or supplier of any tier. Tenant shall provide Landlord with conditional lien releases for current progress payments and unconditional lien releases for all prior progress payments to its Contractor for each person who has served the Landlord with a California 20 day preliminary notice (and the Contractor). Tenant shall provide Landlord a copy of final unconditional lien releases from the Contractor and any subcontractor or supplier that performed work or supplied materials for construction of the Tenant Improvements. Tenant shall promptly record a Notice of Completion and provide a copy to the Landlord. Tenant shall provide Landlord with a Certificate of Occupancy for the Premises. Tenant shall keep the Premises and the Building free from any liens arising out of the work performed, materials furnished or obligations incurred by Tenant. Should a mechanic’s lien be recorded, and Tenant fail to remove

any such lien within five (5) days after notice to do so from Landlord, Landlord may, in addition to any other remedies; (i) post a release of mechanic’s lien bond and all amounts incurred by Landlord in so doing shall immediately become due and payable by Tenant to Landlord as additional rent; and (ii) satisfy the amount of the mechanic’s lien and withhold from the Tenant Improvement Allowance an amount necessary to satisfy the lien, including attorneys fees. Landlord shall have the right to post and keep posted on the Premises any notices that may be provided by law, or which Landlord may deem to be proper for the protection of Landlord, the Premises and the Building from such liens, including but not limited to a Notice of Non-Responsibility. Landlord shall pay Tenant the Tenant Improvement Allowance on a percentage completion basis as follows. Within fifteen (15) days of Tenant’s delivery of (i) conditional lien releases for current progress payments from the Contractor and subcontractors or suppliers that performed work or supplied materials for construction of Tenant Improvements; (ii) unconditional lien releases for all prior progress payments from Contractor and subcontractors or suppliers that performed work or supplied materials for construction of Tenant Improvements; (iii) approval of progress payments by Tenant’s Architect and Landlord’s construction manager; (iv) Landlord’s inspection of work performed that is associated with the progress payments to ensure that the percentage completion is accurate and that the work is performed in a satisfactory manner in compliance with the Approved Working Drawings (provided Landlord conducts such inspections reasonably promptly); (v) evidence satisfactory to Landlord of payment by Tenant of the applicable draw request from the Contractor; (vi) other reasonable evidence required by Landlord to ensure Premises and Building are lien free and the applicable portion of the Tenant Improvements have been paid for by Tenant, Landlord shall pay eighty-five (85%) percent of each progress payment submitted by Tenant. If Landlord does not pay the applicable progress payment on account of the Tenant Improvement Allowance in accordance with the terms of this Section: (i) after a ten (10) day notice to cure from Tenant to Landlord; (ii) Landlord being in possession of all documents required hereunder; and (iii) items (i) through (vi) above have been complied with; Tenant shall be entitled to deduct unpaid progress payments from Base Rent for the next month’s rent payment. Tenant shall provide Landlord with notice of the actual amount of Base Rent deducted and a reference to the unpaid progress payment. Within thirty (30) days of Tenant’s completion of the Tenant Improvements and delivery of: (i) a recorded notice of completion; (ii) final unconditional lien releases from all persons who might have mechanic’s lien rights; (iii) a affidavit from the Tenant’s general contractor that all debts have been paid with respect to the Tenant Improvements in a form equivalent to AIA G706; (iv) as built drawings of

the Tenant Improvements; (v) Landlord has inspected the Tenant Improvements and confirmed that the work is first class in nature, and the work is in compliance with the Approved Working Drawings; (vi) evidence that Tenant has paid for the entire cost of constructing the Tenant Improvements, including labor and materials; and (vii) any other evidence reasonably required by Landlord to ensure the Premises and the Building are lien free; Landlord shall pay Tenant the remaining balance of Tenant Improvement Allowance (except to the extent the cost of the Tenant Improvements in less than the Tenant Improvement Allowance). If Landlord does not pay the remaining balance of the Tenant Improvement Allowance in accordance with the terms of this Section: (i) after a ten (10) day notice to cure from Tenant to Landlord; (ii) Landlord being in possession of all documents required hereunder; and (iii) items (i) through (vii) above have been complied with; Tenant shall be entitled to deduct the remaining balance of the Tenant Improvement Allowance from Base Rent for the next month’s rent payment. Tenant shall provide Landlord with notice of the actual amount of Base Rent deducted and a reference to the unpaid progress payment.

9. Indemnity/Insurance. Tenant’s indemnity of Landlord as set forth in Section 13 of this Lease shall also apply with respect to any and all costs, losses, damages, injuries and liabilities related in any way to any act or omission of Tenant or Tenant’s agents, or anyone directly or indirectly employed by any of them in the construction or design of the Tenant Improvements, or in connection with Tenant’s non-payment of any amount arising out of the Tenant Improvements and/or Tenant’s disapproval of all or any portion of any request for payment. Contractor(s) shall maintain all insurance specified in the Conditions for Construction attached hereto as Exhibit F. Tenant shall maintain builders risk insurance on the Tenant Improvements, with coverage in the amount of the replacement cost of the Tenant Improvements, and shall be in a form and with deductibles reasonably acceptable to Landlord. In the event the Building or Premises are damaged or destroyed, Tenant shall use all available insurance proceeds to rebuild the Tenant Improvements, unless either of the parties terminates this Lease pursuant to the express termination provisions of Section 17 of the Lease.

10. Contractor Warranties. Each of Tenant’s Agents shall guarantee to Tenant and for the benefit of Landlord that the portion of the Tenant Improvements for which it is responsible shall be free from any defects in workmanship and materials for a period of not less than one (1) year from the date of completion thereof. Each of Tenant’s Agents shall be responsible for the replacement or repair, without additional charge, of all work done or furnished in accordance with its contract that shall become defective within one (1) year after the later to occur of (i) completion of the work performed by such contractor or subcontractors and (ii) the Lease Commencement Date. The correction of such work shall include, without additional charge, all additional expenses and damages incurred in connection with such removal or replacement of all or any part of the Tenant Improvements, and/or the Building and/or common areas that may be damaged or disturbed thereby. All such warranties or guarantees as to materials or workmanship of or with respect to the Tenant Improvements shall be contained in the Contract or subcontract and shall be written such that such guarantees or warranties shall inure to the benefit of both Landlord and Tenant, as their respective interests may appear, and can be directly enforced by either. Tenant covenants to give to Landlord any assignment or other assurances which may be necessary to effect such right of direct enforcement.

11. Miscellaneous.

11.1 Tenant’s Representative. Tenant has designated Cole Construction Management, Attention: Nan Reed as its sole representative with respect to the matters set forth in this Tenant Work Agreement, who shall have full authority and responsibility to act on behalf of the Tenant as required in this Tenant Work Agreement.

11.2 Landlord’s Representative. Landlord has designated Scott Kirkpatrick, Colliers Parrish, as its sole representative with respect to the matters set forth in this Tenant Work Agreement, who, until further notice to Tenant, shall have full authority and responsibility to act on behalf of the Landlord as required in this Tenant Work Agreement.

11.3 Time of the Essence in This Tenant Work Agreement. Unless otherwise indicated, all references herein to a “number of days” shall mean and refer to calendar days. If any item requiring approval is timely disapproved by Landlord, the procedure for preparation of the document and approval thereof shall be repeated until the document is approved by Landlord.

11.4 Tenant’s Lease Default. Notwithstanding any provision to the contrary contained in this Lease, if an event of default as described in Article 20 of the Lease or this Tenant Work Agreement has occurred at any time on or before the substantial completion of the Premises, then (i) in addition to all other rights and remedies granted to Landlord pursuant to this Lease, Landlord shall have the right to withhold payment of all or any portion of the Tenant Improvement Allowance, and (ii) all other obligations of Landlord under the terms of this Tenant Work Agreement shall be forgiven until such time as such default is cured pursuant to the terms of this Lease.

11.5 Landlord Inspections. Landlord shall have the right to inspect the Tenant Improvements at all times, provided however, that except as otherwise set forth in this Lease, Landlord’s failure to inspect the Tenant Improvements shall in no event constitute a waiver of any of Landlord’s rights hereunder nor shall Landlord’s inspection of the Tenant Improvements constitute Landlord’s approval of the same. Should Landlord disapprove any portion of the Tenant Improvements, Landlord shall notify Tenant in writing of such disapproval and shall specify the items disapproved in accordance with Section 6 of this Lease. Any defects or deviations in, and/or disapproval by Landlord of, the Tenant Improvements shall be rectified by Tenant at

no expense to Landlord, provided however, that in the event Landlord determines that a defect or deviation exists or disapproves of any matter in connection with any portion of the Tenant Improvements and such defect, deviation or matter might adversely affect the mechanical, electrical, plumbing, heating, ventilating and air conditioning or life-safety systems of the Building, the structure or exterior appearance of the Building or any other tenant’s use of such other tenant’s leased premises, Landlord may, take such action as Landlord deems necessary, at Tenant’s expense and without incurring any liability on Landlord’s part, to correct any such defect, deviation and/or matter, including, without limitation, causing the cessation of performance of the construction of the Tenant Improvements until such time as the defect, deviation and/or matter is corrected to Landlord’s satisfaction.

11.6 Meetings. Commencing upon the Effective Date of this Lease, Tenant shall hold weekly meetings at a reasonable time, with the Architect and the Contractor regarding the progress of the preparation of construction drawings and the construction of the Tenant Improvements, which meetings shall be held at the Project, and Landlord and/or its agents shall receive reasonable prior notice of, and shall have the right to attend, all such meetings, and, upon Landlord’s request, certain of Tenant’s agents shall attend such meetings or at Tenant’s discretion attend by telephone call in. In addition, minutes shall be taken at all such meetings, a copy of which minutes shall be promptly delivered to Landlord. One such meeting each month shall include the review of Contractor’s current request for payment.

11.7. Force Majuere. This Work Letter and the obligations and rights of the parties hereunder is expressly subject to Section 34.23 of the Lease.

EXHIBIT C

PLANS

EXHIBIT D

RULES AND REGULATIONS

A. General Rules and Regulations. The following rules and regulations govern the use of the Building, Project and common areas. Tenant will be bound by such rules and regulations and agrees to cause Tenant’s Authorized Users, its employees, subtenants, assignees, contractors, suppliers, customers and invitees to observe the same.

1. Except as specifically provided in the Lease to which these Rules and Regulations are attached, no sign, placard, picture, advertisement, name or notice may be installed or displayed on any part of the outside or inside of the Building or the Development without the prior written consent of Landlord. Landlord will have the right to remove, at Tenant’s expense and without notice, any sign installed or displayed in violation of this rule. All approved signs or lettering on doors and walls are to be printed, painted, affixed or inscribed at the expense of Tenant and under the direction of Landlord by a person or company designated or approved by Landlord.

2. If Landlord objects in writing to any curtains, blinds, shades, screens or hanging plants or other similar objects attached to or used in connection with any window or door of the Premises, or placed on any windowsill, which is visible from the exterior of the Premises, Tenant will immediately discontinue such use. Tenant agrees not to place anything against or near glass partitions or doors or windows which may appear unsightly from outside the Premises including from within any interior common areas.

3. Tenant will not obstruct any sidewalks, halls, passages, exits, entrances, elevators, escalators, or stairways of the Development. The halls, passages, exits, entrances, elevators and stairways are not open to the general public, but are open, subject to reasonable regulations, to Tenant’s business invitees. Landlord will in all cases retain the right to control and prevent access thereto of all persons whose presence in the reasonable judgment of Landlord would be prejudicial to the safety, character, reputation and interest of the Development and its tenants, provided that nothing herein contained will be construed to prevent such access to persons with whom any tenant normally deals in the ordinary course of its business, unless such persons are engaged in illegal or unlawful activities. No tenant and no employee or invitee of any tenant will go upon the roof of the Building.

4. Tenant will not obtain for use on the Premises ice, drinking water, food, food vendors, beverage, towel or other similar services or accept barbering or bootblacking service upon the Premises, except at such reasonable hours and under such reasonable regulations as may be fixed by Landlord. Landlord expressly reserves the right to absolutely prohibit solicitation, canvassing, distribution of handbills or any other written material, peddling, sales and displays of products, goods and wares in all portions of the Development except as may be expressly permitted under the Lease. Landlord reserves the right to restrict and regulate the use of the common areas of the Development and Building by invitees of tenants providing services to tenants on a periodic or daily basis including food and beverage vendors. Such restrictions may include limitations on time, place, manner and duration of access to a tenant’s premises for such purposes. Without limiting the foregoing, Landlord may require that such parties use service elevators, halls, passageways and stairways for such purposes to preserve access within the Building for tenants and the general public.

5. Landlord reserves the right to require tenants to periodically provide Landlord with a written list of any and all business invitees which periodically or regularly provide goods and services to such tenants at the premises. Landlord reserves the right to preclude all vendors from entering or conducting business within the Building and the Development if such vendors are not listed on a tenant’s list of requested vendors.

6. Landlord reserves the right to exclude from the Building between the hours of 6 p.m. and 7 a.m. the following business day, or such other hours as may be established from time to time by Landlord, and on Sundays and legal holidays, any person unless that person is known to the person or employee in charge of the Building or has a pass or is properly identified. Tenant will be responsible for all persons for whom it requests passes and will be liable to Landlord for all acts of such persons. Landlord will not be liable for damages for any error with regard to the admission to or exclusion from the Building of any person. Landlord reserves the right to prevent access to the Building in case of invasion, mob, riot, public excitement or other commotion by closing the doors or by other appropriate action.

7. The directory of the Building or the Development will be provided exclusively for the display of the name and location of tenants only and Landlord reserves the right to exclude any other names therefrom.

8. All cleaning and janitorial services for the Development and the Premises will be provided exclusively through Landlord, and except with the written consent of Landlord, no person or persons other than those approved by Landlord will be employed by Tenant or permitted to enter the Development for the purpose of cleaning the same. Tenant will not cause any unnecessary labor by carelessness or indifference to the good order and cleanliness of the Premises.

9. Landlord will furnish Tenant, free of charge, with two keys to each entry door lock in the Premises. Landlord may make a reasonable charge for any additional keys. Tenant shall not make or have made additional keys, and Tenant shall not alter any

lock or install any new additional lock or bolt on any door of the Premises. Tenant, upon the termination of its tenancy, will deliver to Landlord the keys to all doors which have been furnished to Tenant, and in the event of loss of any keys so furnished, will pay Landlord therefore.

10. If Tenant requires telegraphic, telephonic, burglar alarm, satellite dishes, antennae or similar services, it will first obtain Landlord’s approval, and comply with, Landlord’s reasonable rules and requirements applicable to such services, which may include separate licensing by, and fees paid to, Landlord.

11. Freight elevator(s) will be available for use by all tenants in the Building, subject to such reasonable scheduling as Landlord, in its discretion, deems appropriate. No equipment, materials, furniture, packages, supplies, merchandise or other property will be received in the Building or carried in the elevators except between such hours and in such elevators as may be designated by Landlord. Tenant’s initial move in and subsequent deliveries of bulky items, such

as furniture, safes and similar items will, unless otherwise agreed in writing by Landlord, be made during the hours of 6:00 p.m. to 6:00 a.m. or on Saturday or Sunday. Deliveries during normal office hours shall be limited to normal office supplies and other small items. No deliveries will be made which impede or interfere with other tenants or the operation of the Building.

12. Tenant will not place a load upon any floor of the Premises which exceeds the load per square foot which such floor was designed to carry and which is allowed by law. Landlord will have the right to reasonably prescribe the weight, size and position of all safes, heavy equipment, files, materials, furniture or other property brought into the Building. Heavy objects will, if considered necessary by Landlord, stand on such platforms as determined by Landlord to be necessary to properly distribute the weight, which platforms will be provided at Tenant’s expense. Business machines and mechanical equipment belonging to Tenant, which cause noise or vibration that may be transmitted to the structure of the Building or to any space therein to such a degree as to be objectionable to any tenants in the Building or Landlord, are to be placed and maintained by Tenant, at Tenant’s expense, on vibration eliminators or other devises sufficient to eliminate noise or vibration. Tenant will be responsible for all structural engineering required to determine structural load, as well as the expense thereof. The persons employed to move such equipment in or out of the Building must be reasonably acceptable to Landlord. Landlord will not be responsible for loss of, or damage to, any such equipment or other property from any cause, and all damage done to the Building by maintaining or moving such equipment or other property will be repaired at the expense of Tenant.

13. Tenant will not use or keep in the Premises any kerosene, gasoline or inflammable or combustible fluid or material other than those limited quantities necessary for the operation or maintenance of office equipment. Tenant will not use or permit to be used in the Premises any foul or noxious gas or substance, or permit or allow the Premises to be occupied or used in a manner offensive or objectionable to Landlord or other occupants of the Building by reason of noise, odors or vibrations, nor will Tenant bring into or keep in or about the Premises any birds or animals.

14. Tenant will not use any method of heating or air conditioning other than that supplied by Landlord without Landlord’s prior written consent.

15. Tenant will not waste electricity, water or air conditioning and agrees to cooperate fully with Landlord to assure the most effective operation of the Building’s heating and air conditioning and to comply with any governmental energy-saving rules, laws or regulations of which Tenant has actual notice, and will refrain from attempting to adjust controls. Tenant will keep corridor doors closed, and shall keep all window coverings pulled down.

16. Landlord reserves the right, exercisable without notice and without liability to Tenant, to change the name and street address of the Building. Without the prior written consent of Landlord, which Landlord may deny with or without cause, Tenant will not use the name, photograph or likeness of the Building or the Development in connection with or in promoting or advertising the business of Tenant except as Tenant’s address.

17. Tenant will close and lock the doors of its Premises and entirely shut off all water faucets or other water apparatus, and lighting or gas before Tenant and its employees leave the Premises. Tenant will be responsible for any damage or injuries sustained by other tenants or occupants of the Building or by Landlord for noncompliance with this rule.

18. The toilet rooms, toilets, urinals, wash bowls and other apparatus will not be used for any purpose other than that for which they were constructed and no foreign substance of any kind whatsoever shall be thrown therein. The expense of any breakage, stoppage or damage resulting from any violation of this rule will be borne by the tenant who, or whose employees or invitees, break this rule. Cleaning of equipment of any type is prohibited. Shaving is prohibited.

19. Tenant will not sell, or permit the sale at retail of newspapers, magazines, periodicals, theater tickets or any other goods or merchandise to the general public in or on the Premises. Tenant will not use the Premises for any business or activity other than that specifically provided for in this Lease. Tenant will not conduct, nor permit to be conducted, either voluntarily or involuntarily, any auction upon the Premises without first having obtained Landlord’s prior written consent, which consent Landlord may withhold in its sole and absolute discretion.

20. Tenant will not install any radio or television antenna, loudspeaker, satellite dishes or other devices on the roof(s) or exterior walls of the Building or the Development. Tenant will not interfere with radio or television broadcasting or reception from or in the Development or elsewhere.

21. Except for the ordinary hanging of pictures and wall decorations, Tenant will not mark, drive nails, screw or drill into the partitions, woodwork or plaster or in any way deface the Premises or any part thereof, except in accordance with the provisions of the Lease pertaining to alterations. Landlord reserves the right to direct electricians as to where and how telephone and telegraph wires are to be introduced to the Premises. Tenant will not cut or bore holes for wires. Tenant will not affix any floor covering to the floor of the Premises in any manner except as approved by Landlord. Tenant shall repair any damage resulting from noncompliance with this rule.

22. Tenant will not install, maintain or operate upon the Premises any vending machines without the written consent of Landlord.

23. Landlord reserves the right to exclude or expel from the Development any person who, in Landlord’s judgment, is intoxicated or under the influence of liquor or drugs or who is in violation of any of the Rules and Regulations of the Building.

24. Tenant will store all its trash and garbage within its Premises or in other facilities provided by Landlord. Tenant will not place in any trash box or receptacle any material which cannot be disposed of in the ordinary and customary manner of trash and garbage disposal. All garbage and refuse disposal is to be made in accordance with directions issued from time to time by Landlord.

25. The Premises will not be used for lodging or for the storage of merchandise held for sale to the general public, or for lodging or for manufacturing of any kind, nor shall the Premises be used for any improper, immoral or objectionable purpose. No cooking will be done or permitted

on the Premises without Landlord’s consent, except the use by Tenant of Underwriters’ Laboratory approved equipment for brewing coffee, tea, hot chocolate and similar beverages shall be permitted, and the use of a microwave oven for employees use will be permitted, provided that such equipment and use is in accordance with all applicable federal, state, county and city laws, codes, ordinances, rules and regulations.

26. Neither Tenant nor any of its employees, agents, customers and invitees may use in any space or in the public halls of the Building or the Development any hand truck except those equipped with rubber tires and side guards or such other material-handling equipment as Landlord may approve. Tenant will not bring any other vehicles of any kind into the Building.

27. Tenant agrees to comply with all safety, fire protection and evacuation procedures and regulations established by Landlord or any governmental agency.

28. Tenant assumes any and all responsibility for protecting its Premises from theft, robbery and pilferage, which includes keeping doors locked and other means of entry to the Premises closed.

29. To the extent Landlord reasonably deems it necessary to exercise exclusive control over any portions of the common areas for the mutual benefit of the tenants in the Building or the Development, Landlord may do so subject to reasonable, non-discriminatory additional rules and regulations.

30. Landlord may prohibit smoking in the Building and may require Tenant and any of its employees, agents, clients, customers, invitees and guests who desire to smoke, to smoke within designated smoking areas within the Development.

31. Tenant’s requirements will be attended to only upon appropriate application to Landlord’s asset management office for the Development by an authorized individual of Tenant. Employees of Landlord will not perform any work or do anything outside of their regular duties unless under special instructions from Landlord, and no employee of Landlord will admit any person (Tenant or otherwise) to any office without specific instructions from Landlord.

32. These Rules and Regulations are in addition to, and will not be construed to in any way modify or amend, in whole or in part, the terms, covenants, agreements and conditions of the Lease. Landlord may waive any one or more of these Rules and Regulations for the benefit of Tenant or any other tenant, but no such waiver by Landlord will be construed as a waiver of such Rules and Regulations in favor of Tenant or any other tenant, nor prevent Landlord from thereafter enforcing any such Rules and Regulations against any or all of the tenants of the Development.

33. Landlord reserves the right to make such other and reasonable and non-discriminatory Rules and Regulations as, in its judgment, may from time to time be needed for safety and security, for care and cleanliness of the Development and for the preservation of good order therein. Tenant agrees to abide by all such Rules and Regulations herein above stated and any

additional reasonable and non-discriminatory rules and regulations which are adopted. Tenant is responsible for the observance of all of the foregoing rules by Tenant’s employees, agents, clients, customers, invitees and guests.

B. Parking Rules and Regulations. The following rules and regulations govern the use of the parking facilities which serve the Building. Tenant will be bound by such rules and regulations and agrees to cause its employees, subtenants, assignees, contractors, suppliers, customers and invitees to observe the same:

1. Tenant will not permit or allow any vehicles that belong to or are controlled by Tenant or Tenant’s employees, subtenants, customers or invitees to be loaded, unloaded or parked in areas other than those designated by Landlord for such activities. No vehicles are to be left in the parking areas overnight and no vehicles are to be parked in the parking areas other than normally sized passenger automobiles, motorcycles and pick-up trucks. No extended term storage of vehicles is permitted.

2. Vehicles must be parked entirely within painted stall lines of a single parking stall.

3. All directional signs and arrows must be observed.

4. The speed limit within all parking areas shall be five (5) miles per hour.

5. Parking is prohibited: (a) in areas not striped for parking; (b) in aisles or on ramps; (c) where “no parking” signs are posted; (d) in cross-hatched areas; and (e) in such other areas as may be designated from time to time by Landlord or Landlord’s parking operator.

6. Landlord reserves the right, without cost or liability to Landlord, to tow any vehicle if such vehicle’s audio theft alarm system remains engaged for an unreasonable period of time.

7. Washing, waxing, cleaning or servicing of any vehicle in any area not specifically reserved for such purpose is prohibited.

8. Landlord may refuse to permit any person to park in the parking facilities who violates these rules with unreasonable frequency, and any violation of these rules shall subject the violator’s car to removal, at such car owner’s expense. Tenant agrees to use its best efforts to acquaint its employees, subtenants, assignees, contractors, suppliers, customers and invitees with these parking provisions, rules and regulations.

9. Parking stickers, access cards, or any other device or form of identification supplied by Landlord as a condition of use of the parking facilities shall remain the property of Landlord. Parking identification devices, if utilized by Landlord, must be displayed as requested and may not be mutilated in any manner. The serial number of the parking identification device may not be obliterated. Parking identification devices, if any, are not transferable and any device in the possession of an unauthorized holder will be void. Landlord reserves the right to refuse the sale of monthly stickers or other parking identification devices to Tenant or any of its agents, employees or representatives who willfully refuse to comply with these rules and regulations and all unposted city, state or federal ordinances, laws or agreements.

10. Loss or theft of parking identification devices or access cards must be reported to the management office in the Development immediately, and a lost or stolen report must be filed by the Tenant or user of such parking identification device or access card at the time. Landlord has the right to exclude any vehicle from the parking facilities that does not have a parking

identification device or valid access card. Any parking identification device or access card which is reported lost or stolen and which is subsequently found in the possession of an unauthorized person will be confiscated and the illegal holder will be subject to prosecution.

11. All damage or loss claimed to be the responsibility of Landlord must be reported, itemized in writing and delivered to the management office located within the Development within ten (10) business days after any claimed damage or loss occurs. Any claim not so made is waived. Landlord is not responsible for damage by water or fire, or for the acts or omissions of others, or for articles left in vehicles. In any event, the total liability of Landlord, if any, is limited to Two Hundred Fifty Dollars ($250.00) for all damages or loss to any car. Landlord is not responsible for loss of use.

12. The parking operators, managers or attendants are not authorized to make or allow any exceptions to these rules and regulations, without the express written consent of Landlord. Any exceptions to these rules and regulations made by the parking operators, managers or attendants without the express written consent of Landlord will not be deemed to have been approved by Landlord.

13. Landlord reserves the right, without cost or liability to Landlord, to tow any vehicles which are used or parked in violation of these rules and regulations.

14. Landlord reserves the right from time to time to modify and/or adopt such other reasonable and non-discriminatory rules and regulations for the parking facilities as it deems reasonably necessary for the operation of the parking facilities.

EXHIBIT E

FORM OF LEASE COMMENCEMENT AGREEMENT

THIS LEASE COMMENCEMENT AGREEMENT (“this Agreement”) is entered into this     day of 200    , by and between BIT HOLDINGS FIFTY-SIX, INC., a Maryland corporation (“Landlord”), and TALEO CORPORATION, a     (“Tenant”).

EXPLANATORY STATEMENT

A. On                     , 200    , Landlord and Tenant entered into a lease (the “Lease”) covering certain premises located on the fourth (4^th) floor(s), commonly known as Suite 400 (the “Premises”) of the office building located at 4140 Dublin Boulevard, as outlined on Exhibit A to the Lease.

B. Section 2.2 of the Lease requires Landlord and Tenant to execute an amendment to the Lease setting forth the Lease Commencement Date, the Lease Expiration Date, and facsimile number at the Premises.

NOW, THEREFORE, in consideration of the foregoing, of the mutual promises of the parties hereto contained herein, and of other good and valuable consideration, the receipt and sufficiency of which are acknowledged, the parties hereto agree to amend the Lease as follows:

1. Pursuant to the provisions of Section 2.2 of the Lease, Landlord and Tenant confirm that                    is the Lease Commencement Date, that                    is the Lease Expiration Date, that                    is the facsimile number of Tenant at the Premises, and that the number of Tenant’s Parking Spaces for the first (1^st) year after the Lease Commencement Date is                    .

2. Terms not defined herein will have the meaning provided therefore in the Lease. Except as provided herein, all other terms and conditions of the Lease remain in full force and effect.

This Agreement is agreed to by Landlord and Tenant who have executed this Agreement as of the date first above written.

LANDLORD:	TENANT:
BIT HOLDINGS FIFTY-SIX, INC.,	TALEO CORPORATION,
a Maryland corporation	a Delaware corporation
By:	By:
Name:	Name:
Title:	Title:
	By:
	Name:
	Title:

EXHIBIT F

CONDITIONS FOR CONSTRUCTION

The following rules and regulations are hereby made a part of any and all agreements entered into between the building owner, BIT Holdings Fifty-Six, Inc., a Maryland corporation (“Owner”), the tenant identified at the end of these Conditions for Construction (“Tenant”) and the undersigned general contractor or contractor responsible for the project (“Contractor”), or any of them.

These rules for construction pertain to any and all alterations, renovations, retrofits and construction projects in or upon 4120 Dublin Boulevard, 4140 Dublin Boulevard and 4160 Dublin Boulevard in the City of Dublin, Alameda County, California.

DOCUMENTS REQUIRED

1. Prior to beginning any work, the contractor is to supply the following to Owner for review and approval:

a. Evidence of a current valid California General Building Contractor’s license.

b. Evidence of the Contractor’s ability to obtain performance and payment bonds for the project.

c. Contractor must submit a copy of all applicable permits required by the city, county, state or federal agencies to Owner. Procurement and payment for all permits are to be included as Contractor’s cost of the construction project. At the completion of the construction, a copy of all approved permit inspections and plans must be delivered to building management.

d. A list of all Subcontractors, including 24-hour contact numbers for key personnel.

2. Prior to commencement of work, Contractor must provide to Owner an accurate and comprehensive schedule of all work, including phasing, if applicable, from project start through completion. Prior to commencing work, a pre-work conference will be held with representatives of building management and Contractor to discuss the project scope and schedule.

3. A signed copy of these Conditions for Construction by Contractor will be delivered prior to commencement of any work.

INSURANCE

4. Prior to the commencement of work, Contractor shall furnish Owner with insurance certificates certifying that the insurance coverage specified herein are in force at Contractor’s sole cost and expense, and that Owner will be given 60-day prior notice of cancellation or material change.

a. Worker’s Compensation Insurance with statutory benefits and Employer’s Liability insurance with limits of not less than $1,000,000 per occurrence of bodily injury by accident; $1,000,000 per each employee and aggregate per policy year for bodily injury by disease. This policy shall include a waiver of subrogation in favor of Contractor and Owner.

b. Comprehensive Commercial General Liability Insurance providing not less than $2,000,000 per occurrence, with a $2,000,000 general aggregate per project. The General Liability insurance policy shall include a $1,000,000 Products and Completed Operations aggregate. For insurance that is on a claims-made basis, the Completed Operations coverage shall remain in effect for not less than 5 years following completion of a project. The policy shall also include contractual liability and severability of interest clauses.

c. Comprehensive Automobile Liability providing not less than $1,000,000 combined single limit per occurrence of bodily injury and property damage.

d. Umbrella Liability Insurance with limits of not less than $3,000,000 per occurrence and $3,000,000 general aggregate per policy, with $3,000,000 Products and Completed Operations aggregate. If the insurance is on a claims-made basis, the Completed Operations coverage is to remain in place for 5 years after completion of project.

Insurance coverage is to be from companies with an A.M. Best rating of not less than A+ or better in amount and affording levels of coverage equal to those required by the Tenant or the Owner in which the work site is located or as set forth above, whichever is greater.

Insurance certificates must be prepared on Acord forms, must reflect that the insurance policies name Owner as an additional insured, and must reflect that the coverage afforded to the additional insured by the liability policies is primary and that any insurance carried by Owner is strictly excess and secondary and shall not contribute with Contractor’s liability insurance.

WORK RULES AND REGULATIONS

5. Building and Construction Hours are as follows:

Monday thru Friday:    8:00 a.m. – 6:00 p.m. (Building Hours)

Saturdays & Sundays: With notice to Building Management

Work performed at a time other than during Building Hours requires advance prior written notice by Contractor. Building Management approval must be obtained before work may commence.

6. Additional Security, Elevator and Building Engineer charges may be incurred as solely determined by building management and will be included as a cost of the Construction to the Contractor.

7. Any and all work performed by Contractor must be performed in a first-class manner. Materials and workmanship must be equal to or of better quality and grade than that used for existing improvements.

8. At Owner sole discretion, any work that does not meet building standards may be ordered removed and redone at Contractor’s cost.

9. Owner approval of, or requirements concerning, all or any portion of the work or any plans, specifications, or contractors or subcontractors for the design or installation thereof shall not be deemed a warranty as to the adequacy of the design, workmanship or quality of materials or installation or their compliance with applicable laws, codes, regulations or requirements of any city, state or federal agency and Owner shall have no responsibility or liability for the same.

10. All work performed must not interrupt or disturb building operations, or prevent any tenant’s quiet enjoyment of their premises. All core drilling, roto-hammering, installation of tack strips or other construction that may cause excessive noise shall be done before or after Building Hours unless special arrangements are made through building management.

11. Owner, at its sole discretion, reserves the right to refuse entrance to employees of any Contractor or Subcontractor who cannot meet and maintain the requisite standard of workmanship and/or who violate any or all of the terms enumerated herein.

12. Contractor is required to maintain cleanliness throughout. Do not clutter or block hallways, exits, service elevators lobbies and electrical closets. Provide walk-off mats at the entrance to the construction areas, as well as the entrance to the service elevator. If clean-up is not performed daily, Owner will clean up at Contractor’s cost.

13. Contractor must not secure any fire protection system or fill any fire protection system without prior approval of building management or building engineer.

14. Contractor must not secure or start any mechanical or electrical system without prior approval of building management or building engineer.

15. Contractor must not secure or open any domestic water, condenser water, chilled water, hot water heating, and domestic hot water or steam system without prior approval of building management or building engineer.

16. Requests to shutdown any system must be approved in advance and coordinated with building engineer.

17. Contractor must take special measures to prevent false alarms when performing the following:

a. Welding

b. Soldering

c. Cutting carpet with a hot knife

d. Painting with lacquers

18. Contractor must ensure that fire extinguishers and all other safety measures are employed to prevent fire. Contractor can request that the smoke detectors in the area of work be temporary disabled.

19. No CD or cassette players, radios or similar pieces of equipment are allowed on the premises at any time.

20. Construction personnel, unless otherwise designated, shall use only the freight elevator. Roof hatches in freight elevators will not be opened without the presence of the elevator maintenance company and all costs associated with the need for elevator maintenance personnel shall be included in the Construction cost. Any damage to any elevator caused by the construction shall be borne by the Contractor.

21. Contractor must not secure any life safety system, enable any life safety system or test any life safety system without prior approval of building management or building engineer. Life safety system must be operational 24 hours per day.

22. Contractor shall ensure that the following procedures are followed with respect to the life safety systems:

a. All life safety devices and systems installed in the premises must be tested, including alarms, smoke detectors, speakers, manual pull stations, water flow, trouble alarms and strobe lights. All other systems must be tested for proper operation. All testing is to be coordinated with building management or building engineer before or after Building Hours.

b. Copies of all warranties and guarantees must be provided to Owner along with operating and maintenance manuals upon completion of the construction.

c. Contractor shall instruct the building engineer in the operation and maintenance of the equipment and systems installed.

23. At the completion of the job, Contractor must provide Owner a complete and accurate set of as-built drawings. These must include but not be limited to:

a. Floor plans at 1/8” – 1’0” scale showing all partitions, location of glass, doors, built-ins, millwork and cabinets, sinks and plumbing locations and any other generally applicable information.

b. Electrical plans at 1/8” = 1’0” scale showing all electrical outlets, telephone outlets, panel schedules and special outlets (CRT’s dedicated circuits, etc.).

c. Life Safety plans at 1/8” = 1’0” scale showing all Life Safety devices (duct runs, detectors, strobes, pull stations, etc.).

d. Reflected ceiling plans at 1/8” = 1’0” scale showing the HVAC system (duct runs, troffers, mixing boxes, special units, etc.) and sprinkler locations.

All as-builts must show all new work as well as all previous conditions that remain. Notation of any unique or special circumstances pertaining to construction must be made.

HVAC testing and balancing is to be performed by an independent contractor. Upon satisfactory completion of balance and operation test, one set of tenant AC drawings and an air balance report, according to the AABC standards, shall be submitted to building management.

Throughout the area of alterations, Contractor shall ensure reasonable access to all HVAC equipment (for example, fire dampers, control devices, valves) and other items that may require inspection, service or maintenance.

24. At the completion of construction Contractor must submit to Owner a signed waiver and release of mechanic’s lien rights from each subcontractor, material supplier and laborer, containing the appropriate provisions as reasonably determined by Owner.

25. Owner shall not be liable to Contractor, and Contractor hereby waives all claims against such parties for, and releases such parties from liability for, any loss, injury or other damage to person or property on or about the work site, the building at which the work site is located, the Building’s garage, the parcel(s) of land on which the building and garage are located or the other improvements on the Land. Contractor shall hold Owner, and the constituent shareholders, partners or other owners thereof, and all of their agents, contractors, servants, officers, directors, employees and licensees (collectively, the “Indemnitees”) harmless from and indemnify and defend the Indemnitees against any and all claims, liabilities, damages, costs and expenses including reasonable attorneys’ fees and costs incurred in defending against the same, whether arising before or after completion of the work and in any manner directly or indirectly caused, occasioned by or contributed to by (a) the acts or omissions of Contractor or any agents, employees, subcontractors, licensees, material suppliers, guests or invitees of Contractor (collectively with Contractor, “Contractor Party”) in, on or about the Project or (b) any construction or other work undertaken by or on behalf of any Contractor Party, or (c) any breach of these Conditions of Construction by any of the Contractor Parties, or (d) any accident, injury or damage, howsoever and by whomsoever caused, to any person or property, occurring in, on or about the work site. The foregoing release, waiver, and covenant to indemnify, defend and hold harmless shall apply even in the event of the fault or negligence, whether active or passive, or strict liability of Owner, to the fullest extent permitted by law, except to the extent such claims are caused directly by the willful misconduct Owner or their respective authorized representatives.

Owner:	BIT HOLDINGS FIFTY-SIX, INC.
Work Site:	4140 Dublin Boulevard, Dublin, California 94568, Suite 400
Tenant:	Taleo Corporation, a Delaware corporation

The undersigned understands and agrees to all the provisions stated herein.

Contractor: Novo Construction, a                     Date: March    , 2006

By:

(Signature)

Printed Name:

Title:

License No. License Type:

EXHIBIT G

[Intentionally Omitted]

EXHIBIT H

AFL-CIO Building Investment Trust Participants

(Listed Alphabetically)

AFL-CIO Building Investment Trust—List of Investors 7/1/05

National Football League Players Association Defined Benefit Plan

Bricklayers and Trowel Trades International Pension Fund

AFL-CIO Staff Retirement Plan

Laborers International Union of North America Staff Pension Plan

Bridge and Iron Workers Staff Retirement Plan

Service Employees International Union Master Pension Trust

I.B.E.W. District Ten N. E. C. A. Individual Equity Retirement Plan

Plumbers and Pipefitters National Pension Fund

Stationary Engineers Local No. 39 Pension Plan

Eighth District Electrical Pension Fund

Upper Peninsula Plumbers and Pipefitters Pension Fund

National Roofing Industry Pension Fund

IBEW Local 673 Pension Fund

Bricklayers Local Union #19 of Indiana Retirement Plan

Electrical Workers Union Local No. 591 Retirement Trust

National Automatic Sprinkler Industry Pension Fund

Iron Worker Local Number 498 Pension Plan

Omaha Construction Industry Pension Plan

Asbestos Workers Local No. 23 Pension Fund

Will County Local 174 Carpenters Supplemental Pension Plan

Bakery and Confectionery Union and Industry International Pension Fund

UFCW International Union Pension Plan for Employees

International Association Of Full-Time Salaried Officers and Employees of Outside Local Unions and District Councils Pension Plan

Central Pension Fund of the International Union of Operating Engineers and Participating Employers

Ohio Local No. 1 Operating Plasterers and Cement Masons Pension Fund and Plan

Indiana State Council of Carpenters Pension Fund

California Public Employees Retirement System

Roofers Union Local 33 Pension Fund

Sheet Metal Workers’ Pension Fund of Local Union #19

Pension Hospitalization Benefit Plan of the Electrical Industry—Pension Trust Fund

NECA-IBEW Local 176 Pension Fund

NECA-IBEW Pension Trust Fund

Carpenters Pension Fund of Illinois

IBEW Local #380 Pension Plan

Plumbers Local #8 Pension Plan

Cascade Pension Trust Fund

International Brotherhood of Painters and Allied Trades Union & Industry Pension Fund

Local 68 Engineers Annuity Fund

Electrical Workers Pension Fund, Local 103, IBEW

Pacific Coast Roofers Pension Plan

Carpenters Local #496 Pension Trust Fund

Operating Engineers Construction Industry and Miscellaneous Pension Fund

San Francisco Culinary, Bartenders & Service Employees Pension Fund

Puget Sound Electrical Workers Pension Trust

Painters & Allied Trades District Council #35 Pension Fund

Tile, Terrazzo & Marble Industry Pension Trust Fund

Rodman Local Union 201 Pension Fund

Operating Engineers Pension Trust

Minneapolis Painting Industry Pension Plan

Cement Masons Locals 886 & 404 Pension Fund

Carpenters’ Pension Trust Fund of St. Louis

Kansas Construction Trades Open End Pension Trust Fund

Twin City Carpenters & Joiners Pension Fund

Hawaii Laborers Pension Trust Fund

CWA-ITU Negotiated Pension Plan

HEREIU Pension Fund

Southwest Ohio District Council of Carpenters—Dayton—Pension Plan

San Diego Hotel and Restaurant Employees Pension Fund

IBEW #481 Money Purchase Pension Plan & Trust

Roofers’ Pension Plan (United Union of Roofers, Waterproofers & Allied Workers Local 11)

IUE AFL-CIO Pension Fund

Southern Nevada Culinary & Bartenders Pension Trust

Plumbers’ Pension Fund, Local 130, U.A.

New York City District Council of Carpenters Pension Fund

Local 705 IBT Pension Trust Fund

Sheet Metal Workers’ Local Union No.100 Washington DC Area Pension Fund

Local 68 IUOE Pension Fund

NECA-IBEW Local 364 Defined Contribution Pension Fund

Central/North Florida Carpenters Regional Council Pension Fund

Bricklayers Local 21 Pension Fund

Laborers’ Pension Fund

Pension Fund of Bricklayers and Allied Crafts, Local No. 74 of DuPage County, Illinois

United Mine Workers of America, International Pension Trust

IBEW Local Union No. 99 Retirement Plan

IBEW Local Union No. 99 Annuity Plan

Annuity Plan of the Electrical Industry

Maryland Electrical Industry Pension Fund

Milwaukee Drivers Pension Trust Fund

Atlanta Plumbers and Steamfitters Pension Fund

Carpenters Labor Management Pension Fund

West Michigan Plumbers, Fitters and Service Trades Local Union No. 174 Pension Plan and Trust

IBEW Local #141 Pension Fund

Motion Picture Industry Individual Account Plan

Twin City Pipe Trades Pension Trust

Jacksonville Plumbers and Pipefitters Pension Fund

IBEW Local 117 Pension Fund

Electrical Workers Local No. 292 Annuity Plan

Bricklayers Union Local No. 6 of Indiana Pension Fund

IBEW Local 43 and Electrical Contractors Pension Fund

Iron Workers’ Mid-America Pension Fund

Laborers’ District Council, Pension and Disability Trust Fund No. 3

International Foundation of Employee Benefit Plans Pension Plan for Hourly Employees

International Foundation of Employee Benefit Plans Pension Plan for Salaried Employees

IBEW Local 131 Pension Plan

Kenosha Carpenters Local No. 161 Pension Fund

Kalamazoo County Sheriff’s Deputies Association Money Purchase Pension Plan

Operating Engineers Local 57 Pension Fund

UNITE Staff Retirement Plan

Hotel and Restaurant Employees Local 25 and Hotel Association of Washington, D.C. Pension Fund

Municipal Employees’ Annuity & Benefit Fund of Chicago

Laborers’ District Council Construction Industry Pension Fund

Fox Valley & Vicinity Laborers Pension Fund

Worcester Plumbers and Pipefitters Local Union #4

Rhode Island Carpenters Pension Fund

Ironworkers District Council of New England Pension Fund

BAC Local No. 4 Pension Fund

Electrical Workers Local No. 292 Pension Plan

Construction Workers Pension Trust Fund—Lake County & Vicinity

Twin City Bricklayers Pension Fund

Chicago Painters & Decorators Pension Fund

Massachusetts Service Employees Pension Fund

Southern Electrical Retirement Fund

Motion Picture Laboratory Technicians and Film Editors Local 780 IATSE Pension Fund

Toledo Roofers Local No. 134 Pension Plan

IBEW Local Union #226 Open End Pension Trust Fund

Plumbers & Steamfitters Local 43 Pension Fund Trust

Teamsters Local 469 Pension Fund

Painters District Council #2 Pension Trust

Plasterers’ & Cement Masons’ Local 40 Pension Fund

IUOE Local 825 Pension Fund

International Longshoremen’s Association (AFL-CIO) Employers Pension Fund, SE Florida Ports

Rockford Area Dairy Industry, Local 754 IBT Retirement Pension Plan

Centennial State Carpenters’ Pension Trust Fund

Northern Illinois Pension Fund

LIUNA Local Union and District Council Pension Fund

LIUNA National (Industrial) Pension Fund

Cement Masons Union Local No. 502 Pension Fund

Bi-State Development Agency / Division 788 Amalgamated Transit Union Master Trust

IBEW Local No. 38 Pension Fund

Deferred Salary Plan of the Electrical Industry

Tile, Terrazzo & Marble Defined Contribution Pension Plan

IUPAT Industry Annuity Plan

Carolinas Electrical Workers Retirement Fund

CSX Hotels, Inc. Pension Plan for Union Employees

Local 138 IUOE Annuity Fund

Glaziers Local No. 27 Pension Fund

SEIU Local No. 4 Pension Fund

Truck Drivers & Helpers Local Union No. 355 Retirement Pension Plan

IBEW Local 508/Eastern Division, Georgia Chapter NECA Pension Fund

Sheet Metal Workers Local 36 Pension Fund

International Brotherhood of Firemen and Oilers National Pension Fund

Waterfront Employers—ILA Pension Fund

Plumbers and Steamfitters Local 102 Pension Fund

Automotive Machinists Pension Trust

New Jersey Education Association Employees Retirement Plan

UA Locals 63/353 Joint Pension Trust Fund

Nursing Home and Healthcare Employees of Philadelphia and Vicinity Pension Plan

Greenville Plumbers and Pipefitters Pension Fund

IUPAT General Officers, Staff and Employees Retirement & Pension Trust Fund

Detroit Free Press Inc. Newspaper Guild of Detroit Pension Plan

Plumbers & Pipefitters Local No. 333 Pension Fund

Carpenter’s Pension Fund of Northern California

Carpenter’s Annuity Trust Fund of Northern California

International Brotherhood of Firemen & Oilers, Local No. 7 Pension Trust Fund

Central Laborers’ Annuity Fund

Alaska Hotel & Restaurant Employees Pension Trust

Building Trades United Pension Trust Fund—Milwaukee & Vicinity

Teamsters Local Union No. 727 Pension Fund

Plumbers And Steamfitters Local #118 Kenosha Unit Pension Plan

GCIU Benevolent Trust Fund

IBEW Local Union 1579 Pension Plan

EXHIBIT I

BUILDING STANDARD IMPROVEMENTS

For purposes of this Lease, “Tenant Standard Improvements” shall mean the following items in the quantities stated:

PARTITIONS:

1. Standard Interior Partition: Floor to ceiling partition with 5/8” gypsum board on both sides of metal studs at 24” on center with rubber base.

2. Demising Partition Between Leases Premises: Same as standard interior partitions, with acoustic treatment.

3. Demising Corridor Partitions: Same as standard interior partitions with fire rating as required by Code.

Quantity: One linear foot of partition per 15 square feet of Allowance Area (as hereinafter defined).

DOORS, FRAMES AND HARDWARE:

1. Office Doors: Full height, solid core, wood veneer doors, stained and sealed in a painted, white aluminum frame with latch set, hinges and door stops.

2. Entry Door: Same as office doors, except with lockset and closer. Quantity: One door per 350 square feet of Allowance Area which quantity includes the number of entry doors required to conform to Building Codes.

CEILING:

Building standard suspended acoustical tile system.

Quantity: As required for premises.

FINISHES:

1. Interior Walls: 2 coats of flat latex paint, not to exceed 2 colors per room.

2. Base: 2-1/2: resilient.

Quantity: As required on interior columns and perimeter and core walls, and on the quantity of partitions.

LIGHTING:

Fluorescent fixtures, 2’ x 4’ with lenses and lamps in standard pattern.

Quantity: One fixture per 100 square feet of Allowance Area; one light switch per 300 square feet of Allowance Area.

ELECTRICAL:

Wall mounted 110 volt duplex outlet; 6 outlets per 20 ampere circuit.

Quantity: One outlet per 150 square feet of Allowance Area.

TELEPHONE:

Wall box located in standard interior partition.

Quantity: One outlet per 200 square feet of Allowance Area.

WINDOW COVERING:

1” standard blinds shall be installed on all exterior windows.

FIRE AND SAFETY SYSTEMS:

One alarm and speaker per 1275 square feet of Allowance Area; one exit sign per 2000 square feet of Allowance Area.

HEATING, VENTILATING, AIR-CONDITIONING:

Duct work, supply and return grilles, and thermostats in standard pattern served by a central air system with fan coil units on each floor with distribution at the rate of one zone per 1277 square feet of Allowance Area.

FLOOR COVERING ALLOWANCE:

Floor covering allowance of $1.25 per square foot of Allowance Area.

For the purpose of computing the allowances specified herein the “Allowance Area” shall be the rentable square footage of the Premises as specified in the Lease Summary.

All portions of the Building not specifically set forth in this Exhibit I shall be deemed “Non-Building Standard Improvements”.

EXHIBIT J

TENANT’S MONUMENT SIGNAGE

[To be attached within fifteen (15) days of the mutual execution of this Lease]

EXHIBIT K

TENANT’S BUILDING SIGNAGE

[To be attached within fifteen (15) days of the mutual execution of this Lease]

EXHIBIT L

JOINT ESCROW AGREEMENT

This JOINT ESCROW AGREEMENT (this “Escrow Agreement”) is made and entered into as of March 10, 2006, by and between BIT Holdings Fifty-Six, Inc., a Maryland corporation, as Landlord, and Taleo Corporation, a Delaware corporation, as Tenant. with reference to the following facts and circumstances. All capitalized terms not otherwise defined in this Escrow Agreement are as defined the Lease.

RECITALS

A. Landlord and Tenant entered into that certain Lease dated March 10, 2006 (the “Lease”) whereby Landlord leased to Tenant those certain premises consisting of approximately thirty five thousand four hundred twenty four (35,424) square feet at 4140 Dublin Boulevard, Dublin, California.

B. Pursuant to the Work Agreement, Tenant is to deposit with an escrow holder designated by Landlord: (i) for payment of the supply and installation of cabling at the Premises (the “Cable Installation”) and (ii) the difference between the Tenant Improvement Allowance and the bid of the Contract (exclusive of the cost of Cable Installation) (and in the event at any time during construction costs increase, Tenant is to deposit such sums in escrow pursuant to the Work Agreement).

C. The parties desire to enter into this Escrow Agreement to, among other things, provide: (i) for the establishment of an escrow account requiring the mutual approval of Landlord and Tenant with respect to any distribution to the Contractor; and (ii) that certain documents, including but not limited to lien releases be obtained prior to any distribution to the Contractor, all as more particularly set forth herein.

AGREEMENT

NOW THEREFORE, for good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, Landlord and Tenant agree as follows:

1. Establishment of Escrow Account/Replenishment. Within three (3) days of obtaining the final bid for the construction of the Tenant Improvements (the “Bid”), and prior to the commencement of construction, Tenant shall deposit with an escrow (“Escrow”) (i) the cost of Cable Installation in the amount set forth in the Bid; and (ii) if the Bid for Tenant Improvements exceed the Tenant Improvement Allowance (exclusive of the cost for Cable Installation) one hundred and five percent (105%) of the difference between the Tenant Improvement Allowance and the Bid (the “Escrow Amount”). The current amount to be deposited for the Cable Installation is One Hundred Forty Five Thousand Dollars exactly ($145,000.00). The Escrow Amount may be increased based on increases in costs in constructing the Tenant Improvements for any reason, pursuant to the terms of the Work Agreement. Any interest on the Escrow Account shall accrue to the sole benefit of and shall be payable to Tenant. Tenant shall immediately deliver to Landlord copies of any change orders or

other documents evidencing any increase in the cost of constructing the Tenant Improvements above the Bid amount. Escrow shall be opened with a escrow holder reasonable designated by Landlord (the “Escrow Holder”). The term “Contractor” shall mean Novo Construction, or any successor contractor approved by Landlord.

2. Payments to Contractor.

2.1 Conditions for Payment. Subject to the terms of the Lease and this Escrow Agreement, payments due and owing to Contractor from Tenant for the construction of Tenant Improvements (including both progress payments and final

payment) shall be drawn from the Escrow Account only with the prior and mutual written consent of Landlord and Tenant (their respective and designated agents and/or representatives), which consent shall not be unreasonably withheld, conditioned or delayed. Notwithstanding the foregoing, the parties agree that no payment shall be made to the Contractor from the Escrow Account unless and until the parties are in possession of all documents required under the Work Agreement for payment to the Contractor.

2.2 Basis for Withholding Payment. Notwithstanding anything contained in Section 2.1, Landlord shall be entitled to withhold payment to the Contractor in the event: (i) the Landlord reasonably determines that the work does not conform to the plans and specifications; (ii) the Landlord reasonably determines that the work is defective or deficient; (iii) the Contractor does not present adequate documentation as required in the Work Agreement; (iv) a mechanic’s lien is placed against the work or the Building or Project, or a lien is threatened by any party for the Cable Installation or the Cost Overage (as defined in the Work Agreement); (v) the Landlord has obtained evidence that any party has not been timely paid, (vi) the Tenant or its Contractor fails to strictly comply with each and every requirement of “Landlord’s Construction Rules” (Exhibit F to the Lease); or (vii) the Landlord reasonably determines that the percentage completion in the applicable draw request is inaccurate. Furthermore, in the event Tenant is at any time during construction of the Tenant Improvements in material default of the Lease, Landlord shall so notify Tenant and Contractor in writing (the “Default Notice”), and Landlord may withhold future payments to Contractor from the Escrow Account.

2.3 Percentage Completion Payment/Retention. All payments to the Contractor from the Escrow Account for any Cost Overage shall be made on a percentage completion basis, and payments from the Escrow Account for the Cabling Installation shall be made once the installation is complete, and Landlord and Tenant have all documents required under this Escrow Agreement. With respect to any Cost Overage, Landlord shall reasonably confirm the percentage completion of the Tenant Improvements. All payments to the Contractor (both from the Tenant Improvement Allowance and any Cost Overage—but not the Cabling Installation) are subject to retention of fifteen percent (15%) pursuant to the Work Agreement.

2.4. Payment from Escrow Account and Tenant Improvement Allowance. The parties acknowledge that the funds to be paid to the Contractor shall be sourced from two different accounts: (i) direct payment from the Landlord of the Tenant Improvement Allowance; and (ii) payments from the Escrow (for both the Cabling Installation and the Cost Overage, if any). Payments shall be made based on each draw request on a pro-rata basis (not including the

Cabling Installation). For example purposes only (and rounding numbers) if the Tenant Improvement Allowance is $1,000,000.00, and the Escrow Account contains $200,000.00, the if the first draw request were for $100,000.00, then $20,000.00 would be paid from the Escrow Account, and $80,000.00 would be paid by Landlord upon satisfaction of all conditions in this Joint Escrow Agreement and this Work Agreement, but subject to fifteen percent (15%) reduction based on the retention contained herein and in the Work Agreement (This example would not apply to Cable Installation—which is not being paid on a percentage completion basis, but instead upon completion of all work and adequate documents pursuant to this Escrow Agreement). To the extent the construction of the Tenant Improvements costs less than the Tenant Improvement Allowance, the Landlord shall retain the benefit pursuant to the Work Agreement. To the extent the entire Tenant Improvement Allowance is used, but the amount in Escrow is not, the amount in Escrow shall be refunded to Tenant pursuant to the terms of this Joint Escrow Agreement.

2.5 Retention of Replacement Contractor. In the event Tenant desires to terminate the services of the Contractor pursuant to the Construction Contract, Tenant shall be entitled to do so as long as the Contractor is in material default of the Construction Contract. Following such termination, the Escrow Amount will be distributed, if at all, from the Escrow Account to a replacement Contractor chosen by Tenant and approved by Landlord pursuant to the terms of the Lease. In the event of a dispute with the Contractor and Tenant desires to retain a replacement Contractor, Tenant shall ensure the Escrow Account contains an amount sufficient to satisfy the amount of the dispute (including increasing the Escrow Account if necessary), and an amount sufficient to pay one hundred and five percent (105%) of the bid amount from the new contractor (again including increasing the Escrow Account if necessary). During any dispute with the Contractor, Tenant will immediately bond any mechanic’s lien at Tenant’s sole cost and expense.

3. Remainder of Escrow Amount. Only upon satisfaction of all conditions for final payment in the Work Agreement, Tenant may withdraw any balance remaining in the Escrow Account.

4. Escrow Holder; Escrow Instructions. Upon establishment of the Escrow Account, the parties shall submit to Escrow Holder a fully executed copy of this Escrow Agreement. This Escrow Agreement shall constitute full and complete instructions to the Escrow Holder, and this Escrow Agreement shall not be modified by except by a written agreement executed by Landlord and Tenant. Escrow Holder acknowledges by its signature below that in no event shall Escrow Holder disburse any of the Escrow Amount except in strict accordance with this Escrow Agreement or a modification or supplement of this Escrow Agreement executed by Landlord and Tenant, and only upon mutual written authorization by Landlord and Tenant to do so.

5. Arbitration. In the event of any dispute between Landlord and Tenant arising out of this Escrow Agreement, the parties agree to participate in binding arbitration as expeditiously as possible, but in no event more than forty-five (45) from written notice by one party to the other of its election to arbitrate, at the American Arbitration Association, Walnut Creek office, and in accordance with its commercial dispute rules and regulations. The arbitrator shall be chosen by AAA, and shall award attorneys’ fees to the prevailing party. California law shall apply, as supplemented by the AAA commercial dispute rules. Limited discovery may be allowed by the arbitrator.

6. Conflict. In the event of a conflict between the provisions of this Exhibit L and the Lease, this Exhibit L shall prevail. In the event of a conflict between this Exhibit L and the Work Agreement, the Work Agreement shall prevail.

7. Governing Law. This Escrow Agreement shall be governed by and construed in accordance with California law.

8. Incorporation of Recitals. The Recitals are incorporated by this reference as though set forth in full.

9. Relationship of Landlord and Contractor. Nothing contained herein shall create or imply any contractual relationship between Landlord and Contractor, and specifically, Landlord is not agreeing to make any payments to the Contractor, and shall have no financial obligations or responsibilities to Contractor of any kind whatsoever. All payments to the Contractor are to be made solely by Tenant (or from the Escrow), and shall be solely the responsibility of Tenant. Contractor shall at all times remain an independent contractor. Contractor acknowledges and agrees to be bound by this Escrow Agreement.

The parties have executed this Escrow Agreement as of the date first above written.

BIT HOLDINGS FIFTY-SIX, INC.,

a Maryland corporation

By:

Name:

Title:

TENANT:

TALEO CORPORATION,

a Delaware corporation

By:

Name:

Title:

By:

Name:

Title:

NOVO CONSTRUCTION,

a California corporation

By:

Name:

its:

By:

Name:

its:

ADDENDUM #1 TO LEASE BETWEEN BIT HOLDINGS FIFTY-SIX, INC. (“LANDLORD”) AND THE TENANT DESIGNATED IN THE LEASE TO WHICH THIS ADDENDUM IS ATTACHED

LETTER OF CREDIT = $1,000,000

1. Letter of Credit. In lieu of providing a cash Security Deposit, simultaneously with the execution of this Lease, Tenant may deliver to Landlord an irrevocable and transferable letter of credit (“Letter of Credit”) running in favor of Landlord, with the Letter of Credit securing Tenant’s obligations hereunder subject to the terms and conditions set forth in the Lease. The terms of the Letter of Credit, which are subject to Landlord’s reasonable consent, shall strictly comply with the provisions of this Addendum #1. The Letter of Credit shall be issued by a bank acceptable to Landlord in Landlord’s reasonable discretion and under the supervision of the banking commission of the State of California or the Federal Deposit Insurance Corporation. If the credit of the bank that originally issues the Letter of Credit becomes unacceptable to Landlord in Landlord’s reasonable discretion, Tenant shall at its cost substitute another Letter of Credit from a bank that is acceptable to Landlord in Landlord’s sole reasonable discretion. The Letter of Credit shall be irrevocable for the period ending no less than one (1) year after the date of issuance. Tenant shall renew the Letter of Credit and maintain it for the period ending one hundred twenty (120) days after the end of the calendar year in which the Term expires, and shall provide that it is automatically renewable for the Term, unless released pursuant to the provisions of this Section or unless the issuing bank delivers a notice of non-renewal no later than thirty (30) days before expiration. If Tenant fails to renew the Letter of Credit within ten (10) Business Days of its expiration, Landlord may draw on the existing Letter of Credit and maintain the funds as a non-interest-bearing deposit to be returned to Tenant on receipt by Landlord of a substitute Letter of Credit from Tenant meeting all requirements of this Addendum #1. The form and terms of the Letter of Credit shall be reasonably acceptable to Landlord and shall provide, among other things, in effect that:

A. Draws. Landlord (“Beneficiary”) shall have the right to draw down an amount up to the then current face amount of the Letter of Credit after an Event of Default by Tenant under the Lease and expiration of the applicable notice and cure period on presentation to the issuing bank of Landlord’s own declaration signed or purportedly signed by or on its behalf reading as follows: (a) that the declarant is an officer (or general partner or sole proprietor in the case of a general partnership or sole proprietorship, respectively, or member in the case of a limited liability company) of the Beneficiary on behalf of the Beneficiary; (b) that the declarant has authority to make the declaration on behalf of the Beneficiary; (c) that the declaration is made pursuant to the terms of the Letter of Credit and declarant shall provide the specific Letter of Credit reference number; (d) that an Event of Default has occurred under the terms of a lease made between Beneficiary and Tenant; and (e) that the amount of the Event of Default is [Landlord to provide at time of demand]. Partial draws and multiple draws are expressly permitted, and shall be contained in the Letter of Credit.

B. No Inquiry. The Letter of Credit will be honored by the issuing bank without inquiry as to the accuracy thereof and regardless of whether Tenant disputes the content of such statement.

C. Transfer. In the event of a transfer of Landlord’s interest in the Building, Landlord shall have the right to transfer the Letter of Credit to the transferee, and it is agreed that the provisions hereof shall apply to every transfer or assignment of the Letter of Credit to a new landlord. In the event of such a transfer, the provider of the Letter of Credit must be ratified by landlord by return of a transfer agreement.

D. Restoration. If, as a result of any such application of all or any part of the Letter of Credit, the amount secured by the Letter of Credit shall be less than One Million Dollars ($1,000,000), Tenant shall immediately provide Landlord with cash or other immediately available funds, or an additional Letter of Credit that meets the requirements of this Section, to cover the deficiency, or restore the amount available to be drawn under the Letter of Credit to the full One Million Dollars ($1,000,000.00) required herein on written notice from Landlord to Tenant. In the event the Letter of Credit is less than One Million Dollars ($1,000,000) due to a permissible reduction pursuant to Section G of this Addendum #1, and upon any application of all or any part of the Letter of Credit, Tenant shall immediately provide Landlord with cash or other immediately available funds, or an additional Letter of Credit that meets the requirements of this Addendum #1, and restore the amount of the Security Deposit (or replacement Letter of Credit) to One Million Dollars ($1,000,000.00).

E. No Encumbrance. Tenant shall not assign or encumber the Letter of Credit or any part thereof and that neither Landlord nor its successors or assigns will be bound by any such assignment, encumbrance, attempted assignment, or attempted encumbrance.

F. Renewal. Without limiting the generality of the foregoing, if the Letter of Credit expires earlier than as provided for herein, or the issuing bank notifies Landlord that it shall not renew the Letter of Credit, Landlord will accept a renewal thereof or substitute Letter of Credit (such renewal or substitute Letter of Credit to be in effect not later than thirty (30) days before the expiration thereof), which renewal or substitute Letter of Credit shall be irrevocable and automatically renewable, and issued by a bank meeting the requirements of this Section, for the entire period provided for in this Section, on substantially the same terms as the expiring Letter of Credit or such other terms as may be acceptable to Landlord. However,

(a) if the Letter of Credit is not timely renewed or a substitute Letter of Credit is not timely received, or (b) if Tenant fails to maintain the Letter of Credit in the amount and terms set forth in this Section, then, at least thirty (30) days before the expiration of the Letter of Credit, or immediately on Tenant’s failure to comply with every term of this Section, Tenant shall deposit with Landlord cash security in the amounts required by, and to be held subject to the terms of this Section, failing which Landlord may present such Letter of Credit to the bank, in accordance with the terms of this Section, and the entire sum secured thereby shall be paid to Landlord as a substitute security deposit, to be held by Landlord in the manner provided for in this Addendum.

G. Reduction in Letter of Credit. On the first (1^st) anniversary of the Lease Commencement Date, provided no Event of Default has occurred, Landlord shall return to Tenant Two Hundred Thousand Dollars ($200,000.00), of the original One Million Dollar ($1,000,000.00), original Security Deposit (or, if the Security Deposit is in the form of a Letter of Credit, to permit Tenant to supply a substitute Letter of Credit in amount equal to Eight Hundred Thousand Dollars ($800,000.00). On the second (2nd) anniversary of the Lease

Commencement Date, provided no Event of Default has occurred, Landlord shall return to Tenant an additional Two Hundred Thousand Dollars ($200,000.00) of the original One Million Dollar ($1,000,000.00), original Security Deposit (or, if the Security Deposit is in the form of a Letter of Credit, to permit Tenant to supply a substitute Letter of Credit in amount equal to Six Hundred Thousand Dollars ($600,000.00). On the third (3^rd) anniversary of the Lease Commencement Date, provided no Event of Default has occurred, Landlord shall return to Tenant an additional Two Hundred Thousand Dollars ($200,000.00) of the original One Million Dollar ($1,000,000.00), original Security Deposit (or, if the Security Deposit is in the form of a Letter of Credit, to permit Tenant to supply a substitute Letter of Credit in amount equal to Four Hundred Thousand Dollars ($400,000.00). On the fourth (4^th) anniversary of the Lease Commencement Date, provided no Event of Default has occurred, Landlord shall return to Tenant an additional Two Hundred Thousand Dollars ($200,000.00) of the original One Million Dollar ($1,000,000.00), original Security Deposit (or, if the Security Deposit is in the form of a Letter of Credit, to permit Tenant to supply a substitute Letter of Credit in amount equal to Two Hundred Thousand Dollars ($200,000.00). If the Letter of Credit is allowed to be reduced down to Two Hundred Thousand Dollars ($200,000) pursuant to this Section G, the Letter of Credit will be maintained in the full amount of Two Hundred Thousand Dollars ($200,000) for the remainder of the Term, and subject to all of the provisions of this Addendum #1. Upon any draw of the Letter of Credit, regardless of the then required amount of the Letter of Credit, Landlord and Tenant agree that the reduction contemplated herein shall be null and void, and Tenant shall immediately restore the Letter of Credit, or provide a new Letter of Credit, or provide cash or immediately available funds in the full amount of the original Security Deposit and Letter of Credit requirement of One Million Dollars ($1,000,000.00).

H. Return of Security Deposit/Letter of Credit. If no default then exists, then Landlord, within twenty (20) Business Days after the end of the Term, will return the Security Deposit to Tenant, less such portion thereof as Landlord will have retained to cure any default by Tenant for any of Tenant’s obligations, conditions, or agreements under this Lease. Landlord may, at its discretion, hold the Security Deposit until a final determination is made of all Tenant’s obligations under this Lease; provided, however, that such determination will be made no later than one hundred twenty (120) days after the end of the calendar year in which the Term expires.

FIRST AMENDMENT TO LEASE

(Dublin Corporate Center Two: Taleo Corporation)

THIS FIRST AMENDMENT TO LEASE (“Amendment”) is made as of the      day of January, 2011 (“Effective Date”), between DUBLIN CORPORATE CENTER TWO, L.P., a Delaware limited partnership (“Landlord”), and TALEO CORPORATION, a Delaware corporation (“Tenant”), with reference to the following facts:

A. Landlord, as successor-in-interest to BIT Holdings Fifty-Six, Inc. and Tenant are parties to that certain Lease dated March 16, 2006 (the “Lease”), covering certain premises in the building located at 4140 Dublin Boulevard, Dublin, California and being a part of the development commonly known as the Dublin Corporate Center, as more particularly described in the Lease.

B. Tenant desires to expand the premises currently covered by the Lease (the “Original Premises”) to include certain space known as Suite 100 consisting of approximately 12,084 rentable square feet located on the first floor of the Building as shown on Exhibit A attached hereto (the “Additional Premises”), upon and subject to the terms and conditions set forth in the Lease and in this Amendment.

NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows:

1. Second Additional Premises.

(a) Effective as of February 1, 2011 (the “Additional Premises Commencement Date”), and continuing until the Lease Expiration Date, the Premises covered by the Lease shall be expanded to include the Additional Premises.

2. AS IS. Tenant shall accept the Additional Premises in their “AS-IS” condition. Any and all improvements that Tenant desires to make to the Additional Premises shall be made in accordance with the terms of the Lease. Landlord shall have no obligation whatsoever to prepare the Additional Premises for use by Tenant or pay or reimburse Tenant for any costs or expenses incurred in connection with the remodeling or alteration thereof. Landlord hereby grants to Tenant the irrevocable right to use all furniture and equipment listed in Exhibit B (“FF&E”) (i) for all such purposes as Tenant sees fit, and (ii) at no additional charge to Tenant during the term of the Lease. Tenant shall not be charged for any normal wear and tear that occurs to any FF&E during the term of the Lease. Any damage considered outside of normal wear and tear will be repaired (or replaced as applicable), at Tenant’s sole expense and upon the written request of Landlord. Tenant may purchase any FF&E from Landlord during the term of the Lease for such price as is mutually agreed upon. All FF&E remains the sole property of Landlord until such time as a formal purchase by Tenant is made.

3. Landlord Contribution. Tenant shall be entitled to a one-time landlord contribution toward the cost of preparing the Additional Premises for Tenant’s use and occupancy in the amount of $60,420.00 (the “Landlord Contribution”). Landlord shall disburse the Landlord Contribution to Tenant for expenses not more than thirty (30) days after Tenant’s written request for disbursement accompanied with such reasonable documentation of Tenant’s expenses and subject to Landlord’s standard disbursement process. Provided and on condition that Tenant is not in default at the time of application, Tenant shall be entitled to apply any unused portion of the Landlord’s Contribution as a credit against Rent due under the Lease as

amended hereby. Tenant is not required to use any portion of the Landlord contribution toward the preparing the Additional Premises, and may apply any portion of the Landlord contribution towards either the preparing of the Additional Premises or toward credit against rent due under the Lease, at Tenant’s sole discretion.

4. Base Rent for Additional Premises. Based Rent shall be payable in respect of the Additional Premises in the amount set forth below and otherwise in accordance with the Lease.

Period	Per Annum		Per Month		Per Rentable Sq. Ft. Per  Mo.
February 1, 2011 – January 31, 2012	$	255,214.08	$	21,267.84	$	1.76
February 1, 2012 – January 31, 2013	$	262,464.48	$	21,872.04	$	1.81
February 1, 2013 – Lease Expiration Date	$	269,714.88	$	22,476.24	$	1.86

5. Operating Expenses and Taxes. Effective as of the Additional Premises Commencement Date, Tenant’s Proportionate Share of Operating Costs and Tenant’s Proportionate Share of Real Estate Taxes shall be increased to 34.3922% representing 25.644% with respect to the Original Premises and 8.7482% with respect to the Additional Premises. For purposes of calculating Tenant’s share of Operating Costs and Real Estate Taxes, the “Base Year” with respect to the Original Premises shall remain calendar year 2006 and the “Base Year” with respect to the Additional Premises shall be calendar year 2011.

6. Status of Lease. Tenant hereby certifies as follows:

(a) That the Lease is in full force and effect and has not been assigned or encumbered in any manner;

(b) That the Lease represents the entire agreement between the parties as to the leasing of the Premises;

(c) That Tenant knows of no defenses or counterclaims to the enforcement of the Lease;

(d) That Tenant is not entitled to any offset, abatement or reduction of rent under the Lease;

(e) That Landlord has completed all work to be performed by Landlord to the date hereof and paid all contributions and other sums due to Tenant to the date hereof under the Lease; and

(f) That to the best of Tenant’s actual knowledge neither Landlord nor Tenant is in default under any of its obligations under the Lease.

7. Brokers. Tenant represents that Tenant has dealt with no brokers in connection with this Amendment other than Colliers International (“Landlord’s Broker”) and Cushman & Wakefield (“Tenant’s Broker”), and that no other brokers negotiated this Amendment or are entitled to any commission in connection herewith. Tenant shall indemnify and hold Landlord

harmless from any cost, expense or liability (including costs of suit and reasonable attorneys’ fees) for any compensation, commission or fees claimed by any real estate broker or agent other than Landlord’s Broker and Tenant’s Broker in connection with this Amendment or its negotiation by reason of any act of Tenant.

8. Force and Effect. Except as modified by this Amendment, the terms and provisions of the Lease are hereby ratified and confirmed and are and shall remain in full force and effect. Should any inconsistency arise between this Amendment and the Lease as to the specific matters which are the subject of this Amendment, the terms and conditions of this Amendment shall control. This Amendment shall be construed to be a part of the Lease and shall be deemed incorporated in the Lease by this reference. Capitalized terms used and not otherwise defined herein shall have the same meanings ascribed to them in the Lease.

9. Counterparts. This Amendment may be executed in any number of identical counterparts, each of which shall be deemed to be an original, and all of which together shall be deemed to be one and the same instrument when each party has signed one such counterpart.

10. Limitation on Liability. Section 34.4 of the Lease is incorporated into this Amendment by reference as if fully set forth herein.

[Remainder of this page intentionally left blank.]

IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of the date first written above.

LANDLORD:			TENANT:
DUBLIN CORPORATE CENTER TWO, L.P., a Delaware limited partnership			TALEO CORPORATION, a Delaware corporation
By:	Dublin Corporate Center Two GP, L.L.C.,		By:	/s/ DOUG JEFFRIES
	a Delaware limited liability company,		Name:	Doug Jeffries
	its general partner		Title:	EVP and CFO
	By:	/s/ STEVEN R. WECHSLER	By:	/s/ JOSH FADDIS
	Name:	Steven R. Wechsler	Name:	Josh Faddis
	Title:	Senior Managing Director	Title:	SVP and General Counsel

EXHIBIT A

Floor Plan – Additional Premises

The floor plan which follows is intended solely to identify the general location of the Additional Premises, and should not be used for any other purpose. All areas, dimensions and locations are approximate, and any physical conditions indicated may not exist as shown.

The Additional Premises is in the approximate location shown on the attached floor plan.

EXHIBIT B

FF&E

125	48” cubical walls
75	48”overhead
60	Table Chairs
75	Desk Chairs
75	Horizontal Surfaces (Corners)
50	Horizontal Surfaces (48”)
50	Pedestal drawer (24”)
50	Pedestal drawer (48”)
50	Keyboard platforms
1	Horizontal file cabinets
10	Horizontal bookshelf
1	Circular table (36”)
1	Folding table (48”)
1	Desk table (48”)
25	Metal shelf (48”)
25	Metal organizer (48”)
1	Paper shredder
1	Conference room table
2	White boards

SECOND AMENDMENT TO LEASE

(Dublin Corporate Center Two: Taleo Corporation)

THIS SECOND AMENDMENT TO LEASE (“Amendment”) is made as of the 12th day of September, 2011 (“Effective Date”), between DUBLIN CORPORATE CENTER TWO, L.P., a Delaware limited partnership (“Landlord”), and TALEO CORPORATION, a Delaware corporation (“Tenant”), with reference to the following facts:

A. Landlord, as successor-in-interest to BIT Holdings Fifty-Six, Inc. and Tenant are parties to that certain Lease dated March 16, 2006 as amended by that certain First Amendment to Lease dated as of January 2011 (collectively the “Lease”), covering certain premises in the building located at 4140 Dublin Boulevard, Dublin, California and being a part of the development commonly known as the Dublin Corporate Center, as more particularly described in the Lease.

B. Tenant desires to expand the premises currently covered by the Lease previously consisting of approximately 35,424 rentable square feet on the fourth floor of the Building known as Suite 400 and 12,084 rentable square feet on the first floor of the Building known as Suite 100 (collectively, the “Existing Premises”) to include certain space known as Suite 300 consisting of approximately 37,490 rentable square feet located on the third floor of the Building (“Suite 300”) and Suites 101, 110 and 120 consisting of approximately 8,964 aggregate rentable square feet located on the first floor of the Building as shown on Exhibit A hereto (collectively, the “Second Additional Premises”) and Suite 150 consisting of approximately 12,632 rentable square feet located on the first floor of the Building as shown on Exhibit A attached hereto (the “Third Additional Premises”), upon and subject to the terms and conditions set forth in the Lease and in this Amendment, and to otherwise amend the terms and conditions of the Lease as set forth in this Amendment. The parties acknowledge that (i) the Third Additional Premises are currently leased to Kronos Incorporated (“Kronos”) pursuant to a lease with Landlord dated February 5, 2001 (the “Existing Suite 150 Master Lease”) and subleased from Kronos to Tenant pursuant to a Sublease dated October 21, 2009 (the “Existing Suite 150 Sublease”) and (ii) Suite 300 is currently leased to Fluor Corporation (the “Existing Suite 300 Tenant”) pursuant to a lease with Landlord dated May 27, 2008, as amended (the “Existing Suite 300 Lease”).

NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows:

1. Remeasurement. Landlord and Tenant acknowledge and agree that prior to the date hereof, the Project, the Building and that portion of the Existing Premises known as Suite 400 were remeasured and as a result, the rentable square feet of each has increased. Accordingly, the Basic Lease Information is hereby amended as follows:

(a) The rentable square feet of the Project is deemed to be 440,278;

(b) The rentable square feet of the Building is deemed to be 146,267; and

(c) The rentable square feet of that portion of the Existing Premises known as Suite 400 is deemed to be 37,474.

(d) The definition of “BOMA Standards” in the Lease is hereby replaced with the following: “BOMA Standards” means the useable square footage of the space being measured as determined by Landlord’s architect pursuant to the American National Standard Method of Measuring Floor Area in Office Buildings, to BOMA ANSI Z65.1 (1996), published by the Building Owners and Managers Association International, with application of an 8% load factor for single-tenant floors and an 18% load factor for multi-tenant floors to determine the rentable square feet.

2. Second and Third Additional Premises.

(a) Second Additional Premises. Effective as of the later of (i) January 1, 2012 or (ii) the date (the “Second Additional Premises Commencement Date”) that Landlord has delivered possession of all of the Second Additional Premises to Tenant in the condition required pursuant to this Amendment with all Tenant Improvements (defined below) therein Substantially Complete (defined in the attached Work Letter), and continuing until the Lease Expiration Date, the Premises covered by the Lease shall be expanded to include the Second Additional Premises. Except as otherwise provided in this Amendment, if Landlord does not make any portion of the Second Additional Premises available to Tenant on or before any particular date, for any reason whatsoever, Landlord shall not be liable for any damage thereby and this Amendment shall not be void or voidable thereby. Landlord agrees that it shall use all commercially reasonable efforts to terminate any existing lease or sublease of any portion of the Second Additional Premises and cause any existing tenant or subtenant of the Second Additional Premises to vacate and surrender possession of such space to allow commencement of construction of the Tenant Improvements as contemplated by the attached Work Letter. Such commercially reasonable efforts shall include, without limitation, commencing and diligently prosecuting unlawful detainer proceedings, and, with respect to Suite 300, entering into a lease termination and relocation agreement with the Existing Suite 300 Tenant that provides for such timely termination and surrender with respect to Suite 300. If the Second Additional Premises Commencement Date has not occurred on or the Outside Date (defined below), then Tenant shall have the right to terminate this Amendment by notice to Landlord given no later than

30 days following the Outside Date, such termination to be effective on the date which shall be 30 days after the date such notice is given, and thereupon neither party shall have any liability to the other under this Amendment and this Amendment will be deemed null and void; provided, however, if Landlord causes the Second Additional Premises Commencement Date to occur at any time within 30 days following the date that Tenant’s termination notice is given, such notice by Tenant and such termination shall be void and of no force and effect. As used herein, “Outside Date” means June 30, 2012, which date shall be extended by one day for each day of Tenant Delay or Unavoidable Delay; provided, however, any extension for Unavoidable Delay shall be limited to thirty (30) days. As used herein “Unavoidable Delay” means any cause beyond Landlord’s reasonable control (other than financial inability), including governmental preemption in connection with a national emergency, shortages, or unavailability of labor, fuel, steam, water, electricity or materials, or delays caused by third parties outside the reasonable control of Landlord, mechanical breakdown, acts of God, enemy action, civil commotion, fire or other casualty.

(b) Third Additional Premises. Effective as of August 1, 2012 (the “Third Additional Premises Commencement Date”) and continuing until the Lease Expiration Date, the Premises covered by the Lease shall be expanded to include the Third Additional Premises.

If Landlord does not make the Third Additional Premises available to Tenant on or before any particular date, for any reason whatsoever, Landlord shall not be liable for any damage thereby and this Amendment shall not be void or voidable thereby. Notwithstanding the foregoing, if the Existing Suite 150 Master Lease or the Existing Suite 150 Sublease terminates for any reason other than a default by Tenant under the Existing Suite 150 Sublease, then Landlord and Tenant agree that the Third Additional Premises Commencement Date shall be automatically advanced to occur on the date of such termination.

(c) Confirmation of Commencement. Upon the occurrence of the Second Additional Premises Commencement Date or the Third Additional Premises Commencement Date, Landlord shall deliver to Tenant a notice in the form as set forth in Exhibit B, attached hereto, as a confirmation only of the information set forth therein, which Tenant shall execute and return to Landlord within ten (10) business days of receipt thereof; provided, however, Tenant’s failure to execute and return any such notice to Landlord within such time shall be conclusive upon Tenant that the information set forth in such notice is as specified therein.

3. Extension. Prior to the effectiveness of this Amendment, the Term of the Lease was scheduled to expire on June 30, 2013. The Term of the Lease is hereby extended for an additional period commencing as of July 1, 2013 and expiring on the date (the “Lease Expiration Date”) that is one hundred twenty (120) full calendar months following the Second Additional Premises Commencement Date. All references to the Lease Expiration Date in the Lease will hereinafter refer to the Lease Expiration Date set forth in this Amendment.

4. Condition of Premises; Tenant Improvements.

(a) Condition of Premises. Except as expressly set forth herein, Tenant shall accept the Second Additional Premises and the Third Additional Premises in their “AS-IS” condition; provided, however, the foregoing not be deemed a waiver of Tenant’s right to have defects in the Tenant Improvements repaired at no cost to Tenant as more particularly described in the Work Letter and, provided further that the foregoing is not intended and shall not be deemed as a limitation of Landlord’s on-going repair and maintenance obligations under the Lease as amended hereby. Notwithstanding anything to the contrary herein or in the Lease, Landlord shall be responsible, at its sole cost and expense (and the Landlord Contribution shall not be used for) all costs and expenses required to cause the Premises to comply with all Legal Requirements in effect as of the Second Additional Premises Commencement Date, including, without limitation, those triggered by the construction of the Tenant Improvements and those related to Hazardous Materials in the Premises and the common areas of the Project as of the Second Additional Premises Commencement Date; provided, however, the foregoing does not extend to any noncompliance arising from or related to any Hazardous Materials brought on or about the Premises or the Project by Tenant or any Tenant Parties (defined below).

(b) Space Planning Costs Within thirty (30) days after written request from Tenant, accompanied by invoices from the applicable vendors, Landlord shall pay to Tenant the sum of $10,000.00, which Tenant shall use to pay the design and space planning costs with respect to Tenant’s work in the Premises.

(c) Tenant Improvements. Landlord shall construct certain improvements in the Second Additional Premises, the Third Additional Premises and the Existing Premises (the

“Tenant Improvements”) in accordance with the attached Work Letter. In addition, Landlord shall deliver vacant, broom-clean possession of the Second Additional Premises with the following systems serving such premises in good working order, and as of the Third Additional Premises Commencement Date, the following systems serving such premises shall be in good working order: (i) electrical and lighting; (ii) fire protection systems; and (iii) fixtures, plumbing, roof and HVAC. Notwithstanding anything to the contrary in this Amendment, Tenant’s acceptance of the Second Additional Premises and the Third Additional Premises shall not be deemed a waiver of Tenant’s right to have defects in the foregoing repaired at no cost to Tenant as more

particularly described in the next sentence. Tenant shall notify Landlord of such defects in writing within twelve (12) months after the applicable Commencement Date for such premises, and in each case, Landlord shall promptly commence repair of all such defects upon written notice from Tenant, provided, however, that Landlord shall have no obligation to correct defects not reported to Landlord in writing within the applicable time period set forth above; provided further that the foregoing is not intended to and shall not be deemed as a limitation of Landlord’s on-going repair and maintenance obligation under the Lease as amended hereby. Notwithstanding anything in the Lease to the contrary, provided the same are generally in keeping with Building standards and are consistent with Tenant’s permitted use or the interior improvements of the Existing Premises and Suite 150, Tenant shall not be required to remove the Tenant Improvements at the expiration or sooner termination of the Lease, as amended hereby.

5. Base Rent; Differential Amount. Effective as of the Second Additional Premises Commencement Date, the Base Rent payable under this Lease shall be according to Schedule 1 attached hereto and incorporated herein by this reference. In addition to Base Rent and other amounts payable under the Lease as amended hereby, Tenant agrees to pay to Landlord as Additional Rent an amount representing the difference between (i) the Base Rent payable in respect of the Existing Premises under the Lease prior to the Second Additional Premises Commencement Date and (ii) the Base Rent Payable in respect of the Existing Premises under the Lease as amended hereby, in each case calculated for the period beginning on the Second Additional Premises Commencement Date and ending on June 30, 2013, discounted to the net present value at a discount rate of 4.15% (the “Differential Amount”). The Differential Amount shall be amortized at 4.15% over the period beginning on the Second Additional Premises Commencement Date and ending on the Expiration Date (as extended pursuant to Section 3 of this Amendment above) and payable in equal monthly installments concurrently with payments of Base Rent during such period. For purposes of clarification only, attached hereto as Schedule 2 is an example of how the Differential Amount would be calculated if the Second Additional Premises Commencement Date were January 1, 2012. When the Second Additional Premises Commencement Date is established, the parties shall confirm the actual Differential Amount in the commencement certificate to be executed pursuant to Section 2(c) of this Amendment.

6. Parking. The Basic Lease Information is hereby amended to reflect that Tenant shall be entitled to not fewer than 3.5 unreserved spaces per 1,000 rentable square feet of the Premises, of which twenty five (25) shall be designated for the exclusive use of Tenant and its visitors.

7. Right of First Negotiation; Advice Space. Section 1.3 of the Lease is hereby deleted in its entirety. The following shall apply from and after the Effective Date of this Amendment:

(a) Right of First Negotiation. If at any time through and including the date that is thirty six (36) months prior to the Expiration Date (as the same may be extended), Landlord intends to lease all or any portion of the third floor of the building within the Project known as 4160 Dublin Boulevard (the “4160 Building”) or all or any part of the second floor of the Building (collectively, the “Additional Space”), then, prior to entering into such a lease (excluding a lease executed pursuant to the exercise of any Additional Space Superior Rights (defined below)), Landlord shall first give written notice to Tenant offering to lease such Additional Space to Tenant on the terms and conditions of the Lease, as amended by this Amendment, other than Base Rent, which shall be the Fair Market Value of such Additional Space, as specified in such notice (an “Offer to Lease”). Tenant’s rights under this Section are subordinate to all rights as to the Additional Space currently set forth in existing leases with tenants in occupancy in the Project as of the date of this Amendment, including any renewal, extension, expansion, first offer, first negotiation and other similar rights as set forth on the attached Exhibit E (“Additional Space Superior Rights”). An Offer to Lease shall set forth the description of the applicable Additional Space, the commencement date of the proposed letting, and Landlord’s determination of the Base Rent for the Additional Space. Tenant shall have ten (10) Business Days after receipt of an Offer to Lease in which to accept such offer. Tenant shall accept such offer, if at all, only by irrevocable written notice to Landlord in which Tenant shall agree to lease the Additional Space from Landlord. Time is of the essence with respect to Tenant’s acceptance of an Offer to Lease. If Tenant fails to accept an Offer to Lease within such ten (10) Business Days, then Landlord shall thereafter have the right to lease such Additional Space; provided, however, if Landlord does not lease such Additional Premises within ninety (90) days after the expiration of said ten (10) business day period, any further transaction shall be deemed a new determination by Landlord to lease such Additional Space and the provisions of this paragraph shall again be applicable. Notwithstanding the foregoing, if bona fide lease negotiations are commenced within such ninety (90) day period, such ninety (90) day period shall be extended for so long as such bona fide negotiations continue, not to exceed six (6) months after such ninety (90) day period. If Tenant timely accepts an Offer to Lease, the lease of the applicable Additional Space shall be coterminous with the Lease Term, Base Rent shall be in the amount of the Fair Market Value determined according to Section 10 of this Amendment, Tenant shall accept the Additional Space in its then “as is” condition except as otherwise expressly set forth in the Offer to Lease and otherwise the lease of Additional Space shall be upon all of the agreements, terms, covenants and conditions of the Lease, as amended hereby. Tenant’s right of first negotiation shall be continuous through and including the date that is thirty six (36) months prior to the Expiration Date (as the same may be extended). Tenant’s rejection of any particular Offer to Lease shall not relieve Landlord of its obligation to again offer any Additional Space to Tenant at any time that Landlord subsequently determines that it wishes to lease the Additional Space.

(b) Advice Space/Advice Notice. At any time through and including the date that is thirty six (36) months prior to the Expiration Date, Tenant shall have the right to send to Landlord a notice (“Request Notice”) advising Landlord that Tenant is interested in leasing space in the Project, setting forth the amount of space and length of time Tenant desires to lease

such additional space. Within ten (10) Business Days after receipt of a Request Notice, Landlord shall deliver to Tenant written notice (“Landlord’s Advice Notice”) of any space in the Project that is or will be available for the applicable term specified in the Request Notice, excluding but identifying any space that is then the subject of bona fide lease negotiations between Landlord and any prospective tenant (the “Advice Space”) and without liability to Landlord for any errors or omissions. Landlord’s Advice Notice shall include Landlord’s determination of the Base Rent for the Additional Space. Subject and subordinate to all Project Superior Rights (defined below), Tenant shall have ten (10) Business Days after receipt of any Landlord’s Advice Notice in which to elect to lease any of the Advice Space on the terms and conditions set forth in this Section, which election shall be made only by irrevocable written notice delivered to Landlord within such ten (10) Business Day period. Time is of the essence with respect to Tenant’s election to lease any Advice Space. If Tenant timely notifies Landlord of its election to Lease any Advice Space, the lease of the applicable Advice Space shall be for the term set forth in the applicable Request Notice, Base Rent shall be in the amount of the Fair Market Value determined according to Section 10 of this Amendment, Tenant shall accept the Advice Space in its then “as is” condition except as otherwise expressly set forth in the Landlord’s Advice Notice and otherwise the lease of Advice Space shall be upon all of the agreements, terms, covenants and conditions of the Lease, as amended hereby. As used herein, “Project Superior Rights” means all rights of tenants in occupancy in the Project as of the date of this Amendment, including any renewal, extension, expansion, first offer, first negotiation and other similar rights, regardless of whether such rights are originally set forth in the leases of such tenants or later granted to such tenants by Landlord pursuant to a lease amendment or a new lease and including renewals or extensions offered to or negotiated with existing tenants in the Project whether or not such tenants held contractual rights to the same (all such rights are collectively referred to herein as the “Project Superior Rights”).

(c) Conditions to Tenant’s Rights. Tenant’s rights under this Section shall be effective only provided and on condition that at the time Landlord delivers and at the time Tenant accepts an Offer to Lease or, at the time Tenant delivers a Request Notice and at the time Tenant elects to lease any Advice Space, no default of Tenant under this Lease shall have occurred and be continuing beyond any applicable notice and cure period. The rights contained in this Section shall not be available to any assignee, or any sublessee or other transferee (other than a Permitted Transferee) and may be exercised only provided and on condition that such Tenant is not subleasing, other than to a Permitted Transferee, more than seventy five percent (75%) of the Premises then leased to Tenant as of the date Tenant purports to accept an Offer to Lease or elects to lease any Advice Space, as applicable.

(d) Amendment to Lease. If Tenant leases any Additional Space or Advice Space pursuant to this Section, Landlord and Tenant shall, within thirty (30) days after determination of the Base Rent for such space, execute an amendment reflecting the basic terms related to adding the Additional Space or Advice Space to the Lease in accordance with the terms provided in this Section.

8. Operating Costs and Taxes.

(a) Proportionate Share. Tenant’s Proportionate Share of Operating Costs and Tenant’s Proportionate Share of Real Estate Taxes shall be increased in proportion to the Gross Leasable Area following the Second Additional Premises Commencement Date and the Third Additional Premises Commencement Date.

(b) Base Year. For purposes of calculating Tenant’s share of Operating Costs and Real Estate Taxes, the “Base Year” shall be calendar year 2012.

(c) Tax Contests. Landlord shall use commercially reasonable efforts to contest increases in the assessed value of the Project for purposes of property tax assessments in excess of then-current actual market value. If Landlord fails to make such commercially reasonable efforts, Tenant’s obligation to pay Tenant’s Proportionate Share of Real Estate Taxes will exclude any increase that could have reasonably been avoided if Landlord had made such commercially reasonable efforts.

9. Extension Options. Section 2.3 of the Lease is hereby deleted in its entirety and replaced with the following:

“(a) Renewal Option. Tenant shall have the right to renew the Lease Term for two (2) renewal terms of five (5) years each (each a “Renewal Term”), commencing on the day after the expiration of the initial Term or first Renewal Term, as applicable (each a “Renewal Term Commencement Date”) and ending on the day immediately preceding the fifth (5th) anniversary of the applicable Renewal Term Commencement Date, unless the applicable Renewal Term shall sooner terminate pursuant to any of the terms of this Lease. Tenant may exercise its renewal rights hereunder for all or a portion of the Premises then leased to Tenant; provided, however, if Tenant elects to renew the Lease Term with respect to only a portion of the Premises then leased to Tenant (i) the portion of the Premises subject to renewal must be not less than two full floors of the Project, (ii) the configuration of any portion of the Premises that will not be subject to such renewal shall be subject to

Landlord’s reasonable approval; and (iii) Tenant shall reimburse Landlord for one-half of any re-demising costs necessary to separate the portion of the Premises subject to Tenant’s renewal from the portion of the Premises not subject to renewal.

(b) Renewal Notice. At least thirty (30) days prior to the Calculation Date (defined below), the parties shall meet and confer as set forth in subsection (d) below. A Renewal Term shall commence only if (i) Tenant notifies Landlord in writing (a “Renewal Exercise Notice”) of Tenant’s exercise of such renewal right not earlier than fifteen (15) months, and not later than twelve (12) months, prior to the then current Expiration Date, and (ii) at the time of the exercise of such right no default under this Lease beyond any applicable notice and cure period set forth in this Lease shall have occurred and be continuing hereunder. The day that is twelve (12) months prior to the then current Expiration Date is referred to herein as the (“Renewal Notice Deadline”) Time is of the essence with respect to the giving of each Renewal Exercise Notice. Each Renewal Term shall be upon all of the agreements, terms, covenants and conditions of this Lease, except that (a) the Rent shall be determined as provided below in this Section, and (b) if Tenant does not timely exercise the first or second renewal, Tenant shall have no further right to renew or extend the Term, or after the timely exercise of the renewals, Tenant shall have no further right to renew or extend the Term. Upon the commencement of a Renewal Term, (1) such Renewal Term shall be added to and

become part of the Term, (2) any reference to “this Lease”, to the “Lease Term”, the “term of this Lease” or any similar expression shall be deemed to include such Renewal Term, (3) the expiration of the applicable Renewal Term shall become the Expiration Date, and (4) the Base Year for the Renewal Term shall be the calendar year in which the applicable Renewal Term commences. Any termination or cancellation of the Lease, as amended hereby at any time during the Lease Term shall automatically terminate the renewal right set forth in this Section. The rights contained in this Section shall not be available to any assignee or any sublessee or other transferee (other than a Permitted Transferee) and may be exercised only provided and on condition that such Tenant is not subleasing, other than to a Permitted Transferee, more than seventy-five percent (75%) of the Premises as of the date Tenant purports to give the Renewal Exercise Notice and, at the option of Landlord, upon commencement of the Renewal Term.

(c) Renewal Term Rent. The annual Base Rent payable during any Renewal Term shall be equal to 100% of Fair Market Value (as hereinafter defined) of the Renewal Premises, as of the day that is six (6) months prior to commencement of the applicable Renewal Term (each a “Calculation Date”). “Fair Market Value” shall mean the fair market annual rent (including additional rent and considering any “base year” or “expense stop” applicable thereto), taking into account all escalations, at which, as of the applicable Calculation Date, tenants are leasing non-sublease, non-encumbered, non-equity, non-expansion space comparable in size, location and quality to the Renewal Premises for a term of five (5) years, in an arm’s-length transaction, which comparable space is located in the Building or in the Comparable Buildings, and which comparable transactions (collectively, the “Comparable Transactions”) have been entered into within the six (6) month period immediately preceding the Calculation Date, taking into consideration the following concessions (the “Concessions”): (a) rental abatement concessions, if any, being granted such tenants in connection with such comparable space; and (b) tenant improvements or allowances provided or to be provided for such comparable space, taking into account, and deducting the value of, the existing improvements in the Renewal Premises, such value to be based upon the age, condition, design, quality of finishes and layout of the improvements and the extent to which the same can be utilized by a tenant; (c) other reasonable monetary concessions being granted such tenants in connection with such comparable space; and (d) the fact that Landlord is or is not required to pay a real estate brokerage commission in connection with Tenant’s exercise of its right to lease the Renewal Premises during the Renewal Term, as the case may be, or in connection with the Comparable Transactions or the fact that landlords are or are not paying real estate brokerage commissions in connection with such comparable space, provided, however, that in calculating the Fair Market Value, no consideration shall be given to any period of rental abatement granted to tenants in Comparable Transactions in connection with the design, permitting and construction of tenant improvements in such comparable spaces.

(d) Parties to Confer Regarding Fair Market Rental. At least thirty (30) days prior to delivery of a Renewal Exercise Notice, Tenant shall deliver to Landlord a request to confer regarding Tenant’s possible renewal of the Term of the Lease. Promptly following delivery of such request, Landlord and Tenant shall meet and confer and in good faith endeavor to mutually agree upon the Fair Market Value. If the parties are not

able to agree upon such Fair Market Value during such period and if Tenant timely delivers the Renewal Exercise Notice on or before the Renewal Notice Deadline, Landlord and Tenant shall continue to confer and in good faith endeavor to mutually agree upon the Fair Market Value of the Renewal Premises. If, for any reason, the parties are not able to agree upon such Fair Market Value on or before the date (the “Determination Deadline”) that is fifteen (15) days after delivery of the Renewal Exercise Notice, then such Fair Market Value will be determined in accordance with the provisions of subsections (e) and (f) below.

(e) Rent Notice. If the parties do not agree upon the Fair Market Value on or before the Determination Deadline, Landlord shall, by written notice to Tenant within ten (10) Business Days after the Determination Deadline advise Tenant (the “Rent Notice”) of Landlord’s determination of Fair Market Value of the Renewal Premises for the Renewal Term. If Tenant timely disputes Landlord’s determination of Fair Market Value in accordance with subsection (f) below, then the dispute shall be resolved by arbitration as provided in subsection (f) below. If the Rent payable during the Renewal Term is not determined

prior to the Renewal Term Commencement Date, Tenant shall pay Rent in an amount equal to the Fair Market Value for the Renewal Premises as set forth in the Rent Notice (the “Interim Rent”). Upon final determination of the Rent for the Renewal Term, Tenant shall commence paying such Rent as so determined, and, if the Rent as so determined shall be greater than the Interim Rent, within ten (10) days after such determination Tenant shall pay any deficiency in prior payments of Rent or, if the Rent as so determined shall be less than the Interim Rent, Tenant shall be entitled to a credit against the next succeeding installments of Rent in an amount equal to the aggregate amount of Tenant’s overpayment.

(f) Arbitration. If Tenant wishes to dispute Landlord’s determination of Fair Market Value of the Renewal Premises for the Renewal Term, then Tenant shall give notice to Landlord of such dispute within ten (10) Business Days after delivery of the Rent Notice, and such dispute thereafter shall be determined by arbitration in accordance with the then prevailing Expedited Procedures of the American Arbitration Association or its successor (“AAA”) for arbitration of commercial disputes, except that the Expedited Procedures shall be modified as set forth in subsections (i) through (iv) below. Nothing herein shall be deemed a requirement for appointment of AAA arbitrators or conduct of the arbitration described herein through AAA.

(i) In its demand for arbitration, Tenant shall specify the name and address of the person to act as the arbitrator on Tenant’s behalf. The arbitrator shall be a real estate broker with at least five (5) years full-time commercial brokerage experience who is familiar with the Fair Market Value of first-class office space in the Cities of Dublin, Pleasanton and San Ramon California. Failure on the part of Tenant to make the timely and proper demand for such arbitration shall constitute a waiver of the right thereto and the Rent shall be as set forth in the Rent Notice. Within ten (10) Business Days after the service of the demand for arbitration, Landlord shall give notice to Tenant specifying the name and address of the person designated by Landlord to act as arbitrator on its behalf, which arbitrator shall be similarly qualified. If Landlord fails to notify Tenant of the appointment of its arbitrator within such ten (10) Business Day period, and

such failure continues for three (3) Business Days after Tenant delivers a second notice to Landlord, then the arbitrator appointed by Tenant shall be the arbitrator to determine the Fair Market Value for the Renewal Premises.

(ii) If two arbitrators are chosen pursuant to subsection (e)(i) above, the arbitrators so chosen shall meet within ten (10) Business Days after the second arbitrator is appointed and shall seek to reach agreement on Fair Market Value. If within twenty (20) Business Days after the second arbitrator is appointed, the two arbitrators are unable to reach agreement on Fair Market Value then the two arbitrators shall appoint a third arbitrator, who shall be a licensed MAI appraiser with at least five (5) years’ experience who is familiar with Fair Market Value of first-class office space in the Cities of Dublin, Pleasanton and San Ramon, California, provided that if the Appraisal Institute no longer issues MAI license designations or if no MAI appraiser has the required experience, then the third appraiser shall be an appraiser with qualifications similar to those required of the first two arbitrators. If they are unable to agree upon such appointment within five (5) Business Days after expiration of such twenty (20) Business Day period, the third arbitrator shall be selected by the parties themselves. If the parties do not agree on the third arbitrator within five (5) Business Days after expiration of the foregoing five (5) Business Day period, then either party, on behalf of both, may request appointment of such a qualified person by the then president of the commercial real estate board for the county in which the Building is located. The third arbitrator shall decide the dispute, if it has not been previously resolved, by following the procedures set forth in subsection below. Each party shall pay the fees and expenses of its respective arbitrator and both shall share the fees and expenses of the third arbitrator. Attorneys’ fees and expenses of counsel and of witnesses for the respective parties shall be paid by the respective party engaging such counsel or calling such witnesses.

(iii) Fair Market Value shall be fixed by the third arbitrator in accordance with the following procedures. Concurrently with the appointment of the third arbitrator, each of the arbitrators selected by the parties shall state, in writing, his or her determination of the Fair Market Value supported by the reasons therefor. The third arbitrator shall have the right to consult the two initial arbitrators, experts and competent authorities for factual information or evidence pertaining to a determination of Fair Market Value, but any such determination shall be made in the presence of both parties with full right on their part to cross-examine. The third arbitrator shall conduct such hearings and investigations as he or she deem appropriate and shall, within thirty (30) days after being appointed, select which of the two proposed determinations most closely approximates his or her determination of Fair Market Value. The third arbitrator shall have no right to propose a middle ground or any modification of either of the two proposed determinations. The determination he or she chooses as that most closely approximating his or her determination of the Fair Market Value shall constitute the decision of the third arbitrator and shall be final and binding upon the parties. The third arbitrator shall render the decision in writing with counterpart copies to each party. The third arbitrator shall have no power to add to or modify the

provisions of this Lease. Promptly following receipt of the third arbitrator’s decision, the parties shall enter into an amendment to this Lease evidencing the extension of the Term for the Renewal Term and confirming the Rent for the Renewal Term, but the failure of the parties to do so shall not affect the effectiveness of the third arbitrator’s determination or the extension of the Term.

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

10. Termination of Letter of Credit. From and after the Effective Date, the requirements of Section 3.5 and Addendum No. 1 of the Lease shall be of no further force or effect and Tenant shall not be required to maintain any letter of credit as security for the Lease. The parties acknowledge that the next annual renewal date of the Letter of Credit will occur on March 16, 2012 (the “2012 Expiration Date”). Promptly following the Effective Date, Tenant shall notify the issuer of the Letter of Credit, Union Bank of California (the “Issuer”) that Tenant shall not renew the Letter of Credit beyond the 2012 Expiration Date. Notwithstanding anything in the Lease to the contrary, such termination of the Letter of Credit by Tenant shall not be a breach or default under the Lease. Landlord acknowledges and agrees that notwithstanding the fact that the Letter of Credit may remain valid, Landlord shall have no right to draw upon the Letter of Credit after the Effective Date for any reason. If any party draws on the Letter of Credit, Tenant shall be entitled to offset Rent under the Lease, as amended hereby, in an amount equal to the amount drawn on the Letter of Credit, not to exceed the total sum of $200,000. Tenant's right to offset Rent pursuant to this Section shall terminate upon the earlier of: written confirmation from Issuer that the Letter of Credit has been terminated or April 30, 2014.

11. Signage. Sections 10.2 and 10.3 of the Lease are hereby deleted and replaced with the following:

(a) Building Top Signs. Upon and following receipt by Landlord of necessary governmental approvals, Tenant shall be entitled, at its sole cost and expense, to install and maintain two building top signs on the exterior of the Building (the “4140Exterior Signs”) in the locations shown on Exhibit C attached hereto. If Tenant elects to lease the entire third floor of the 4160 Building in accordance with Section 8 of this Amendment, then upon and following receipt by Landlord of necessary governmental approvals, Tenant shall be entitled, at its sole cost and expense, to install and maintain a building top sign on the exterior of the 4160 Building on the top floor of the South façade of the 4160 Building (the “4160 Exterior Sign” and collectively with the 4140 Exterior Signs, the “Exterior Signs”). The Exterior Signs shall subject to approval by the City of Dublin and compliance with all applicable Legal Requirements and the provisions of the Lease as amended hereby, including (without limitation) those regarding Alterations. The size, design, color, materials, fabrication, mounting details and all other aspects of the Exterior Signs shall comply with all applicable Legal Requirements, as from time to time in effect, shall be subject to Landlord’s reasonable approval and shall be in accordance plans and specifications approved in advance by Landlord. Tenant shall remove the Exterior Signs at its sole cost and expense prior to the end of the Lease Term or, if earlier, at such time as Tenant no longer has the right to maintain the Exterior Signs pursuant to this Section

or applicable Legal Requirements. In connection with such removal Tenant shall repair any damage to the façade of the Building caused by the removal of such sign. If Tenant shall fail to do so, Landlord may perform such work at Tenant’s expense. Tenant shall have the right to maintain the 4140 Exterior Signs only for so long as the Premises leased to Tenant include not less than two full floors of the Building and Tenant shall have the right to maintain the 4160 Exterior Sign only for so long as the Premises leased to Tenant include at least one full floor of the 4160 Building. Subject to Landlord’s consent as set forth above, Tenant shall be entitled to design its Exteriors Signs in manner such that Tenant’s name and/or logo thereon are of the maximum prominence and size permitted by applicable Legal Requirements; provided, however, the foregoing shall not be deemed to entitle Tenant to relocate the Exterior Signs to any location other than the locations described in this Section 12(a) above. In furtherance of the foregoing, from time to time Tenant may notify Landlord that Tenant reasonably believes (i) a change in Legal Requirements has occurred that would allow Tenant to increase the size and prominence of its Exterior Signs or (ii) any proposed exterior signage of another tenant in the Project may be of greater size and/or prominence than Tenant’s then existing Exterior Signs. Upon receipt of such notice, Landlord shall reasonably cooperate with Tenant to seek necessary governmental approvals to allow Tenant to increase the size and prominence of Tenant’s Exterior Signage to the extent allowable by applicable Legal Requirements. Landlord agrees that Landlord shall not withhold consent to any size, design, color, material, fabrication, mounting details or other aspect of Tenant’s Exterior Sign if the same aspect is permitted as part of any other Exterior Sign in the Project.

(b) Monument Signs. Tenant shall be entitled, at its sole cost and expense to maintain one panel on the top slot on each of the two existing monument signs near the entrance of the Building (the “4140Monument Signs”). If Tenant elects to lease the entire third floor of the 4160 Building in accordance with Section 8 of this Amendment, Tenant shall be entitled to one slot on a monument sign near the 4160 Building (the “4160 Monument Sign” and collectively with the 4140 Monument Sign, the “Monument Signs”) The Monument Signs shall be subject to approval by the City of Dublin and compliance with all applicable Legal Requirements. The size, design, color, materials, fabrication, mounting details and all other aspects of the Monument Signs shall comply with all applicable Legal Requirements and shall be subject to Landlord’s reasonable approval. In lieu of having Tenant maintain its Monument Signs, Landlord may elect to maintain the same and Tenant shall reimburse Landlord for the cost thereof upon demand from time to time. Tenant shall have the right to maintain the 4140 Monument Signs for so long as the Premises leased to Tenant include not less than one full floor of the Building and Tenant shall have the right to maintain the 4160 Monument Sign for so long as the Premises leased to Tenant include not less than one full floor of the 4160 Building.

(c) Marquee Sign. If during the Term of the Lease as amended hereby, Landlord elects, in its sole and absolute discretion, to install a marquee or pole sign identifying the Project and its occupants, then Tenant shall be entitled to install and

maintain one (1) identification panel on such sign, at Tenant’s sole cost and expense; provided, however, nothing herein shall be deemed to require Landlord to install such a sign at any time. If Landlord does elect to install such a sign, Landlord shall use

commercially reasonable efforts to minimize interference with Tenant’s access to and use of the Premises resulting from the installation of such sign. Tenant shall be entitled to the top of panel of such sign. Tenant shall pay to Landlord the amount of the costs and expenses incurred by Landlord in the fabrication, installation and maintenance of Tenant’s identification panel on such sign. Tenant shall have the right to maintain a panel on such sign for so long as the Premises leased to Tenant include not less than two full floors of any building in the Project.

(d) Conditions to Tenants Rights. The rights contained in this Section shall not be available to any assignee, or any sublessee or other transferee (other than to a Permitted Transferee) and may be exercised only provided and on condition that such Tenant is not subleasing (other than to a Permitted Transferee) more than fifty percent (50%) of the Premises then leased to Tenant.

12. Nondisturbance. Subordination of the Lease pursuant to Section 23 of the Lease shall be conditioned upon Tenant’s receipt of a commercially reasonable nondisturbance and recognition agreement from any future Mortgagee.

13. Hazardous Materials Indemnity. Section 31.5(f) of the Lease is hereby amended by deleting the words “by Landlord, or its agents, employees or representatives” and replacing the same with the following: “by any party other than Tenant or any other Tenant Parties”.

14. Project Amenities.

(a) Café. Landlord shall facilitate opening of a café at the Project on or before the Second Additional Premises Commencement Date. Such café will be operated by a third party operator who would provide food and beverage service to individual customers at retail prices designated by such third party operator. Landlord will use commercially reasonable efforts to cause such third party vendor or a replacement vendor to continue to operate a café at the Project during the Lease Term.

(b) On Site Personnel. During the Lease Term, Landlord shall cause its property manager to locate one project engineer and one property management representative on site at the Project during Building Hours.

(c) After Hours HVAC. During the Lease Term, Landlord shall install and maintain HVAC control systems or reasonable replacements of such systems to permit occupants to automatically (without action by any engineer or other person other than Tenant’s designated representatives) to schedule and activate after hours HVAC operation via telephone .

(d) Building Security. During the Lease Term, Landlord shall arrange for a third party private security company to provide drive-by patrol service to the Project with patrols not less frequently then (i) three (3) patrols between 7pm and 4am, Monday through Friday and (ii) five (5) patrols on each of Saturday and Sunday. In addition, reasonably promptly following the Effective Date, Landlord agrees to replace the existing light bulbs in the parking lot lighting with brighter bulbs. Notwithstanding anything herein or in the Lease to the contrary, Landlord shall not be responsible for the quality of any such patrol or for damage or injury to Tenant, its employees, invitees or others due to the failure, action or inaction of such patrol service.

15. Naming Rights.

(a) Street Name. Landlord shall use commercially reasonable efforts to obtain necessary governmental approvals to rename the street within the Project currently known as “Koll Center Drive” to “Taleo Corporate Way”. Upon receipt of such necessary approvals, Tenant shall be entitled to incorporate “Taleo Corporate Way” in its corporate address.

(b) Project Name. Landlord agrees that if the Premises leased to Tenant expands to a minimum of sixty-six percent (66%) of the rentable square feet of the Project, then, subject to receipt of all necessary governmental approvals and any consents required under any covenants, conditions and restrictions of record that are then binding on the Project, the Project shall be renamed “Taleo Corporate Center”. Upon receipt of all such approvals and consents, Tenant shall be permitted to replace existing Project signage bearing the name “Dublin Corporate Center” with new signage reflecting the name “Taleo Corporate Center”. All such replacement signage pursuant to this Section shall be installed by Tenant at Tenant’s sole cost and expense or, at Landlord’s option, Landlord may elect to install the same and Tenant shall reimburse Landlord for the cost and expense of the same upon demand. All such signage shall be subject to all applicable Legal Requirements and Landlord’s prior approval. If Tenant elects to rename the Project, then at any time when the Premises leased to Tenant is less than sixty six percent (66%) of the rentable square feet of the Project, Landlord shall have the right to rename the Project to “Dublin Corporate Center” or any other name Landlord elects in its sole and absolute discretion. In such case, Tenant shall reimburse Landlord for the reasonable cost of replacing all Project name signage upon demand.

16. Status of Lease.

(a) Tenant hereby certifies as follows to Tenant’s current actual knowledge, without inquiry or investigation:

(i) That the Lease is in full force and effect and has not been assigned or encumbered by Tenant in any manner;

(ii) That the Lease represents the entire agreement between the parties as to the leasing of the Premises;

(iii) That there are no current defenses or counterclaims to the enforcement of the Lease;

(iv) That Tenant is not entitled to any current offset, abatement or reduction of rent under the Lease except as otherwise provided in the Lease or this Amendment;

(v) Except as provided in this Amendment, that Landlord has completed all tenant improvements to be performed by Landlord to the date hereof and paid all contributions and other sums with respect to such tenant improvements due to Tenant to the date hereof under the Lease; and

(vi) Neither Landlord nor Tenant is in default under any of its obligations under the Lease.

(b) Landlord hereby certifies that to Landlord’s knowledge (i) the Lease is in full force and effect and has not been assigned or encumbered by Landlord in any manner and (ii) neither Landlord nor Tenant is in default under any of its obligations under the Lease. As used herein, “Landlord’s knowledge” means the current actual knowledge of Allen Palmer or Lily Ng, without inquiry or investigation.

17. Brokers. Each of Landlord and Tenant represents that it has dealt with no brokers in connection with this Amendment other than Colliers International (“Landlord’s Broker”) and Cushman & Wakefield (“Tenant’s Broker”), and that no other brokers negotiated this Amendment or are entitled to any commission in connection herewith. Each of Landlord and Tenant shall indemnify and hold the other harmless from any cost, expense or liability (including costs of suit and reasonable attorneys’ fees) for any compensation, commission or fees claimed by any real estate broker or agent other than Landlord’s Broker and Tenant’s Broker in connection with this Amendment or its negotiation by reason of any act of the indemnifying party. Landlord shall pay any fees and commissions payable to Landlord’s Broker and Tenant’s Broker in connection with this Amendment pursuant to separate agreement(s).

18. Force and Effect. Except as modified by this Amendment, the terms and provisions of the Lease are hereby ratified and confirmed and are and shall remain in full force and effect. Should any inconsistency arise between this Amendment and the Lease as to the specific matters which are the subject of this Amendment, the terms and conditions of this Amendment shall control. This Amendment shall be construed to be a part of the Lease and shall be deemed incorporated in the Lease by this reference. Capitalized terms used and not otherwise defined herein shall have the same meanings ascribed to them in the Lease.

19. Counterparts. This Amendment may be executed in any number of identical counterparts, each of which shall be deemed to be an original, and all of which together shall be deemed to be one and the same instrument when each party has signed one such counterpart.

20. Limitation on Liability. Section 34.4 of the Lease is incorporated into this Amendment by reference as if fully set forth herein.

21. Assignment and Subletting.

(a) The provisions of Section 6.1 of the Lease following the first sentence thereof are hereby deleted and replaced with the following:

Notwithstanding anything to the contrary in this Lease, (i) Tenant may, without Landlord’s prior written consent and without constituting an assignment, sublease or other transfer of the Lease (or triggering the provisions of Section 6.3 below), sublet the Premises or assign the Lease to (a) an entity controlling, controlled by or under common control with Tenant, (b) an entity related to Tenant by merger, consolidation, nonbankruptcy reorganization, or government action or (c) a purchaser of a substantial portion of Tenant’s assets (each, a “Permitted Transferee”); provided, that the transferee has a tangible net worth computed in

accordance with generally accepted accounting principles consistently applied (and excluding goodwill, organization costs and other intangible assets) that is sufficient to meet the remaining obligations of Tenant under the Lease as amended hereby and as may be further amended, and provided that such merger, consolidation or transfer of assets is not principally for the purpose of transferring the leasehold estate created hereby, and (ii) a sale or transfer of Tenant’s capital stock shall not be deemed an assignment, subletting or any other transfer of the Lease or the Premises.

(b) Section 6.2 of the Lease is hereby modified by deleting the reference to “sixty (60) days” in the first sentence thereof and replacing such reference with “fifteen (15) days”.

(c) Section 6.2 of the Lease is hereby modified by deleting Landlord’s right to terminate the Lease as to any space affected by a proposed assignment or subletting following Landlord’s receipt of Tenant’s notice with respect to a proposed assignment or subletting.

(d) Section 6.2 of the Lease is hereby modified by deleting clause (iv) of the fifth (5th) sentence thereof and replacing it with the following: “(iv) the proposed subtenant or assignee is a prospective tenant in the building with whom Landlord is actively negotiating and Landlord has adequate space in the Building to accommodate the needs of such assignee or subtenant.”

22. Additional Modifications to Lease. Notwithstanding anything to the contrary in the Lease, the parties agree as follows:

(a) Operating Cost Exclusions. “Operating Costs” shall not include and in no event shall Tenant be required to pay for (i) any property management fee retained by Landlord or its affiliates or paid to third parties for property management fees with respect to the Project in excess of three percent (3%) of Base Rent; (ii) expense reserves; (iii) costs which could be properly capitalized under generally accepted accounting principles, except to the extent amortized over the useful life of the capital item in question; (iv) costs incurred in connection with the presence of any Hazardous Materials in the Premises, the Building or the Project, except to the extent (x) caused by Tenant or any subtenants or other occupants of the Premises and their respective agents, contractors, subcontractors, employees, invitees or licensees (collectively, “Tenant Parties”) or (y) exacerbated by any negligence or willful misconduct of Tenant or any other Tenant Parties; (v) costs to comply with Applicable Requirements applicable to the Building or the Project on the Second Additional Premises Commencement Date; (vi) insurance deductibles in excess of $100,000 per occurrence and co-insurance payments; (vii) capital improvements, repairs or replacements (including repairs to structural components of the Building), except if the same are reasonably intended to result in a reduction in Operating Costs (for example, a labor-saving improvement) or are required by Applicable Requirements first applicable to the Building or the Project after the Second Additional Premises Commencement Date.

(b) Tenant’s Property. Tenant’s trade fixtures, furniture, equipment and other personal property installed in the Premises (“Tenant’s Property”) shall at all times be and remain Tenant’s property, and except for alterations which cannot be removed without structural injury

to the Premises, at any time Tenant may remove Tenant’s Property from the Premises, provided that Tenant repairs all damage caused by such removal. Landlord shall have no lien or other interest in any item of Tenant’s Property and Section 15.6 of the Lease is hereby deleted.

(c) Mutual Waiver of Subrogation. Section 12.5 of the Lease is hereby deleted in it is entirety and replaced with the following: “Notwithstanding anything to the contrary herein, the parties hereto release each other and their respective agents, employees, successors, assignees and subtenants from all liability for damage to any property that is caused by or results from a risk which is actually insured against, which is required to be insured against under the Lease or which would normally be covered by “all-risk” or “special form” property insurance, without regard to the negligence or willful misconduct of the entity so released. All of Landlord’s and Tenant’s repair and indemnity obligations under this Lease shall be subject to the waiver contained in this paragraph.”

(d) Estoppel Certificate. The third (3rd) sentence of Section 22 of the Lease is hereby deleted.

(e) Relocation. Section 33 of the Lease is hereby deleted.

(f) Use. Section 5.1 of the Lease is hereby amended by adding the words “and any legal related uses” after the phrase “general office purposes” in the first sentence of such Section.

(g) Default by Tenant; Remedies. Tenant shall not be deemed to be in default, on account of Tenant’s failure to perform any covenant or obligation referenced in Section 20.1.4 of the Lease if Tenant commences to cure such default within the specified thirty (30) day period and thereafter diligently proceeds to cure such default. Section 20.1.6 of the Lease is hereby deleted. The last two (2) sentence of Section 20.2.3 of the Lease are hereby deleted.

(h) Casualty.

(i) The penultimate sentence of Section 17.1 of the Lease is deleted and replaced with the following:

If a Casualty partially damages or destroys the Premises and as a result Tenant is reasonably unable to use any portion of the Premises in a manner consistent with Tenant’s use thereof prior to such Casualty and Tenant does not use such portion of the Premises, then until the restoration of the Premises is Substantially Completed or would have been Substantially Completed but for Tenant Delay, then Base Rent, and Tenant’s obligation to pay its share of Operating Costs and Real Estate Taxes shall be reduced in the proportion by which the rentable square footage of the portion of the Premises which is not usable as aforesaid and is not used by Tenant bears to the total rentable square footage of the Premises.

(ii) Clause (b) of Section 17.3 of the Lease is hereby deleted.

(iii) Notwithstanding anything to the contrary in Article 17 of the Lease, Landlord shall not be entitled to terminate the Lease following a Casualty and Landlord shall

repair and restore the Casualty damage to the Building Standard Improvements if Landlord intends to restore such Casualty damage in a manner that would permit the use of the Premises for the purposes specified in Section 5.1 of the Lease and Landlord in fact commences restoration of such Casualty damage.

IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of the date first written above.

LANDLORD:			TENANT:
DUBLIN CORPORATE CENTER TWO, L.P., a Delaware limited partnership			TALEO CORPORATION, a Delaware corporation
By:	Dublin Corporate Center Two GP, L.L.C.,		By:	/S/ DOUG JEFFRIES
	a Delaware limited liability company,		Name:	Doug Jeffries
	its general partner		Title:	EVP and CFO
	By:	/S/ RUSSELL MAKOWSKY	By:	/S/ MICHAEL GREGOIRE
	Name:	Russell Makowsky	Name:	Michael Gregoire
	Title:	Vice President and Treasurer	Title:	Chairman and CEO

EXHIBIT A

Floor Plan – Second Additional Premises and Third Additional Premises

The floor plan which follows is intended solely to identify the general location of the additional premises, and should not be used for any other purpose. All areas, dimensions and locations are approximate, and any physical conditions indicated may not exist as shown.

The additional premises are in the approximate location shown on the attached floor plan.

Attached.

EXHIBIT B

FORM COMMENCEMENT CERTIFICATE

VIA HAND DELIVERY

, 2011

[NOTE – REVISE AS NECESSARY TO REFLECT TRANSACTION]

RE: Office Lease dated March 16, 2006 as amended by that certain First Amendment to Lease and that certain Second Amendment to Lease (collectively, the “Lease”) between, Taleo Corporation as “Tenant”, and Dublin Corporate Center Two, L.P., as “Landlord”, for the premises located at 4140 Dublin Boulevard, Dublin, California

Commencement Certificate

Dear                    :

In accordance with the Second Amendment to the above referenced Lease, this letter is to confirm the following:

On                     , 20        Landlord tendered possession of [that portion of the Second Additional Premises known as Suite(s)             ] [ the Third Additional Premises] constituting             rentable square feet

Accordingly:

The Premises leased to Tenant pursuant to the Lease now consist of a total of             rentable square feet.

Tenant’s Proportionate Share is         %.

[TO BE INCLUDED IN THE COMMENCEMENT CERTIFICATE WITH RESPECT TO DELIVERY OF THE FIRST PORTION OF THE SECOND ADDITIONAL PREMISES

The Second Additional Premises Commencement Date is                     .

The Expiration Date is                     , 20        unless earlier terminated in accordance with the provisions of the Lease

The Differential Amount is $        , which shall be payable in monthly installments of $        per month in accordance with the Lease.]

If you concur with the aforementioned, please execute and return one original copy to my attention.

Thank you.	ACCEPTED AND AGREED:
Sincerely,
TISHMAN SPEYER	By:
	Name:
	Title:
Property Manager

EXHIBIT C

4140 EXTERIOR SIGN LOCATIONS

EXHIBIT D

WORK LETTER

This Work Letter sets forth the terms and conditions relating to the improvement of the Premises for Tenant’s use and occupancy. All references in the Work Letter to “the Amendment” shall mean the Amendment to which this Work Letter is attached. All references in this Work Letter to “the Lease” shall mean the Lease as defined in the Amendment to which this Work Letter is attached. Capitalized terms used herein without definition shall have the meanings set forth in the Lease or the Amendment, as applicable.

SECTION 1

INTENTIONALLY OMITTED

SECTION 2

TENANT IMPROVEMENTS

2.1 Landlord’s Contribution. Tenant shall be entitled to a landlord contribution toward the cost of preparing the Premises for Tenant’s use and occupancy and the construction of alterations and improvements therein in the amount of $3,408,910.00 (the “Landlord Contribution”), which shall be applied to the construction of the Tenant Improvements in accordance with the terms of this Work Letter. Provided and on condition that Tenant is not in material default beyond applicable notice and cure periods at the time of application, Tenant shall be entitled to apply any unused portion of the Landlord’s Contribution as a credit against Rent due under the Lease as amended by the Amendment. Tenant is not required to use any portion of the Landlord Contribution toward the Tenant Improvements, and may apply any portion of the Landlord Contribution toward either the Tenant Improvements or toward credit against Rent due under the Lease, at Tenant’s sole discretion. Should Landlord fail to disburse the Landlord Contribution as required herein, Tenant shall have the right to elect, by written notice to Landlord within thirty (30) days after such default, to offset against monetary obligations owed by Tenant under the Lease, as amended by the Amendment, in the amount that Landlord was obligated to but did not disburse. Except as otherwise provided in this Work Letter or Section 4(a) of the Amendment, in no event shall Landlord be obligated to make disbursements pursuant to this Work Letter (i) in a total amount which exceeds the Landlord’s Contribution, or (ii) if Tenant fails to pay any portion of any “Over-Allowance Amount,” as that term is defined in Section 4.2.2 of this Work Letter.

2.2 Disbursement of the Landlord’s Contribution. Except as otherwise set forth in this Work Letter or in Section 4(a) of the Amendment, the Landlord’s Contribution shall be disbursed for the following items and costs (collectively, the “Landlord’s Contribution Items”):

2.2.1 Payment of the fees of the “Architect” and the “Engineers,” as those terms are defined in Section 3.1 of this Work Letter and payment of the fees incurred by, and the cost of documents and materials supplied by, Landlord and Landlord’s consultants in connection with the preparation and review of the “Construction Drawings,” as that term is defined in Section 3.1 of this Work Letter and payment of reasonable fees of any project manager employed by Tenant to supervise and coordinate the construction of the Tenant Improvements;

2.2.2 The payment of plan check, permit and license fees relating to construction of the Tenant Improvements;

2.2.3 The cost of construction of the Tenant Improvements, including, without limitation, testing and inspection costs, hoisting and trash removal costs, and contractors’ fees and general conditions;

2.2.4 The cost of any changes in the base building when such changes are required by the Construction Drawings, such cost to include all direct architectural and/or engineering fees and expenses incurred in connection therewith;

2.2.5 The cost of any changes to the Construction Drawings or Tenant Improvements required by all applicable building codes (the “Code”);

2.2.6 Sales and use taxes; and

2.2.7 All other costs to be expended by Landlord in connection with the construction of the Tenant Improvements.

Notwithstanding anything in the Lease Tenant shall not be required to pay and no portion of the Landlord Contribution shall be used to pay any construction supervision fee to Landlord or Landlord’s affiliates in connection with the Tenant Improvements.

2.3 Building Standards. The specifications for Building standard components to be used in the construction of the Tenant Improvements shall be the standard of the current components in the Premises or such other standard as Landlord and Tenant may mutually designate in connection with the design and approval of the Tenant Improvements. The quality of the Tenant Improvements shall be equal to or of greater quality than the quality of such Building standards, provided that Landlord

may, at Landlord’s option, require the Tenant Improvements to comply with certain Building standards. Landlord may make changes to said specifications for Building standards from time to time provided such changes apply non-discriminatorily to all occupants of the Building and do not materially increase the obligations or decrease the rights of Tenant under the Lease, the Amendment and this Work Letter.

SECTION 3

CONSTRUCTION DRAWINGS

3.1 Construction Drawings. Tenant shall retain Gensler or another architect/space planner selected by Tenant and reasonably approved by Landlord (the “Architect”) to prepare the “Construction Drawings,” as that term is defined in this Section 3.1 and shall retain engineering consultants (the “Engineers”) selected by Tenant and reasonably approved by Landlord to prepare all plans and engineering working drawings relating to the structural, mechanical, electrical, plumbing, HVAC, life safety, and sprinkler work in the Premises. The plans and drawings to be prepared by Architect and the Engineers hereunder shall be known collectively as the “Construction Drawings.” All Construction Drawings shall comply with the drawing format and specifications determined by Landlord, and shall be subject to Landlord’s reasonable approval, which approval shall not be unreasonably withheld, conditioned or delayed. The Architect shall verify, in the field, the dimensions and conditions as shown on the relevant portions of the base building plans. Landlord’s approval of the Construction Drawings as set forth in this Section 3, shall be for its sole purpose and shall not imply Landlord’s review

of the same, or obligate Landlord to review the same, for quality, design, Code compliance or other like matters. Accordingly, notwithstanding that any Construction Drawings are reviewed by Landlord or its space planner, architect, engineers and consultants, and notwithstanding any advice or assistance which may be rendered to Tenant by Landlord or Landlord’s space planner, architect, engineers, and consultants, Landlord shall have no liability whatsoever in connection therewith and shall not be responsible for any omissions or errors contained in the Construction Drawings. Notwithstanding anything to the contrary herein, Landlord shall not disapprove any element of the Construction Drawings or the Final Space Plan (defined below) that is generally in keeping with Building standards and is consistent with Tenant’s permitted use or the interior improvements of the Existing Premises and Suite 150.

3.2 Final Space Plan. A space plan for the Tenant Improvements shall be prepared in accordance with the steps and deadlines set forth on Schedule 1 to this Work Letter. The final space plan as approved in accordance with such Schedule (the “Final Space Plan”) shall include a layout and designation of all offices, rooms and other partitioning, their intended use, and equipment to be contained therein.

3.3 Final Working Drawings. After the Final Space Plan has been approved, working drawings for the Tenant Improvements shall be prepared by the Architect and the Engineers and approved in accordance with Schedule 1 to this Work Letter. Tenant shall supply the Engineers with a complete listing of standard and non-standard equipment and specifications, including, without limitation, B.T.U. calculations, electrical requirements and special electrical receptacle requirements for the Premises, to enable the Engineers and the Architect to complete the “Final Working Drawings” (as that term is defined below) in the manner as set forth below. The Architect and the Engineers shall complete the architectural and engineering drawings for the Premises, and Architect shall compile a fully coordinated set of architectural, structural, mechanical, electrical and plumbing working drawings in a form which is complete to allow subcontractors to bid on the work and to obtain all applicable permits (collectively, the “Final Working Drawings”), which shall be approved as provided in such Schedule. Tenant shall supply Landlord with four (4) copies signed by Tenant of such Final Working Drawings. In addition, promptly after the Substantial Completion of the Tenant Improvements, Tenant shall cause the Architect to prepare and deliver to Landlord and Tenant “as built” plans and specifications (including all working drawings) for the Tenant Improvements.

3.4 Approved Working Drawings. The Final Working Drawings as approved in accordance with Schedule 1 to this Work Letter are referred to herein as the “Approved Working Drawings.” No changes, modifications or alterations in the Approved Working Drawings may be made without the prior written consent of Landlord and Tenant, which consent may not be unreasonably conditioned or denied. Any such changes or modifications to the Approved Working Drawings must be accomplished by means of a written change order signed by both Landlord and Tenant (a “Change Order”) and containing (i) the estimated increase, if any (after taking into account ant cost savings attributable to such change and previous changes) in the cost of the Tenant Improvements resulting from such change and (ii) the estimated amount, if any, of any Tenant Delay resulting from such change. The estimated increase in cost and/or estimated amount of Tenant Delay shall be determined by Landlord in good faith after consultation with the Contractor regarding the proposed changes.

3.5 Time Deadlines. Landlord and Tenant shall each use its best, good faith, efforts and all due diligence to cooperate with the Architect, the Engineers, and Landlord to complete, in accordance with Schedule 1 to this Work Letter, all phases of the Construction Drawings and the permitting process and to receive the permits, and with Landlord and Contractor for approval

of the “Cost Proposal,” as that term is defined in Section 4.1 of this Work Letter, and, in that regard, shall meet with Landlord on a regularly scheduled basis to be mutually agreed by Landlord and Tenant, to discuss Tenant’s progress in connection with the same. The applicable dates for approval of items, plans and drawings as described in this Section 3, Section 4, below, and otherwise in this Work Letter are set forth and further elaborated upon in Schedule 1 (the “Time Deadlines”), attached hereto. Tenant agrees to comply with the Time Deadlines. Notwithstanding anything to the contrary herein or in the Amendment, the Time Deadlines shall only apply the construction of the Tenant Improvements in the Second Additional Premises. Construction of the Tenant Improvements in the Third Additional Premises and the Existing Premises is intended to occur following Substantial Completion of the Tenant Improvements in the Second Additional Premises, and, the schedule and prosecution of the construction of the Tenant Improvements in the Existing Premises and the Third Additional Premises shall be reasonably determined by Landlord and Tenant taking into consideration the need to perform such construction in a manner that minimizes interference with Tenant’s occupancy of the Premises and the need for Tenant to relocate its employees to accommodate such construction.

SECTION 4

CONSTRUCTION OF THE TENANT IMPROVEMENTS

4.1 Cost Proposal. After the Approved Working Drawings are signed by Landlord and Tenant, the same shall be submitted to a general contractor selected by Tenant from a list of contractors preapproved by Landlord (who shall be the “Contractor”). The Contractor shall be instructed to obtain bids from at least two subcontractors for each trade, in accordance with Schedule 1 to this Work Letter. Costs of the Tenant Improvements shall be on an “open book” basis and Contractor shall provide Landlord and Tenant with a cost proposal on the basis of the bids selected, which cost proposal shall include, as nearly as possible, the cost of all items to be incurred in connection with the design and construction of the Tenant Improvements (the “Cost Proposal”). Tenant shall approve and deliver the Cost Proposal to Landlord in accordance with Schedule 1, and upon receipt of the same by Landlord, Landlord shall be released by Tenant to commence construction. The date by which Tenant must approve and deliver the Cost Proposal to Landlord shall be known hereafter as the “Cost Proposal Delivery Date”. If requested by Tenant, the Contractor shall prepare separate Cost Proposals for the Tenant Improvements in the Third Additional Premises and the Existing Premises.

4.2 Construction of Tenant Improvements by Contractor under the Supervision of Landlord.

4.2.1 Intentionally Omitted.

4.2.2 Over-Allowance Amount. Tenant shall be obligated to pay an amount (the “Over-Allowance Amount”) equal to the difference between (i) the amount of the applicable Cost Proposal, less (ii) the amount of the Landlord’s Contribution. The Over-Allowance Amount shall be disbursed subsequent to the disbursement of any portion of Landlord’s Contribution. In the event that, after the Cost Proposal Delivery Date, any revisions, changes, or substitutions shall be made to the Construction Drawings or the Tenant Improvements, any additional costs which arise in connection with such revisions, changes or substitutions or any other additional costs shall be treated as an addition to the Over-Allowance Amount. Any changes after Tenant’s payment is received that may result in a savings shall be identified and a credit issued to Tenant.

4.2.3 Landlord’s Retention of Contractor. Landlord shall independently retain Contractor to construct the Tenant Improvements in accordance with the Approved Working Drawings and the Cost Proposal and Landlord shall supervise the construction by Contractor. Landlord shall be responsible for review of all payment applications, lien reviews and lien releases through completion, and Landlord shall cause a notice of completion to be filed. Landlord shall provide Tenant with copies of all applications for payments, change orders, lien releases and payment authorizations received or obtained by Landlord relating to the Tenant Improvements. Notwithstanding anything to the contrary in the Lease, Tenant shall not be required to pay any construction supervision fee to Landlord or Landlord’s affiliates in connection with the Tenant Improvements.

SECTION 5

SUBSTANTIAL COMPLETION; TENANT DELAY;

PUNCHLIST; WARRANTY

5.1 Substantial Completion. As used herein, “Substantial Completion” or “Substantially Completed” means that the work has been completed, as reasonably determined by Landlord’s architect, in accordance with (a) the provisions of this Work Letter applicable thereto, (b) the plans and specifications for such work, and (c) all applicable Legal Requirements, except for minor details of construction, decoration and mechanical adjustments, if any, the noncompletion of which does not materially interfere with Tenant’s use of the Premises or which in accordance with good construction practices should be completed after the completion of other work in the Premises or Building (“Punch List Items”).

5.2 Tenant Delay. As used in the Amendment and this Work Letter, “Tenant Delay” shall mean any delay in Substantial Completion of the Tenant Improvements in the Second Additional Premises beyond February 1, 2011, to the extent caused by any of the following:

5.2.1 Tenant’s failure to comply with the Time Deadlines or failure to timely approve any matter requiring Tenant’s approval;

5.2.2 A breach beyond applicable notice and cure periods by Tenant of the terms of this Work Letter or the Lease as amended by the Amendment;

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

5.2.4 Tenant’s requirement for materials, components, finishes or improvements which are not available in a commercially reasonable time, or which are different from, or not included in Building standards;

5.2.5 Tenant’s use of specialized or unusual improvements and/or delays in obtaining Permits due thereto;

5.2.6 Any failure by Tenant to timely pay to Landlord any portion of the Over-Allowance Amount; or

5.2.7 Any other acts or omissions of Tenant, or its agents, or employees that continue for more than twenty-four (24) hours after Tenant’s receipt of notice from Landlord of such delay;

5.3 Punch List Work. Within five (5) Business Days after Substantial Completion of each phase of the Tenant Improvements, representatives of Landlord, Tenant and Contractor shall inspect the Premises and agree upon a list of Punch List Items. Landlord shall cause Contractor to complete all Punch List Items within thirty (30) days after designation thereof or if such work cannot reasonably be completed within thirty (30) days, as soon thereafter as is reasonably possible provided Contractor commences repair within such thirty (30) day period and diligently pursues completion of the same.

5.4 One Year Warranty. Landlord shall, at Landlord’s sole cost and expense, repair any defects in the Tenant Improvements (other than those caused by or resulting from the negligence or willful misconduct of a Tenant Party) for a period of one year following Substantial Completion of each phase of the same.

5.5 Assignment of Warranties and Guaranties. Landlord hereby assigns, on a non-exclusive basis, to Tenant all warranties and guaranties by Contractor and other third party contractors, subcontractors and vendors relating to the Tenant Improvements from and after the date that is one year after Substantial Completion of the Tenant Improvements (the "Warranty Expiration"). After the date of the Warranty Expiration, Tenant hereby waives all claims against Landlord relating to, or arising out of the construction of the Tenant Improvements; provided, however, the foregoing is not intended to and shall not be deemed as a limitation of Landlord's on-going repair and maintenance obligations under the Lease as amended by the Amendment.

SECTION 6

MISCELLANEOUS

6.1 Tenant’s Entry Into the Premises Prior to Substantial Completion. Provided that Tenant and its agents do not interfere with construction of the Tenant Improvements, Contractor shall allow Tenant access to the Premises prior to the Substantial Completion of the Tenant Improvements for the purpose of Tenant installing over-standard equipment or fixtures (including Tenant’s data and telephone equipment) in the Premises and otherwise preparing such Premises for occupancy. Prior to Tenant’s entry into the Premises as permitted by the terms of this Section 6.1, Tenant shall submit a schedule to Landlord and Contractor, for their approval, which schedule shall detail the timing and purpose of Tenant’s entry. Tenant shall hold Landlord harmless from and indemnify, protect and defend Landlord against any loss or damage to the Building or Premises and against injury to any persons caused by Tenant’s actions pursuant to this Section 6.1.

6.2 Tenant’s Representative. Tenant has designated Richard Henson as its sole representative with respect to the matters set forth in this Work Letter, who shall have full authority and responsibility to act on behalf of the Tenant as required in this Work Letter. Tenant may change the identity of such designated representative by written notice delivered to Landlord.

6.3 Landlord’s Representative. Landlord has designated Julian Marsh as its sole representative with respect to the matters set forth in this Work Letter, who, until further notice to Tenant, shall have full authority and responsibility to act on behalf of the Landlord as required in this Work Letter. Landlord may change the identity of such designated representative by written notice delivered to Tenant.

6.4 Time of the Essence in This Work Letter. Unless otherwise indicated, all references herein to a number of “days” shall mean and refer to calendar days. If any item requiring approval is timely disapproved by Landlord, the procedure for preparation of the document and approval thereof shall be repeated until the document is approved by Landlord.

6.5 Tenant’s Lease Default. Notwithstanding any provision to the contrary contained in the Lease or this Work Letter, if any default beyond applicable notice and cure periods by Tenant under the Lease or this Work Letter (including, without limitation, any failure by Tenant to fund any portion of the Over-Allowance Amount) occurs at any time on or before the Substantial Completion of the Tenant Improvements, then in addition to all other rights and remedies granted to Landlord pursuant to the Lease, Landlord may, without any liability whatsoever, cause the cessation of construction of the Tenant Improvements (in which case, any delay in the Substantial Completion of the Tenant Improvements shall constitute a Tenant Delay and any increased costs occasioned thereby shall be paid by Tenant).

SCHEDULE 1 TO EXHIBITD

TIME DEADLINES

October 15, 2011	Tenant to deliver Space Plan to Landlord.
Within 3 business days after Landlord’s receipt of Space Plan.	Landlord to provide comments on Space Plan.
Within 2 business days after Landlord’s comments on Space Plan.	Final Space Plan to be provided to Landlord for review.
Within 2 business days after receipt of Final Space Plan.	Landlord and Tenant to approve Final Space Plan.
Within 21 business days after approval of Final Space Plan.	Working Drawings to be provided to Landlord for review.
Within 3 business days after receipt of Working Drawings.	Landlord to provide comments on Working Drawings.
Within 3 business days after receipt of comments on Working Drawings.	Revised Working Drawings to be provided to Landlord for review.
Within 2 business days after receipt of revised Working Drawings.	Landlord and Tenant to approve revised Working Drawings.
Within 7 business days after approval of Working Drawings.	Tenant to select Contractor (choose from among LL designated options).
Within 10 business days after selection of Contractor	Contractor to obtain bids from subcontractors
Within 5 business days after selection of Contractor.	Landlord to provide Cost Proposal to Tenant for approval.
Within 5 business days after receipt of Cost Proposal.	Tenant to approve or disapprove Cost Proposal.

EXHIBIT E

SUPERIOR RIGHTS

4140 Building – Supergen right to renew for one 5-year term.

SCHEDULE 1

BASE RENT

Period	PRSF**
Second Additional Premises Commencement Date – 24th Full Calendar Month*	$	2.20
25th – 36th full calendar months after Second Additional Premises Commencement Date	$	2.25
37th – 48th full calendar months after Second Additional Premises Commencement Date	$	2.30
49th – 60th full calendar months after Second Additional Premises Commencement Date	$	2.35
61st – 72nd full calendar months after Second Additional Premises Commencement Date	$	2.40
73rd – 84th full calendar months after Second Additional Premises Commencement Date	$	2.45
85th – 96th full calendar months after Second Additional Premises Commencement Date	$	2.50
97th – 108th full calendar months after Second Additional Premises Commencement Date	$	2.55
109th – 120th full calendar months after Second Additional Premises Commencement Date	$	2.60

* Provided that Tenant is not in default under the Lease as amended hereby beyond any applicable grace and cure periods, Tenant shall not be required to pay Base Rent for the first twelve (12) calendar months following the Second Additional Premises Commencement Date.

** Base Rent Shall be calculated based on the rentable square feet of the Premises delivered to Tenant. Base Rent for any portion of the Premises delivered on any day other than the first day of a calendar month shall be pro rated on a per diem basis.

SCHEDULE 2

EXAMPLE OF DIFFERENTIAL AMOUNT CALCULATION

Month	Suite 2-100		Suite 2-400		Total Current	Rent/sf	New Rent		47,508 sf	Difference
	Rent/sf	12,084 sf	Rent/sf	35,424 sf	47,508 sf
Jan-12	1.76	21,267.84	2.35	83,246.40	104,514.24	2.15	100	%	—	104,514.24
Feb-12	1.81	21,872.04	2.35	83,246.40	105,118.44	2.15	100	%	—	105,118.44
Mar-12	1.81	21,872.04	2.35	83,246.40	105,118.44	2.15	100	%	—	105,118.44
Apr-12	1.81	21,872.04	2.35	83,246.40	105,118.44	2.15	100	%	—	105,118.44
May-12	1.81	21,872.04	2.35	83,246.40	105,118.44	2.15	100	%	—	105,118.44
Jun-12	1.81	21,872.04	2.35	83,246.40	105,118.44	2.15	100	%	—	105,118.44
Jul-12	1.81	21,872.04	2.40	85,017.60	106,889.64	2.15	100	%	—	106,889.64
Aug-12	1.81	21,872.04	2.40	85,017.60	106,889.64	2.15	100	%	—	106,889.64
Sep-12	1.81	21,872.04	2.40	85,017.60	106,889.64	2.15	100	%	—	106,889.64
Oct-12	1.81	21,872.04	2.40	85,017.60	106,889.64	2.15	100	%	—	106,889.64
Nov-12	1.81	21,872.04	2.40	85,017.60	106,889.64	2.15	100	%	—	106,889.64
Dec-12	1.81	21,872.04	2.40	85,017.60	106,889.64	2.15	100	%	—	106,889.64
Jan-13	1.81	21,872.04	2.40	85,017.60	106,889.64	2.20	—	%	104,517.60	2,372.04
Feb-13	1.86	22,476.24	2.40	85,017.60	107,493.84	2.20	—	%	104,517.60	2,976.24
Mar-13	1.86	22,476.24	2.40	85,017.60	107,493.84	2.20	—	%	104,517.60	2,976.24
Apr-13	1.86	22,476.24	2.40	85,017.60	107,493.84	2.20	—	%	104,517.60	2,976.24
May-13	1.86	22,476.24	2.40	85,017.60	107,493.84	2.20	—	%	104,517.60	2,976.24
Jun-13	1.86	22,476.24	2.40	85,017.60	107,493.84	2.20	—	%	104,517.60	2,976.24
Total		396,113.52		1,519,689.60	1,915,803.12					1,288,697.52

Amortized Rent Differential:
Interest Rate	4.15		%
NPV of Total Current Rent	$	1,853,971
NPV of New Rent	$	594,431
Difference	$	1,259,540
Monthly Payment	$	12,843

THIRD AMENDMENT TO LEASE

(Dublin Corporate Center Two: Taleo Corporation)

THIS THIRD AMENDMENT TO LEASE (“Amendment”) is made as of the 12th day of September, 2011 (“Effective Date”), between DUBLIN CORPORATE CENTER TWO, L.P., a Delaware limited partnership (“Landlord”), and TALEO CORPORATION, a Delaware corporation (“Tenant”), with reference to the following facts:

A. Landlord, as successor-in-interest to BIT Holdings Fifty-Six, Inc. and Tenant are parties to that certain Lease dated March 16, 2006 as amended by that certain First Amendment to Lease dated as of January 2011 and that certain Second Amendment to Lease (the “Second Amendment”) dated as of the Effective Date of this Amendment (collectively the “Lease”), covering certain premises in the building located at 4140 Dublin Boulevard, Dublin, California and being a part of the development commonly known as the Dublin Corporate Center, as more particularly described in the Lease.

B. Tenant has requested that Landlord make certain space located on the first floor of the Building as shown on Exhibit A attached hereto (the “Temporary Premises”) available for Tenant's use on a temporary basis. In consideration of Tenant's execution and delivery of the Second Amendment to Lease concurrently herewith, Landlord has agreed to allow Tenant to use the Temporary Premises upon the terms and conditions of this Amendment.

NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows:

1. Temporary Premises. Effective as of the Effective Date and continuing thereafter until the Second Additional Premises Commencement Date (as defined in the Second Amendment), the Premises covered by the Lease shall be expanded to include the Temporary Premises; provided, however, (a) notwithstanding such addition of the Temporary Premises, Tenant shall not be required to pay any Base Rent, Operating Costs, Real Estate Taxes, insurance costs or utility charges with respect to the Temporary Premises and there shall be no increase in Base Rent or any other charges under the Lease determined with reference to the square footage of the Premises; and (b) Tenant may terminate the Lease with respect to the Temporary Premises at any time by giving not less than thirty (30) days' prior written notice to Landlord. Tenant acknowledges that the Temporary Premises may not be separately demised from the remainder of the first floor, however, other than ordinary ingress and egress to and from the entrance to the first floor, Tenant shall not be entitled to use or store any personal items in the remainder of the floor (except as provided in the Second Amendment). In addition, notwithstanding anything to the contrary in this Amendment or the Lease, Tenant shall not be required to perform or pay for any repair, maintenance, replacements, code upgrades or any other improvements or alterations with respect to the Temporary Premises during the term of this Amendment.

2. Condition of Temporary Premises. Tenant shall accept the Temporary Premises in their “AS-IS” condition. Landlord shall have no obligation whatsoever to prepare the Temporary Premises for use by Tenant or pay or reimburse Tenant for any costs or expenses incurred in connection with readying the Temporary Premises for Tenant's use. Tenant shall be

entitled to surrender the Temporary Premises in the condition received, ordinary wear and tear, casualties, condemnation and repairs that are not Tenant’s responsibility excepted. Notwithstanding the foregoing, Landlord and Tenant acknowledge and agree that the Temporary Premises are part of the “Second Additional Premises” identified in the Second Amendment, and, accordingly, Tenant shall not be required to surrender possession of the Temporary Premises upon the Second Additional Premises Commencement Date.

3. Status of Lease.

(a) Tenant hereby certifies as follows to Tenant’s current actual knowledge, without inquiry or investigation:

(i) That the Lease is in full force and effect and has not been assigned or encumbered by Tenant in any manner;

(ii) That the Lease represents the entire agreement between the parties as to the leasing of the Premises;

(iii) That there are no current defenses or counterclaims to the enforcement of the Lease;

(iv) That Tenant is not entitled to any current offset, abatement or reduction of rent under the Lease except as otherwise provided in the Lease or this Amendment;

(v) Except as provided in the Second Amendment, that Landlord has completed all tenant improvements to be performed by Landlord to the date hereof and paid all contributions and other sums with respect to such tenant improvements due to Tenant to the date hereof under the Lease; and

(vi) Neither Landlord nor Tenant is in default under any of its obligations under the Lease.

(b) Landlord hereby certifies that to Landlord’s knowledge (i) the Lease is in full force and effect and has not been assigned or encumbered by Landlord in any manner and (ii) neither Landlord nor Tenant is in default under any of its obligations under the Lease. As used herein, “Landlord’s knowledge” means the current actual knowledge of Allen Palmer or Lily Ng, without inquiry or investigation.

4. Brokers. Each of Landlord and Tenant represents that no brokers negotiated this Amendment or are entitled to any commission in connection herewith. Each of Landlord and Tenant shall indemnify and hold the other harmless from any cost, expense or liability (including costs of suit and reasonable attorneys’ fees) for any compensation, commission or fees claimed by any real estate broker or agent in connection with this Amendment or its negotiation by reason of any act of the indemnifying party.

5. Force and Effect. Except as modified by this Amendment, the terms and provisions of the Lease are hereby ratified and confirmed and are and shall remain in full force

and effect. Should any inconsistency arise between this Amendment and the Lease as to the specific matters which are the subject of this Amendment, the terms and conditions of this Amendment shall control. This Amendment shall be construed to be a part of the Lease and shall be deemed incorporated in the Lease by this reference. Capitalized terms used and not otherwise defined herein shall have the same meanings ascribed to them in the Lease.

6. Counterparts. This Amendment may be executed in any number of identical counterparts, each of which shall be deemed to be an original, and all of which together shall be deemed to be one and the same instrument when each party has signed one such counterpart.

7. Limitation on Liability. Section 34.4 of the Lease is incorporated into this Amendment by reference as if fully set forth herein.

[Signature Page Follows]

IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of the date first written above.

LANDLORD:			TENANT:
DUBLIN CORPORATE CENTER TWO, L.P., a Delaware limited partnership			TALEO CORPORATION, a Delaware corporation
By:	Dublin Corporate Center Two GP, L.L.C.,		By:	/S/ DOUG JEFFRIES
	a Delaware limited liability company,		Name:	Doug Jeffries
	its general partner		Title:	EVP and CFO
	By:	/S/ RUSSELL MAKOWSKY	By:	/S/ MICHAEL GREGOIRE
	Name:	Russell Makowsky	Name:	Michael Gregoire
	Title:	Vice President and Treasurer	Title:	Chairman and CEO

EXHIBIT A

Floor Plan—Temporary Premises

The Temporary Premises are in the approximate location identified as Conference Rooms 141A, 141B and 141C as shown on the attached floor plan.

FOURTH AMENDMENT TO LEASE

(Dublin Corporate Center Two: Taleo Corporation)

THIS FOURTH AMENDMENT TO LEASE (“Amendment”) is made as of the 3rd day of April, 2012 (“Effective Date”), between DUBLIN CORPORATE CENTER TWO, L.P., a Delaware limited partnership (“Landlord”), and TALEO CORPORATION, a Delaware corporation (“Tenant”), with reference to the following facts:

RECITALS

A.Landlord, as successor-in-interest to BIT Holdings Fifty-Six, Inc. and Tenant are parties to that certain Lease dated March 16, 2006 as amended by that certain First Amendment to Lease dated as of January 2011, as further amended by that certain Second Amendment to Lease dated as of September 12, 2011 (the “Second Amendment”) and as further amended by that certain Third Amendment to Lease dated as of September 12, 2011 (the“Third Amendment”) (collectively the “Lease”), covering certain premises in the building located at 4140 Dublin Boulevard, Dublin, California and being a part of the development commonly known as the Dublin Corporate Center, as more particularly described in the Lease. Capitalized terms used herein without definition shall have the meanings assigned to them in the Lease.

B.Pursuant to the Second Amendment, the parties agreed to expand the premises leased to Tenant to add the Second Additional Premises (defined in the Second Amendment), consisting of Suite 300 (defined in the Second Amendment) and Suites 101, 110 and 120 of the Building (as described in the Second Amendment) and to add the Third Additional Premises (defined in the Second Amendment) consisting of Suite 150 of the Building.

C.At Tenant’s request, Landlord has pursued construction of the Tenant Improvements in the Second Additional Premises in phases, commencing with construction of the Tenant Improvements in Suite 300 prior to commencement of construction of the remainder of the Tenant Improvements. Construction of the Tenant Improvements in Suite 300 was Substantially Completed on or before March 1, 2012. Tenant accepted possession of Suite 300 on or before March 1, 2012 and commenced beneficial use and occupancy thereof on such date.

D.Tenant has elected to postpone construction of the remainder of the Tenant Improvements, including the Tenant Improvements in the remainder of the Second Additional Premises. But for the Tenant’s election to postpone and resulting Tenant Delay, the Tenant Improvements in the remainder of the Second Additional Premises are reasonably expected to have been Substantially Completed on or before June 1, 2012. Accordingly, the parties now desire to amend the Lease to reflect the agreed upon adjustments to certain terms and conditions of the Second Amendment as they relate to the Second Additional Premises Commencement Date and construction of the remainder of the Tenant Improvements in the Premises.

NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows:

1.Recitals. The foregoing Recitals are true and correct and are hereby incorporated into this Amendment.

2.Second and Third Additional Premises. Section 2 of the Second Amendment is hereby deleted in its entirety and replaced with the following:

(a)Suite 300 Commencement. Effective as of March 1, 2012, and continuing until the Lease Expiration Date, the Premises covered by the Lease shall be expanded to include Suite 300.

(b)First Floor Commencement. Effective as of June 1, 2012 (the “First Floor Commencement Date”), and continuing until the Lease Expiration Date, the Premises covered by the Lease shall be expanded to include Suites 101, 110 and 120.

(c)Third Additional Premises. Effective as of August 1, 2012 (the “Third Additional Premises Commencement Date”) and continuing until the Lease Expiration Date, the Premises covered by the Lease shall be expanded to include the Third Additional Premises. Notwithstanding the foregoing, if the Existing Suite 150 Master Lease or the Existing Suite 150 Sublease terminates prior to August 1, 2012 for any reason other than a default by Tenant under the Existing Suite 150 Sublease, then Lanlord and Tenant agree that the Third Additional Premises Commencement Date shall be automatically advanced to occur on such date of such termination.

If Landlord does not make the Third Additional Premises, and/or Suites 101, 110 and 120 available to Tenant on or before any particular date, for any reason whatsoever, or if Landlord fails to commence or complete construction contemplated by the Lease by any particular date or at all, Landlord shall not be liable for any resulting consequential damages, this Amendment shall not be void or voidable thereby, Tenant’s obligation to commence paying rent (without deductions, offsets or counterclaims except for any applicable abatement of rent in Schedule 1 hereto) shall not be affected thereby and shall commence as of March 1, 2012 (for Suite 300), as of the First Floor Commencement Date (for Suites 101, 110 and 120) and as of the Third Additional Premises Commencement Date (for Suite 150). Notwithstanding anything to the contrary in the Lease, including the Work Letter attached to the Second Amendment. Landlord’s obligations to commence and complete construction and improvements in the Premises are covenants and obligations that are independent of Tenant’s obligations to pay rent as of the applicable commencement dates for the various spaces set forth above (but subject to any applicable rent abatement set forth only in Schedule 1 hereto).

3.Base Rent: Differential Amount: Schedule 1 and Schedule 2 attached to the Second Amendment are hereby deleted in their entirety and replaced with Schedule 1 and Schedule 2 attached hereto.

4.Section 5 of the Second Amendment is hereby deleted it its entirety and replaced with the following:

“Base Rent: Differential Amount. Effective as of the date hereof, the Base Rent payable under this Lease shall be according to Schedule 1 attached hereto and incorporated herein by this reference. In addition to Base Rent and other amounts payable under the Lease as amended hereby, Tenant agrees to pay to Landlord as Additional Rent an amount representing the difference between (i) the Base Rent payable in respect of the Existing Premises under the Lease prior to the First Floor Commencement Date and (ii) the Base Rent Payable in respect of the Existing Premises under the Lease as amended hereby. In each case calculated for the period beginning on the First Floor Commencements Date and ending on June 30, 2013, discounted to the net present value at a discount rate of 4.15% (the “Differential Amount”). The Differential Amount shall be amortized at 4.15% over the period beginning on the First Floor Commencement Date and ending on the Expiration Date (as extended pursuant to Section 3 of this Amendment above) and payable in equal monthly installments concurrently with payments of Base Rent during such period. Attached hereto as Schedule 2 is the calculation of the Differential Amount.

5.Second Additional Premises Commencement Date. The Second Amendment is hereby amended such that all remaining references to “Second Additional Premises Commencement Date” in the Second Amendment shall be deemed to refer to the Suite 300 Commencement Date with respect to Suite 300 and to the First Floor Commencement Date with respect to Suites 101, 110 and 120.

6.Extension. Section 3 of the Second Amendment is hereby deleted in its entirety and replaced with the following:

“Extension. Prior to the effectiveness of this Amendment, the Term of the Lease was scheduled to expire on June 30, 2013. The Term of the Lease is hereby extended for an additional period commencing as of July 1, 2013 and expiring on May 31, 2022 (the “Lease Expiration Date”).

7.Operating Costs and Taxes. Section 8(a) of the Second Amendment is hereby deleted in its entirety and replaced with the following:

“(a)Proportionate Share. Tenant’s Proportionate Share of Operating Costs and Tenant’s Proportionate Share of Real Estate Taxes shall be increased in proportion to the Gross Leasable Area following the Suite 300 Commencement Date, the First Floor Commencement Date and the Third Additional Premises Commencement Date, as applicable.”

8.Construction of Remaining Tls. The parties acknowledge and agree that (i) Tenant delivered a draft Space Plan for the remaining Tenant Improvements in the first (1st) and fourth (4th) floors of the Premises to Landlord on December 15, 2011, (ii) thereafter the parties had various communications regarding such draft Space Plan, (iii) Landlord delivered its final comments to such draft Space Plan to Tenant on January 26, 2012, and (iv) thereafter. Tenant elected to postpone construction of the remaining Tenant Improvements and to date. Tenant has not submitted its proposed Final Space Plan for such Tenant Improvements. Accordingly, Tenant acknowledges and agrees that Landlord shall have no obligation to commence construction of or construct any further Tenant Improvements in any portion of the Premises unless and until Tenant notifies Landlord in writing of its intention to resume planning and preparing for commencement of construction and performs the obligations and delivers to Landlord the documents and things required of Tenant under the Lease as amended including the Work Letter attached to the Second Amendment. If Tenant so notifies Landlord and performs its obligations, then Landlord shall promptly resume planning and preparing for commencement of construction of the remaining Tenant Improvements generally according to the terms and conditions of the Work Letter attached as Exhibit D to the Second Amendment; provided,

however, the Time Deadlines for such remaining Tenant Improvements shall be those attached hereto as “Schedule 1 to Exhibit D”. Schedule 1 to Exhibit D of the Second Amendment is hereby deleted and replaced with the attached Schedule 1 to Exhibit D.

9.Status of Lease.

(a)Tenant hereby certifies as follows to Tenant’s current actual knowledge, without inquiry or investigation:

(i) That the Lease is in full force and effect and has not been assigned or encumbered by Tenant in any manner;

(ii) That the Lease represents the entire agreement between the parties as to the leasing of the Premises;

(iii)That there are no current defenses or counterclaims to the enforcement of the Lease;

(iv) That Tenant is not entitled to any current offset, abatement or reduction of rent under the Lease except as otherwise provided in the Lease or this Amendment;

(v) Except as provided in this Amendment, that Landlord has completed all tenant improvements to be performed by Landlord to the date hereof and paid all contributions and other sums with respect to such tenant improvements due to Tenant to the date hereof under the Lease; and

(vi) Neither Landlord nor Tenant is in default under any of its obligations under the Lease as of the effectiveness of this Amendment.

(b)Landlord hereby certifies that to Landlord’s knowledge (i) the Lease is in full force and effect and has not been assigned or encumbered by Landlord in any manner and (ii) neither Landlord nor Tenant is in default under any of its obligations under the Lease as of the effectiveness of this Amendment. As used herein, “Landlord’s knowledge” means the current actual knowledge of Allen Palmer or Lily Ng, without inquiry or investigation.

10.Brokers. Each of Landlord and Tenant represents that no brokers negotiated this Amendment or are entitled to any commission in connection herewith. Each of Landlord and Tenant shall indemnify and hold the other harmless from any cost, expense or liability (including costs of suit and reasonable atorneys’ fees) for any compensation, commission or fees claimed by any real estate broker or agent in connection with this Amendment or its negotiation by reason of any act of the indemnifying party.

11.Force and Effect. Except as modified by this Amendment, the terms and provisions of the Lease are hereby ratified and confirmed and are and shall remain in full force and effect. Should any inconsistency arise between this Amendment and the Lease as to the specific matters which are the subject of this Amendment, the terms and conditions of this Amendment shall control. This Amendment shall be construed to be a part of the Lease and shall be deemed incorporated in the Lease by this reference. Capitalized terms used and not otherwise defined herein shall have the same meanings ascribed to them in the Lease.

12.Counterparts. This Amendment may be executed in any number of identical counterparts, each of which shall be deemed to be an original, and all of which together shall be deemed to be one and the same instrument when each party has signed one such counterpart.

13.Limitation on Liability. Section 34.4 of the Lease is incorporated into this Amendment by reference as if fully set forth herein.

[Signature Page Follows]

IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of the date first written above.

LANDLORD:			TENANT:
DUBLIN CORPORATE CENTER TWO. L.P.,			TALEO CORPORATION,
a Delaware limited partnership			a Delaware corporation
By:	Dublin Corporate Center Two GP, L.L.C.,		By:
	a Delaware limited liability company,
	its general partner		Signature:	/s/ Christopher Lee
				Christopher Lee
			Email:	clee@taleo.com
	By:	/s/ Michael B. Benner	Title:	Group VP & Chief Talent Officer
	Name:	Michael B. Benner
	Title:	Vice President and Secretary	Company:	Taleo

SCHEDULE 1

BASE RENT

EXISTING PREMISES

Base Rent shall be paid as set forth in the original Lease as amended by the First Amendment until the First Floor Commencement Date. Beginning on the First Floor Commencement Date. Base Rent shall be at the PRSF rate according to the schedule set forth below entitled “ENTIRE PREMISES.”

SUITE 300

Period	PRSF
Suite 300 Commencement Date through First Floor Commencement Date	$	2.20

Beginning on the First Floor Commencement Date	PRSF rate according to the
	schedule set forth below for
	the ENTIRE PREMISES

ENTIRE PREMISES

From and after the Third Additional Premises Commencement Date with respect to Suite 150, and from and after the First Floor Commencement Date with respect to the remainder of the Premises. Base Rent on all portions of the Premises shall be as set forth below

Period	PRSF**
First Floor Commencement Date — May 31, 2014	$	2.20
June 1, 2014 — May 31, 2015	$	2.25
June 1, 2015 — May 31, 2016	$	2.30
June 1, 2016 — May 31, 2017	$	2.35
June 1, 2017 — May 31, 2018	$	2.40
June 1, 2018 — May 31, 2019	$	2.45
June 1, 2019 — May 31, 2020	$	2.50
June 1, 2020 — May 31, 2021	$	2.55
June 1, 2021 — Lease Expiration Date	$	2.60

Provided that Tenant is not in default under the Lease as amended hereby beyond any applicable grace and cure periods. Tenant shall be entitled to abatement of Base Rent as follows:

Suite 300: March 1, 2012 — February 28, 2013

Existing Premises: June 1, 2012 — May 31, 2013

Suites 101, 110 and 120: June 1, 2012 — May 31, 2013

Suite 150: August 1, 2012 — May 31, 2013

** Base Rent Shall be calculated based on the rentable square feet of the Premises delivered to Tenant. Base Rent for any portion of the Premises delivered on any day other than the first day of a calendar month shall be pro rated on a per diem basis.

SCHEDULE 1 TO EXHIBIT D

TIME DEADLINES

Within five (5) business days after Tenant delivers a revised Space Plan to Landlord	Landlord to provide comments on revised Space Plan.
Within 2 business days after Landlord’s comments on Space Plan.	Final Space Plan to be provided to Landlord for review.
Within 2 business days after receipt of Final Space Plan.	Landlord and Tenant to approve Final Space Plan.
Within 21 business days after approval of Final Space Plan.	Working Drawings to be provided to Landlord for review.
Within 3 business days after receipt of Working Drawings.	Landlord to provide comments on Working Drawings.
Within 3 business days after receipt of comments on Working Drawings.	Revised Working Drawings to be provided to Landlord for review.
Within 2 business days after receipt of revised Working Drawings.	Landlord and Tenant to approve revised Working Drawings.
Within 7 business days after approval of Working Drawings.	Tenant to select Contractor (choose from among LL designated options).
Within 10 business days after selection of Contractor	Contractor to obtain bids from subcontractors
Within 5 business days after selection of Contractor.	Landlord to provide Cost Proposal to Tenant for approval.
Within 5 business days after receipt of Cost Proposal.	Tenant to approve or disapprove Cost Proposal.

Signature:

Email: apalmer@tishmanspeyer.com

Title:

Company:

EXHIBIT “B”

DEPICTION OF SUBLET PREMISES

[Attached]

EXHIBIT “C”

INITIAL SUBTENANT ALTERATION SPACE PLANS

[Attached]

EXHIBIT “D”

DEPICTION OF SUBTENANT RESERVED PARKING

[Attached]

EX-10.12

Exhibit 10.12

Form of Executive Change of Control Agreement - Full Double-Trigger

[Date]

[Name]

[Title]

Callidus Software Inc.

Dear [Name]:

This letter (“Letter”) modifies any stock option agreement, any restricted stock unit agreement, or other agreement documenting any equity award (as applicable, any “Equity Award Agreement”) or employment agreement you may now or hereafter have with respect to the common stock of Callidus Software Inc. (the “Company”) and any prior agreement between you and the Company regarding the Equity Award Agreements including, without limitation, any prior change of control agreement(s). This Letter provides for accelerated vesting of your Company stock options, restricted stock awards, restricted stock unit awards and other equity-based awards, as applicable (collectively, the “Equity Awards”) and severance benefits under the conditions described below.

If, within eighteen (18) months after a “Change of Control,” your employment is terminated by the Company without “Cause” or by you for “Good Reason” (each, a “Qualifying Termination”), and you have a “Separation”, then you shall receive one hundred percent (100%) vesting of your Equity Awards. Subject to your satisfying the Release Requirement, the accelerated vesting described in the foregoing sentence shall be effective as of the effective date and time of the Separation. The “Release Requirement” refers to the date of the Company’s receipt of your executed “General Release” (as described below); and the expiration of any rescission period applicable to your executed General Release.

Severance Payment. If your employment is terminated by the Company without Cause or by you for Good Reason and you have a Separation, regardless of whether a Change of Control has occurred, and you execute a General Release, you shall receive a lump sum severance payment equivalent to [ ] months of your base salary[, target bonus,] and cost of COBRA health benefits contributions. If you fail to return the General Release on or before 60 days after your Separation, or if you revoke the General Release, then you will not be entitled to the benefits described in this paragraph. The severance payment will be paid on the 60th day after your Separation and will be paid in accordance with the Company’s standard payroll practices. This Agreement supersedes any and all cash severance arrangements under any prior arrangement, program and plan previously offered by the Company to you, including pursuant to an employment agreement or offer letter, and you hereby waive your rights to such other benefits. In no event shall you receive cash severance benefits under both this Agreement and any other arrangement with the Company.

For purposes of the above, “Change of Control” means:

(i) The acquisition by any “person” (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended) of “beneficial ownership” (as defined in Rule 13d-3 under said Act), directly or indirectly, of securities of the Company representing fifty percent (50%) or more of the total voting power represented by the Company’s then outstanding voting securities (it being understood that securities owned by any person on the date hereof shall not be counted against such limit with respect to such person); or

(ii) A change in the composition of the board of directors of the Company (the “Board”) occurring within a rolling two (2)-year period, as a result of which fewer than a majority of the directors are Incumbent Directors. “Incumbent Directors” shall mean directors who either: (A) are members of the Board as of the date hereof, or (B) are elected, or nominated for election, to the Board with the affirmative votes of at least a majority of the Incumbent Directors at the time of such election or nomination (but shall not include an individual not otherwise an Incumbent Director whose election or nomination is in connection with an actual or threatened proxy contest relating to the election of directors to the Board); or

(iii) A merger or consolidation involving the Company other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the Surviving Entity (including the parent

corporation of such Surviving Entity)) at least fifty percent (50%) of the total voting power represented by the voting securities of the Company or such Surviving Entity outstanding immediately after such merger or consolidation, or a sale or disposition by the Company of all or substantially all of the Company’s assets. For purposes of this subclause (iii), “Surviving Entity” refers to the entity surviving the merger, consolidation, sale or disposition of all or substantially all of the Company’s assets.

For purposes of the above, “Cause” means the occurrence of any one or more of the following:

(i) any material act of misconduct or dishonesty by you in the performance of your duties;

(ii) any willful and material failure by you to perform your duties;

(iii) any material breach of any employment agreement, confidentiality agreement or proprietary information agreement;

(iv) your conviction of (or pleading guilty or nolo contendere to) a misdemeanor involving theft, embezzlement, dishonesty or moral turpitude or a felony; or

(v) your failure to reasonably cooperate with the Company in any investigation or formal proceeding if the Company has requested your cooperation;

provided that, in the case of subclauses (i) through (iii), you shall have a period of thirty (30) days from written notice by the Company to cure such action or omission unless not reasonably susceptible of cure

For purposes of the above, “Good Reason” means:

(i) any reduction in your base salary or annual target bonus;

(ii) any material reduction in your other benefits;

(iii) any material reduction in your duties, responsibilities, or authority; or

(iv) a requirement that you relocate to a location more than 35 miles from your then current office location.

For you to receive the benefits under this Letter as a result of a voluntary resignation for Good Reason, all of the following requirements must be satisfied: (1) you must provide notice to the Company of your intent to assert Good Reason within one hundred twenty (120) days of the initial existence of one or more of the conditions set forth in subclauses (i) through (iv); (2) the Company will have thirty (30) days from the date of such notice to remedy the condition(s) and, if it does so, you may withdraw your resignation or may resign with no benefits; and (3) any termination of employment under this provision must occur within six (6) months of the expiration of the particular event giving rise to Good Reason. Should the Company remedy the condition as set forth above and then one or more of the conditions arises again, you may assert Good Reason again, provided that, the reassertion of Good Reason shall independently satisfy the timing and procedural requirements of this Paragraph.

For purposes of the above, “Separation” means: a “separation from service,” as defined in Treasury Regulation Section 1.409A-1(h) (or any successor regulation).

Section 409A. Notwithstanding anything to the contrary in this Letter, if you are determined to be a “specified employee” within the meaning of Section 409A, as amended (“Section 409A”) of the Internal Revenue Code of 1986, as amended (the “Code”) and the regulations thereunder, as of the date of your Separation, and if any payments or entitlements provided for in this Letter constitute a “deferral of compensation” within the meaning of Section 409A and therefore cannot be paid or provided in the manner provided herein without subjecting you to additional tax, interest or penalties under Section 409A, then any such payment and/or entitlement which would have been payable during the first six (6) months following your Separation shall instead be paid or provided to you in a lump sum payment on the first business day immediately following the six (6-)month anniversary of your Separation. If this payment has had to be deferred in this way for six (6) months after your Separation, then the lump sum payment will also include interest on the deferred payment or payments at a per annum rate equal to the highest rate of interest not exceeding four percent (4%) applicable to six (6-)month money market accounts on the date of such Separation offered by the following institutions: Citibank N.A., Wells Fargo Bank, N.A. or Bank of America. Except for the foregoing interest payment, nothing in this Paragraph shall increase the amount due under this Letter or otherwise from the Company to you. It is intended that each

installment of the payments provided hereunder constitute separate “payments” for purposes of Treasury Regulation Section 1.409A-2(b)(2)(i). It is further intended that the payments hereunder satisfy, to the greatest extent possible, the exemption from the application of Section 409A of the Code (and any state law of similar effect) provided under Treasury Regulation Section 1.409A-1(b)(4) (as a “short-term deferral”). To the extent that any provision of this Letter is ambiguous as to its compliance with Section 409A of the Code, the provision will be read in such a manner so that all payments hereunder comply with Section 409A of the Code. All payments made under this Agreement shall be subject to reduction to reflect taxes or other charges required to be withheld by law.

General Release. Any other provision of this Letter notwithstanding, the acceleration of vesting shall not apply unless you: (i) have executed a general release (in a form prescribed by the Company) of all known and unknown claims that you may then have against the Company or persons affiliated with the Company and such release has become effective and (ii) have agreed not to prosecute any legal action or other proceeding based upon any such claims (“General Release”). The General Release must be in a form acceptable to the Company. The Company will deliver the form to you within thirty (30) days after your Separation and you must execute and return and not revoke the General Release within the sixty (60) day period following your Separation.

Golden Parachute Taxes.

(a)Best After-Tax Result. In the event that any payment or benefit received or to be received by you pursuant to this Letter or otherwise (“Payments”) would (i) constitute a “parachute payment” within the meaning of Section 280G of the Code and (ii) but for this subclause (a), be subject to the excise tax imposed by Section 4999 of the Code, any successor provisions, or any comparable federal, state, local or foreign excise tax (“Excise Tax”), then, subject to the provisions of Paragraph (b) hereof, such Payments shall be either (A) provided in full pursuant to the terms of this Letter or any other applicable agreement, or (B) provided as to such lesser extent which would result in no portion of such Payments being subject to the Excise Tax (“Reduced Amount”), whichever of the foregoing amounts, taking into account the applicable federal, state, local and foreign income, employment and other taxes and the Excise Tax (including, without limitation, any interest or penalties on such taxes), results in the receipt by you, on an after-tax basis, of the greatest amount of payments and benefits provided for hereunder or otherwise, notwithstanding that all or some portion of such Payments may be subject to the Excise Tax. Unless the Company and you otherwise agree in writing, any determination required under this Paragraph shall be made by independent tax counsel designated by the Company and reasonably acceptable to you (“Independent Tax Counsel”), whose determination shall be conclusive and binding upon you and the Company for all purposes. For purposes of making the calculations required under this Paragraph, Independent Tax Counsel may make reasonable assumptions and approximations concerning applicable taxes and may rely on reasonable, good faith interpretations concerning the application of Sections 280G and 4999 of the Code; provided that, Independent Tax Counsel shall assume that you pay all taxes at the highest marginal rate. The Company and you shall furnish to Independent Tax Counsel such information and documents as Independent Tax Counsel may reasonably request in order to make a determination under this Paragraph. The Company shall bear all costs that Independent Tax Counsel may reasonably incur in connection with any calculations contemplated by this Paragraph. In the event that subclause (a)(ii)(B) above applies, then based on the information provided to you and the Company by Independent Tax Counsel, you may, in your sole discretion and within 30 (thirty) days of the date on which you are provided with the information prepared by Independent Tax Counsel, determine which and how much of the Payments (including the accelerated vesting of equity compensation awards) to be otherwise received by you shall be eliminated or reduced (as long as, after such determination, the value (as calculated by Independent Tax Counsel in accordance with the provisions of Sections 280G and 4999 of the Code) of the amounts payable or distributable to you equals the Reduced Amount). If the Internal Revenue Service (the “IRS”) determines that any Payment is subject to the Excise Tax, then Paragraph (b) hereof shall apply, and the enforcement of Paragraph (b) shall be the exclusive remedy to the Company.

(b)Adjustments. If, notwithstanding any reduction described in Paragraph (a) hereof (or, in the absence of any such reduction), the IRS determines that you are liable for the Excise Tax as a result of the receipt of one or more Payments, then you shall be obligated to surrender or pay back to the Company, within one hundred twenty (120) days after a final IRS determination, an amount of such payments or benefits equal to the “Repayment Amount.” The Repayment Amount with respect to such Payments shall be the smallest such amount, if any, as shall be required to be surrendered or paid to the Company so that your net proceeds with respect to such Payments (after taking into account the payment of the Excise Tax imposed on such Payments) shall be maximized. Notwithstanding the foregoing, the Repayment Amount with respect to such Payments shall be zero if a Repayment Amount of more than zero would not eliminate the Excise Tax imposed on such Payments or if a Repayment Amount of more than zero would not maximize the net amount received by you from the Payments. If the Excise Tax is not eliminated pursuant to this Paragraph (b), you shall pay the Excise Tax.

The Company shall require any successor (whether direct or indirect and whether by purchase, lease, merger, acquisition, consolidation, liquidation or otherwise) to all or substantially all of the Company’s business and/or assets, by an agreement in substance and form satisfactory to you, to assume this Letter and to agree expressly to perform this Letter in the same manner and to the same extent as the Company would be required to perform it in the absence of a succession.

For all purposes under this Letter, the term “Company” shall include any successor to the Company’s business and/or assets or which becomes bound by this Letter by operation of law.

The invalidity or unenforceability of any provision or provisions of this Letter shall not affect the validity or enforceability of any other provision hereof, which shall remain in full force and effect. The validity, interpretation, construction and performance of this Letter shall be governed by the laws of the State of California (other than their choice-of-law provisions).

The modification to the terms of the vesting schedule of your Equity Awards as described in this Letter has been approved by the Board and is effective immediately.

Sincerely,

[Insert Name]

[Insert Title]

AGREED AND ACCEPTED this ____ day of __________ 20__.

_______________________________________

[Name]

EX-10.13

Exhibit 10.13

Form of Director Change of Control Agreement - Full Single-Trigger

[Date]

[Name]

[Title]

Callidus Software Inc.

Dear [Name]:

This letter (“Letter”) modifies any stock option agreement, any restricted stock unit agreement, or other agreement documenting any equity award (as applicable, any “Equity Award Agreement”) you may now or hereafter have with respect to the common stock of Callidus Software Inc. (the “Company”) and any prior agreement between you and the Company regarding the Equity Award Agreements including, without limitation, any prior change of control agreement(s). This Letter provides for accelerated vesting of your Company stock options, restricted stock awards, restricted stock unit awards and other equity-based awards, as applicable (collectively, the “Equity Awards”) under the conditions described below.

In the event of any “Change of Control” of the Company, you shall receive one hundred percent (100%) vesting of your Equity Awards as of the effective date and time of the Change of Control.

For purposes of the above, “Change of Control” means:

(i) The acquisition by any “person” (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended) of “beneficial ownership” (as defined in Rule 13d-3 under said Act), directly or indirectly, of securities of the Company representing fifty percent (50%) or more of the total voting power represented by the Company’s then outstanding voting securities (it being understood that securities owned by any person on the date hereof shall not be counted against such limit with respect to such person); or

(ii) A change in the composition of the board of directors of the Company (the “Board”) occurring within a rolling two (2)-year period, as a result of which fewer than a majority of the directors are Incumbent Directors. “Incumbent Directors” shall mean directors who either: (A) are members of the Board as of the date hereof, or (B) are elected, or nominated for election, to the Board with the affirmative votes of at least a majority of the Incumbent Directors at the time of such election or nomination (but shall not include an individual not otherwise an Incumbent Director whose election or nomination is in connection with an actual or threatened proxy contest relating to the election of directors to the Board); or

(iii) A merger or consolidation involving the Company other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the Surviving Entity (including the parent corporation of such Surviving Entity)) at least fifty percent (50%) of the total voting power represented by the voting securities of the Company or such Surviving Entity outstanding immediately after such merger or consolidation, or a sale or disposition by the Company of all or substantially all of the Company’s assets. For purposes of this subclause (iii), “Surviving Entity” refers to the entity surviving the merger, consolidation, sale or disposition of all or substantially all of the Company’s assets.

Notwithstanding the foregoing subsections (i) thru (iii), a transaction that does not constitute a change of control event under U.S. Treasury Regulation Section 1.409A-3(i)(5)(v) or (vii) will not be considered a Change of Control for purposes of compensation under this Letter that constitutes deferred compensation subject to Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”) and the regulations thereunder.

Section 409A. To the extent that any provision of this Letter is ambiguous as to its compliance with Section 409A of the Code, the provision will be read in such a manner so that all payments hereunder comply with Section 409A of the Code.

For all purposes under this Letter, the term “Company” shall include any successor to the Company’s business and/or assets or which becomes bound by this Letter by operation of law.

The invalidity or unenforceability of any provision or provisions of this Letter shall not affect the validity or enforceability of any other provision hereof, which shall remain in full force and effect. The validity, interpretation, construction and performance of this Letter shall be governed by the laws of the State of California (other than their choice-of-law provisions).

The modification to the terms of the vesting schedule of your Equity Awards as described in this Letter has been approved by the Board and is effective immediately.

Sincerely,

[Insert Name]

[Insert Title]

AGREED AND ACCEPTED this ____ day of __________ 20__.

_______________________________________

[Name]

EX-10.14

Exhibit 10.14

INDEMNITY AGREEMENT

This Indemnity Agreement, dated as of ____________________ ____, 20___ is made by and between Callidus Software Inc., a Delaware corporation (“Company”), and _______________________________________, a director, officer or key employee of the Company or one of the Company’s subsidiaries or other service provider who satisfies the definition of Indemnifiable Person set forth below (“Indemnitee”).

RECITALS

A.The Company is aware that competent and experienced persons are increasingly reluctant to serve as representatives of corporations unless they are protected by comprehensive liability insurance and indemnification, due to increased exposure to litigation costs and risks resulting from their service to such corporations, and due to the fact that the exposure frequently bears no relationship to the compensation of such representatives;

B.The members of the Board of Directors of the Company (“Board”) have concluded that to retain and attract talented and experienced individuals to serve as representatives of the Company and its Subsidiaries and Affiliates and to encourage such individuals to take the business risks necessary for the success of the Company and its Subsidiaries and Affiliates, it is necessary for the Company to contractually indemnify certain of its representatives and the representatives of its Subsidiaries and Affiliates, and to assume for itself maximum liability for Expenses and Other Liabilities in connection with claims against such representatives in connection with their service to the Company and its Subsidiaries and Affiliates;

C.Section 145 of the Delaware General Corporation Law (“Section 145”), empowers the Company to indemnify by agreement its officers, directors, employees and agents, and persons who serve, at the request of the Company, as directors, officers, employees or agents of other corporations, partnerships, joint ventures, trusts or other enterprises, and expressly provides that the indemnification provided thereby is not exclusive; and

D.The Company desires and has requested Indemnitee to serve or continue to serve as a representative of the Company and/or the Subsidiaries or Affiliates of the Company free from undue concern about inappropriate claims for damages arising out of or related to such services to the Company and/or the Subsidiaries or Affiliates of the Company.

AGREEMENT

NOW, THEREFORE, the parties hereto, intending to be legally bound, hereby agree as follows:

1. Definitions.

(a)Affiliate. For purposes of this Agreement, “Affiliate” of the Company means any corporation, partnership, limited liability company, joint venture, trust or other enterprise in respect of which Indemnitee is or was or will be serving as a director, officer, trustee, manager, member, partner, employee, agent, attorney, consultant, member of the entity’s governing body (whether constituted as a board of directors, board of managers, general partner or otherwise), fiduciary, or in any other similar capacity at the request, election or direction of the Company, and including, but not limited to, any employee benefit plan of the Company or a Subsidiary or Affiliate of the Company.

(b)Change in Control. For purposes of this Agreement, “Change in Control” means (i) any “person” (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended), other than a Subsidiary or a trustee or other fiduciary holding securities under an employee benefit plan of the Company or Subsidiary, is or becomes the “Beneficial Owner” (as defined in Rule 13d-3 under said Act), directly or indirectly, of securities of the Company representing 50% or more of the total voting power represented by the Company’s then outstanding capital stock or (ii) during any period of two consecutive years, individuals who at the beginning of such period constitute the Board and any new director whose election by the Board or nomination for election by the Company’s stockholders was approved by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority thereof, or (iii) the stockholders of the Company approve a merger or consolidation of the Company with any other corporation, other than a merger or consolidation that would result in the outstanding capital stock of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into capital stock of the surviving entity) at least 80% of the total voting power represented by the capital stock of the Company or such surviving entity outstanding immediately after such merger or consolidation, or the stockholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company (in one transaction or a series of transactions) of all or substantially all of the Company’s assets.

(c)Expenses. For purposes of this Agreement, “Expenses” means all direct and indirect costs of any type or nature whatsoever (including, without limitation, all attorneys’ fees and related disbursements, and other out-of-pocket costs), paid or incurred by Indemnitee in connection with either the investigation, defense or appeal of, or being a witness in, a Proceeding, or establishing or enforcing a right to indemnification under this Agreement, Section 145 or otherwise; provided, however, that Expenses shall not include any judgments, fines, Employee Retirement Income Security Act (“ERISA”) excise (or other benefit plan related) taxes or penalties or amounts paid in settlement of a Proceeding.

(d)Indemnifiable Event.For purposes of this Agreement, “Indemnifiable Event” means any event or occurrence related to Indemnitee’s service for the Company or any Subsidiary or Affiliate as an Indemnifiable Person (as defined below), or by reason of anything done or not done, or any act or omission, by Indemnitee in any such capacity.

(e)Indemnifiable Person. For the purposes of this Agreement, “Indemnifiable Person” means any person who is or was a director, officer, trustee, manager, member, partner, employee, attorney, consultant, member of an entity’s governing body (whether constituted as a board of directors, board of managers, general partner or otherwise) or other agent or fiduciary of the Company or a Subsidiary or Affiliate of the Company.

(f)Independent Counsel. For purposes of this Agreement, “Independent Counsel” means legal counsel that has not performed services for the Company or Indemnitee in the five years preceding the time in question and that would not, under applicable standards of professional conduct, have a conflict of interest in representing either the Company or Indemnitee.

(g)Independent Director. For purposes of this Agreement, “Independent Director” means a member of the Board who is not a party to the Proceeding for which a claim is made under this Agreement.

(h)Other Liabilities. For purposes of this Agreement, “Other Liabilities” means any and all liabilities of any type whatsoever (including, but not limited to, judgments, fines, penalties, ERISA (or other benefit plan related) excise taxes or penalties, and amounts paid in settlement), and all interest, taxes, assessments and other charges paid or payable in connection with or in respect of any such judgments, fines, penalties, ERISA (or other benefit plan related) excise taxes or penalties, or amounts paid in settlement.

(i)Proceeding. For the purposes of this Agreement, “Proceeding” means any threatened, pending, or completed action, suit or other proceeding, whether civil, criminal, administrative, investigative, legislative or any other type whatsoever, preliminary, informal or formal, including any arbitration or other alternative dispute resolution and including any appeal of any of the foregoing.

(j)Subsidiary. For purposes of this Agreement, “Subsidiary” means any entity of which more than 50% of the outstanding voting securities is owned directly or indirectly by the Company.

1. Agreement to Serve. The Indemnitee agrees to serve and/or continue to serve as an Indemnifiable Person in the capacity or capacities in which Indemnitee currently serves the Company as an Indemnifiable Person, and any additional capacity in which Indemnitee may agree to serve, until such time as Indemnitee’s service in a particular capacity shall end according to the terms of an agreement, the Company’s Certificate of Incorporation or Bylaws, governing law, or otherwise. Nothing contained in this Agreement is intended to create any right to continued employment or other form of service for the Company or a Subsidiary or Affiliate of the Company by Indemnitee.

2. Mandatory Indemnification.

(a)Agreement to Indemnify. In the event Indemnitee is a person who was or is a party to or witness in or is threatened to be made a party to or witness in any Proceeding by reason of an Indemnifiable Event, the Company shall indemnify Indemnitee from and against any and all Expenses and Other Liabilities incurred by Indemnitee in connection with (including in preparation for) such Proceeding to the fullest extent not prohibited by the Delaware General Corporation Law (“DGCL”), as the same may be amended from time to time (but only to the extent that such amendment permits the Company to provide broader indemnification rights than the DGCL permitted prior to the adoption of such amendment).

(b)Exception for Amounts Covered by Insurance and Other Sources. Notwithstanding the foregoing, the Company shall not be obligated to indemnify Indemnitee for Expenses or Other Liabilities of any type whatsoever (including, but not limited to judgments, fines, penalties, ERISA (or other benefit plan related) excise taxes or penalties and amounts paid in settlement) to the extent such have been paid directly to Indemnitee (or paid directly to a third party on Indemnitee’s behalf) by any directors and officers, or other type, of insurance maintained by the Company.

(c)Company Obligations Primary. The Company hereby acknowledges that Indemnitee may have rights to indemnification for Expenses and Other Liabilities provided by other sources (“Other Indemnitor”). The Company agrees with Indemnitee that the Company is the indemnitor of first resort of Indemnitee with respect to matters for which indemnification is provided under this Agreement and that, subject to Section 3(b) above, the Company will be obligated to make all payments due to or for the benefit of Indemnitee under this Agreement without regard to any rights that Indemnitee may have against the Other Indemnitor.

3. Partial Indemnification. If Indemnitee is entitled under any provision of this Agreement to indemnification by the Company for some or a portion of any Expenses or Other Liabilities but not entitled, however, to indemnification for the total amount of such Expenses or Other Liabilities, the Company shall nevertheless indemnify Indemnitee for such total amount except as to the portion thereof for which indemnification is prohibited by the provisions of the DGCL. In any review or Proceeding to determine the extent of indemnification, the Company shall bear the burden to establish, by clear and convincing evidence,

the lack of a successful resolution of a particular claim, issue or matter and which amounts sought in indemnity are allocable to claims, issues or matters which were not successfully resolved.

4. Liability Insurance. So long as Indemnitee shall continue to serve the Company or a Subsidiary or Affiliate of the Company as an Indemnifiable Person and thereafter so long as Indemnitee shall be subject to any possible claim or threatened, pending or completed Proceeding as a result of an Indemnifiable Event, the Company shall use reasonable efforts to maintain in full force and effect for the benefit of Indemnitee as an insured (i) liability insurance issued by one or more reputable insurers and having the policy amount and deductible deemed appropriate by the Board and providing in all respects coverage at least comparable to and in the same amount as that provided to the Chairman of the Board or the Chief Executive Officer of the Company and (ii) any replacement or substitute policies issued by one or more reputable insurers providing in all respects coverage at least comparable to and in the same amount as that being provided to the Chairman of the Board or the Chief Executive Officer of the Company. The purchase, establishment and maintenance of any such insurance or other arrangements shall not in any way limit or affect the rights and obligations of the Company or of Indemnitee under this Agreement except as expressly provided herein, and the execution and delivery of this Agreement by the Company and Indemnitee shall not in any way limit or affect the rights and obligations of the Company or the other party or parties thereto under any such insurance or other arrangement. In the event of a Change in Control subsequent to the date of this Agreement, or the Company’s becoming insolvent, including being placed into receivership or entering the federal bankruptcy process, the Company shall maintain in force any directors’ and officers’ liability insurance policies then maintained by the Company in providing insurance in respect of Indemnitee, for a period of six years thereafter.

5. Mandatory Advancement of Expenses. If requested by Indemnitee, the Company shall advance prior to the final disposition of the Proceeding all Expenses reasonably incurred by Indemnitee in connection with (including in preparation for) a Proceeding related to an Indemnifiable Event. Indemnitee hereby undertakes to repay such amounts advanced if, and only if and to the extent that, it shall ultimately be determined by final judicial decision from which there is no appeal that Indemnitee is not entitled to be indemnified by the Company under the provisions of this Agreement, the Company’s Bylaws, or the DGCL, and no additional form of undertaking with respect to such obligation to repay shall be required. The advances to be made hereunder shall be paid by the Company to Indemnitee or directly to a third party designated by Indemnitee within thirty (30) days following delivery of a written request therefor by Indemnitee to the Company. Indemnitee’s undertaking to repay any Expenses advanced to Indemnitee hereunder shall be unsecured and shall not be subject to the accrual or payment of any interest thereon. In the event that Indemnitee’s request for the advancement of Expenses shall be accompanied by an affidavit of counsel to Indemnitee to the effect that such counsel has reviewed such Expenses and that such Expenses are reasonable in such counsel’s view, then such Expenses shall be deemed reasonable in the absence of clear and convincing evidence to the contrary.

6. Notice and Other Indemnification Procedures.

(a)Notification. Promptly after receipt by Indemnitee of notice of the commencement of or the threat of commencement of any Proceeding, Indemnitee shall, if Indemnitee believes that indemnification or advancement of Expenses with respect thereto may be sought from the Company under this Agreement, notify the Company of the commencement or threat of commencement thereof. However, a failure to so notify the Company promptly following Indemnitee’s receipt of such notice shall not relieve the Company from any liability that it may have to Indemnitee except to the extent that the Company is materially prejudiced in its defense of such Proceeding as a result of such failure.

(b)Insurance and Other Matters. If, at the time of the receipt of a notice of the commencement of a Proceeding pursuant to Section 7(a) above, the Company has director and officer liability insurance in effect, the Company shall give prompt notice of the commencement of such Proceeding to the issuers in accordance with the procedures set forth in the respective policies. The Company shall thereafter take all reasonable action to cause such insurers to pay, on behalf of Indemnitee, all amounts payable as a result of such Proceeding in accordance with the terms of such insurance policies.

(c)Assumption of Defense. In the event the Company shall be obligated to advance the Expenses for any Proceeding against Indemnitee, the Company, if deemed appropriate by the Company, shall be entitled to assume the defense of such Proceeding as provided herein. Such defense by the Company may include the representation of two or more parties by one attorney or law firm as permitted under the ethical rules and legal requirements related to joint representations. Following delivery of written notice to Indemnitee of the Company’s election to assume the defense of such Proceeding, the approval by Indemnitee (which approval shall not be unreasonably withheld) of counsel designated by the Company and the retention of such counsel by the Company, the Company will not be liable to Indemnitee under this Agreement for any fees and expenses of counsel subsequently incurred by Indemnitee with respect to the same Proceeding. If (A) the employment of counsel by Indemnitee has been previously authorized by the Company, (B) Indemnitee shall have notified the Board in writing that Indemnitee has reasonably concluded that there is likely to be a conflict of interest between the Company and Indemnitee in the conduct of any such defense or (C) the Company fails to employ counsel to assume the defense of such Proceeding, the fees and expenses of Indemnitee’s counsel shall be subject to indemnification and/or advancement pursuant to the terms of this Agreement. Nothing herein shall prevent Indemnitee from employing counsel for any such Proceeding at Indemnitee’s expense. Notwithstanding anything in this agreement to the contrary, Indemnitee shall have the right to employ Indemnitee’s own counsel in connection with any Proceeding, at the expense of the Company, if such counsel serves in a review, observer, advice, and counseling capacity and does not otherwise materially control or participate in the defense of such Proceeding;

provided, however, that Indemnitee must choose his or her own counsel from three options provided to the Indemnitee by the Company.

(d)Settlement. The Company shall not be liable to indemnify Indemnitee under this Agreement or otherwise for any amounts paid in settlement of any Proceeding effected without the Company’s written consent; provided, however, that if a Change in Control has occurred subsequent to the date of this Agreement, the Company shall be liable for indemnification of Indemnitee for amounts paid in settlement if the Independent Counsel has approved the settlement. Neither the Company nor any Subsidiary or Affiliate shall enter into a settlement of any Proceeding that might result in the imposition of any Expense, Other Liability, penalty, limitation or detriment on Indemnitee, whether indemnifiable under this Agreement or otherwise, without Indemnitee’s written consent. Neither the Company nor Indemnitee shall unreasonably withhold consent from any settlement of any Proceeding. The Company shall promptly notify Indemnitee upon the Company’s receipt of an offer to settle, or if the Company makes an offer to settle, any Proceeding, and provide Indemnitee with a reasonable amount of time to consider such settlement, in the case of any such settlement for which the consent of Indemnitee would be required hereunder. The Company shall not, on its own behalf, settle any part of any Proceeding to which Indemnitee is a party with respect to other parties (including the Company) without the written consent of Indemnitee if any portion of the settlement is to be funded from insurance proceeds unless approved by a majority of the Independent Directors, provided that this sentence shall cease to be of any force and effect if it has been determined in accordance with this Agreement that Indemnitee is not entitled to indemnification hereunder with respect to such Proceeding or if the Company’s obligations hereunder to Indemnitee with respect to such Proceeding have been fully discharged.

7. Determination of Right to Indemnification.

(a)Success on the Merits or Otherwise. To the extent that Indemnitee has been successful on the merits or otherwise in defense of any Proceeding referred to in Section 3(a) above or in the defense of any claim, issue or matter described therein, the Company shall indemnify Indemnitee against Expenses actually and reasonably incurred in connection therewith.

(b)Indemnification in Other Situations. In the event that Section 8(a) is inapplicable, the Company shall also indemnify Indemnitee if Indemnitee has not failed to meet the applicable standard of conduct for indemnification.

(c)Forum. Indemnitee shall be entitled to select the forum in which determination of whether or not Indemnitee has met the applicable standard of conduct shall be decided, and such election will be made from among the following:

i. Those members of the Board who are Independent Directors even though less than a quorum; or

ii. A committee of Independent Directors designated by a majority vote of Independent Directors, even though less than a quorum; or

iii. Independent Counsel selected by Indemnitee and approved by the Board, which approval may not be unreasonably withheld, which counsel shall make such determination in a written opinion.

If Indemnitee is an officer or a director of the Company at the time that Indemnitee is selecting the forum, then Indemnitee shall not select Independent Counsel as such forum unless there are no Independent Directors or unless the Independent Directors agree to the selection of Independent Counsel as the forum.

The selected forum shall be referred to herein as the “Reviewing Party”.

Notwithstanding the foregoing, following any Change in Control subsequent to the date of this Agreement, the Reviewing Party shall be Independent Counsel selected in the manner provided in iii. above.

(d)As soon as practicable, and in no event later than thirty (30) days after receipt by the Company of written notice of Indemnitee’s choice of forum pursuant to Section 8(c) above, the Company and Indemnitee shall each submit to the Reviewing Party such information as they believe is appropriate for the Reviewing Party to consider. The Reviewing Party shall arrive at its decision within a reasonable period of time following the receipt of all such information from the Company and Indemnitee, but in no event later than thirty (30) days following the receipt of all such information, provided that the time by which the Reviewing Party must reach a decision may be extended by mutual agreement of the Company and Indemnitee. All Expenses associated with the process set forth in this Section 8(d), including but not limited to the Expenses of the Reviewing Party, shall be paid by the Company.

(e)Delaware Court of Chancery. Notwithstanding a final determination by any Reviewing Party that Indemnitee is not entitled to indemnification with respect to a specific Proceeding, Indemnitee shall have the right to apply to the Court of Chancery, for the purpose of enforcing Indemnitee’s right to indemnification pursuant to this Agreement.

(f)Expenses. The Company shall indemnify Indemnitee against all Expenses incurred by Indemnitee in connection with any hearing or Proceeding under this Section 8 involving Indemnitee and against all Expenses and Other Liabilities incurred by Indemnitee in connection with any other Proceeding between the Company and Indemnitee involving the interpretation or enforcement of the rights of Indemnitee under this Agreement unless a court of competent jurisdiction finds that each of the material claims of Indemnitee in any such Proceeding was frivolous or made in bad faith.

(g)Determination of “Good Faith”. For purposes of any determination of whether Indemnitee acted in “good faith,” Indemnitee shall be deemed to have acted in good faith if in taking or failing to take the action in question Indemnitee relied on the records or books of account of the Company or a Subsidiary or Affiliate, including financial statements, or on information,

opinions, reports or statements provided to Indemnitee by the officers or other employees of the Company or a Subsidiary or Affiliate in the course of their duties, or on the advice of legal counsel for the Company or a Subsidiary or Affiliate, or on information or records given or reports made to the Company or a Subsidiary or Affiliate by an independent certified public accountant or by an appraiser or other expert selected by the Company or a Subsidiary or Affiliate, or by any other person (including legal counsel, accountants and financial advisors) as to matters Indemnitee reasonably believes are within such other person’s professional or expert competence and who has been selected with reasonable care by or on behalf of the Company or a Subsidiary or Affiliate. In connection with any determination as to whether Indemnitee is entitled to be indemnified hereunder, or to advancement of expenses, the Reviewing Party or court shall presume that Indemnitee has satisfied the applicable standard of conduct and is entitled to indemnification or advancement of Expenses, as the case may be, and the burden of proof shall be on the Company to establish, by clear and convincing evidence, that Indemnitee is not so entitled. The provisions of this Section 8(g) shall not be deemed to be exclusive or to limit in any way the other circumstances in which Indemnitee may be deemed to have met the applicable standard of conduct set forth in this Agreement. In addition, the knowledge and/or actions, or failures to act, of any other person serving the Company or a Subsidiary or Affiliate as an Indemnifiable Person shall not be imputed to Indemnitee for purposes of determining the right to indemnification hereunder.

8. Exceptions. Any other provision herein to the contrary notwithstanding,

(a)Claims Initiated by Indemnitee. The Company shall not be obligated pursuant to the terms of this Agreement to indemnify or advance Expenses to Indemnitee with respect to Proceedings or claims initiated or brought voluntarily by Indemnitee and not by way of defense, except (1) with respect to Proceedings brought to establish or enforce a right to indemnification under this Agreement, any other statute or law, as permitted under Section 145, or otherwise, (2) where the Board has consented to the initiation of such Proceeding, or (3) with respect to Proceedings brought to discharge Indemnitee’s fiduciary responsibilities, whether under ERISA or otherwise, but such indemnification or advancement of Expenses may be provided by the Company in specific cases if the Board finds it to be appropriate.

(b)Actions Based on Federal Statutes Regarding Profit Recovery and Return of Bonus Payments. The Company shall not be obligated pursuant to the terms of this Agreement to indemnify Indemnitee on account of (i) any suit in which judgment is rendered against Indemnitee for an accounting of profits made from the purchase or sale by Indemnitee of securities of the Company pursuant to the provisions of Section 16(b) of the Securities Exchange Act of l934 and amendments thereto or similar provisions of any federal, state or local statutory law, or (ii) any reimbursement of the Company by the Indemnitee of any bonus or other incentive-based or equity-based compensation or of any profits realized by the Indemnitee from the sale of securities of the Company, as required in each case under the Exchange Act (including any such reimbursements that arise from an accounting restatement of the Company pursuant to Section 304 of the Sarbanes-Oxley Act of 2002 (the "Sarbanes-Oxley Act"), or the payment to the Company of profits arising from the purchase and sale by Indemnitee of securities in violation of Section 306 of the Sarbanes-Oxley Act).

(c)Unlawful Indemnification. The Company shall not be obligated pursuant to the terms of this Agreement to indemnify Indemnitee for Other Liabilities if such indemnification is prohibited by law as determined by a court of competent jurisdiction in a final adjudication not subject to further appeal.

9. Non-exclusivity. The provisions for indemnification and advancement of Expenses set forth in this Agreement shall not be deemed exclusive of any other rights which Indemnitee may have under any provision of law, the Company’s Certificate of Incorporation or Bylaws, the vote of the Company’s stockholders or disinterested directors, other agreements, or otherwise, both as to acts or omissions in his or her official capacity and to acts or omissions in another capacity while serving the Company or a Subsidiary or Affiliate as an Indemnifiable Person and Indemnitee’s rights hereunder shall continue after Indemnitee has ceased serving the Company or a Subsidiary or Affiliate as an Indemnifiable Person and shall inure to the benefit of the heirs, executors and administrators of Indemnitee.

10. Severability. If any provision or provisions of this Agreement shall be held to be invalid, illegal or unenforceable for any reason whatsoever, (i) the validity, legality and enforceability of the remaining provisions of the Agreement (including, without limitation, all portions of any paragraphs of this Agreement containing any such provision held to be invalid, illegal or unenforceable, that are not themselves invalid, illegal or unenforceable) shall not in any way be affected or impaired thereby, and (ii) to the fullest extent possible, the provisions of this Agreement (including, without limitation, all portions of any paragraphs of this Agreement containing any such provision held to be invalid, illegal or unenforceable, that are not themselves invalid, illegal or unenforceable) shall be construed so as to give effect to the intent manifested by the provision held invalid, illegal or unenforceable.

11. Supersession, Modification and Waiver. This Agreement supersedes any prior indemnification agreement between the Indemnitee and the Company, its Subsidiaries or its Affiliates. If the Company and Indemnitee have previously entered into an indemnification agreement providing for the indemnification of Indemnitee by the Company, the parties entry into this Agreement shall be deemed to amend and restate such prior agreement to read in its entirety as, and be superseded by, this Agreement. No supplement, modification or amendment of this Agreement shall be binding unless executed in writing by both of the parties hereto. No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other provision hereof (whether or not similar) and except as expressly provided herein, no such waiver shall constitute a continuing waiver.

12. Successors and Binding Agreement

(a)Successors’ Assumption of Agreement. The Company shall require any successor (whether direct or indirect, by purchase, merger, consolidation, reorganization or otherwise) to all or substantially all of the business or assets of the Company, by agreement in form and substance satisfactory to Indemnitee and his or her counsel, expressly to assume and agree to perform this Agreement in the same manner and to the same extent the Company would be required to perform if no such succession had taken place. This Agreement shall be binding upon and inure to the benefit of the Company and any successor to the Company, including, without limitation, any person acquiring, directly or indirectly, all or substantially all of the business or assets of the Company whether by purchase, merger, consolidation, reorganization or otherwise (and such successor will thereafter be deemed the “Company” for purposes of this Agreement), but shall not otherwise be assignable or delegatable by the Company.

(b)Successors and Assigns. The terms of this Agreement shall bind, and shall inure to the benefit of, the successors and assigns of the parties hereto.

13. Notice. All notices, requests, demands and other communications under this Agreement shall be in writing and shall be deemed duly given (i) if delivered by hand and a receipt is provided by the party to whom such communication is delivered, (ii) if mailed by certified or registered mail with postage prepaid, return receipt requested, on the signing by the recipient of an acknowledgement of receipt form accompanying delivery through the U.S. mail, (iii) personal service by a process server, or (iv) delivery to the recipient’s address by overnight delivery (e.g., FedEx, UPS or DHL) or other commercial delivery service. Addresses for notice to either party are as shown on the signature page of this Agreement, or as subsequently modified by written notice complying with the provisions of this Section 14. Delivery of communications to the Company with respect to this Agreement shall be sent to the attention of the Company’s Principle Legal Officer.

14. No Presumptions. For purposes of this Agreement, the termination of any Proceeding, by judgment, order, settlement (whether with or without court approval) or conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that Indemnitee did not meet any particular standard of conduct or have any particular belief or that a court has determined that indemnification is not permitted by applicable law or otherwise. In addition, neither the failure of the Company or a Reviewing Party to have made a determination as to whether Indemnitee has met any particular standard of conduct or had any particular belief, nor an actual determination by the Company or a Reviewing Party that Indemnitee has not met such standard of conduct or did not have such belief, prior to the commencement of Proceedings by Indemnitee to secure a judicial determination by exercising Indemnitee’s rights under Section 8(e) of this Agreement shall be a defense to Indemnitee’s claim or create a presumption that Indemnitee has failed to meet any particular standard of conduct or did not have any particular belief or is not entitled to indemnification under applicable law or otherwise.

15. Survival of Rights. The rights conferred on Indemnitee by this Agreement shall continue after Indemnitee has ceased to serve the Company or a Subsidiary or Affiliate of the Company as an Indemnifiable Person and shall inure to the benefit of Indemnitee’s heirs, executors and administrators.

16. Subrogation and Contribution.

(a)In the event of payment under this Agreement, the Company shall be subrogated to the extent of such payment to all of the rights of recovery of Indemnitee, who shall execute all documents required and shall do all acts that may be necessary to secure such rights and to enable the Company effectively to bring suit to enforce such rights.

(b)To the fullest extent permissible under applicable law, if the indemnification provided for in this Agreement is unavailable to Indemnitee for any reason whatsoever, the Company, in lieu of indemnifying Indemnitee, shall contribute to the amount incurred by or on behalf of Indemnitee, whether for judgments, fines, penalties, excise taxes, amounts paid or to be paid in settlement and/or for Expenses, in connection with any claim relating to an Indemnifiable Event under this Agreement, in such proportion as is deemed fair and reasonable by the Company in its sole discretion in light of all of the circumstances of such Proceeding in order to reflect (i) the relative benefits received by the Company and Indemnitee as a result of the event(s) and/or transaction(s) giving rise to such Proceeding; and/or (ii) the relative fault of the Company (and its directors, officers, employees and agents) and Indemnitee in connection with such event(s) and/or transaction(s) giving rise to such Proceeding.

17. Specific Performance, Etc. The parties recognize that if any provision of this Agreement is violated by the Company, Indemnitee may be without an adequate remedy at law. Accordingly, in the event of any such violation, Indemnitee shall be entitled, if Indemnitee so elects, to institute Proceedings, either in law or at equity, to obtain damages, to enforce specific performance, to enjoin such violation, or to obtain any relief or any combination of the foregoing as Indemnitee may elect to pursue.

18. Counterparts. This Agreement may be executed in counterparts, each of which shall, for all purposes, be deemed to be an original but all of which together shall constitute one and the same agreement. Only one such counterpart signed by the party against whom enforceability is sought needs to be produced to evidence the existence of this Agreement.

19. Headings. The headings of the sections and paragraphs of this Agreement are inserted for convenience only and shall not be deemed to constitute part of this Agreement or to affect the construction or interpretation thereof.

20. Governing Law. This Agreement shall be governed exclusively by and construed according to the laws of the State of Delaware, as applied to contracts between Delaware residents entered into and to be performed entirely with Delaware.

21. Consent to Jurisdiction. The Company and Indemnitee each hereby irrevocably consent to the jurisdiction of the courts of the State of Delaware for all purposes in connection with any Proceeding which arises out of or relates to this Agreement.

[Signature Page Follows]

The parties hereto have entered into this Indemnity Agreement effective as of the date first above written.

CALLIDUS SOFTWARE INC.:

By:

Its:

INDEMNITEE:

Address:

______________________________

EX-10.16

Exhibit 10.16

September 24, 2008

Jimmy Duan

[Address]

Dear Jimmy:

I am pleased to offer you the position of Senior Vice President, Mid-Market Business, reporting to Leslie Stretch, President and Chief Executive Officer.

Your starting salary will be $230,000.00 per year, which equals $19,167.00 per month, subject to periodic review. In addition, you will be eligible to participate in an annual executive incentive compensation plan of 55% of your base salary which may be over or under achieved based upon Company performance and your ability to meet your objectives under the plan. Additionally, you will be paid a one-time sign-on bonus of $30,000.00 which will be paid in the first payroll cycle after your start date if you commence your employment with Callidus by no later than October 6, 2008. As a further incentive, we will recommend to the Board of Directors (or an applicable Subcommittee) that you be granted an non-qualified option to purchase 200,000 shares of Callidus Software Inc. common stock subject to the terms and conditions of the Company’s stock plan, and the Company’s policies and procedures. Such Option shall be granted effective as of the last business day of the month in which you commence your employment with the Company (“Grant Date”) and shall vest over a period of four (4) years with 25% of the shares vesting one (1) year after the Grant Date and the remaining 75% of the shares vesting in equal monthly installments thereafter over the remaining three (3) years, subject to your continued employment with the Company. In addition, we will recommend to the Board of Directors that you be awarded 35,000 shares of restricted stock units, subject to the terms and conditions of the Company’s stock plan and the Company’s policies and procedures. Such RSU shall be awarded effective on the last business day of the month in which you commence employment (the “Award Date”) and such RSU shall vest over a period of three (3) years with 33.33% of the shares vesting one (1) year after the Award Date and the remaining 66.67% of the shares vesting in standard quarterly installments over the remaining two (2) years thereafter subject to your continued employment with the Company.

As a new member of executive management, we will also recommend to the Board that you be classified as a Section 16 officer of Callidus, and that you should therefore be granted benefits in connection with a corporate change of control and indemnification in the case of litigation. Copies of our Board approved Change of Control Agreement and Indemnification Agreement are included for your review and execution. You will need to execute and return these agreements to me for them to become effective.

As a regular, full-time employee, you are eligible to participate in Callidus’ benefits programs, including medical, vision, and dental insurance, and 401(k) and ESPP plans, as set forth in our Callidus Benefits Guidebook. Our standard policy requires that you have a reasonably clean driving record and credit history and that we successfully complete a background check. This offer is also contingent upon your completing and executing an Employment, Confidential Information and Invention Assignment Agreement (“Invention Agreement”).

The Company is an “at will” employer, which means that the employment relationship may be terminated at any time by either the Company or by you, with or without notice and with or without cause. By signing below, you acknowledge that your employment at Callidus is for an unspecified duration, and neither this letter, nor your acceptance thereof, constitutes a contract of employment. Should you be involuntarily terminated other than for cause at any time, you shall receive a 7- month base pay severance payment (lump sum) and payment of your applicable COBRA for 7 months, in return for signing a full release of rights.

Upon separation from the Company for any reason, you also agree to return to the Company any equipment that has been provided to you or reimburse the Company the cost for such equipment. The Company reserves the right to deduct such costs from any final payments made to you in accordance with state and federal laws.

For purposes of federal immigration law, you will be required to provide to Callidus documentary evidence of your identity and eligibility for employment in the United States. Such documentation must be provided to us within three business days of your date of hire with Callidus, or our employment relationship with you may be terminated for cause. The Company’s standard policy also requires that you participate in our direct deposit payroll program.

Jimmy, on behalf of Callidus Software, we very much look forward to your acceptance of this offer. I have enclosed two executed copies of this offer letter. As evidence of your acceptance, please sign both letters and return one original along with the signed Invention Agreement to Paul Katawicz, Senior Corporate Counsel via the enclosed Federal Express envelope or

otherwise to: Callidus Software, Attn: Paul Katawicz, Senior Corporate Counsel, 160 West Santa Clara Street, Suite 1500, San Jose, CA 95113, not later than September 26, 2008 at 5:00 p.m. PST.

We look forward to working with you at Callidus Software. If you have any questions regarding any points in this letter please feel free to contact me. Welcome aboard!

Sincerely,

/s/ Leslie Stretch                                           

Leslie Stretch

President and Chief Executive Officer

Callidus Software Inc.

I accept the terms of this letter and agree to keep the terms of this letter confidential.

/s/ Jimmy Duan	10/1/2008
Signature of Jimmy Duan	Date
I agree to start work for Callidus Software on:	10/6/2008
	Start Date

EX-10.19

Exhibit 10.19

[*] Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.

RESELLER Agreement

THIS RESELLER AGREEMENT (“Agreement”) is entered into as of this 13th day of November 2014 (the “Effective Date”), between Versata Software, Inc., a corporation f/k/a Trilogy Software, Inc. existing under the laws of Delaware with its principal place of business at 401 Congress, Suite 2650, Austin, Texas 78730, Versata Development Group, Inc., corporation existing under the laws of Delaware with its principal place of business at 401 Congress, Suite 2650, Austin, Texas 78730 and Versata, Inc., corporation existing under the laws of Delaware with its principal place of business at 401 Congress, Suite 2650, Austin, Texas 78730, on the one hand (which together with their Affiliates and their permitted successors and assigns are collectively referred to herein as “Versata”); and Callidus Software, Inc., a corporation existing under the laws of Delaware with its principal place of business at 6200 Stoneridge Mall Road, Suite 500, Pleasanton, California 94588 (which together with its Affiliates and its permitted successors and assigns is collectively referred to herein as “Callidus”), on the other hand.

WITNESSETH

WHEREAS, Versata and Callidus wish to enter into a reseller arrangement for their mutual benefit that allows Callidus to resell certain Versata software products;

WHEREAS, Versata and Callidus are engaged in a lawsuit, styled Versata Software, Inc., Versata Development Group, Inc., and Versata, Inc. v. Callidus Software, Inc., Civil Action No. 1:12-cv-00931-SLR, pending in the United States District Court for the District of Delaware (the “Civil Action”) as well as five covered business method review proceedings before the United States Patent and Trademark Office, styled Callidus Software, Inc. v. Versata Software, Inc. and Versata Development Group, Inc., Case No. CBM2013-00052 (regarding claims 1-22 of U.S. Patent No. 7,904,326), Callidus Software, Inc. v. Versata Software, Inc. and Versata Development Group, Inc., Case No. CBM2013-00053 (regarding claims 1,2 and 35-47 of U.S. Patent No. 7,958,024), Callidus Software, Inc. v. Versata Software, Inc. and Versata Development Group, Inc., Case No. CBM2013-00054 (regarding claims 1, 12-25, 30-32 and 42-43 of U.S. Patent No. 7,908,304), Callidus Software, Inc. v. Versata Software, Inc. and Versata Development Group, Inc., Case No. CBM2014-00117 (regarding claims 2-11,26-29,33-41 and 44-46 of U.S. Patent No. 7,908,304) and Callidus Software, Inc. v. Versata Software, Inc. and Versata Development Group, Inc., Case No. CBM2014-00118 (regarding claims 3-34 of U.S. Patent No. 7,958,024) (collectively, the “CBM Proceedings”);

WHEREAS, in the Civil Action, Versata has asserted the Versata patents in suit against certain Callidus products and Callidus has asserted the Callidus patents in suit against certain Versata products;

WHEREAS, Versata and Callidus, in contemplation of the uncertainties of the disputed Civil Action and the CBM Proceedings, desire to compromise and settle the claims and counterclaims alleged in the Civil Action and in the CBM Proceedings; and

WHEREAS, Versata and Callidus have agreed to enter into a collaborative agreement and therefore wish to avoid future patent disputes and/or patent litigation between one another;

NOW, THEREFORE, in consideration of the mutual promises and obligations recited herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Versata and Callidus agree as follows:

1.DEFINITIONS. The following terms used in this Agreement shall have the meanings set forth below:

1.An “Affiliate” of, or Entity “Affiliated” with, a specified Entity, is an Entity that directly, or indirectly through one or more intermediaries, Controls or is Controlled by, or is under common Control with, the Entity specified. For purposes of this definition, “controls” and “controlled” includes the possession, directly or indirectly, of the power to direct the management and policies of an Entity, whether through the ownership of voting securities, contract, or otherwise. For Versata, its “Affiliates” include but are not limited to the entities listed in Appendix A.

2.“Agreement” means this Reseller Agreement.

3.“Callidus Covenanting Parties” means Callidus and its Affiliates.

4.“Callidus Licensed Product” as used herein, means Callidus’s TrueComp/TrueProducer integrated software product.

5.“Callidus Issued Patents” as used herein, means all worldwide issued patents currently owned by Callidus or assigned to Callidus as of the Effective Date of this Agreement.

6.“Callidus Patents” as used herein, means all worldwide patents and patent applications currently or hereafter owned by Callidus, assigned to Callidus, acquired by Callidus or its Affiliates, or otherwise assertable by Callidus on or after the Effective Date of this Agreement.

7.“Callidus patents in suit” as used herein, means U.S. Patent No. 6,269,355, U.S Patent No. 6,850,924, and U.S. Patent No. 6,473,748 and all related patents and pending applications.

8.“Entity” means an individual, a corporation, a partnership, an association, a joint-stock company, a trust, or any other incorporated or unincorporated business organization.

9.“Parties” means Versata and Callidus, and a “Party” means either of them.

10.The “Releases” refer to the releases described in Sections 5.1 and 5.2.

11.“Versata Covenanting Parties” means Versata and its Affiliates.

12.“Versata Licensed Products” as used herein, means the Versata Business Rules Management System (BRMS) and/or any software developed by or for any Versata customer or licensee using BRMS, as well as the products identified in Appendix B.

13.“Versata Resell Products” as used herein, means the Versata products listed on Appendix C.

14.“Versata Patents,” as used herein, means all worldwide patents and patent applications currently or hereafter owned by Versata, assigned to Versata, acquired by Versata or its Affiliates, or otherwise assertable by Versata on or after the Effective Date of this Agreement.

15.“Versata patents in suit,” as used herein, means U.S. Patent No. 7,904,326, U.S. Patent No. 7,958,024, and U.S. Patent No. 7,908,304 and all related patents and pending applications.

1. RESELLER PROVISIONS

1.Appointment. Callidus is hereby appointed as an authorized reseller of the Versata Resell Products.

2.Term. Callidus will remain an authorized reseller of the Versata Resell Products for a period of 5 years from the Effective Date. Callidus’s status as an authorized reseller will automatically renew every 5 years unless either Party notifies the other Party in writing as described in Section 9 below, that it wishes to terminate the authorized reseller relationship.

3.Royalty Rate. Versata Software, Inc. shall be paid a twenty percent (20%) royalty by Callidus for each license of the Versata Resell Products sold to an end user. The parties agree that Callidus has not committed to a minimum sales quota nor does it have a minimum royalty obligation (except as set forth in Section 7.2).

4.End User Contract. The end user agreements to license the Versata Resell Products shall be mutually agreed upon by the Parties. The end user agreement will specify which Party will contract directly with the end user, which Party will provide support and maintenance, and will include other standard and customary terms. To the extent that the Versata Resell Products is licensed to an end user under a structure whereby Versata is the contracting party with the end user, a form substantially the same as that attached as Appendix D shall be used.

5.Kick off Meeting. Within thirty (30) days of this Agreement, the Parties shall hold an initial meeting (in person or by teleconference) between appropriate executives of each Party to discuss initial planning for going to market.

2. COVENANT-NOT-TO-SUE

1.Versata’s Covenant not to Sue Callidus. Versata, for itself and all Versata Covenanting Parties, hereby covenants not to institute, prosecute or otherwise pursue any suit or action against Callidus for infringement of any of the Versata Patents. As part of this Covenant-not-to-Sue, Versata will not challenge the subject matter eligibility, validity or enforceability of any of the Callidus Patents during the period of the Covenant-not-to-Sue. Likewise, Versata shall not assist or cooperate with any entity in any way in pursuit of any position opposed to the subject matter eligibility, validity, or enforceability of any Callidus Patent in any proceeding, including any CBM, IPR or other proceeding under the America Invents Act (AIA). This Covenant-not-to-Sue shall terminate if Callidus violates Section 3.2, or fails to cure a default of Section 6.1, as provided in Section 10.1 of this Agreement.

2.Callidus’s Covenant not to Sue Versata. Callidus, for itself and all Callidus Covenanting Parties, hereby covenants not to institute, prosecute or otherwise pursue any suit or action against Versata for infringement of any of the Callidus Patents. As part of this Covenant-not-to-Sue, Callidus will not challenge the subject matter eligibility, validity or enforceability of any of the Versata Patents during the period of the Covenant-not-to-Sue. Likewise, Callidus shall not assist or cooperate with any entity in any way in pursuit of any position opposed to the subject matter eligibility, validity, or enforceability of any Versata Patent in any proceeding, including any CBM, IPR or other proceeding under the America Invents Act (AIA). This Covenant-not-to-Sue shall terminate if Versata violates Section 3.1 of this Agreement.

3. LICENSE GRANTS

1.Versata’s Grant of Nonexclusive License to Callidus. Versata grants to Callidus the right to resell and distribute the Versata Resell Products, subject to the terms of Section 2. Subject to the terms and conditions contained in this Agreement, Versata hereby grants to Callidus a fully paid-up, royalty-free, irrevocable, nonexclusive, nontransferable (except as set forth in Section 7.1 below), worldwide license for the Versata patents in suit to: (i) make, use, sell, develop, publish, distribute, lease, license, export, import, have made, offer to sell or otherwise transfer the Callidus Licensed Product (including both tangible or intangible offerings such as services, whether temporary or permanent); and (ii) practice any method covered by any claim of the Versata patents in suit for the life of the Versata patents in suit (the "Versata License").

2.Callidus’s Grant of Nonexclusive License to Versata. Subject to the terms and conditions contained in this Agreement, Callidus hereby grants to Versata a fully paid-up, royalty-free, irrevocable, nonexclusive, nontransferable (except as set forth in Section 7.1 below), worldwide license for the Callidus Issued Patents to: (i) make, use, sell, develop, publish, distribute, lease, license, export, import, have made, offer to sell or otherwise transfer the Versata Licensed Products (including both tangible or intangible offerings such as services, whether temporary or permanent); and (ii) practice any method covered by any claim of the Callidus Issued Patents for the life of the Callidus Issued Patents (the "Callidus License").

4. MUTUAL RELEASES AND DISMISSAL

1.Release by Versata. As of the Effective Date and continuing for so long as Callidus remains in compliance with Section 6.1 below, Versata, on behalf of itself and its Affiliates, principals, employees, agents, successors and assigns as of the Effective Date, shall and does hereby release and forever discharge Callidus and any parent, subsidiary, or other Affiliated or related corporations or entities, and each of their respective current and former officers, directors, agents, employees, representatives, and attorneys from any and all claims, actions, causes of action, suits, damages, duties, rights, obligations, liabilities, adjustments, responsibilities, judgments and demands, known or unknown, at law or in equity, of whatever character in any way

that Versata may have against Callidus, for any reason or event occurring prior to the Effective Date, including, but not limited to, any of the foregoing relating to, based upon, or arising out of, the Civil Action or the CBM Proceedings.

2.Release by Callidus. Callidus, on behalf of itself and its Affiliates, principals, employees, agents, successors and assigns as of the Effective Date, shall and does hereby release and forever discharge Versata and any parent, subsidiary, or other Affiliated or related corporations or entities, and each of their respective current and former officers, directors, agents, employees, representatives, and attorneys from any and all claims, actions, causes of action, suits, damages, duties, rights, obligations, liabilities, adjustments, responsibilities, judgments and demands, known or unknown, at law or in equity, of whatever character in any way that Callidus may have against Versata, for any reason or event occurring prior to the Effective Date, including, but not limited to, any of the forgoing relating to, based upon, or arising out of, the Civil Action or the CBM Proceedings.

3.Dismissal of the Civil Action. Within five (5) business days of the Effective Date of this Agreement, the Parties shall file a Stipulation of Dismissal pursuant to F.R.C.P. 41(a), dismissing with prejudice all claims and counterclaims made therein and specifying that all costs incurred therein (including attorneys’ and expert fees and expenses) shall be borne solely by the Party incurring such costs. Each of the Parties shall bear its own costs with regard to the Civil Action, such filings, and this Agreement. If Callidus fails to comply with Section 6.1 below, Callidus will not oppose a motion by Versata pursuant to Fed. R. Civ. R. 60(b)(3), 60(b)(5), and/or 60(b)(6) to seek relief from said dismissal.

4.Termination of the CBM Proceedings. Within five (5) business days of the Effective Date of this Agreement, the Parties shall jointly request authorization for, and shall thereafter file, Joint Motions to Terminate each of the CBM Proceedings together with a true and correct copy of this Agreement and requests to keep the Agreement as business confidential information and separate from the files of the involved patents. After the Effective Date, Callidus shall not engage in any action (except in furtherance and support of termination or postponement of oral hearing), make any argument, or assert any position opposed to the subject matter eligibility, validity or enforceability of any Versata Patent in the CBM Proceedings. Each Party shall bear its own costs in connection with the CBM Proceedings, including any attorneys’ and expert fees and expenses.

5.Agreement Obligations not Released. The Releases above do not release any obligations under this Agreement or prevent any Party or its Affiliates from enforcing the terms and conditions of this Agreement against any other Party or its Affiliates.

5. SETTLEMENT CONSIDERATION

1.Cash Settlement Amount. Versata and Callidus agree that in exchange for the License and other rights granted herein, Callidus shall make a non-refundable payment of Four Million Five Hundred Thousand U.S. Dollars ($4,500,000) in payments of Five Hundred Thousand U.S. Dollars ($500,000.00) per quarter for nine quarters (the “Cash Settlement Amount”). The payment schedule is as follows:

$500,000     January 31, 2015

$500,000     April 30, 2015

$500,000     July 31, 2015

$500,000     October 31, 2015

$500,000     January 31, 2016

$500,000     April 30, 2016

$500,000     July 31, 2016

$500,000     October 31, 2016

$500,000     January 31, 2017

(a)Tax Liability and Full Payment to Versata. Each Party shall bear its own tax liability with respect to this Agreement and the associated rights and obligations hereto. The Parties agree to cooperate and to complete and provide tax forms and other documents or information reasonably required by applicable tax authorities, in a timely manner upon being supplied such documents or requested for such information by the other Party.

2.Payment Instructions. The payments to be made hereunder shall be made by wire transfer to Versata as follows:

Account No	1881258220
Name of the account	VERSATA SOFTWARE INC
Routing #	111000753
SWIFT	MNBDUS33
Lockbox mailing address	PO BOX 671635
	DALLAS, TX 75267-1635
Bank Address	300, West 6th Street, Suite 1300, Austin, TX, 78701

6. LIMITATION ON RELEASES AND LICENSES

1.Transferability Matters. Versata, on the one hand, and Callidus, on the other hand, may not assign any rights or delegate any duties under this Agreement to any third party without the prior written consent of the other, and any attempted assignment without such consent shall be null and void.

2.Effect of Merger or Acquisition. In the event that either Party is acquired by or merges with another entity, the Covenant-not-to-Sue and Licenses in this Agreement shall only cover the products of the Party that were in existence prior to the acquisition or merger, or any subsequent versions of those products that are natural extensions of the original product and shall not include any components from any such entity that was involved with such merger or acquisition. The Covenant-not-to-Sue and Licenses shall not apply to any products, services, or functionality obtained as a result of such acquisition or merger.

Should Callidus be the surviving company or exercise management or voting control over an acquisition of a company with annual revenues of up to $50 million, the products and services of such acquired entity shall become subject to this Agreement and will have any of the rights and licenses (and be subject to any of the covenants) set forth in this Agreement.

Should Callidus be the surviving company or exercise management or voting control over an acquisition of a company with annual revenues of $50 million or more, the products and services of such acquired entity (the “Significant Acquired Assets”) shall not be subject to this Agreement nor will it have any of the rights or licenses (or be subject to any of the covenants) set forth in this Agreement. Notwithstanding the foregoing, Callidus shall have the right to elect to include the Significant Acquired Assets under this Agreement (the “Opt In Election”). The Opt In Election shall be exercised by Callidus providing written notice to Versata promptly upon any such acquisition of Significant Acquired Assets.

The Parties agree that the Opt In Election would represent a significant expansion in the reseller relationship. Therefore, immediately upon such Opt In Election, Callidus shall make a one-time, royalty payment in the amount described below:

Acquired Entity Annual Revenue Royalty:

$50-70 million $3 million

$70-100 million $5 million

Upon such Opt In Election and payment of the Royalty, the Significant Acquired Assets shall become subject to this Agreement and will have any of the rights and licenses (and be subject to any of the covenants) set forth in this Agreement.

3.Change of Control. In the event of any change of control for Callidus, any payment amounts scheduled to be paid for the future shall become due immediately upon that change of control.

4.No Grants to Third Parties. Except as stated herein, the Releases are not intended as, and are not the grant of, a license or any other rights under either the Versata Patents or the Callidus Patents to any third party, not expressly licensed or released.

5.No Sublicense. Neither Party shall have the right to sublicense any right granted hereunder.

6.Reservation of Rights. Each Party reserves all rights and licenses not expressly granted to pursuant to this Agreement.

7. TERM AND TERMINATION

1.Term. This Agreement shall become effective as of the Effective Date and shall continue unless and until terminated under section 8.2 below. All other rights and obligations under this Agreement shall survive any such expiration.

2.Termination. This Agreement shall terminate upon Default as set forth in Sections 10.2 and 10.3 below. The Covenant-not-to-Sue and Licenses granted shall be revoked as though the Covenant-not-to-Sue and Licenses were never granted.

8. NOTICES

All notices required or permitted under this Agreement shall refer to this Agreement and will be deemed given: (a) when delivered personally; (b) when sent by confirmed facsimile; or (c) three (3) business days after deposit with an internationally recognized commercial overnight carrier specifying next-day delivery, with written verification of receipt. All such notices, requests, demands, and other communications shall be sent to the following:

For CALLIDUS SOFTWARE, INC.:

Attn: Michelle Novotny, V.P., Associate General Counsel

Before February 15, 2015:

6200 Stoneridge Mall Road, Suite 500

Pleasanton, California 94588

Fax: (925) 251-0525

After February 15, 2015:

4140 Dublin Boulevard, Suite 300

Dublin, California 94568

Fax: (925) 251-0525

For VERSATA:

Attn: CFO, Versata Software, Inc.

401 Congress Ave.

Suite 2650

Austin, Texas 78730

Cc: Lance Jones

Jones & Spross, LLC

5121 Crystal Water

Austin, Texas 78735

9. DEFAULT AND CURE

1.In the event that Callidus fails to comply with any of its monetary payment obligations pursuant to Section 6.1, Callidus shall have fifteen (15) days upon receipt of written notice from Versata (pursuant to Section 9) to cure its alleged failure to comply with its payment obligations. If Callidus fails to cure the failure to comply in the fifteen (15) day period, Callidus shall pay the remaining balance of the Cash Settlement Amount of Section 6.1 within thirty (30) days.

2.In the event that Callidus fails to comply with Section 6.1 and further fails to make payment pursuant to Section 10.1 above, Versata may elect, by written notice to Callidus pursuant to Section 9, to immediately terminate the Covenant-not-to-Sue and Licenses as set forth in Section 8.2 with respect to Callidus. In such event, Versata may then seek to enforce this Agreement and recover any remaining balance of the Cash Settlement Amount owed by Callidus, in addition to interest, attorneys’ fees, and costs. The Parties agree that such enforcement shall be resolved by binding arbitration in the state of Delaware. The arbitration shall be conducted on a confidential basis pursuant to the Commercial Arbitration Rules of the American Arbitration Association. The arbitration shall be conducted by a panel of three persons experienced in intellectual property and licensing. Within fifteen (15) days after initiation of arbitration, each Party shall select one person to act as arbitrator; and the two Party-selected arbitrators shall select a third arbitrator within fifteen (15) days of their appointment. If the arbitrators selected by the Parties are unable or fail to agree upon the third arbitrator, the third arbitrator shall be appointed by the AAA. An award as a result of any such arbitration proceeding may be entered in any court of competent jurisdiction.

3.In the event that Versata or Callidus violates Section 3.1 or 3.2 of this Agreement, respectively, the other Party may terminate this Agreement.

10. GENERAL PROVISIONS

1.Non-warranty. Nothing in this Agreement shall be construed as a warranty or representation that making, using or selling of products or services by or for the either Party will be free from infringement of any patents other than the Versata Patents and Callidus Patents as described above.

2.Successors, Subsidiaries, and Assigns. Except as otherwise provided herein, this Agreement shall be binding upon and shall inure to the benefit of Versata and Callidus, and their respective agents, representatives, subsidiaries, successors, trustees, heirs and assigns. Each Party shall advise every such successor, trustee, heir or assign, of the rights of the other Party pursuant to this Agreement, and shall further advise that such successor, trustee, heir or assign to the Versata Patents or Callidus Patents (or any of them individually) or this Agreement, takes such patents subject to the rights granted hereunder.

3.Entire Agreement. Each of the Parties acknowledges that no person has made any promise, representation or warranty whatsoever, express or implied, not contained herein concerning the subject matter hereof, to induce the execution of this instrument, and each signatory hereby acknowledges that such signatory has not executed this instrument in reliance upon any such promise, representation or warranty. This Agreement constitutes the entire agreement between the parties and supersedes all prior negotiations, representations or agreements between the parties, either written or oral, on the subject matter hereof. This Agreement may be amended only by written instrument designated as an amendment to this Agreement and executed by the Parties hereto or their respective successors, heirs or assigns.

4.Names and Trademarks. Except as provided for under Section 2, nothing contained in this Agreement shall be construed as conferring any rights to use in advertising, publicity, or other marketing activities, any name, trademark, or other designation of either Party hereto, including any contraction, abbreviation, or simulation of any of the foregoing, and each Party hereto agrees not to use the existence of this Agreement in any marketing activity, whether public or private.

5.Third Party Actions. Nothing contained in this Agreement shall be construed as (a) creating an obligation to bring or prosecute actions or suits against third parties for infringement, or to secure and/or maintain any of its intellectual property rights or (b) limiting the rights that a party has outside the scope of this Agreement.

6.Effective Date. This Agreement will become effective upon the exchange, via electronic mail, of PDF copies of the required signatures and such PDF copies shall be binding and effective as if they were original signatures. The parties will thereafter exchange formal signed originals of this Agreement for their permanent records.

7.Applicable Law. This Agreement shall be governed by and construed in accordance with the federal patent laws of the United States and the laws of the State of Delaware without regard to principles of conflicts of law.

8.Use of Patented Technology

(a)Versata and Callidus shall have no liability for any claim, loss, cost, damage (consequential or otherwise), or expense of any kind or nature caused in whole or in part, directly or indirectly, by the technology or rights covered by this Agreement or the above covenants-not-to-sue.

9.Confidentiality

(a)Versata and Callidus shall keep all terms and conditions of this Agreement strictly confidential and Versata and Callidus shall not now or hereafter disclose such terms and conditions to any third party, except: (i) with the prior written consent of the other Party, (ii) as may be required by applicable law, regulation or order of a governmental authority of competent jurisdiction, including without limitation the reporting and disclosure requirements of The NASDAQ Stock Market or the Securities and Exchange Commission, (iii) during the course of litigation so long as the disclosure of such terms and conditions is subject to the same restrictions as is the confidential information of the other litigating parties, such restrictions are embodied in a court-entered protective order limiting disclosure to outside counsel only for use in the subject litigation and, to the extent reasonably practical, such disclosing Party provides the other Party written notice at least ten (10) business days prior to such disclosure, or (iv) in confidence to the professional legal and financial counsel representing such Party but only with respect to such Party’s legal or financial obligations relating to this Agreement, and not for use in any other litigation or licensing efforts or negotiations. With respect to the foregoing (ii), such disclosing Party shall, to the extent legally permissible and reasonable, provide the other Party with prior written notice of such applicable law, regulation or order and, at the request of the other Party, use reasonable efforts to limit the disclosure of the terms and conditions of this Agreement, including but not limited to seeking a protective order or other confidential treatment.

IN WITNESS WHEREOF, the Parties have caused their duly authorized officers to execute this Agreement as of the Effective Date.

Versata Software, Inc. By:__/s/ Andrew S. Price________ Name:  Andrew S. Price          Title:  Chief Financial Officer       Dated this 13th of November, 2014

Versata Development Group, Inc. By:__/s/ Andrew S. Price _________ Name:  Andrew S. Price          Title:  Chief Financial Officer	Dated this 13th of November, 2014
Versata, Inc. By:__/s/ Andrew S. Price_________ Name:  Andrew S. Price          Title:  Chief Financial Officer	Dated this 13th of November, 2014
Callidus Software, Inc. By:__/s/ Bob Corey______________ Name:  Bob Corey          Title:  Chief Financial Officer	Dated this November 13, 2014

Appendix A

[*]

Appendix B

PRODUCT

Retail Energy CIM - Retail Energy CIS

Retail Energy CIM - eBill/eLetter

Retail Energy CIM - Email Notification

Retail Energy CIM - Print & Mail/ "Fulfillment"

Retail Energy CIM -- B2B Portal

Sales Commission Mgmt -- Sales Commission Application / Module

Smart Meter Data Services -- Energy Management Service / EMS

Smart Meter Data Services -- Virtual Time Of Usev / VTOU

Retail Energy EDI Management -- EDI Data Exchange

GCE Retail Box

GCE Wholesales Box

GCE Midmarket Box

GCE Basic Data

GCE Business Process Modeler

GCE Echange

GCE Development Environment

GCE Webservices Bundle

GCE Workflow

GCE XDME Case Tool

GCE Transconfig

GCE Additionnal Connex environment

GCE Digital Document Manager

GCE Connecteur Vekia

GCE Full Central User

GCE Lite user

GCE e-Finance Users

GCE Mobile Users (Bip 'n Go)

GCE Supplier & Provider Extranet User

GCE Extranet Customer User

GCE Internet Access

GCE Import

GCE Cereal

GCE Supply Chain Execution (SCE)

GCE-SCE-Voice Stock Counting

GCE-SCE-Voice Picking

GCE-SCE-Voice Spliting

GCE - Retail pack

GCE - Neeet Pack - Solucia

GCE - SCE Pack

GCE - Business Object universe - Sales

GCE - Business Object universe - Purchase

GCE - Business Object universe - Logistic

GCE - Business Object universe - Finance

GCE - Business Object universe - Retail

Spiral -- J2B

Spiral -- Progest

Spiral -- SpiMobile

Spiral -- MagOffice

Spiral -- NetPOS

Update/CRM web (including CRM.connector [Exchange])

Update/CRM light (including CRM.connector [Exchange])

Update/CRM offline

CRM.mobile

CRM.pad

CRM.phone

CRM.connector (Exchange)

CRM.connectLive

CRM.connectLive (in combination with connector)

CRM.mobile (add-on)

CRM.pad (add-on)

CRM.connectLive (add-on-web)

CRM.connectLive (add-on web + connector)

Extra language

Extra language Chinese-simplified / Japanese / Thai / Korean / Turkish

CRM.interface + CRM.webservices - 1^st instance

CRM.interface + CRM.webservices - from 2^nd  instance

CRM.cockpit additional instances

Savvion

Data Extend Semantec Integrator

SonicMQ

SonicESB

Actional

Trilogy Build System Client

Trilogy Build System Controller

Trilogy Build System Dispatcher

Trilogy Build System Server Core

Trilogy Build System Notification Server

Trilogy Build System Registration Controller

Trilogy Build System Reporting Server

DMS Distributor Administration

DMS Hierarchies

DMS Credential Management

DMS Contract Kits and Agreements

DMS Accumulation-Based Compensation Engine

DMS Primary Compensation Engine

DMS Primary Compensation Manager

Trilogy Data Loader

SC Web

Trilogy MCC Commission Engine

Trilogy MCC Commission Java Parallel API

MCC Catalog

MCC Commission Quota Manager

MCC Commission Workbench

MCC Order Server

Trilogy MCC Commission Manager

Trilogy MCC Commission Services

Trilogy MCC Config

Trilogy MCC Config Views

SC Commission Java

SC Backbone

Trilogy Replicator Engine - Java

DMS Payment and Debt Management

DMS Debt Management

DMS Transaction Manager

Trilogy Computer Product Workbench

Checker for Windows and Windows NT

Patch Offering for Trilogy MCC 2.2.67

Engine Server

FFC COM

FFC COM Developer

FFC HTML

FFC HTML Developer

FFC Java

FFC Java Developer

JC Bridge

Open Replicator

Pricer Objects

SC Catalog

SC Catalog Manager

SC Commission

SC Commission Designer

SC Commission Manager

SC Commission Operator

SC Commission Replication

SC Commission Sales Rep Dashboard

SC Commission Views

SC Commission Interactions

SC Commission Ledger Management

SC Commission Management

SC Commission Reporting

SC Commission Workbench

SC Commission Ledger

SC Commission Engine COM

SC Commission Engine Java

SC Commission Sales Force Dashboard

SC Commission User Maintenance Tool

SC Commission Wizards

SC Config

SC Config Manager

SC Config Power Pack

SC Config Power Pack Manager

SC Config Power Pack Performance Edition

SC Contract

SC Contract Manager

SC Diagram Manager

SC Explorer

SC Form Server

SC Order Oracle

SC Portfolio

SC Portfolio Manager

SC Pricebook

SC Pricer

SC Pricer Manager

SC Pricer Methods

SC Promotion

SC Promotion Manager

SC Proposal

SC Proposal Manager

Trilogy MCC Platform

Trilogy MCC Content Management

Trilogy MCC Pricer

Trilogy SalesBUILDER Wizard HTML

Trilogy SalesBUILDER Wizard Studio

Trilogy MCC Quote

Trilogy MCC Sample Site

Trilogy MCC Workflow2 Service

Trilogy MCC eFeedback

Trilogy MCC Workflow Designer

MCC Commission Territory Manager

MCC Commission Sales Force Dashboard

Trilogy MCC Commission Compensation Analysis

Trilogy MCC Content Distributor Management System

Trilogy MCC FS Business Object Model

Trilogy MCC Rating

Trilogy MCC Rating Client

Trilogy MCC Rating Integration

Trilogy MCC Rating Manager

Trilogy MCC User Manager

Trilogy Ford.com

Trilogy MCC Actuate Connector

Trilogy MCC Airlines Matcher

Trilogy MCC CRM Contact Center

Trilogy MCC Census Management

Trilogy MCC Cerium

Trilogy MCC DMS 13

Trilogy MCC Dashboard Toolkit

Trilogy MCC Depreciated Pricer

Trilogy MCC Distributor Management System

Trilogy MCC eTree

Trilogy MCC Needs Analysis

Trilogy MCC Personalization

Trilogy MCC Telecom Financial Analysis

Trilogy MCC Telecom Tendering

Trilogy MCC Test Core

Trilogy MCC WebViews Framework

Trilogy MCC Workplace

Trilogy Primary Compensation Engine

eStation Standards Management

eStation Attribute-Based Search Catalog

SC Quote

SC Quote Manager

SC Report

SC Report Manager

SC SAP Connector

SC SAP Connector Java

SalesBUILDER Engine Manager for Windows 95NT

SalesBUILDER Engine for Windows 95NT

SalesBUILDER Engine

SalesBUILDER Wizard

SalesBUILDER Wizard Java

SalesBUILDER API Pak

Trilogy Backbone Java

Trilogy Report

Trilogy Solution Sales - Storage Advisor

Trilogy Solution Sales - Storage Advisor Test Framework

Trilogy Solution Sales - Storage Advisor Integration Module

SalesBUILDER Rapid Access Visual Editor

Trilogy Backbone SDK

Trilogy Backbone COM

Trilogy Backbone Manager Java

Trilogy Workspace

SC Pricing Analysis

SC Promotion Funds Management

SC Rating Manager

SC Commission Java Parallel API

MCC Rating Patch

Trilogy MCC Needs Analysis Patch

Trilogy MCC Config Patch

Trilogy MCC Workflow2 Service Patch

CPW Test product

CPW Server

CPW SBBridge

CPW SBBridge Test

TSS Test Product

Trilogy Knowledge Base Quality Manager

Storage Advisor common utilities

ISMP Patch Offering

Trilogy Variable Marketing Management: Authoring

Trilogy Variable Marketing Management: Communication

SC Pricer Bridge

SC Pricer Engine

MCC Catalog Manager

Trilogy IMaint

Trilogy Development Kit for Silk

Trilogy Development Kit for WebLOAD

Trilogy Scripts for MKS

DMS Backward Compatibility

DMS Loader

Sun Webdesk

Trilogy Scripts for MKS

Trilogy Knowledge Base Requirements Manager

World Wide Dealing System

Trilogy Knowledge Base Development Studio

PDEF Offering - Consulting

PDEF Offering

Trilogy KB Model Automation with Sun model templates

Trilogy KB Model Automation with SGI model templates

Trilogy KB Model Automation with Sun model templates

Trilogy KB Model Automation with SGI model templates

Trilogy Distribution Channel Management

Trilogy Incentive Designer

Trilogy Incentive Manager

Trilogy Build System Web Interface

Trilogy iCore Web Interface

Trilogy iCore Webservice

Trilogy Agency RADAR

Trilogy Agency RADAR (Server)

Silk Sample

ICS Beans

Trilogy Knowledge Base Requirements Manager Testing Framework

Trilogy Sales Optimizer

Trilogy Profit Analyzer

myfolder Offering

ACM Export Consulting Source Code

PDEF Export Consulting Source Code

SOE Export Consulting Source Code

Customer Management Module

Order Management Module

Contact Center Platform Module

MCC Swing Catalog Manager

Contact Center Pricer Manager

Trilogy Guided Selling

SalesBUILDER Reflex

SalesBUILDER for Flash

Material Cost Analysis

ADI Recommended Order User Interface

Material Cost Analytics

Trilogy Web Commission Manager

Trilogy Web Services

FormBuilder

AdPrefsToolbar

AdPrefsServer

FirefoxInstaller

DingServer

DingClient

DingIncentiveEntrySite

Versata Correspondence

Versata Product Information Manager

Versata Product Information Manager Lite

ADI Recommended Order Optimization Server

ADI Recommended Order MDF Engine

Trilogy Reporting Tests

SC Object Studio

SC Backbone (COM)

Trilogy Business Intelligence & Reporting

DCM iDashBoards Integration

Trilogy Replicator - COM

Trilogy JC Bridge

Trilogy Report Manager

Trilogy Object Manager

BRMS Standard Edition

BRMS Enterprise Edition

BRMS 2012

BRMS 2015

Corizon 2014 Standard

Corizon 2014 Enterprise

Ravenflow RAVEN

TenFold 2014 Standard

TenFold 2014 Enterprise

Clear Tech Tranzax 2012 Standard

Clear Tech Tranzax 2012 Enterprise

Appendix C

RESELL PRODUCTS

Pricer Objects

SC Pricer

SC Pricer Manager

SC Pricer Methods

Trilogy MCC Pricer

Trilogy MCC Depreciated Pricer

SC Pricer Bridge

SC Pricer Engine

Contact Center Pricer Manager

Trilogy SalesBUILDER Wizard HTML

Trilogy SalesBUILDER Wizard Studio

SalesBUILDER Engine Manager for Windows 95NT

SalesBUILDER Engine for Windows 95NT

SalesBUILDER Engine

SalesBUILDER Wizard

SalesBUILDER Wizard Java

SalesBUILDER API Pak

SalesBUILDER Rapid Access Visual Editor

SalesBUILDER Reflex

SalesBUILDER for Flash

Corizon 2014 Standard

Corizon 2014 Enterprise

Ravenflow RAVEN

TenFold 2014 Standard

TenFold 2014 Enterprise

Clear Tech Tranzax 2012 Standard

Clear Tech Tranzax 2012 Enterprise

BRMS Standard Edition

BRMS Enterprise Edition

BRMS 2012

BRMS 2015

Appendix D

MASTER SUBSCRIPTION AGREEMENT

This Master Subscription Agreement that has been referenced in the Quote, along with the Quote, comprise a binding “Subscription Agreement” between the Customer (as identified on the Quote) and Versata Software, Inc. (“Licensor”/ “Service Provider”, as that term is used in the Quote) and shall govern any license granted by Licensor to the Customer under the Quote. The Subscription Agreement sets forth the terms and conditions under which Customer may (i) use Licensor’s proprietary software (the “Application(s)”) that is specifically licensed to Customer pursuant to a schedule (the “Quote(s)”); and (ii) use the user documentation that Licensor makes generally available in hard copy or electronic form to its general customer base in conjunction with the licensing of such Applications (the “Documentation”); and (iii) receive Maintenance and Support for the Software pursuant to the Maintenance and Support Services Terms and Conditions at the service level set forth under the applicable Quote (collectively, the “Maintenance and Support Services”). The term “Software” shall mean the Applications listed in any Quote and the Documentation delivered to Customer pursuant to the provisions of this Subscription Agreement.

Customer acknowledges and agrees that it is not relying on any agreement, representation, statement or warranty (whether or not in writing) made or given prior to the Quote Effective Date, except as expressly provided herein with respect to the Software provided hereunder or any Maintenance and Support Services under the applicable Quote.

By signing/agreeing to a Quote, each party acknowledges that it has read, understands, and agrees to the terms of this Subscription Agreement.

GENERAL TERMS AND CONDITIONS

1. SUBSCRIPTION GRANT AND RIGHT OF USE

1.1. Subscription Grant. Any Software licensed hereunder shall be licensed pursuant to a separate Quote. Unless otherwise specifically stated in the Quote, each such license shall be a fixed term, worldwide, nonexclusive, royalty free (upon full payment of subscription fees), and nontransferable license to Use only the object code version of the Software, solely to perform those functions defined in the Documentation, and subject to all limitations and restrictions contained herein (“Use”). Web access for permitted third parties’ Use shall be defined in the applicable Quote if such access is to be permitted under this Subscription Agreement. The Software may only be Used on the hardware and software components, including client machines, servers, and internetworking devices within Customer’s internal computer network at Customer’s location. The Subscription license shall expire upon expiration of the Term described on the Quote unless and until renewed as per the terms and conditions of renewal set forth in the Quote.

1.2. Subscription Type. Unless otherwise specifically stated in the Quote, the type of license granted shall be a Named User Subscription. A “Named User Subscription” shall mean that the Software licensed pursuant to the Quote may be Used by a limited number of individual users, each identified by a unique user id (the “Named User”), the maximum number of which is specified in the Quote. Customer may designate different Named Users at any time without notice to Licensor so long as the permitted number of Named Users is not exceeded. If the Quote identifies the scope of the license to be a “Site Subscription,” a “Site Subscription” shall mean that the Software licensed pursuant to the Quote may be Used by an unlimited number of individual users solely for the internal Use and benefit of Customer, subject to the terms of this Subscription Agreement. A “Device Subscription” shall mean that the Software licensed pursuant to the Quote may be Used on the number of devices indicated in the Quote. A “Server Subscription” shall mean that the Software licensed pursuant to the Quote may be Used on no more than the number of servers indicated in the Quote. The scope of any license other than a Named User Subscription, Site Subscription, Device Subscription, or Server Subscription must be expressly designated and defined in detail in a Quote. In no event shall any of the licenses denoted above be construed to mean a concurrent user license.

1.3. Use. Individuals authorized under the applicable Quote to Use the Software (“Authorized Users”) may Use the Software solely to support Customer’s own internal operations, in the operating software environment specified on the applicable Quote (the “Platform”) and only for the Software licensed herein. Individuals who access the Software, directly or indirectly, whether via a Licensor provided interface or otherwise, and/or cause the Software to perform any functions must be Authorized Users. Authorized Users shall not (i) access the Software to process, or permit to be processed, the data of any other party; or (ii) access the Software for service bureau or commercial time-sharing use. If the Software licensed under a Quote is to be installed on a computer connected to the World Wide Web, as authorized in the applicable Quote, Customer shall not allow any web site, that is not fully owned by Customer, to frame, syndicate, distribute, replicate, or copy any portion of Customer’s web site that provides direct or indirect access to the Software. Unless otherwise expressly permitted in the Quote and subject to Section 1.4 below, Customer shall not permit any subsidiaries, affiliated entities, or third parties to access the Software.

1.4. Authorized Users. Unless otherwise specifically provided in the Quote, Authorized Users shall only consist of (i) employees of Customer and (ii) subject to Section 5, “Confidentiality”, third party contractors of Customer who do not

compete with Licensor (“Permitted Contractors”). Permitted Contractors may Use the Software only at Customer’s place of business or in the presence of Customer personnel.

1.5. Additional Restrictions. In no event shall Customer disassemble, decompile, or reverse engineer the Software or Confidential Information (as defined in Section 5) or permit others to do so. Disassembling, decompiling, and reverse engineering include, without limitation: (i) converting the Software from a machine-readable form into a human-readable form; (ii) disassembling or decompiling the Software by using any means or methods to translate machine-dependent or machine-independent object code into the original human-readable source code or any approximation thereof; (iii) examining the machine-readable object code that controls the Software’s operation and creating the original source code or any approximation thereof by, for example, studying the Software’s behavior in response to a variety of inputs; or (iv) performing any other activity related to the Software that could be construed to be reverse engineering, disassembling, or decompiling. To the extent any such activity may be permitted pursuant to written agreement, the results thereof shall be deemed Confidential Information subject to the requirements of this Subscription Agreement. Customer may use Licensor’s Confidential Information solely in connection with the Software and pursuant to the terms of this Subscription Agreement.

1.6. Foreign Nationals and Subcontracting. Subject to the provisions of Section 5, Licensor shall have the right to use third parties, including but not limited to, employees or third party contractors of Licensor’s affiliates and subsidiaries (the “Subcontractors”), who may be foreign nationals, in performance of its obligations and services hereunder and, for purposes of this Section 1.6, all references to Licensor or its employees shall be deemed to include such Subcontractors. Customer acknowledges that Licensor employs foreign nationals, and that these foreign national employees will work, on Licensor’s behalf, to perform its obligations hereunder.

1.7. Technical Data. Customer shall not provide to Licensor any Technical Data as that term is defined in the International Traffic in Arms Regulations (“ITAR”) at 22 CFR 120.10. Customer shall certify that all information provided to Licensor has been reviewed and scrubbed so that all Technical Data and other sensitive information relevant to Customer’s ITAR regulated projects has been removed and the information provided is only relevant to bug reports on Licensor products.

2. PAYMENT

2.1. Subscription Fees. Unless otherwise provided in the Quote, Licensor may invoice Customer for all license fees and all other charges due thereunder immediately following the Quote Effective Date.

2.2. Payment Due Date. All invoices shall be payable by Customer in United States dollars and payment shall be due thirty (30) days after the invoice date. Notwithstanding any provision to the contrary, any and all payments required to be made hereunder shall be timely made, and no payments to Licensor shall be withheld, delayed, reduced or refunded if Licensor has fully performed its material obligations and its inability to meet any schedule or delivery requirements is caused by Customer’s failure to provide certain of its facilities, computer resources, software programs, project management activities, personnel, and business information as are required to perform any of Licensor’s obligations hereunder.

2.3. Late Payment. Any late payment shall be subject to any costs of collection (including reasonable legal fees) and shall bear interest at the rate of one and one-half percent (1.5%) per month (prorated for partial periods) or at the maximum rate permitted by law, whichever is less.

2.4. Purchase Orders. Customer may provide Licensor with a valid purchase order, upon execution of a License Schedule. Notwithstanding anything to the contrary herein, purchase orders are to be used solely for Customer’s accounting purposes and any terms and conditions contained therein shall be deemed null and void with respect to the parties’ relationship and this Agreement. Any such purchase order provided to Licensor shall in no way relieve Customer of any obligation entered into pursuant to this Agreement including, but not limited to, its obligation to pay Licensor in a timely fashion.

2.5. Invoice Dispute Resolution. Without limiting any rights or obligations under the Subscription Agreement, including Section 2.3 above, the following steps will be taken if an invoice becomes past due. Licensor’s accounts receivable and Customer’s accounts payable representatives shall use all reasonable efforts to facilitate immediate payment of the invoice. In the event Licensor does not receive a commitment for prompt payment, each party shall escalate the matter to Licensor’s Customer Partner, or designated financial officer and Customer’s Vice President (the “Final Escalation”) for investigation and resolution. Notwithstanding anything to the contrary, the initial contact with Customer’s Vice President pursuant to such Final Escalation shall constitute “notice of default” pursuant to Section 9.2.

2.6. Taxes. All amounts required to be paid hereunder do not include any amount for taxes or levy (including interest and penalties). Customer shall reimburse Licensor and hold Licensor harmless for all sales, use, VAT, excise, property or other taxes or levies which Licensor is required to collect or remit to applicable tax authorities. This provision does not apply to Licensor’s

income or franchise taxes, or any taxes for which Customer is exempt, provided Customer has furnished Licensor with a valid tax exemption certificate.

3. DELIVERY/VERIFICATION

3.1. Delivery. Unless otherwise specifically provided in the Quote, Licensor shall deliver to Customer one master copy of the licensed Software (each a “Master Copy”) solely for the purpose of allowing Customer to make one copy of the Master Copy for Use by each Authorized User. Customer’s right to reproduce the Master Copy shall be limited to the Authorized Reproduction Location, defined as the address for Customer on Quote. Customer shall assume all responsibility for the quality of the copies made by Customer. For purposes of this Subscription Agreement, delivery shall be deemed complete when Licensor physically delivers, or causes a third party to deliver, a Master Copy to Customer, or makes the Master Copy available to Customer for downloading from Licensor’s File Transfer Protocol (“FTP”) site and has provided Customer with the appropriate authorization to access the FTP site. Licensor will provide Customer with a license key that is required to activate and use the Software. The license key will be provided via email or other like method at Licensor’s discretion. The license key is used to ensure that the Software operates in accordance with the license granted to the Customer in this Subscription Agreement. As such, the Software may contain time-out devices, counter devices, or other similar devices intended to prevent the Software from being used beyond the bounds of the license. Customer consents to such activity and agrees not to disable, attempt to disable or tamper with the license key system or any other such license enforcement technology.

3.2. Archival and Backup Copies. Subject to the restrictions set forth herein, Customer may make a reasonable number of copies of the Master Copy solely for archival purposes and backup use in accordance with Customer’s standard backup processes in emergency situations.

3.3. Marking. Customer shall include all copyright notices, proprietary legends, any trademark and service mark attributions, any patent markings, and other indicia of ownership and confidential markings on all copies of the Software and any other Licensor materials provided to Customer, in the content and format contained on the Master Copy and such Licensor materials. Customer shall pay all duplication and distribution costs incurred by Customer in making copies of the Software, and shall also pay all custom duties and fees if applicable. Subject only to the license granted herein, all copies of the Software and any other Licensor materials provided to Customer are the property of Licensor or its third party licensors from whom Licensor has obtained marketing rights (the “Third Party Licensors”).

3.4. Records. Customer shall keep and maintain complete and accurate records of each copy of the Software including any and all pertinent distribution information. If the license is a Named User Subscription, Customer shall, upon Licensor’s request, provide reports to Licensor specifying the cumulative total of copies, and all other reasonably pertinent distribution information. All reports shall be delivered to Licensor within thirty (30) days of such request.

3.5. Verification. Customer agrees that Licensor may, upon thirty (30) days prior written notice, enter Customer’s premises to verify Customer’s compliance with the provisions of this Subscription Agreement. Licensor’s inspections shall be limited to (i) one annual inspection (unless Licensor believes that it has just cause for multiple inspections); (ii) Customer’s normal business hours; and (iii) those records pertaining to the Software licensed hereunder or other Licensor Confidential Information. Licensor’s rights of inspection shall remain in effect through the period ending six (6) months from the termination or expiration of this Subscription Agreement and any applicable license hereunder.

4. OWNERSHIP

By signing the applicable Quote, Customer irrevocably acknowledges that, subject to the licenses granted herein, Customer has no ownership interest in the Software, or Licensor materials provided to Customer. Licensor shall own all right, title, and interest in such Software, or Licensor materials, subject to any limitations associated with intellectual property rights of third parties. Licensor reserves all rights not specifically granted herein.

5. CONFIDENTIALITY

5.1. Definition. All information which is defined as Confidential Information hereunder in tangible form shall be marked as “Confidential” or the like or, if intangible (e.g. visually or orally disclosed), shall be designated as being confidential at the time of disclosure and shall be confirmed as such in writing within thirty (30) days of the initial disclosure.

“Confidential Information” may include all technical, product, business, financial, and other information regarding the business and software programs of either party, its customers, employees, investors, contractors, vendors and suppliers, including but not limited to programming techniques and methods, research and development, computer programs, documentation, marketing plans, customer identity, and business methods. Without limiting the generality of the foregoing, Confidential Information shall include all information and materials disclosed orally or in any other form, regarding Licensor’s software products or software product development, including, but not limited to, the configuration techniques, data classification techniques, user interface, applications programming interfaces, data modeling and management techniques, data structures, and other information of or

relating to Licensor’s software products or derived from testing or other use thereof. Confidential Information includes all such Confidential Information that may have been disclosed by either party to the other party, before or after the first Quote Effective Date. Confidential Information includes information generally not publicly known, whether tangible or intangible and in whatever form or medium provided, as well as any information generated by a party that contains, reflects, or is derived from such information. For the purpose of this entire Section 5, ‘Licensor’ shall include all its Affiliates. “Affiliate” under this Subscription Agreement shall mean any entity, directly or indirectly, controlled by or under common control with or controlling a party to this Subscription Agreement.

5.2. Confidentiality of Software. The following is deemed Licensor Confidential Information with or without marking or written confirmation: (i) the Software and other related materials furnished by Licensor; (ii) the oral and visual information relating to the Software and provided in Licensor’s training classes; and (iii) Licensor’s representation methods of modeled data.

5.3. Exceptions. Without granting any right or license, the obligations of the parties hereunder shall not apply to any material or information that: (i) is or becomes a part of the public domain through no act or omission by the receiving party; (ii) is independently developed by the receiving party without use of the disclosing party’s Confidential Information; (iii) is rightfully obtained from a third party without any obligation of confidentiality to the receiving party; or (iv) is already known by the receiving party without any obligation of confidentiality prior to obtaining the Confidential Information from the disclosing party. In addition, neither party shall be liable for disclosure of Confidential Information if made in response to a valid order of a court or authorized agency of government, provided that notice is promptly given to the party whose Confidential Information is to be disclosed so that such party may seek a protective order and engage in other efforts to minimize the required disclosure. The parties shall cooperate fully in seeking such protective order and in engaging in such other efforts.

5.4. Ownership of Confidential Information. Nothing in this Subscription Agreement shall be construed to convey any title or ownership rights to the Software or other Licensor Confidential Information or to any patent, copyright, trademark, or trade secret embodied therein, or to grant any other right, title, or ownership interest in Licensor Confidential Information to Customer. Nothing in this Subscription Agreement shall be construed to convey any title or ownership rights to Customer’s Confidential Information or to any patent, copyright, trademark, or trade secret embodied therein, or to grant any other right, title, or ownership interest in the Customer Confidential Information to Licensor. Neither party shall, in whole or in part, sell, lease, license, assign, transfer, or disclose the Confidential Information to any third party and shall not copy, reproduce or distribute the Confidential Information except as expressly permitted in this Subscription Agreement. Each party shall take every reasonable precaution, but no less than those precautions used to protect its own Confidential Information, to prevent the theft, disclosure, and the unauthorized copying, reproduction or distribution of the Confidential Information.

5.5. Non-Disclosure. Each party agrees at all times to use all reasonable efforts, but in any case no less than the efforts that each party uses in the protection of its own Confidential Information of like value to protect Confidential Information belonging to the other party. Each party agrees to restrict access to the other party’s Confidential Information only to those employees, who (i) require access in the course of their assigned duties and responsibilities, and (ii) have agreed in writing to be bound by provisions no less restrictive than those set forth in this Section 5. Notwithstanding anything contained hereunder and subject to the Confidentiality obligations set forth under this Section 5, all references to Licensor or its employees under this Section 5 shall be deemed to include such employees of Affiliates and Subcontractors and Licensor will ensure that its Subcontractors abide by the applicable terms of the Subscription Agreement.

5.6. Injunctive Relief. Each party acknowledges that any unauthorized disclosure or use of the Confidential Information would cause the other party imminent irreparable injury and that such party shall be entitled to, in addition to any other remedies available at law or in equity, temporary, preliminary, and permanent injunctive relief in the event the other party does not fulfill its obligations under this Section 5.

5.7. Suggestions/Improvements to Software. Notwithstanding this Section 5, unless otherwise expressly agreed in writing, all suggestions, solutions, improvements, corrections, and other contributions provided by Customer regarding the Software or other Licensor materials provided to Customer shall be owned by Licensor, and Customer hereby agrees to assign any such rights to Licensor. Nothing in this Subscription Agreement or the applicable Quote shall preclude Licensor from using in any manner or for any purpose it deems necessary, the know-how, techniques, or procedures acquired or used by Licensor in the performance of any services hereunder.

5.8. Return of Confidential Information. Upon the written request of disclosing party, receiving party shall return or destroy (and certify such destruction in a signed writing) all Confidential Information of disclosing party, including all copies thereof and materials incorporating such Confidential Information, whether in physical or electronic form. Each party may retain a copy of the other party’s Confidential Information solely for archival purposes. To the extent that it is impracticable to return or

destroy any Confidential Information, and with respect to any copies retained for archival purposes, receiving party shall continue to maintain the Confidential Information in accordance with this Subscription Agreement. The confidentiality obligations set forth in this Subscription Agreement shall survive the termination of this Subscription Agreement and remain in full force and effect until such Confidential Information, through no act or omission of receiving party, ceases to be Confidential Information as defined hereunder.

6. WARRANTY

6.1. Software Warranty. Licensor warrants that for a period of ninety (90) days from the applicable Quote Effective Date (the “Warranty Period”), the Applications will materially conform to the functional specifications set forth in the Documentation (the “Specifications”). Should the Applications fail to materially conform to such Specifications during the Warranty Period, Customer shall promptly notify Licensor in writing on or before the last day of the Warranty Period and identify with specificity the nonconformance. To the extent that the nonconformance exists in a current, unaltered release of the Applications, Licensor shall, at its option (and cost and expense), either (i) correct the nonconformance or, (ii) replace the nonconforming Applications or, (iii) if neither of the foregoing options is commercially reasonable, terminate the license for the Software. Upon such termination of the license and Customer’s return of the Software pursuant to Section 9 below, Licensor will refund to Customer, as Customer’s sole remedy for such Application, all license fees paid by Customer for such Application.

6.2. Authorized Representative. Customer and Licensor warrant that each has the right to enter into this Subscription Agreement and that the Subscription Agreement and all Quotes executed hereunder shall be executed by an authorized representative of each entity.

6.3. Disclaimer of Warranties. ANY AND ALL SOFTWARE CUSTOMIZATIONS, DOCUMENTATION, CONFIDENTIAL INFORMATION AND ANY OTHER TECHNOLOGY OR MATERIALS PROVIDED BY LICENSOR TO THE CUSTOMER ARE PROVIDED “AS IS” AND WITHOUT WARRANTY OF ANY KIND. EXCEPT AS OTHERWISE STATED IN THIS SUBSCRIPTION AGREEMENT, LICENSOR MAKES NO OTHER WARRANTIES, EXPRESS OR IMPLIED, INCLUDING EXPRESS OR IMPLIED WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, AND NONINFRINGEMENT.

6.4. No Modifications. Notwithstanding anything to the contrary in this Section 6, any and all warranties under this Subscription Agreement are VOID if Customer has made changes to the Software or has permitted any changes to be made other than by or with the express, written approval of Licensor.

7. INFRINGEMENT

7.1. Indemnity. Licensor will defend at its expense any cause of action brought against Customer, to the extent that such cause of action is based on a claim that the Software, as delivered by Licensor to Customer, infringes a United States patent, copyright, or trade secret of a third party. Licensor will pay those costs and damages finally awarded by a court of final jurisdiction (with no further appeals being possible) against Customer pursuant to any such claim or paid in settlement of any such claim if such settlement was approved in advance and in writing by Licensor. Customer may retain its own counsel at Customer’s own expense.

7.2. Customer Obligations. Licensor shall have no liability under this Section 7 unless:

7.2.1. Customer notifies Licensor in writing immediately after Customer becomes aware of a claim or the possibility thereof; and

7.2.2. Licensor has sole control of the settlement, compromise, negotiation, and defense of any such action; and

7.2.3. Customer cooperates, in good faith, in the defense of any such legal action.

7.3. No Liability. Licensor shall have no liability for any claim of infringement based on (i) Software which has been modified by parties other than Licensor; (ii) Customer’s use of the Software in conjunction with data where use with such data gave rise to the infringement claim; or (iii) Customer’s use of the Software with non-Licensor software or hardware, where use with such other software or hardware gave rise to the infringement claim.

7.4. Remedies. Should the Software become, or in Licensor’s opinion is likely to become, the subject of a claim of infringement, Licensor may, at its option, (i) obtain the right for Customer to continue using the Software; (ii) replace or modify the Software so it is no longer infringing or reduces the likelihood that it will be determined to be infringing; or (iii) if neither of the foregoing options is commercially reasonable, terminate the license for the Software. Upon such termination of the licenses and Customer’s return of the Software pursuant to Section 9 below, Licensor will refund to Customer, as Customer’s sole remedy for such license termination, all subscription fees paid by Customer for the terminated license, less an amount equal to one-thirty-sixth (1/36th) of the subscription fees for each month or any portion thereof which has elapsed since

the Quote Effective Date of such terminated license. THIS SECTION 7 STATES THE ENTIRE LIABILITY OF LICENSOR WITH RESPECT TO ANY CLAIM OF INFRINGEMENT REGARDING THE SOFTWARE.

8. LIMITATION OF LIABILITY

8.1. Liability Cap. IN NO EVENT SHALL LICENSOR, LICENSOR’S THIRD PARTY LICENSORS OR SUBCONTRACTORS BE LIABLE UNDER ANY THEORY OF LIABILITY, WHETHER IN AN EQUITABLE, LEGAL, OR COMMON LAW ACTION ARISING HEREUNDER FOR CONTRACT, STRICT LIABILITY, INDEMNITY, TORT (INCLUDING NEGLIGENCE), OR OTHERWISE, FOR DAMAGES WHICH, IN THE AGGREGATE, EXCEED THE AMOUNT OF THE FEES PAID BY CUSTOMER FOR THE SOFTWARE, SERVICES, COURSES, OR COURSE MATERIALS, WHICH GAVE RISE TO SUCH DAMAGES DURING THE TWELVE MONTH PERIOD IMMEDIATLEY PRECEEDING THE FILING OF SUCH CLAIM AND NOTWITHSTANDING THE FAILURE OF ESSENTIAL PURPOSE OF ANY REMEDY.

8.2. Disclaimer of Damages. IN NO EVENT SHALL LICENSOR, LICENSOR’S THIRD PARTY LICENSORS OR SUBCONTRACTORS BE LIABLE UNDER ANY THEORY OF LIABILITY, WHETHER IN AN EQUITABLE, LEGAL, OR COMMON LAW ACTION ARISING HEREUNDER FOR CONTRACT, STRICT LIABILITY, INDEMNITY, TORT (INCLUDING NEGLIGENCE), OR OTHERWISE, FOR ANY SPECIAL, INCIDENTAL, INDIRECT, EXEMPLARY, PUNITIVE, OR CONSEQUENTIAL DAMAGES OF ANY KIND AND HOWEVER CAUSED INCLUDING, BUT NOT LIMITED TO, BUSINESS INTERRUPTION OR LOSS OF PROFITS, BUSINESS OPPORTUNITIES, OR GOODWILL ARISING HEREUNDER EVEN IF NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGE, AND NOTWITHSTANDING THE FAILURE OF ESSENTIAL PURPOSE OF ANY REMEDY.

9. TERM AND TERMINATION

9.1. Term. The term of this Subscription Agreement shall continue until the termination of the last Quote.

9.2. Termination by Licensor. This Subscription Agreement and any license, Quote created hereunder may be terminated by Licensor: (i) if Customer fails to make any payments due hereunder within fifteen (15) days after Licensor delivers notice of default to Customer; (ii) by giving prior written notice to Customer if Customer fails to perform any material obligation required of it hereunder, and such failure is not cured within thirty (30) days from Customer’s receipt of Licensor’s notice to cure such non-performance of material obligation; or (iii) if Customer files a petition for bankruptcy or insolvency, has an involuntary petition filed against it, commences an action providing for relief under bankruptcy laws, files for the appointment of a receiver, or is adjudicated a bankrupt concern.

9.3. Termination by Customer. This Subscription Agreement may be terminated by Customer by giving prior written notice to Licensor if Licensor fails to perform any material obligation required of it hereunder, and such failure is not cured within thirty (30) days from Licensor’s receipt of Customer’s notice to cure such non-performance of material obligation.

9.4. Termination of Subscriptions. Upon expiration of the Term set forth in the Quote or upon termination of this Subscription Agreement or any license hereunder, Customer’s rights to the affected Software, Licensor Confidential Information, and other Licensor materials (collectively “Materials”) shall cease. Customer shall immediately stop using such Materials and shall return such Materials to Licensor, or destroy all copies thereof. In addition, Customer shall provide Licensor with written certification signed by an officer of Customer, that all copies of the Materials have been returned or destroyed and that no copies have been retained by Customer for any purpose whatsoever. Following termination, any use of the Materials by Customer shall be an infringement and/or misappropriation of Licensor’s proprietary rights in the Materials. Upon termination of this Subscription Agreement by Customer, Licensor shall have no further obligation or liability hereunder and all fees due under the Subscription Agreement shall become due and payable to Licensor immediately upon such termination.

9.5. Other Remedies. Termination of this Subscription Agreement or any license created hereunder shall not limit either party from pursuing other remedies available to it, including injunctive relief, nor shall such termination relieve Customer’s obligation to pay all fees that have accrued or are otherwise owed by Customer under this Subscription Agreement including, but not limited to, any Quote, or exhibit.

10. MISCELLANEOUS

10.1. Import/Export. Customer shall comply with all then-current export and import laws and regulations of the United States and such other governments as are applicable when Using the Software. Customer hereby certifies that it will not directly or indirectly export, re-export, transship, or transmit the Software, or any portion thereof, or related information, media, or products in violation of United States laws and regulations.

10.2. Compliance With Laws. Both parties agree to comply with all applicable laws, regulations, and ordinances relating to such party’s performance under this Subscription Agreement. The parties agree that the Subscription Agreement shall not be governed by the United Nations Convention on the International Sale of Goods or by UCITA, the application of which is expressly excluded.

10.3. Assignment. Customer may not assign this Subscription Agreement or transfer any license created hereunder, by operation of law, change of control or otherwise (“Assign”) without the prior written consent of Licensor, and such consent shall not be unreasonably withheld. Any assignment or transfer or increase in scope by Customer in violation of this Section shall be null and void.

10.4. Survival. The provisions set forth in Sections 2, 3.3, 3.4, 3.5, 4, 5, 6.3, 8, 9.5 and 9.5 and 10 of this Subscription Agreement shall survive termination or expiration of this Subscription Agreement and any applicable license hereunder.

10.5. Notices. Any notice required under this Subscription Agreement shall be given in writing and shall be deemed effective upon delivery to the party addressed. All notices shall be sent to the applicable address specified on the Quote or to such other address as the parties may designate in writing. Unless otherwise specified, all notices to Licensor shall be sent to the attention of the Contracts Manager. Any notice of material breach by Customer to Licensor hereunder, shall include a detailed description of any alleged breach and a description of the steps that Customer understands must be taken by Licensor to resolve the failure. Licensor shall have thirty (30) days from Licensor’s receipt of such notice to complete the cure.

10.6. Force Majeure. Licensor shall not be liable to Customer for any delay or failure of Licensor to perform its obligations hereunder if such delay or failure arises from any cause or causes beyond the reasonable control of Licensor. Such causes shall include, but are not limited to, acts of God, floods, fires, loss of electricity or other utilities, or delays by Customer in providing required resources or support or performing any other requirements hereunder.

10.7. Conflict. In the event of a conflict between the terms and conditions of this Subscription Agreement, a Quote, or an exhibit, , the terms and conditions of the Quote, or exhibit shall prevail, in that order.

10.8. Restricted Rights. Use of the Software by or for the United States Government is conditioned upon the Government agreeing that the Software is subject to Restricted Rights as provided under the provisions set forth in FAR 52.227-19. Customer shall be responsible for ensuring that this provision is included in all agreements with the United States Government and that the Software, when delivered to the Government, is correctly marked as required by applicable Government regulations governing such Restricted Rights as of such delivery.

10.9. Entire Agreement. This Subscription Agreement, including any separately executed Quotes and any exhibits, shall constitute the entire agreement between the parties regarding the subject matter hereof and supersede all proposals and prior discussions and writings between the parties with respect thereto. All terms respecting the subject matter of the Subscription Agreement and contained in invoices, acknowledgments, shipping instructions, or other forms exchanged between the Parties shall be void and of no effect.

10.10. Modifications. The parties agree that this Subscription Agreement cannot be altered, amended or modified, except by a writing signed by an authorized representative of each party.

10.11. Nonsolicitation. During the term of this Subscription Agreement and for a period of two (2) years thereafter, Customer agrees not to hire, solicit, nor attempt to solicit, the services of any employee or Subcontractor of Licensor without the prior written consent of Licensor. Customer further agrees not to hire, solicit, nor attempt to solicit, the services of any former employee or Subcontractor of Licensor for a period of one (1) year from such former employee’s or Subcontractor’s last date of service with Licensor. Violation of this provision shall entitle Licensor to liquidated damages against Customer equal to two hundred percent (200%) of the solicited person’s gross annual compensation.

10.12. Headings. Headings are for reference purposes only, have no substantive effect, and shall not enter into the interpretation hereof.

10.13. No Waiver. No failure or delay in enforcing any right or exercising any remedy will be deemed a waiver of any right or remedy.

10.14. Severability and Reformation. Each provision of this Subscription Agreement is a separately enforceable provision. If any provision of this Subscription Agreement is determined to be or becomes unenforceable or illegal, such provision shall be

reformed to the minimum extent necessary in order for this Subscription Agreement to remain in effect in accordance with its terms as modified by such reformation.

10.15. Independent Contractor. Licensor is an independent contractor and nothing in this Subscription Agreement shall be deemed to make Licensor an agent, employee, partner or joint venturer of Customer. Neither party shall have authority to bind, commit, or otherwise obligate the other party in any manner whatsoever.

10.16. Dispute Resolution. Any dispute, controversy or claim arising under, out of or relating to this Subscription Agreement and any subsequent amendments of this Subscription Agreement, including, without limitation, its formation, validity, binding effect, interpretation, performance, breach or termination, as well as non-contractual claims, shall be submitted to mediation in accordance with the WIPO Mediation Rules. The place of mediation shall be Austin, Texas. The language to be used in the mediation shall be English. If, and to the extent that, any such dispute, controversy or claim has not been settled pursuant to the mediation within sixty (60) days of the commencement of the mediation, it shall, upon the filing of a Request for Arbitration by either party, be referred to and finally determined by arbitration in accordance with the WIPO Expedited Arbitration Rules. Alternatively, if, before the expiration of the said period of sixty (60) days, either party fails to participate or to continue to participate in the mediation, the dispute, controversy or claim shall, upon the filing of a Request for Arbitration by the other party, be referred to and finally determined by arbitration in accordance with the WIPO Expedited Arbitration Rules. The place of arbitration shall be Austin, Texas. The language to be used in the arbitral proceedings shall be English. The parties may apply to any court of competent jurisdiction for a temporary restraining order, preliminary injunction, or other interim or conservatory relief as necessary, without breach of this Section and without abridgment of the powers of the arbitrator. Notwithstanding anything contained hereunder, Customer agrees and acknowledges that no dispute resolution or litigation shall be pursued by Customer for any breach of this Subscription Agreement until and unless Licensor has received written notice, pursuant to Section 10.5 and had an opportunity to cure any alleged breach.

10.17. Choice of Law. THIS SUBSCRIPTION AGREEMENT SHALL BE GOVERNED AND INTERPRETED BY THE LAWS OF THE STATE OF TEXAS WITHOUT REGARD TO THE CONFLICTS OF LAW PROVISIONS OF ANY STATE OR JURISDICTION.

EX-23.1

Exhibit 23.1

Consent of Independent Registered Public Accounting Firm

The Board of Directors

Callidus Software, Inc.:

We consent to the incorporation by reference in the registration statement (Nos. 333-190475, 333-189416, 333-183164, 333-176120, 333-168643, 333-161162, 333-152933, 333-145010, 333-138721, 333-127698, 333-117542, and 333-110757) on Form S-8 of Callidus Software, Inc. of our report dated February 27, 2015, with respect to the consolidated balance sheets of Callidus Software, Inc. and subsidiaries as of December 31, 2014 and 2013, and the related consolidated statements of comprehensive loss, stockholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2014, and the effectiveness of internal control over financial reporting as of December 31, 2014, which reports appears in the December 31, 2014 annual report on Form 10‑K of Callidus Software, Inc. and subsidiaries.

/s/ KPMG LLP

Santa Clara, California

February 27, 2015

EX-31.1

EXHIBIT 31.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

PURSUANT TO SECTION 302 OF

THE SARBANES-OXLEY ACT OF 2002

I, Leslie J. Stretch, certify that:

1. I have reviewed this annual report of Callidus Software Inc. on Form 10-K;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of the annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: February 27, 2015
	/s/ LESLIE J. STRETCH
	Leslie J. Stretch
	President and Chief Executive Officer
	(Principal Executive Officer)

EX-31.2

EXHIBIT 31.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER

PURSUANT TO SECTION 302 OF

THE SARBANES-OXLEY ACT OF 2002

I, Bob L. Corey, certify that:

1. I have reviewed this annual report of Callidus Software Inc. on Form 10-K;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of the annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: February 27, 2015
	/s/ BOB L. COREY
	Bob L. Corey
	Senior Vice President, Chief Financial Officer
	(Principal Financial Officer)

EX-32.1

EXHIBIT 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of Callidus Software, Inc. (the “Company”) on Form 10-K for the fiscal year ended December 31, 2014, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned, in the capacities and on the dates indicated below, each hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of their knowledge:

1. The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: February 27, 2015
	/s/ LESLIE J. STRETCH
	Leslie J. Stretch
	President and Chief Executive Officer
	(Principal Executive Officer)
	/s/ BOB L. COREY
	Bob L. Corey
	Senior Vice President, Chief Financial Officer
	(Principal Financial Officer)

A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

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The Company and Significant Accounting Policies (Details 2)	12 Months Ended
	Dec. 31, 2014 segment
Goodwill
Number of reporting units	1
Minimum
Intangible assets with finite lives
Amortization period	1 year
Maximum
Intangible assets with finite lives
Amortization period	12 years

XML

Net Loss Per Share (Details) (USD $) In Thousands, except Per Share data, unless otherwise specified	12 Months Ended
	Dec. 31, 2014	Dec. 31, 2013	Dec. 31, 2012
Net Loss Per Share
Anti-dilutive securities excluded from computation of diluted net loss per share (in shares)	4,877	11,579	14,589
Restricted stock
Net Loss Per Share
Anti-dilutive securities excluded from computation of diluted net loss per share (in shares)	2,379	1,918	3,543
Stock options
Net Loss Per Share
Anti-dilutive securities excluded from computation of diluted net loss per share (in shares)	1,630	2,490	3,299
Weighted average exercise price (in dollars per share)	4.09	4.42	4.74
ESPP
Net Loss Per Share
Anti-dilutive securities excluded from computation of diluted net loss per share (in shares)	39	42	67
Convertible notes
Net Loss Per Share
Anti-dilutive securities excluded from computation of diluted net loss per share (in shares)	829	7,129	7,680

XML

Fair Value Measurements (Details) (Ongoing basis, USD $) In Thousands, unless otherwise specified	Dec. 31, 2014		Dec. 31, 2013
Assets:
Fair value of assets	$ 9,076		$ 14,172
Money market funds
Assets:
Fair value of assets	6,310		6,306
Corporate Debt Securities [Member]
Assets:
Fair value of assets	2,766	[1]	6,115
US Treasury and Government [Member]
Assets:
Fair value of assets			1,751
Quoted Prices in Active Markets for Identical Assets (Level 1)
Assets:
Fair value of assets	6,310		6,306
Quoted Prices in Active Markets for Identical Assets (Level 1) | Money market funds
Assets:
Fair value of assets	6,310		6,306
Quoted Prices in Active Markets for Identical Assets (Level 1) | Corporate Debt Securities [Member]
Assets:
Fair value of assets	0		0
Quoted Prices in Active Markets for Identical Assets (Level 1) | US Treasury and Government [Member]
Assets:
Fair value of assets			0
Significant Other Observable Inputs (Level 2)
Assets:
Fair value of assets	2,766		7,866
Significant Other Observable Inputs (Level 2) | Money market funds
Assets:
Fair value of assets	0		0
Significant Other Observable Inputs (Level 2) | Corporate Debt Securities [Member]
Assets:
Fair value of assets	2,766		6,115
Significant Other Observable Inputs (Level 2) | US Treasury and Government [Member]
Assets:
Fair value of assets			1,751
Significant Unobservable Inputs (Level 3)
Assets:
Fair value of assets	0		0
Significant Unobservable Inputs (Level 3) | Money market funds
Assets:
Fair value of assets	0		0
Significant Unobservable Inputs (Level 3) | Corporate Debt Securities [Member]
Assets:
Fair value of assets	0		0
Significant Unobservable Inputs (Level 3) | US Treasury and Government [Member]
Assets:
Fair value of assets			$ 0

[1] Included in short-term investments on the consolidated balance sheet.

XML

Stock-Based Compensation (Details) (USD $)	12 Months Ended
	Dec. 31, 2014	Dec. 31, 2013	Dec. 31, 2012
Stock-based compensation
Stock-based compensation expense	$ 11,813,000	$ 10,395,000	$ 13,655,000
Options
Stock-based compensation
Stock-based compensation expense	790,000	866,000	838,000
Unrecognized compensation expense, stock options	1,800,000
Weighted average recognition period	2 years 5 months 19 days
Restricted Stock Units
Stock-based compensation
Unrecognized compensation expense, share-based awards other than options	16,100,000
Weighted average recognition period	1 year 8 months 23 days
Performance Awards
Stock-based compensation
Stock-based compensation expense	2,370,000	1,097,000	444,000
Non-performance Awards
Stock-based compensation
Stock-based compensation expense	7,705,000	7,835,000	11,571,000
ESPP
Stock-based compensation
Stock-based compensation expense	948,000	597,000	802,000
Unrecognized compensation expense, share-based awards other than options	$ 500,000
Weighted average recognition period	0 years 7 months 6 days

XML

Financial Instruments (Details) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2014	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011
Financial instruments
Cash and cash equivalents	$ 34,200	$ 28,295	$ 16,400	$ 17,383
Total		7,866
Cash
Financial instruments
Cash and cash equivalents	27,890	21,989
Estimated Fair Value	27,890	21,989
Cash equivalents
Financial instruments
Cash and cash equivalents	6,310	6,306
Estimated Fair Value	6,310	6,306
Money market funds
Financial instruments
Cash and cash equivalents	6,310	6,306
Estimated Fair Value	6,310	6,306
Cash and cash equivalents
Financial instruments
Cash and cash equivalents	34,200	28,295
Estimated Fair Value	34,200	28,295
Short-term investments
Financial instruments
Total	2,773	7,866
Gross Unrealized Gains	0	0
Gross Unrealized Losses	(7)	0
Total	2,766	7,866
U.S. government and agency obligations
Financial instruments
Total	2,773	6,115
Gross Unrealized Gains	0	0
Gross Unrealized Losses	(7)	0
Total	2,766	6,115
Corporate notes and obligations
Financial instruments
Total		1,751
Gross Unrealized Gains		0
Gross Unrealized Losses		0
Total		$ 1,751

XML

Net Loss Per Share (Tables)

12 Months Ended

Dec. 31, 2014

Earnings Per Share [Abstract]

Schedule of potential weighted average common shares excluded from computation of diluted net loss per share

Diluted net loss per share does not include the effect of the following potential weighted average common shares because to do so would be anti-dilutive for the periods presented (in thousands):

	Years Ended December 31,
	2014	2013	2012
Restricted stock	2,379	1,918	3,543
Stock options	1,630	2,490	3,299
ESPP	39	42	67
Convertible notes	829	7,129	7,680
Total	4,877	11,579	14,589

XML

Stock-Based Compensation (Details 3) (USD $) In Thousands, except Share data, unless otherwise specified	12 Months Ended
	Dec. 31, 2014	Dec. 31, 2013	Dec. 31, 2012
Shares Available for Grant
Beginning Available (in shares)	2,478,798	2,578,940	2,014,218
Authorized (in shares)	0	3,469,500	1,756,431
Granted (in shares)	1,913,499	2,024,798	2,519,851
Forfeited (in shares)	383,549	1,335,591	1,328,142
Expired (in shares)	178,337	2,880,435	0
Ending Available (in shares)	770,511	2,478,798	2,578,940
Stock options
Fair value assumptions using the Black-Scholes-Merton valuation model
Risk-free interest rate, minimum (as a percent)	0.00%	1.41%	0.72%
Risk-free interest rate, maximum (as a percent)	0.00%	1.93%	1.33%
Volatility, minimum (as a percent)	0.00%	61.00%	60.00%
Volatility, maximum (as a percent)	0.00%	63.00%	65.00%
Dividend Yield (as a percent)	0.00%	0.00%	0.00%
Additional disclosures
Vesting period		4 years
Number of Shares
Outstanding at the beginning of the period (in shares)	1,948,214	3,035,482	4,403,003
Granted (in shares)	0	815,500	120,200
Exercised (in shares)	(701,220)	(1,427,456)	(714,820)
Forfeited (in shares)	(44,407)	(108,306)	(134,346)
Expired (in shares)	(26,626)	(367,006)	(638,555)
Outstanding at the end of the period (in shares)	1,175,961	1,948,214	3,035,482
Vested and Expected to Vest at the end of the period (in shares)	1,100,528
Exercisable at the end of the period (in shares)	730,899
Weighted Average Exercise Price
Outstanding at the beginning of the period (in dollars per share)	5.34	4.09	4.71
Granted (in dollars per share)	0.00	6.79	5.86
Exercised (in dollars per share)	4.09	3.54	5.16
Forfeited (in dollars per share)	7.40	5.10	3.52
Expired (in dollars per share)	10.17	5.30	7.64
Outstanding at the end of the period (in dollars per share)	5.89	5.34	4.09
Vested and Expected to Vest at the end of the period (in dollars per share)	5.82
Exercisable at the end of the period (in dollars per share)	5.33
Weighted Average Remaining Contractual Term
Outstanding at the end of the period	5 years 11 months 27 days
Vested and Expected to Vest at the end of the period	5 years 9 months 29 days
Exercisable at the end of the period	4 years 7 months 6 days
Aggregate Intrinsic Value
Exercised (in dollars)	5,940	6,151	1,358
Outstanding at the end of the period (in dollars)	12,278
Vested and Expected to Vest at the end of the period (in dollars)	11,566
Exercisable at the end of the period (in dollars)	8,039
Stock options | Minimum
Fair value assumptions using the Black-Scholes-Merton valuation model
Expected life (in years)	0 years	5 years	5 years
Stock options | Maximum
Fair value assumptions using the Black-Scholes-Merton valuation model
Expected life (in years)	0 years	6 years 1 month 6 days	6 years
Employee Stock Purchase Plan
Fair value assumptions using the Black-Scholes-Merton valuation model
Risk-free interest rate, minimum (as a percent)	0.05%	0.08%	0.13%
Risk-free interest rate, maximum (as a percent)	0.12%	0.17%	0.20%
Volatility, minimum (as a percent)	47.00%	41.00%	56.00%
Volatility, maximum (as a percent)	50.00%	62.00%	62.00%
Dividend Yield (as a percent)	0.00%	0.00%	0.00%
Employee Stock Purchase Plan | Minimum
Fair value assumptions using the Black-Scholes-Merton valuation model
Expected life (in years)	0 years 6 months	6 months	6 months
Employee Stock Purchase Plan | Maximum
Fair value assumptions using the Black-Scholes-Merton valuation model
Expected life (in years)	1 year	1 year	1 year
Restricted stock units
Additional disclosures
Vesting period		3 years
Stock Option Plan 1997 and Stock Incentive Plan 2003 [Member] | Restricted stock units
Number of Shares
Outstanding at the beginning of the period (in shares)	1,707,414	3,109,683	3,859,292
Granted (in shares)	1,913,499	1,209,298	2,399,651
Released (in shares)	(736,269)	(1,754,872)	(2,597,880)
Forfeited (in shares)	(183,607)	(856,695)	(551,380)
Outstanding at the end of the period (in shares)	2,701,037	1,707,414	3,109,683
Vested or Expected to Vest at the end of the period (in shares)	2,700,828
Weighted Average Remaining Contractual Term
Outstanding at the end of the period	1 year 7 days
Vested and Expected to Vest at the end of the period	1 year 7 days
Aggregate Intrinsic Value
Outstanding at the end of the period (in dollars)	43,487
Vested or Expected to Vest at the end of the period (in dollars)	40,169
2013 Stock Incentive Plan [Member]
Shares Available for Grant
Authorized (in shares)		3,469,500

XML

The Company and Significant Accounting Policies (Tables)

12 Months Ended

Dec. 31, 2014

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Summary of changes in the Company's reserve accounts

Below is a summary of the changes in the Company's allowance for doubtful accounts for 2014, 2013 and 2012 (in thousands):

	Balance at Beginning of Year		Additions (charges to expense)		Deductions			Balance at End of Year
Allowance for doubtful accounts
Year ended December 31, 2014	$	650	$	996	$	(583	)	$	1,063
Year ended December 31, 2013	481		830		(661		)	650
Year ended December 31, 2012	225		434		(178		)	481

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Convertible Notes (Details) (USD $)	12 Months Ended			3 Months Ended
	Dec. 31, 2014	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2013
Convertible Notes
Aggregate principal amount of debt outstanding	$ 0	$ 14,197,000		$ 14,197,000
Debt Conversion, Converted Instrument, Amount	14,197,000	45,018,000	0
Reclassification of deferred debt issuance cost to additional paid-in capital	253,000	1,037,000	0
Convertible debt issuance costs, current portion	0	129,000		129,000
4.75 % Convertible Senior Notes due in 2016
Convertible Notes
Interest rate, stated percentage	4.75%
Debt Conversion, Converted Instrument, Amount	14,200,000			45,000,000
Debt Conversion, Converted Instrument, Shares Issued	1,840,770
Accrued interest paid upon debt conversion	300,000
Cash and stock premium paid upon debt conversion				4,800,000
Reclassification of deferred debt issuance cost to additional paid-in capital	300,000			1,000,000
Percentage of the conversion price that the closing price of the entity's common stock must exceed in order for the notes to be convertible		130.00%		130.00%
Number of days within 30 consecutive trading days in which the closing price of the entity's common stock must exceed the conversion price for the notes to be redeemable		20 days
Number of consecutive trading days during which the closing price of the entity's common stock must exceed the conversion price for at least 20 days in order for the notes to be redeemable		30 days
Number of trading days prior to the date on which the entity provides notice of redemption		5 days
Redemption price as percentage of principal amount of notes, plus accrued and unpaid interest		100.00%
Convertible debt issuance costs, current portion		100,000		100,000
Debt issuance costs, recorded in deposits and other assets		$ 200,000		$ 200,000

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Acquisition (Details) (USD $)	0 Months Ended		12 Months Ended
	Sep. 16, 2014	Feb. 04, 2014	Dec. 31, 2014	Dec. 31, 2013
Acquisitions
Goodwill			46,970,000	$ 31,207,000
Business Acquisition, Indemnity Holdback Accrued			1,922,000	0
Clicktools [Member]
Acquisitions
Business Combination, Recognized Identifiable Assets Acquired and Liabilities Assumed, Finite-Lived Intangibles	3,000,000
Cash paid for the acquisition	14,800,000
Indemnity holdback	1,600,000
Total purchase consideration	16,405,000
Net Tangible Assets Acquired/(Liabilities Assumed)	(1,270,000)
Identifiable intangible assets	3,000,000
Goodwill	14,675,000
LeadRocket, Inc. [Member]
Acquisitions
Business Combination, Recognized Identifiable Assets Acquired and Liabilities Assumed, Finite-Lived Intangibles		2,640,000
Cash paid for the acquisition		2,500,000
Indemnity holdback		500,000
Total purchase consideration		3,000,000
Net Tangible Assets Acquired/(Liabilities Assumed)		(1,224,000)
Identifiable intangible assets		2,640,000
Goodwill		1,584,000
Business Acquisition, Indemnity Holdback Accrued			300,000
Business Combination, Recognized Identifiable Assets Acquired and Liabilities Assumed, Deferred Tax Liabilities Noncurrent		3,000,000
United Kingdom, Pounds | Clicktools [Member]
Acquisitions
Indemnity holdback	1,000,000
Developed technology | Clicktools [Member]
Acquisitions
Business Combination, Recognized Identifiable Assets Acquired and Liabilities Assumed, Finite-Lived Intangibles	1,300,000
Amortization period	3 years
Developed technology | LeadRocket, Inc. [Member]
Acquisitions
Business Combination, Recognized Identifiable Assets Acquired and Liabilities Assumed, Finite-Lived Intangibles		570,000
Tradename | Clicktools [Member]
Acquisitions
Business Combination, Recognized Identifiable Assets Acquired and Liabilities Assumed, Finite-Lived Intangibles	600,000
Amortization period	3 years
Tradename | LeadRocket, Inc. [Member]
Acquisitions
Business Combination, Recognized Identifiable Assets Acquired and Liabilities Assumed, Finite-Lived Intangibles		850,000
Amortization period	5 years
Customer relationships | Clicktools [Member]
Acquisitions
Business Combination, Recognized Identifiable Assets Acquired and Liabilities Assumed, Finite-Lived Intangibles	1,100,000
Amortization period	3 years
Customer relationships | LeadRocket, Inc. [Member]
Acquisitions
Business Combination, Recognized Identifiable Assets Acquired and Liabilities Assumed, Finite-Lived Intangibles		160,000
Amortization period	3 years
Patents [Member] | LeadRocket, Inc. [Member]
Acquisitions
Business Combination, Recognized Identifiable Assets Acquired and Liabilities Assumed, Finite-Lived Intangibles		$ 1,060,000
Amortization period	10 years
Minimum
Acquisitions
Amortization period			1 year
Minimum | Developed technology | LeadRocket, Inc. [Member]
Acquisitions
Amortization period	2 years
Maximum
Acquisitions
Amortization period			12 years
Maximum | Developed technology | LeadRocket, Inc. [Member]
Acquisitions
Amortization period	4 years

XML

The Company and Significant Accounting Policies (Details) (USD $)	12 Months Ended
	Dec. 31, 2014	Dec. 31, 2013	Dec. 31, 2012	Sep. 30, 2014	Jun. 30, 2014
Allowance for doubtful accounts and service remediation reserve
Deferred costs	$ 5,600,000	$ 4,800,000
Advertising expense	1,200,000	227,000	146,000
Line of Credit Facility, Maximum Borrowing Capacity				15,000,000	10,000,000
Changes in reserve accounts
Long-term Line of Credit, Noncurrent	10,481,000	0
Deferred costs included in prepaid and other current assets	4,200,000	3,400,000
Allowance for doubtful accounts
Changes in reserve accounts
Balance at Beginning of Period	650,000	481,000	225,000
(Benefit) Provision Net of Recoveries	996,000	830,000	434,000
Write-offs	(583,000)	(661,000)	(178,000)
Balance at End of Period	1,063,000	650,000	481,000
Minimum
Allowance for doubtful accounts and service remediation reserve
Line of Credit Facility, Maximum Borrowing Capacity	5,000,000
Maximum
Allowance for doubtful accounts and service remediation reserve
Line of Credit Facility, Maximum Borrowing Capacity	$ 10,000,000

XML

Contractual Obligations, Commitments and Contingencies (Details 2) (USD $)	12 Months Ended		1 Months Ended	12 Months Ended	77 Months Ended
	Dec. 31, 2014	Dec. 31, 2013	Jan. 31, 2022	Dec. 31, 2015	May 15, 2022
Commitments and Contingencies
Liability for Uncertain Tax Positions, Current	$ 3,000,000
Long-term commitment
Quarterly installment of legal settlement	500,000
Estimated Litigation Liability	4,500,000
Prepaid Royalties	1,400,000
EMC Storage Equipment [Member]
Long-term commitment
Principal Amount Outstanding on Loans Managed and Securitized or Asset-backed Financing Arrangement	3,800,000
Versata [Member]
Long-term commitment
Patent settlement	2,900,000
Amortization period	9 years 6 months
Xactly Corporation [Member]
Long-term commitment
Litigation Settlement, Gross	2,000,000
Quarterly installment of legal settlement		500,000
Due in Three Months [Member] | EMC Storage Equipment [Member]
Long-term commitment
Principal Amount Outstanding on Loans Managed and Securitized or Asset-backed Financing Arrangement	2,600,000
Due in One Year [Member] | EMC Storage Equipment [Member]
Long-term commitment
Principal Amount Outstanding on Loans Managed and Securitized or Asset-backed Financing Arrangement	1,200,000
Dublin (CA) Headquarter [Member]
Long-term commitment
Deposits	1,100,000
Pleasanton Headquarters [Member]
Long-term commitment
Letters of Credit Outstanding, Amount	200,000
Principal of settlement payable [Member]
Long-term commitment
Amount of commitment with a vendor	1,963,000
Contractual Obligation	4,329,000
Scenario, Forecast [Member] | Dublin (CA) Headquarter [Member]
Long-term commitment
Payments for Rent			$ 184,411	$ 149,928	$ 0

XML

Income Taxes (Details) (USD $)	12 Months Ended
	Dec. 31, 2014	Dec. 31, 2013 subsidiary	Dec. 31, 2012
Loss before income taxes
United States	$ (11,557,000)	$ (20,675,000)	$ (27,796,000)
Foreign	1,008,000	1,319,000	486,000
Loss before provision (benefit) for income taxes	(10,549,000)	(19,356,000)	(27,310,000)
Current:
Federal	(25,000)	0	4,000
State	3,000	0	0
Foreign	1,138,000	1,815,000	559,000
Deferred:
Federal	78,000	159,000	(185,000)
State	(89,000)	0	(22,000)
Foreign	(93,000)	81,000	32,000
Provision (benefit) for income taxes	1,012,000	2,055,000	388,000
Reconciliation of provision (benefit) for income taxes that differs from the expected tax benefit computed by applying the statutory federal income tax rates to consolidated loss before income taxes
Federal tax at statutory rate	(3,587,000)	(6,581,000)	(9,286,000)
State taxes, net of benefit	3,000	0	0
Non-deductible expenses	453,000	1,248,000	2,416,000
Foreign taxes	703,000	1,447,000	427,000
Current year net operating losses and other deferred tax assets for which no benefit has been recognized	4,828,000	7,320,000	7,181,000
Research and experimentation credit	(1,239,000)	(1,379,000)	0
Tax benefit due to the recognition of acquired deferred tax liabilities	(149,000)	0	(350,000)
Provision (benefit) for income taxes	1,012,000	2,055,000	388,000
Deferred tax assets
Net operating loss carryforwards and deferred start-up costs	54,712,000	53,902,000
Accrued expenses and 481(a)	5,420,000	2,161,000
Unrealized gain/loss on investments	916,000	915,000
Research and experimentation credit carryforwards	12,609,000	10,884,000
Capitalized research and experimentation costs	14,072,000	18,100,000
Deferred stock compensation	3,956,000	2,223,000
Gross deferred tax assets	91,685,000	88,185,000
Less valuation allowance	(90,598,000)	(86,604,000)
Total deferred tax assets, net of valuation allowance	1,087,000	1,581,000
Deferred tax liabilities
Property and equipment	(1,699,000)	(1,602,000)
Goodwill	(1,024,000)	(887,000)
Net deferred tax assets (liabilities)	(1,636,000)	(908,000)
Valuation allowance
Number of foreign subsidiaries for which there is no valuation allowance on deferred tax assets	2	2
Net changes for valuation allowance	4,000,000	7,800,000
Additional net deferred tax liabilities related to the various acquisitions completed during the year	900,000	0
Release of Valuation Allowance	265,000	0	350,000
Federal
Net operating loss carryforwards
Outstanding net operating loss carryforwards	169,000,000
Expiry period of net operating loss carryforwards, if remained unutilized	20 years
California
Net operating loss carryforwards
Outstanding net operating loss carryforwards	$ 38,000,000

XML

Financial Instruments (Details 2) (USD $)	12 Months Ended
	Dec. 31, 2014 investment	Dec. 31, 2013 investment	Dec. 31, 2012
Contractual maturity, Amortized Cost
Less than 1 year	$ 1,956,000	$ 5,066,000
Between 1 and 2 years	817,000	2,800,000
Total	2,773,000
Total		7,866,000
Contractual maturity, Estimated Fair value
Less than 1 year	1,954,000	5,066,000
Between 1 and 2 years	812,000	2,800,000
Total	2,766,000	7,866,000
Other disclosures pertaining to available-for-sale securities
Available-for-sale, Securities in Unrealized Loss Positions, Qualitative Disclosure, Number of Positions, Less than One Year	0	0
Realized losses on sale of investments	0	0	0
Proceeds from maturities and sales of investments, net of purchases	$ 5,100,000	$ 4,800,000

XML

Acquisition

12 Months Ended

Dec. 31, 2014

Business Combinations [Abstract]

Acquisition

Acquisitions

Clicktools Ltd.

On September 16, 2014, the Company acquired Clicktools Ltd. (“Clicktools”), a provider of premium, cloud-based survey products and services for businesses. The purchase consideration was $16.4 million , which included $14.8 million paid in cash and a one million British Pounds indemnity holdback payable upon the one year closing anniversary. This amount is translated to U.S. Dollars to $1.6 million at the prevailing exchange rate on December 31, 2014.

The preliminary purchase price allocation for Clicktools is summarized as follows (in thousands):

	Fair Value
Net liabilities assumed	$	(1,270	)
Intangible assets	3,000
Goodwill	14,675
Total purchase price	$	16,405

The excess of purchase consideration over the fair value of net tangible liabilities assumed and identifiable intangible assets acquired was recorded as goodwill. The estimated fair values of assets acquired and liabilities assumed, specifically current and noncurrent income taxes payable and deferred taxes, may be subject to change as additional information is received and certain tax returns are finalized. Thus the provisional measurements of fair value set forth above are subject to change.

Goodwill is primarily attributed to the anticipated synergies from the acquisition and expanded market opportunities with respect to the integration of Clicktools' business-to-business survey management platform with the Company's other solutions. The goodwill balance is not deductible for U.S. or U.K income tax purposes.

The following table sets forth the components of identifiable intangible assets acquired and their estimated useful lives as of the date of the Clicktools acquisition (in thousands). The intangible assets are reported in British Pounds and will be translated to U.S. Dollars at December 31, 2014.

	Fair Value		Useful Life
Developed technology	$	1,300	3 years
Domain names and trademarks	600		3 years
Customer relationships	1,100		3 years
Total intangible assets subject to amortization	$	3,000

Pro forma results of operations for the Clicktools acquisition have not been presented because the acquisition is not material.

LeadRocket, Inc.

On February 4, 2014, the Company acquired all of the common stock of LeadRocket, Inc. (“LeadRocket”), a privately-held company providing marketing automation and demand generation solutions that enable both marketing and sales users to identify and connect with leads efficiently. The Company acquired LeadRocket to strengthen its social engagement and digital marketing platform. The purchase consideration was $3.0 million, which included $2.5 million paid in cash and $0.5 million as indemnity holdback payable upon the one year closing anniversary. As of December 31, 2014, $0.3 million of the indemnity holdback remains accrued for potential indemnification claims.

The purchase price allocation for LeadRocket is summarized as follows (in thousands):

	Fair Value
Net liabilities assumed	$	(1,224	)
Intangible assets	2,640
Goodwill	1,584
Total purchase price	$	3,000

The excess of purchase consideration over the fair value of net tangible liabilities assumed and identifiable intangible assets acquired was recorded as goodwill. The fair values assigned to tangible and identifiable intangible assets acquired and liabilities assumed are based on management’s estimates and assumptions. The estimated fair values of assets acquired and liabilities assumed, specifically current and noncurrent income taxes payable and deferred taxes, may be subject to change as additional information is received and certain tax returns are finalized. Thus the provisional measurements of fair value set forth above are subject to change.

The goodwill balance is primarily attributed to the anticipated synergies from the acquisition and expanded market opportunities with respect to the integration of LeadRocket’s digital marketing platform with the Company's other solutions. The goodwill balance is not deductible for U.S. income tax purposes.

The following table sets forth the components of identifiable intangible assets acquired and their estimated useful lives as of the date of the LeadRocket acquisition (in thousands):

	Fair Value	Useful Life
Developed technology	570	2-4 years
Patents	1,060	10 years
Domain names and trademarks	850	5 years
Customer relationships	160	3 years
Total intangible assets subject to amortization	2,640

Pro forma results of operations for the LeadRocket acquisition have not been presented because the acquisition is not material.

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Income Taxes (Details 2) (USD $)	12 Months Ended
	Dec. 31, 2014		Dec. 31, 2013
Tax Credit Carryforward [Line Items]
Net operating loss carryforwards resulting from exercise of employee stock options	$ 8,900,000
Undistributed earnings of the non-U.S. subsidiaries	2,700,000
Activity related to the Company's unrecognized tax benefits
Balance at the beginning of the period	2,843,000		2,478,000
Increases related to prior year tax positions	(44,000)		(175,000)
Increases related to current year tax positions	270,000		222,000
Reductions to unrecognized tax benefits as a result of a lapse of applicable statue of limitations	(32,000)		(32,000)
Balance at the end of the period	3,037,000	[1]	2,843,000
Amount of unrecognized tax benefits included as reserve against deferred tax assets	2,700,000		2,600,000
Amount of unrecognized tax benefits included in accrued expenses	300,000		300,000
Accrued potential penalties and interest related to unrecognized tax benefits	100,000
Liability for potential penalties and interest	200,000
Federal
Tax Credit Carryforward [Line Items]
Operating Loss Carryforwards Expiration Period if Not Utilized	20 years
Research credit carryforwards | Federal
Tax Credit Carryforward [Line Items]
Research credit carryforwards	8,400,000
Expiry period of tax credit carryforward, if not utilized	20 years
Research credit carryforwards | California
Tax Credit Carryforward [Line Items]
Research credit carryforwards	$ 8,700,000

[1] $2.7 million of the unrecognized tax benefits reduced deferred tax assets and $0.3 million was included in accrued expenses on the consolidated balance sheet.

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Goodwill and Intangible Assets (Details) (USD $) In Thousands, unless otherwise specified	12 Months Ended	1 Months Ended	0 Months Ended
	Dec. 31, 2014	Feb. 28, 2014	Sep. 16, 2014
Additional disclosure
Balance at the beginning of the period	$ 31,207
Acquisitions	16,259
Goodwill, Translation Adjustments	(496)
Balance at the end of the period	46,970
LeadRocket [Member]
Additional disclosure
Acquisitions		1,584
Clicktools [Member]
Additional disclosure
Balance at the beginning of the period			14,675
Acquisitions			$ 14,675

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Financial Instruments (Tables)

12 Months Ended

Dec. 31, 2014

Financial Instruments

Schedule of components of the Company's debt and marketable equity securities classified as available-for-sale

The components of the Company's marketable debt securities classified as available-for-sale were as follows at December 31, 2014 (in thousands):

December 31, 2014	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair value
Cash	$	27,890	$	—	$	—		$	27,890
Cash equivalents:
Money market funds	6,310		—		—			6,310
Total cash equivalents	6,310		—		—			6,310
Total cash and cash equivalents	$	34,200	$	—	$	—		$	34,200
Short-term investments:
Corporate notes and obligations	2,773		—		(7		)	2,766
Total short-term investments	$	2,773	$	—	$	(7	)	$	2,766

The components of the Company's marketable debt securities classified as available-for-sale were as follows for December 31, 2013 (in thousands):

December 31, 2013	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair value
Cash	$	21,989	$	—	$	—	$	21,989
Cash equivalents:
Money market funds	6,306		—		—		6,306
Total cash equivalents	6,306		—		—		6,306
Total cash and cash equivalents	$	28,295	$	—	$	—	$	28,295
Short-term investments:
U.S. government and agency obligations	6,115		—		—		6,115
Corporate notes and obligations	1,751		—		—		1,751
Total short-term investments	$	7,866	$	—	$	—	$	7,866

Schedule of contractual maturities of available-for-sale debt securities

For investments in securities classified as available-for-sale, market value and the amortized cost of debt securities have been classified in accordance with the following maturity groupings based on the contractual maturities of those securities as of December 31, 2014 (in thousands):

Contractual maturity	Amortized Cost		Estimated Fair value
Less than 1 year	$	1,956	$	1,954
Between 1 and 2 years	817		812
Total	$	2,773	$	2,766

For investments in securities classified as available-for-sale, estimated fair value and the amortized cost of debt securities have been classified in accordance with the following maturity groupings based on the contractual maturities of those securities as of December 31, 2013 (in thousands):

Contractual maturity	Amortized Cost		Estimated Fair value
Less than 1 year	$	5,066	$	5,066
Between 1 and 2 years	2,800		2,800
Total	$	7,866	$	7,866

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Goodwill and Intangible Assets (Tables)

12 Months Ended

Dec. 31, 2014

Goodwill and Intangible Assets Disclosure [Abstract]

Schedule of changes in the carrying amount of goodwill

The changes in the carrying amount of goodwill for the fiscal years ended December 31, 2014 and 2013 are as follows (in thousands):

	Goodwill
Balance as of December 31, 2012 and 2013	$	31,207
Acquisitions	16,259
Foreign currency translation impact	(496		)
Balance as of December 31, 2014	$	46,970

Schedule of intangible assets

Intangible assets consisted of the following as of December 31, 2014 and 2013 (in thousands):

	December 31, 2013 Cost		December 31, 2013 Net		Net Additions (1)		Foreign currency translation impact			Amortization Expense			December 31, 2014 Net		Weighted Average Amortization Period (Years)
Developed technology	$	21,187	$	9,669	$	3,906	$	(53	)	$	(3,271	)	$	10,251	4.1
Customer relationships	8,154		4076		1,260		(41		)	(1,025		)	4,270		3.6
Tradenames	1,522		828		686		(25		)	(298		)	1,191		3.6
Favorable lease	53		—		—		—			—			—		N/A
Patents and licenses	3,059		2393		—		—			(348		)	2,045		6.7
Other	142		29		—		—			(29		)	—		N/A
Total	$	34,117	$	16,995	$	5,852	$	(119	)	$	(4,971	)	$	17,757

(1) Included in the additions are the intangibles acquired for Clicktools of $3.0 million and LeadRocket of $2.6 million as discussed in Note 3 to the consolidated financial statements and other purchased technology as part of the normal course of operations.

	December 31, 2012 Cost		December 31, 2012 Net		Net Additions		Foreign currency translation impact		Amortization Expense			December 31, 2013 Net		Weighted Average Amortization Period (Years)
Developed technology	$	20,576	$	12,384	$	611	$	—	$	(3,326	)	$	9,669	4.3
Customer relationships	8,154		4,952		—		—		(876		)	4,076		4.9
Tradenames	1,522		1,040		—		—		(212		)	828		5.2
Favorable lease	40		1		13		—		(14		)	—		N/A
Patents and licenses	3,059		2,744		—		—		(351		)	2,393		7.6
Other	142		75		—		—		(46		)	29		0.5
Total	$	33,493	$	21,196	$	624	$	—	$	(4,825	)	$	16,995

Schedule of future expected amortization

Total future expected amortization is as follows (in thousands):

	Developed Technology		Customer Relationships		Tradenames		Patents and Licenses
Year Ending December 31:
2015	$	2,828	$	1,290	$	382	$	346
2016	2,741		1,290		353		346
2017	2,417		1,019		285		346
2018	1,519		491		96		313
2019	311		74		32		180
2020 and beyond	435		106		43		514
Total expected amortization expense	$	10,251	$	4,270	$	1,191	$	2,045

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Stock-Based Compensation (Details 2) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2014	Dec. 31, 2013	Dec. 31, 2012
Classification of stock-based compensation expense
Stock-based compensation expense	$ 11,813	$ 10,395	$ 13,655
Cost of recurring revenues
Classification of stock-based compensation expense
Stock-based compensation expense	911	783	1,550
Cost of services and other revenues
Classification of stock-based compensation expense
Stock-based compensation expense	1,026	1,060	2,070
Sales and marketing
Classification of stock-based compensation expense
Stock-based compensation expense	3,518	2,420	3,778
Research and development
Classification of stock-based compensation expense
Stock-based compensation expense	2,012	1,797	1,782
General and administrative
Classification of stock-based compensation expense
Stock-based compensation expense	$ 4,346	$ 4,335	$ 4,475

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Goodwill and Intangible Assets (Details 2) (USD $) In Thousands, unless otherwise specified	12 Months Ended			0 Months Ended
	Dec. 31, 2014	Dec. 31, 2013	Dec. 31, 2012	Sep. 16, 2014	Feb. 04, 2014
Changes in intangible assets during the year
Cost		$ 34,117	$ 33,493
Balance at the beginning of the period, net	16,995	21,196
Additions	5,852	624
Finite-Lived Intangible Assets, Translation Adjustments	(119)	0
Amortization Expense	(4,971)	(4,825)	(5,094)
Balance at the end of the period, net	17,757	16,995	21,196
Developed technology
Changes in intangible assets during the year
Cost		21,187	20,576
Balance at the beginning of the period, net	9,669	12,384
Additions	3,906	611
Finite-Lived Intangible Assets, Translation Adjustments	(53)	0
Amortization Expense	(3,271)	(3,326)
Balance at the end of the period, net	10,251	9,669
Developed technology | Weighted average
Changes in intangible assets during the year
Amortization period	4 years 1 month 6 days	4 years 3 months 18 days
Customer relationships
Changes in intangible assets during the year
Cost		8,154	8,154
Balance at the beginning of the period, net	4,076	4,952
Additions	1,260	0
Finite-Lived Intangible Assets, Translation Adjustments	(41)	0
Amortization Expense	(1,025)	(876)
Balance at the end of the period, net	4,270	4,076
Customer relationships | Weighted average
Changes in intangible assets during the year
Amortization period	3 years 7 months 6 days	4 years 10 months 24 days
Tradenames
Changes in intangible assets during the year
Cost		1,522	1,522
Balance at the beginning of the period, net	828	1,040
Additions	686	0
Finite-Lived Intangible Assets, Translation Adjustments	(25)	0
Amortization Expense	(298)	(212)
Balance at the end of the period, net	1,191	828
Tradenames | Weighted average
Changes in intangible assets during the year
Amortization period	3 years 7 months 6 days	5 years 2 months 12 days
Favorable lease
Changes in intangible assets during the year
Cost		53	40
Balance at the beginning of the period, net	0	1
Additions	0	13
Finite-Lived Intangible Assets, Translation Adjustments	0	0
Amortization Expense	0	(14)
Balance at the end of the period, net	0	0
Patents and licenses
Changes in intangible assets during the year
Cost		3,059	3,059
Balance at the beginning of the period, net	2,393	2,744
Additions	0	0
Finite-Lived Intangible Assets, Translation Adjustments	0	0
Amortization Expense	(348)	(351)
Balance at the end of the period, net	2,045	2,393
Patents and licenses | Weighted average
Changes in intangible assets during the year
Amortization period	6 years 8 months 12 days	7 years 7 months 6 days
Other
Changes in intangible assets during the year
Cost		142	142
Balance at the beginning of the period, net	29	75
Additions	0	0
Finite-Lived Intangible Assets, Translation Adjustments	0	0
Amortization Expense	(29)	(46)
Balance at the end of the period, net	0	29
Other | Weighted average
Changes in intangible assets during the year
Amortization period		6 months
LeadRocket, Inc. [Member]
Intangible assets
Business Combination, Recognized Identifiable Assets Acquired and Liabilities Assumed, Finite-Lived Intangibles					2,640
Business Combination, Recognized Identifiable Assets Acquired and Liabilities Assumed, Deferred Tax Liabilities Noncurrent					3,000
LeadRocket, Inc. [Member] | Developed technology
Intangible assets
Business Combination, Recognized Identifiable Assets Acquired and Liabilities Assumed, Finite-Lived Intangibles					570
LeadRocket, Inc. [Member] | Customer relationships
Intangible assets
Business Combination, Recognized Identifiable Assets Acquired and Liabilities Assumed, Finite-Lived Intangibles					160
Changes in intangible assets during the year
Amortization period				3 years
LeadRocket, Inc. [Member] | Tradenames
Intangible assets
Business Combination, Recognized Identifiable Assets Acquired and Liabilities Assumed, Finite-Lived Intangibles					850
Changes in intangible assets during the year
Amortization period				5 years
Clicktools [Member]
Intangible assets
Business Combination, Recognized Identifiable Assets Acquired and Liabilities Assumed, Finite-Lived Intangibles				3,000
Clicktools [Member] | Developed technology
Intangible assets
Business Combination, Recognized Identifiable Assets Acquired and Liabilities Assumed, Finite-Lived Intangibles				1,300
Changes in intangible assets during the year
Amortization period				3 years
Clicktools [Member] | Customer relationships
Intangible assets
Business Combination, Recognized Identifiable Assets Acquired and Liabilities Assumed, Finite-Lived Intangibles				1,100
Changes in intangible assets during the year
Amortization period				3 years
Clicktools [Member] | Tradenames
Intangible assets
Business Combination, Recognized Identifiable Assets Acquired and Liabilities Assumed, Finite-Lived Intangibles				600
Changes in intangible assets during the year
Amortization period				3 years

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Fair Value Measurements (Tables)

12 Months Ended

Dec. 31, 2014

Fair Value Disclosures [Abstract]

Schedule of estimated fair value of financial assets

The Company measures financial assets at fair value on an ongoing basis. The estimated fair value of the Company's financial assets was determined using the following inputs at December 31, 2014 and 2013 (in thousands):

	Fair Value Measurements at Reporting Date Using
December 31, 2014	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Money market funds (1)	$	6,310	$	6,310	$	—	$	—
Corporate notes and obligations (2)	2,766		—		2,766		—
Total	$	9,076	$	6,310	$	2,766	$	—

_______________________________________________________________________________

(1) Included in cash and cash equivalents on the consolidated balance sheet.

(2) Included in short-term investments on the consolidated balance sheet.

	Fair Value Measurements at Reporting Date Using
December 31, 2013	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Money market funds(1)	$	6,306	$	6,306	$	—	$	—
Corporate notes and obligations(2)	6,115		—		6,115		—
U.S. government and agency obligations(2)	1,751		—		1,751		—
Total	$	14,172	$	6,306	$	7,866	$	—

_______________________________________________________________________________

(1) Included in cash and cash equivalents on the consolidated balance sheet.

(2) Included in short-term investments on the consolidated balance sheet.

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Balance Sheet Components (Tables)

12 Months Ended

Dec. 31, 2014

Balance Sheet Components

Schedule of components of property and equipment

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

	Estimated Useful Life	As of December 31,
		2014		2013
Equipment	3 years	$	24,189	$	16,616
Purchased software	5 years	6,784		6,648
Furniture and fixtures	3 years	1,772		1,612
Leasehold improvements	Lease term up to 5 years	1,947		1,872
Construction in progress		3,724		72
Property and equipment, gross		38,416		26,820
Less: Accumulated depreciation		19,661		15,469
Property and equipment, net		$	18,755	$	11,351

Schedule of components of prepaid and other current assets

Total prepaid and other current assets consisted of the following (in thousands):

	As of December 31,
	2014		2013
Foreign withholding tax	$	177	$	403
Convertible debt issuance costs, current portion	—		129
Deferred commissions	4,215		3,381
Prepaid expenses	5,856		1,945
Other current assets	136		374
Total prepaid and other current assets	$	10,384	$	6,232

Schedule of components of accrued payroll and related expenses

Accrued payroll and related expenses consisted of the following (in thousands):

	As of December 31,
	2014		2013
Vacation accrual	$	2,793	$	2,139
Commissions	2,387		2,177
Bonus	1,628		1,262
ESPP	966		686
Severance liability	—		252
Accrued payroll related expenses	1,277		861
Total accrued payroll related expenses	$	9,051	$	7,377

Schedule of components of accrued expenses

Accrued expenses consisted of the following (in thousands):

	As of December 31,
	2014		2013
Sales tax payable	$	733	$	1,099
Income taxes payable	125		87
Restructuring facility liability	148		98
Versata settlement	1,963		—
Holdback payable	1,922		—
Customer payments	998		438
Equipment financing arrangement	3,775		—
Accrued expenses	7,204		3,673
Total accrued expenses	$	16,868	$	5,395

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Restructuring

12 Months Ended

Dec. 31, 2014

Restructuring and Related Activities [Abstract]

Restructuring

Restructuring and Other

On June 30, 2014, management approved and initiated restructuring plans to realign the Company's resources to improve cost efficiencies. Restructuring and other expenses primarily consist of costs associated with exit of excess facilities, employee terminations and incremental depreciation expense as a result of the change in the estimated useful life of assets to be abandoned.

The Company incurred restructuring and other expenses of $1.0 million, $1.7 million, and $1.1 million for the year ended December 31, 2014, 2013 and 2012, respectively.

The following table sets forth a summary of accrued restructuring expenses for 2014 and 2013 (in thousands):

	December 31, 2013		Additions		Adjustments		Cash Payments			December 31, 2014
Severance and termination-related costs	$	141	$	70	$	—	$	(211	)	$	—
Facilities related costs	234		162		20		(222		)	194
Total accrued restructuring expenses	$	375	$	232	$	20	$	(433	)	$	194

	December 31, 2012		Additions		Adjustments			Cash Payments			December 31, 2013
Severance and termination-related costs	$	589	$	1,706	$	(7	)	$	(2,147	)	$	141
Facilities related costs	289		—		—			(55		)	234
Total accrued restructuring expenses	$	878	$	1,706	$	(7	)	$	(2,202	)	$	375

In 2014, the Company incurred $0.8 million of non-cash expense, primarily related to incremental depreciation as a result of the change in the estimated useful life of assets at the Company's office space at Pleasanton, California.

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Contractual Obligations, Commitments and Contingencies (Tables)

12 Months Ended

Dec. 31, 2014

Commitments and Contingencies Disclosure [Abstract]

Schedule of non-cancelable long-term operating and capital lease obligations and unconditional purchase commitments

For each of the next five years and beyond, the Company has the following contractual obligations, long-term operating and capital lease obligations and unconditional purchase commitments (in thousands):

	Settlement Payable (1)				Unconditional purchase commitments (2) (3) (4)		Operating lease commitments (5)		Capital lease obligations (6)
	Principal		Interest
Year Ending December 31:
2015	$	1,963	$	37	$	9,271	$	694	$	1,011
2016	1,900		100		223		2,323		—
2017	466		34		—		2,266		—
2018	—		—		—		2,185		—
2019	—		—		—		2,024		—
2020 and beyond	—		—		—		5,067		—
Future minimum payments	$	4,329	$	171	$	9,494	$	14,559	1,011
Less: amount representing interest									(10		)
Present value of capital lease obligations									$	1,001

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The Company and Significant Accounting Policies (Details 3) (USD $)	12 Months Ended
	Dec. 31, 2014	Dec. 31, 2013	Dec. 31, 2012
Business Combinations
Measurement period of business combinations	1 year
Cost of Revenues
Deferred costs	$ 5,600,000	$ 4,800,000
Deferred costs included in prepaid and other current assets	4,200,000	3,400,000
Advertising Costs
Advertising expense	$ 1,200,000	$ 227,000	$ 146,000

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Revolving Line of Credit (Details) (USD $)	12 Months Ended
	Dec. 31, 2014	Dec. 31, 2013	Dec. 31, 2012	Sep. 30, 2014	Jun. 30, 2014
Line of Credit Facility [Line Items]
Line of Credit Facility, Maximum Borrowing Capacity				$ 15,000,000	$ 10,000,000
Line of Credit Facility, Priority	7500
Proceeds from Lines of Credit	10,481,000	0	0
Line of Credit Facility, Interest Rate During Period	2.00%
Maximum
Line of Credit Facility [Line Items]
Line of Credit Facility, Maximum Borrowing Capacity	10,000,000
Minimum
Line of Credit Facility [Line Items]
Line of Credit Facility, Maximum Borrowing Capacity	$ 5,000,000

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CONSOLIDATED BALANCE SHEETS (USD $) In Thousands, unless otherwise specified	Dec. 31, 2014	Dec. 31, 2013
Current assets:
Cash and cash equivalents	$ 34,200	$ 28,295
Short-term investments	2,766	7,866
Accounts receivable, net of allowances	41,623	29,216
Prepaid and other current assets	10,384	6,232
Total current assets	88,973	71,609
Property and equipment, net	18,755	11,351
Goodwill	46,970	31,207
Intangible assets, net	17,757	16,995
Deferred income taxes, noncurrent	440	405
Deposits and other assets	3,403	2,626
Total assets	176,298	134,193
Current liabilities:
Accounts payable	2,056	2,987
Accrued payroll and related expenses	9,051	7,377
Accrued expenses	16,868	5,395
Deferred income taxes	1,475	1,159
Deferred revenue	61,427	46,222
Capital lease obligations	1,001	1,308
Total current liabilities	91,878	64,448
Deferred revenue, noncurrent	10,195	10,432
Deferred income taxes, noncurrent	561	155
Other liabilities	4,709	1,921
Capital lease obligations, noncurrent	0	987
Convertible notes	0	14,197
Long-term Line of Credit, Noncurrent	10,481	0
Total liabilities	117,824	92,140
Commitments and contingencies
Stockholders' equity:
Common stock	49	45
Additional paid-in capital	344,312	315,430
Treasury stock	(14,430)	(14,430)
Accumulated other comprehensive income	(739)	165
Accumulated deficit	(270,718)	(259,157)
Total stockholders' equity	58,474	42,053
Total liabilities and stockholders' equity	$ 176,298	$ 134,193

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Goodwill and Intangible Assets (Details 3) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2014	Dec. 31, 2013	Dec. 31, 2012
Intangible assets
Intangible assets, net	17,757	$ 16,995	$ 21,196
Minimum
Intangible assets
Amortization period	1 year
Maximum
Intangible assets
Amortization period	12 years
Developed technology
Intangible assets
Intangible assets, net	10,251	9,669	12,384
Future expected amortization expense
2014	2,828
2015	2,741
2016	2,417
2017	1,519
2018	311
2019 and beyond	435
Total expected amortization expense	10,251
Customer relationships
Intangible assets
Intangible assets, net	4,270	4,076	4,952
Future expected amortization expense
2014	1,290
2015	1,290
2016	1,019
2017	491
2018	74
2019 and beyond	106
Total expected amortization expense	4,270
Tradenames
Intangible assets
Intangible assets, net	1,191	828	1,040
Future expected amortization expense
2014	382
2015	353
2016	285
2017	96
2018	32
2019 and beyond	43
Total expected amortization expense	1,191
Patents and licenses
Intangible assets
Intangible assets, net	2,045	2,393	2,744
Future expected amortization expense
2014	346
2015	346
2016	346
2017	313
2018	180
2019 and beyond	514
Total expected amortization expense	2,045
Other
Intangible assets
Intangible assets, net	0	$ 29	$ 75

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CONSOLIDATED STATEMENTS OF CASH FLOWS (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2014	Dec. 31, 2013	Dec. 31, 2012
Cash flows from operating activities:
Net loss	$ (11,561)	$ (21,411)	$ (27,698)
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
Depreciation expense	5,503	4,458	3,114
Amortization of intangible assets	4,971	4,825	5,094
Provision for doubtful accounts and service remediation reserves	852	999	595
Stock-based compensation	11,813	10,395	13,655
Deferred Income Taxes and Tax Credits	(86)	237	195
Release of valuation allowance	(265)	0	(350)
Loss (gain) on disposal of property and equipment	43	3	(2)
Amortization of convertible notes issuance cost	58	485	402
Gain on extinguishment of convertible notes	(3,862)	0	0
Net amortization on investments	27	79	358
Induced Conversion of Convertible Debt Expense	0	4,776	0
Acquisition-related contingent consideration	0	0	(1,612)
Changes in operating assets and liabilities:
Accounts receivable	(11,746)	(7,648)	(1,112)
Prepaid and other current assets	(3,749)	486	(820)
Other assets	(1,088)	(1,276)	662
Accounts payable	(794)	(1,702)	914
Accrued expenses	6,696	106	(1,106)
Accrued payroll and related expenses	1,149	1,971	987
Accrued restructuring	(181)	(503)	443
Deferred revenue	11,371	17,469	4,576
Net cash (used in) provided by operating activities	9,151	13,749	(1,705)
Cash flows from investing activities:
Purchases of investments	(2,784)	(7,434)	(16,536)
Proceeds from maturities and sale of investments	7,850	12,250	38,841
Purchases of property and equipment	(7,121)	(1,704)	(6,692)
Proceeds from disposal of property and equipment	4,651	0	2
Purchases of intangible assets	(1,112)	(638)	(6,196)
Acquisitions, net of cash acquired	(15,488)	0	(7,715)
Net cash provided by (used in) investing activities	(14,004)	2,474	1,704
Cash flows from financing activities:
Proceeds from issuance of common stock	4,852	6,629	5,225
Repurchase of common stock from employees for payment of taxes on vesting of restricted stock units	(1,723)	(1,297)	(2,346)
Payment of consideration related to acquisitions	(630)	(2,903)	(2,660)
Payment on debt conversion	(645)	(4,374)	0
Proceeds from Lines of Credit	10,481	0	0
Repayment of debt assumed through acquisition	0	0	(30)
Payment of principal under capital leases	(1,294)	(2,319)	(1,193)
Net cash (used in) provided by financing activities	11,041	(4,264)	(1,004)
Effect of exchange rates on cash and cash equivalents	(283)	(64)	22
Net (decrease) increase in cash and cash equivalents	5,905	11,895	(983)
Cash and cash equivalents at beginning of period	28,295	16,400	17,383
Cash and cash equivalents at end of period	34,200	28,295	16,400
Supplemental disclosures of cash flow information:
Cash paid for interest on convertible debt	277	2,604	2,813
Cash paid for interest on capital leases	59	100	101
Income Taxes Paid, Net	182	162	0
Conversion of debt to equity	13,942	44,383
Debt Conversion, Converted Instrument, Amount	14,197	45,018	0
Reclassification of deferred debt issuance cost to additional paid-in capital	253	1,037	0
Common stock issued as a premium of debt conversion	0	402	0
Fixed assets acquired under capital lease	0	3,851	0
Unpaid purchases of property and equipment	$ 5,829	$ 157	$ 214

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Stock-Based Compensation (Details 5) (USD $)	12 Months Ended
	Dec. 31, 2014	Dec. 31, 2013	Dec. 31, 2012
Stock-based compensation
Stock-based compensation expense	$ 11,813,000	$ 10,395,000	$ 13,655,000
Weighted-average fair value of options granted (in dollars per share)		$ 3.87
Maximum number of shares	0	3,469,500	1,756,431
Stock options
Stock-based compensation
Stock-based compensation expense	790,000	866,000	838,000
Intrinsic value of stock options exercised (in dollars)	5,940,000	6,151,000	1,358,000
Total cash received from employees as a result of stock options exercised (in dollars)	2,900,000	5,100,000	3,700,000
Vesting period		4 years
Exercise of stock options under stock incentive plans (in shares)	701,220	1,427,456	714,820
Restricted stock units
Stock-based compensation
Vesting period		3 years
Performance Awards
Stock-based compensation
Stock-based compensation expense	2,370,000	1,097,000	444,000
Employee Stock Purchase Plan
Stock-based compensation
Stock-based compensation expense	948,000	597,000	802,000
Weighted-average fair value of stock units granted (in dollars per share)	$ 3.59	$ 1.96	$ 1.76
Offering period	12 months
Number of consecutive stock purchase periods in the offering period	2
Purchase price of shares of common stock (as a percent)	85.00%
Number of shares issued	319,000	435,000	407,000
2013 Stock Incentive Plan [Member]
Stock-based compensation
Maximum number of shares		3,469,500
Latest Tax Year [Member] | Performance Awards
Stock-based compensation
Stock-based compensation expense	1,900,000
Tax Year 2013 [Member] | Performance Awards
Stock-based compensation
Stock-based compensation expense	$ 500,000

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Income Taxes (Tables)

12 Months Ended

Dec. 31, 2014

Income Tax Disclosure [Abstract]

Schedule of geographical breakdown of consolidated loss before income taxes by income tax jurisdiction

The following is a geographical breakdown of consolidated loss before income taxes by income tax jurisdiction (in thousands):

	2014			2013			2012
United States	$	(11,557	)	$	(20,675	)	$	(27,796	)
Foreign	1,008			1,319			486
Total	$	(10,549	)	$	(19,356	)	$	(27,310	)

Schedule of provision (benefit) for income taxes

The provision for income taxes for 2014, 2013 and 2012 consists of the following (in thousands):

	2014			2013		2012
Current:
Federal	$	(25	)	$	—	$	4
State	3			—		—
Foreign	1,138			1,815		559
Deferred:
Federal	78			159		(185		)
State	(89		)	—		(22		)
Foreign	(93		)	81		32
Total provision for income taxes	$	1,012		$	2,055	$	388

Schedule of provision (benefit) for income taxes that differs from the expected tax benefit computed by applying the statutory federal income tax rates to consolidated loss before income taxes

The provision for income taxes differs from the expected tax benefit computed by applying the statutory federal income tax rates to consolidated loss before income taxes as follows (in thousands):

	Year Ended December 31,
	2014			2013			2012
Federal tax at statutory rate	$	(3,587	)	$	(6,581	)	$	(9,286	)
State taxes, net of benefit	3			—			—
Non-deductible expenses	453			1,248			2,416
Foreign taxes	703			1,447			427
Current year net operating losses and other deferred tax assets for which no benefit has been recognized	4,828			7,320			7,181
Research and experimentation credit	(1,239		)	(1,379		)	—
Tax benefit due to the recognition of acquired deferred tax liabilities	(149		)	—			(350		)
Total provision for income taxes	$	1,012		$	2,055		$	388

Schedule of components of net deferred tax assets

Net deferred tax assets consist of the following (in thousands):

	As of December 31,
	2014			2013
Deferred tax assets
Net operating loss carryforwards	$	54,712		$	53,902
Accrued expenses	5,420			2,161
Unrealized gain/loss on investments	916			915
Research and experimentation credit carryforwards	12,609			10,884
Capitalized research and experimentation costs	14,072			18,100
Deferred stock compensation	3,956			2,223
Gross deferred tax assets	91,685			88,185
Less valuation allowance	(90,598		)	(86,604		)
Total deferred tax assets, net of valuation allowance	1,087			1,581
Deferred tax liabilities
Property and equipment and intangibles	(1,699		)	(1,602		)
Goodwill	(1,024		)	(887		)
Net deferred tax liabilities	$	(1,636	)	$	(908	)

Schedule of activity related to the Company's unrecognized tax benefits

The activity related to the Company's unrecognized tax benefits is set forth below (in thousands):

	Amount
Balance at January 1, 2013	$	2,478
Increases related to prior year tax positions	175
Increases related to current year tax positions	222
Reductions to unrecognized tax benefits as a result of a lapse of applicable statute of limitations	(32		)
Balance at December 31, 2013 (1)	2,843
Increases related to prior year tax positions	(44		)
Increases related to current year tax positions	270
Reductions to unrecognized tax benefits as a result of a lapse of applicable statute of limitations	(32		)
Balance at December 31, 2014 (2)	$	3,037

(1) $2.6 million million of the unrecognized tax benefits reduced deferred tax assets and $0.3 million was included in accrued expenses on the consolidated balance sheet.

(2) $2.7 million of the unrecognized tax benefits reduced deferred tax assets and $0.3 million was included in accrued expenses on the consolidated balance sheet.

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Related Party Transactions (Details) (USD $)	12 Months Ended
	Dec. 31, 2014	Dec. 31, 2013
Lithium [Member]
Related party transactions
Annual subscription expensed	$ 62,000
Annual subscription recorded in prepaid expense and other current assets	58,000
Lithium [Member] | Two Year Hosting Agreement
Related party transactions
Agreement entered		113,000
Revenue from Related Parties		52,000
Lithium [Member] | Service Agreement
Related party transactions
Agreement entered		143,550
Revenue from Related Parties	23,550	120,000
Webcom
Related party transactions
Product modeling and maintenance of certain equipment	149,000	143,000
Subscription Arrangement [Member] | Lithium [Member]
Related party transactions
Related Party Transaction, Purchases from Related Party	120,000
Social Success Service [Member] | Lithium [Member]
Related party transactions
Related Party Transaction, Purchases from Related Party	40,000
Annual subscription expensed	17,000
Annual subscription recorded in prepaid expense and other current assets	23,000
Community Administration service [Member] | Lithium [Member]
Related party transactions
Related Party Transaction, Purchases from Related Party	$ 45,000

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Segment, Geographic and Customer Information

12 Months Ended

Dec. 31, 2014

Segment Reporting [Abstract]

Segment, Geographic and Customer Information

Segment, Geographic and Customer Information

The accounting principles guiding disclosures about segments of an enterprise and related information establishes standards for the reporting by business enterprises of information about operating segments, products and services, geographic areas, and major customers. The method of determining which information is reported is based on the way that management organizes the operating segments within the Company for making operational decisions and assessments of financial performance. The Company's chief operating decision maker is considered to be the Company's chief executive officer (CEO). The CEO reviews financial information presented on a consolidated basis for purposes of making operating decisions and assessing financial performance. By this definition, the Company operates in one reportable segment, which is the development, marketing and sale of enterprise software and related services.

The following table summarizes revenue for the years ended December 31, 2014, 2013 and 2012 by geographic areas (in thousands):

	2014		2013		2012
United States	$	106,194	$	88,684	$	74,477
EMEA	15,162		12,241		11,578
Asia Pacific	8,400		5,379		4,943
Other	6,862		6,033		3,954
	$	136,618	$	112,337	$	94,952

No individual country, outside of the U.S. accounted for more than 10% of the Company's property, plant and equipment as of December 31, 2014 and 2013.

As of December 31, 2014, the Company's goodwill balance was $47.0 million, of which $11.4 million was located in U.K. (EMEA) and intangible asset balance of $17.8 million, and $2.5 million was located in U.K. (EMEA). No individual country, outside the U.S. accounted for more than 10% of goodwill and intangible asset balance as of December 31, 2013.

In 2014, 2013 and 2012, no customer accounted for more than 10% of total revenue.

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Segment, Geographic and Customer Information (Tables)

12 Months Ended

Dec. 31, 2014

Segment Reporting [Abstract]

Summary of revenues by geographic areas

The following table summarizes revenue for the years ended December 31, 2014, 2013 and 2012 by geographic areas (in thousands):

	2014		2013		2012
United States	$	106,194	$	88,684	$	74,477
EMEA	15,162		12,241		11,578
Asia Pacific	8,400		5,379		4,943
Other	6,862		6,033		3,954
	$	136,618	$	112,337	$	94,952

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The Company and Significant Accounting Policies (Policies)

12 Months Ended

Dec. 31, 2014

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Holdback Payable [Policy Text Block]

Holdback Payable

The Company estimates the fair value of an indemnity holdback payable based on the contract value. The terms of the holdback payable includes standard representations and warranties.

Contingent Consideration [Policy Text Block]

Contingent Consideration

The Company estimates the fair value of the contingent consideration issued in business combinations using a probability-based income approach. The fair value of the Company liability-classified contingent consideration is remeasured at each reporting period, with any changes in the fair value recorded as income or expense. Contingent acquisition consideration payable is included in accrued liabilities on the Company's consolidated balance sheets.

Business Description and Basis of Presentation [Text Block]

Description of Business

Callidus Software Inc. (referred to herein as "CallidusCloud", "Callidus", "we" and "our") is a provider of sales and marketing effectiveness software. The Company provides organizations with a complete suite of Lead-to-Money solutions that identify the right leads, ensure proper territory and quota distribution, train sales forces, automate quote and proposal generation, and streamline sales compensation.

Principles of Consolidation

Principles of Consolidation

The consolidated financial statements include the accounts of Callidus Software, Inc. and its wholly-owned subsidiaries (collectively, the Company), which include wholly-owned subsidiaries in Australia, Canada, Germany, Hong Kong, India, Malaysia, Mexico, New Zealand, Serbia, Singapore, Japan and the United Kingdom. All intercompany transactions and balances have been eliminated in the consolidation.

Use of Estimates

Use of Estimates

The consolidated financial statements are prepared in accordance with U.S. generally accepted accounting principles ("GAAP") as set forth in the Financial Accounting Standards Board’s ("FASB") Accounting Standards Codification ("ASC") and consider the various staff accounting bulletins and other applicable guidance issued by the U.S. Securities and Exchange Commission ("SEC"). These accounting principles require us to make certain estimates, judgments and assumptions. The Company believes that the estimates, judgments and assumptions upon which the Company relies are reasonable based upon information available to us at the time that these estimates, judgments and assumptions are made. These estimates, judgments and assumptions can affect the reported amounts of assets and liabilities as of the date of the financial statements as well as the reported amounts of revenues and expenses during the periods presented. To the extent there are differences between these estimates, judgments or assumptions and actual results, the Company's consolidated financial statements will be affected. In many cases, the accounting treatment of a particular transaction is specifically dictated by GAAP and does not require management’s judgment in its application. There are also areas in which management’s judgment in selecting among available alternatives would not produce a materially different result.

In addition, illiquid credit markets, volatile equity and foreign currency markets by companies have contributed to the increase in uncertainty in management estimates and assumptions. Also, future events, such as changes in economic environment, cannot be determined with precision, which would cause actual results to differ materially from management's estimates. Such changes in estimates will be reflected in the consolidated financial statements in future periods.

Foreign Currency Translation

Foreign Currency Translation

The Company transact business in various foreign currencies. In general, the functional currency of a foreign operation is the local country’s currency. Accordingly, the foreign currencies are translated into U.S. Dollars using exchange rates in effect at period end for assets and liabilities and average rates during each reporting period for the results of operations. Adjustments resulting from the translation of the financial statements of the foreign subsidiaries are reported as a separate component of accumulated other comprehensive income (loss). Foreign currency transaction gains and losses are included in interest and other income (expense), net in the accompanying consolidated statements of comprehensive loss.

Cash and Cash Equivalents and Investments

Cash and Cash Equivalents and Investments

The Company considers all highly liquid instruments with an original maturity on the date of purchase of three months or less to be cash equivalents. Cash equivalents as of December 31, 2014 and 2013 consisted of money market funds. The Company determines the appropriate classification of investment securities at the time of purchase and re-evaluates such designation as of each balance sheet date. As of December 31, 2014 and 2013, all investment securities were designated as "available-for-sale". The Company considers available-for-sale securities that have a maturity date longer than three months to be short-term investments, including those investments with a maturity date of longer than one year that are highly liquid and for which the Company does not have a positive intent to hold to maturity. These securities are carried at estimated fair value based on quoted market prices or other readily available market information, with the unrealized gains and losses included in other comprehensive income (loss). Recognized gains and losses are included in the consolidated statement of comprehensive loss. When the Company has determined that an other-than-temporary decline in fair value has occurred, the amount of the decline is recognized in earnings. Gains and losses are determined using the specific identification method.

Fair Value of Financial Instruments and Concentrations of Credit Risk

Fair Value of Financial Instruments and Concentrations of Credit Risk

The fair value of certain of the Company's financial instruments that are not measured at fair value, including accounts receivable and accounts payable, approximates the carrying amount due to their short maturity. See Note 6 for discussion regarding the valuation of the Company's investments. Financial instruments that potentially subject us to concentrations of credit risk are short-term investments and trade receivables. The Company mitigates concentration of risk by monitoring the risk profiles of all bank counterparties on at least a quarterly basis. Based on the on-going assessment of counterparty risk, the Company will adjust its exposure to various counterparties.

The Company's customer base consists of businesses throughout the Americas, Europe, Middle East, Africa and Asia-Pacific. The Company performs ongoing credit evaluations of its customers and generally does not require collateral on accounts receivable. As of December 31, 2014 and 2013, the Company had no customers comprising greater than 10% of net accounts receivable or total revenue. Refer to Note 16 for information regarding revenue by geographic areas.

In May, 2014, the Company entered into a credit agreement with Wells Fargo Bank, National Association ("Wells Fargo"), under which Wells Fargo agreed to make a revolving loan ("Revolver") to us in an amount not to exceed $10.0 million, with an accordion feature that allows the Company to increase the maximum borrowing amount by not less than $5.0 million and not more than $10.0 million. The Revolver matures in May 2019. Outstanding borrowings under the Revolver bear interest, at the Company's option, at a base rate plus an applicable margin. The applicable margin ranges between 0.75% and 2.25% depending on the Company's leverage ratio. Interest is payable every three months. In September 2014 the Company exercised the accordion feature and increased the maximum amount of borrowing to $15.0 million. As of December 31, 2014 the Company had borrowed $10.5 million under the Revolver. The carrying value of total debt approximates fair market value.

Allowance for doubtful accounts and service remediation reserve

Allowance for Doubtful Accounts

The Company reduces gross trade accounts receivable with its allowance for doubtful accounts. The allowance for doubtful accounts is the Company's estimate of the amount of probable credit losses in existing accounts receivable. Management analyzes accounts receivable and historical bad debt experience, customer creditworthiness, current economic trends and changes in customer payment history when evaluating the adequacy of the allowance for doubtful accounts. Provisions to the allowance for doubtful accounts are recorded in general and administrative expenses.

Below is a summary of the changes in the Company's allowance for doubtful accounts for 2014, 2013 and 2012 (in thousands):

	Balance at Beginning of Year		Additions (charges to expense)		Deductions			Balance at End of Year
Allowance for doubtful accounts
Year ended December 31, 2014	$	650	$	996	$	(583	)	$	1,063
Year ended December 31, 2013	481		830		(661		)	650
Year ended December 31, 2012	225		434		(178		)	481

Property and Equipment, net

Property and Equipment, net

Property and equipment, net is stated at cost, net of accumulated depreciation. 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 assets' estimated useful lives or the related lease terms. Expenditures for maintenance and repairs are expensed as incurred. Cost and accumulated depreciation of assets sold or retired are removed from the respective property accounts and any resulting gain or loss is reflected in the consolidated statements of comprehensive loss.

Prepaid and other current assets and deposits and other assets

Prepaid and Other Current Assets and Deposits and Other Assets

Included in prepaid and other current assets and deposits and other in long-term assets in the consolidated balance sheets at December 31, 2014 and 2013 is restricted cash totaling $0.2 million and $0.5 million, respectively, primarily related to security deposits on leases of the Company's facilities. The restricted cash represents investments in certificates of deposit required by landlords to meet security deposit requirements for the leased facilities. Restricted cash is included in prepaid and other current assets in short-term assets and deposits and other assets in long-term assets based on the contractual term for the release of the restriction.

Goodwill, Intangible Assets, Long-Lived Assets and Impairment Assessments

Goodwill, Intangible Assets, Long-Lived Assets and Impairment Assessments

Goodwill represents the excess of the purchase price over the fair value of net assets acquired in connection with business combinations. Goodwill is not amortized, but instead goodwill is required to be tested for impairment annually and under certain circumstances. The Company performs such testing of goodwill in the fourth quarter of each year, or as events occur or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount.

The Company conducts a two-step test for impairment of goodwill. The first step of the test for goodwill impairment compares the fair value of the applicable reporting unit with its carrying value. If the fair value of a reporting unit is less than the reporting unit's carrying value, the Company will perform the second step of the test for impairment of goodwill. During the second step of the test for impairment of goodwill, the Company will compare the implied fair value of the reporting unit's goodwill with the carrying value of that goodwill. If the carrying value of the goodwill exceeds the calculated implied fair value, the excess amount will be recognized as an impairment loss. The Company has one reporting unit and evaluates goodwill for impairment at the entity level. Based upon the results of the step one testing, the Company concluded that no impairment existed as December 31, 2014, and did not perform the second step of the goodwill impairment test.

Intangible assets with finite lives are amortized over their estimated useful lives of one to twelve years. Generally, amortization is based on the higher of a straight-line method or the pattern in which the economic benefits of the intangible asset will be consumed.

The Company also evaluates the recoverability of its long-lived assets for possible impairment whenever events or circumstances indicate that the carrying amount of such assets may not be recoverable. If such review indicates that the carrying amount of long-lived assets is not recoverable, the carrying amount of such assets is reduced to fair value. There were no impairment charges recorded during the years ended December 31, 2014, 2013 and 2012.

Business Combinations

Business Combinations

The Company recognizes assets acquired, liabilities assumed, and contingent consideration at their fair value on the acquisition date. The Company’s estimates are inherently uncertain and subject to refinement. As a result, during the measurement period, which may be up to one year from the acquisition date, the Company may record adjustments to the fair value of assets acquired and liabilities assumed, with a corresponding offset to goodwill. Upon the conclusion of the measurement period or final determination of the fair value of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recorded to the Company's consolidated statements of operations. See Note 3 to the Company's consolidated financial statements, for a discussion of the Company's acquisitions during 2014.

In addition, uncertainties in income tax and tax related valuation allowances assumed in connection with a business combination are initially estimated as of the acquisition date. The Company continues to gather information and evaluate these items and records any adjustments to the preliminary estimates to goodwill when the estimates are within the measurement period. Subsequent to the measurement period, changes to these income tax uncertainties and tax related valuation allowances will affect the Company's provision for income taxes in its consolidated statements of comprehensive loss.

Restructuring Expenses

Restructuring and Other Expenses

Restructuring and other expenses are comprised primarily of employee termination costs related to headcount reductions, costs related to properties abandoned in connection with facilities consolidation including estimated losses related to excess facilities based upon the Company's contractual obligations, net of estimated sublease income and related write-downs of leasehold improvements. The Company reassess the liability for excess facilities periodically based on market conditions.

Research and Development

Research and Development

The Company expenses the cost of research and development as incurred. Research and development expenses consist primarily of expenses for research and development staff, the cost of certain third-party service providers and allocated overhead.

Stock-Based Compensation

Stock-Based Compensation

The Company measures and recognizes compensation expense for stock-based awards made to employees and directors including employee stock options and employee stock purchases under the Company's Employee Stock Purchase Plan ("ESPP") based on estimated fair values on the date of grant using the Black-Scholes option pricing model. Stock-based compensation expense for restricted stock units ("RSU"), relating to both performance and service-based awards, is estimated based on the market value of the Company's stock on the date of grant.

The Company granted performance-based share award ("PSUs") to select executives and other key employees.  The Company's PSUs are in the form of restricted stock units, the vesting of which is based on achievement of specified company or other goals. In 2014, the Company granted PSUs with vesting contingent on its absolute SaaS revenue growth over the three year period from 2014 to 2016, and the Company's relative total shareholder return over the three year period from 2014 through 2016 compared to an index of 17 SaaS companies. PSU awards based on SaaS revenue growth will, to the extent the performance criteria are achieved, vest on the third anniversary of the grant date. PSU awards based on total shareholder return is recognized as compensation costs over the requisite service period, if rendered, even if the market condition is never satisfied. In determining the fair value of PSUs based on total shareholder return the Company considered the achievement of the market condition in the estimated fair value.

Income Taxes

Income Taxes

The Company is subject to income and foreign withholding taxes in both the United States and foreign jurisdictions and the Company uses estimates in determining its provision for income taxes. This process involves estimating actual current tax assets and liabilities together with assessing temporary differences resulting from differing treatment of items for tax and accounting purposes. These differences result in deferred tax assets and liabilities, which are recorded on the consolidated balance sheets. Net deferred tax assets are recorded to the extent the Company believes that these assets will more likely than not be realized. In making such determination, all available positive and negative evidence is considered, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax planning strategies and recent financial operations. With the exception of the net deferred tax assets of two of the Company's foreign subsidiaries, it maintained a full valuation allowance against its net deferred tax assets at December 31, 2014 because the Company believes that it is not more-likely-than-not that the gross deferred tax assets will be realized. While the Company has considered future taxable income and ongoing prudent and feasible tax planning strategies in assessing the need for a valuation allowance, in the event the Company was able to determine that it would be able to realize the deferred tax assets in the future, an adjustment to the deferred tax assets would increase net income in the period such determination was made.

Income tax positions must meet a more-likely-than-not recognition threshold at the effective date to be recognized upon the adoption of accounting for uncertainty in income taxes and in subsequent periods. This interpretation also provides guidance on measurement, derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. The Company recognizes interest and penalties related to unrecognized tax benefits in income tax expense in the accompanying consolidated statement of comprehensive loss. Accrued interest and penalties are included in other liabilities.

Revenue Recognition

Revenue Recognition

            The Company generates revenue by providing software applications as a service through on-demand subscription, perpetual and term licenses and related software maintenance, and professional services. Amounts that have been invoiced are recorded in accounts receivable and in deferred revenue or revenue, depending on whether the revenue recognition criteria have been met.

Recurring Revenue. Recurring revenue, which includes SaaS revenue and maintenance revenue, are recognized as revenue ratably over the stated contractual period. SaaS revenue consists of subscription fees from customers accessing our cloud-based service offerings. Maintenance revenue consists of fees from customers purchasing subscriptions and receiving support for on-premise solutions. The Company also recognizes revenue associated with customers using its products in excess of contracted usage. This customer excess use is primarily attributed to SaaS products and are recorded in SaaS revenue. Revenue related to customer excess use was immaterial during 2014 and 2013.

           Service and Other Revenue. Service and other revenue primarily consist of training, integration, and configuration services. Generally, the Company's professional services arrangements are on a time-and-materials basis. Time and material services are recognized as revenue as the services are rendered based on inputs to the project, such as billable hours incurred. For fixed-fee professional service arrangements, the Company recognizes revenue under the proportional performance method of accounting and estimates the proportional performance on a monthly basis, utilizing hours incurred to date as a percentage of total estimated hours to complete the project. If the Company does not have a sufficient basis to measure progress toward completion, revenue is recognized upon completion. Service and other revenue also includes license revenue from perpetual licenses which are recognized upon delivery of the product, using the residual method, assuming all the other conditions for revenue recognition have been met.

            In certain arrangements with non-standard acceptance criteria, the Company defers the revenue until the acceptance criteria are satisfied. Reimbursements, including those related to travel and out-of-pocket expenses, are included in services and other revenue, and an equivalent amount of reimbursable expenses is included in cost of services and other revenue.

In general, recurring revenue agreements are entered into for twelve to thirty-six months, and the professional services are performed within nine months of entering into a contract with the customer, depending on the size of integration.

SaaS agreements provide specified service level commitments, excluding scheduled maintenance. The failure to meet this level of service availability may require the Company to credit qualifying customers a portion of their subscription and support fees. Based on the Company's historical experience meeting its service level commitments, the Company does not currently have any liabilities on its balance sheet for these commitments.

The Company recognizes revenue when all of the following conditions are met:

• Persuasive evidence of an arrangement exists;

• Delivery has occurred or services have been rendered;

• The fees are fixed or determinable; and    

• Collection of the fees is reasonably assured.

If the Company determines that any one of the four criteria is not met, it will defer recognition of revenue until all the criteria are met.

Multiple-deliverable arrangements with on-demand subscription. For on-demand subscription agreements with multiple-deliverables, the Company evaluates each element to determine whether it represents a separate unit of accounting. The Company determines the best estimated selling price of each deliverable in an arrangement based on a selling price hierarchy of methods contained in Financial Accounting Standards Board (“FASB”) Accounting Standards Update (“ASU”) No. 2009-13, Revenue Recognition (Accounting Standards Codification (“ASC”) Topic 605)-Multiple-Deliverable Revenue Arrangements. The best estimated selling price for a deliverable is based on its vendor-specific objective evidence (“VSOE”), if available, third-party evidence (“TPE”), if VSOE is not available, or estimated selling price (“ESP”), if neither VSOE nor TPE is available. Total arrangement fees are allocated to each element using the relative selling price method. The Company has currently established VSOE for most deliverables, except for fixed fee service arrangements.

The Company considered all of the following factors to establish the ESP for fixed fee service arrangements when sold with its on-demand services: the weighted average actual sales prices of professional services sold on a standalone basis for on-demand services; average billing rate for fixed fee service agreements when sold with on-demand services, cost plus a reasonable mark-up and other factors such as gross margin objectives, pricing practices and growth strategy. The Company is currently using cost plus a reasonable mark-up to establish ESP for fixed fee service.

Multiple-deliverable arrangements with on-premise license. For arrangements with multiple-deliverables, including license, professional services and maintenance, the Company recognizes license revenue using the residual method of accounting pursuant to the requirements of the guidance contained in ASC 985-605, Software Revenue Recognition. Under the residual method, revenue is recognized when VSOE for fair value exists for all of the undelivered elements in the arrangement, but does not exist for one or more of the delivered elements in the arrangement. If evidence of fair value cannot be established for the undelivered elements, all of the revenue is deferred until evidence of fair value can be established, or until the items for which evidence of fair value cannot be established are delivered. For maintenance and certain professional services, the Company has established VSOE as a consistent number of standalone sales of this deliverable have been priced within a reasonably narrow range. The Company's revenue arrangements generally do not include a general right of return relative to the delivered products.

For the Company's term-based licenses, included in services and licenses, that are typically bundled with maintenance for the entire duration of the license, if the only undelivered element is maintenance, then the entire amount of revenue is recognized over the maintenance period, as maintenance is not typically sold separately.

Sales and other taxes collected from customers to be remitted to government authorities are excluded from revenue.

Deferred Revenue

Deferred Revenue

Deferred revenue consists of invoicing and payments received in advance of revenue recognition and is recognized as the revenue recognition criteria are met. The Company invoices its customers annually, quarterly, or in monthly installments. Deferred revenue that will be recognized during the succeeding twelve month period is recorded as current deferred revenue, and the remaining portion is recorded as non-current deferred revenue.

Cost of Revenues

Cost of Revenue

Cost of recurring revenue consists primarily of salaries, benefits, allocated overhead costs related to on-demand operations and technical support personnel, as well as allocated amortization of purchased technology. Cost of services revenue consists primarily of salaries, benefits, travel and allocated overhead costs related to consulting, training and other professional services personnel, including cost of services provided by third-party consultants engaged by the Company. Cost of license revenue consists primarily of amortization of purchased technology.

Advertising Costs

Advertising Costs

The Company expenses advertising costs in the period incurred. Advertising expense was $1.2 million, $227,000, and $146,000 for 2014, 2013 and 2012, respectively.

Comprehensive Income (Loss)

Comprehensive Income (Loss)

Comprehensive income (loss) is the total of net income (loss), unrealized gains and losses on investments and foreign currency translation adjustments. Unrealized gains and losses on investments and foreign currency translation adjustment amounts are excluded from net loss and are reported in accumulated other comprehensive income (loss) in the accompanying consolidated financial statements.

Recent Accounting Pronouncements

Recent Accounting Pronouncements

In May 2014, the FASB issued Accounting Standards Update No. 2014-09 (ASU 2014-09) "Revenue from Contracts with Customers." ASU 2014-09 supersedes the revenue recognition requirements in “Revenue Recognition (Topic 605)”, and requires entities to recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services. ASU 2014-09 is effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. Early adoption is not permitted. The Company is currently in the process of evaluating the impact of the adoption of ASU 2014-09 on the consolidated financial statements.

Deferred Charges, Policy [Policy Text Block]

Deferred Commissions

The deferred commissions on the Company's consolidated balance sheets totaled $5.6 million and $4.8 million at December 31, 2014 and December 31, 2013, respectively. As of December 31, 2014 and 2013 $4.2 million and $3.4 million of the deferred commissions are included in prepaid and other current assets in short-term assets with the remaining amounts included in deposits and other assets in long-term assets in the consolidated balance sheets. The deferred costs mainly represent commission payments to the Company's direct sales force for on-demand subscription and maintenance agreements, which the Company amortizes as sales and marketing expense over the non-cancellable term of the contract as the related revenue is recognized. The commission payments are a direct and incremental cost of the revenue arrangements.

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The Company and Significant Accounting Policies

12 Months Ended

Dec. 31, 2014

Organization, Consolidation and Presentation of Financial Statements [Abstract]

The Company and Significant Accounting Policies

The Company and Significant Accounting Policies

Description of Business

Callidus Software Inc. (referred to herein as "CallidusCloud", "Callidus", "we" and "our") is a provider of sales and marketing effectiveness software. The Company provides organizations with a complete suite of Lead-to-Money solutions that identify the right leads, ensure proper territory and quota distribution, train sales forces, automate quote and proposal generation, and streamline sales compensation.

Principles of Consolidation

The consolidated financial statements include the accounts of Callidus Software, Inc. and its wholly-owned subsidiaries (collectively, the Company), which include wholly-owned subsidiaries in Australia, Canada, Germany, Hong Kong, India, Malaysia, Mexico, New Zealand, Serbia, Singapore, Japan and the United Kingdom. All intercompany transactions and balances have been eliminated in the consolidation.

Use of Estimates

The consolidated financial statements are prepared in accordance with U.S. generally accepted accounting principles ("GAAP") as set forth in the Financial Accounting Standards Board’s ("FASB") Accounting Standards Codification ("ASC") and consider the various staff accounting bulletins and other applicable guidance issued by the U.S. Securities and Exchange Commission ("SEC"). These accounting principles require us to make certain estimates, judgments and assumptions. The Company believes that the estimates, judgments and assumptions upon which the Company relies are reasonable based upon information available to us at the time that these estimates, judgments and assumptions are made. These estimates, judgments and assumptions can affect the reported amounts of assets and liabilities as of the date of the financial statements as well as the reported amounts of revenues and expenses during the periods presented. To the extent there are differences between these estimates, judgments or assumptions and actual results, the Company's consolidated financial statements will be affected. In many cases, the accounting treatment of a particular transaction is specifically dictated by GAAP and does not require management’s judgment in its application. There are also areas in which management’s judgment in selecting among available alternatives would not produce a materially different result.

In addition, illiquid credit markets, volatile equity and foreign currency markets by companies have contributed to the increase in uncertainty in management estimates and assumptions. Also, future events, such as changes in economic environment, cannot be determined with precision, which would cause actual results to differ materially from management's estimates. Such changes in estimates will be reflected in the consolidated financial statements in future periods.

Foreign Currency Translation

The Company transact business in various foreign currencies. In general, the functional currency of a foreign operation is the local country’s currency. Accordingly, the foreign currencies are translated into U.S. Dollars using exchange rates in effect at period end for assets and liabilities and average rates during each reporting period for the results of operations. Adjustments resulting from the translation of the financial statements of the foreign subsidiaries are reported as a separate component of accumulated other comprehensive income (loss). Foreign currency transaction gains and losses are included in interest and other income (expense), net in the accompanying consolidated statements of comprehensive loss.

Cash and Cash Equivalents and Investments

The Company considers all highly liquid instruments with an original maturity on the date of purchase of three months or less to be cash equivalents. Cash equivalents as of December 31, 2014 and 2013 consisted of money market funds. The Company determines the appropriate classification of investment securities at the time of purchase and re-evaluates such designation as of each balance sheet date. As of December 31, 2014 and 2013, all investment securities were designated as "available-for-sale". The Company considers available-for-sale securities that have a maturity date longer than three months to be short-term investments, including those investments with a maturity date of longer than one year that are highly liquid and for which the Company does not have a positive intent to hold to maturity. These securities are carried at estimated fair value based on quoted market prices or other readily available market information, with the unrealized gains and losses included in other comprehensive income (loss). Recognized gains and losses are included in the consolidated statement of comprehensive loss. When the Company has determined that an other-than-temporary decline in fair value has occurred, the amount of the decline is recognized in earnings. Gains and losses are determined using the specific identification method.

Fair Value of Financial Instruments and Concentrations of Credit Risk

The fair value of certain of the Company's financial instruments that are not measured at fair value, including accounts receivable and accounts payable, approximates the carrying amount due to their short maturity. See Note 6 for discussion regarding the valuation of the Company's investments. Financial instruments that potentially subject us to concentrations of credit risk are short-term investments and trade receivables. The Company mitigates concentration of risk by monitoring the risk profiles of all bank counterparties on at least a quarterly basis. Based on the on-going assessment of counterparty risk, the Company will adjust its exposure to various counterparties.

The Company's customer base consists of businesses throughout the Americas, Europe, Middle East, Africa and Asia-Pacific. The Company performs ongoing credit evaluations of its customers and generally does not require collateral on accounts receivable. As of December 31, 2014 and 2013, the Company had no customers comprising greater than 10% of net accounts receivable or total revenue. Refer to Note 16 for information regarding revenue by geographic areas.

In May, 2014, the Company entered into a credit agreement with Wells Fargo Bank, National Association ("Wells Fargo"), under which Wells Fargo agreed to make a revolving loan ("Revolver") to us in an amount not to exceed $10.0 million, with an accordion feature that allows the Company to increase the maximum borrowing amount by not less than $5.0 million and not more than $10.0 million. The Revolver matures in May 2019. Outstanding borrowings under the Revolver bear interest, at the Company's option, at a base rate plus an applicable margin. The applicable margin ranges between 0.75% and 2.25% depending on the Company's leverage ratio. Interest is payable every three months. In September 2014 the Company exercised the accordion feature and increased the maximum amount of borrowing to $15.0 million. As of December 31, 2014 the Company had borrowed $10.5 million under the Revolver. The carrying value of total debt approximates fair market value.

Holdback Payable

The Company estimates the fair value of an indemnity holdback payable based on the contract value. The terms of the holdback payable includes standard representations and warranties.

Contingent Consideration

The Company estimates the fair value of the contingent consideration issued in business combinations using a probability-based income approach. The fair value of the Company liability-classified contingent consideration is remeasured at each reporting period, with any changes in the fair value recorded as income or expense. Contingent acquisition consideration payable is included in accrued liabilities on the Company's consolidated balance sheets.

Allowance for Doubtful Accounts

The Company reduces gross trade accounts receivable with its allowance for doubtful accounts. The allowance for doubtful accounts is the Company's estimate of the amount of probable credit losses in existing accounts receivable. Management analyzes accounts receivable and historical bad debt experience, customer creditworthiness, current economic trends and changes in customer payment history when evaluating the adequacy of the allowance for doubtful accounts. Provisions to the allowance for doubtful accounts are recorded in general and administrative expenses.

Below is a summary of the changes in the Company's allowance for doubtful accounts for 2014, 2013 and 2012 (in thousands):

	Balance at Beginning of Year		Additions (charges to expense)		Deductions			Balance at End of Year
Allowance for doubtful accounts
Year ended December 31, 2014	$	650	$	996	$	(583	)	$	1,063
Year ended December 31, 2013	481		830		(661		)	650
Year ended December 31, 2012	225		434		(178		)	481

Prepaid and Other Current Assets and Deposits and Other Assets

Included in prepaid and other current assets and deposits and other in long-term assets in the consolidated balance sheets at December 31, 2014 and 2013 is restricted cash totaling $0.2 million and $0.5 million, respectively, primarily related to security deposits on leases of the Company's facilities. The restricted cash represents investments in certificates of deposit required by landlords to meet security deposit requirements for the leased facilities. Restricted cash is included in prepaid and other current assets in short-term assets and deposits and other assets in long-term assets based on the contractual term for the release of the restriction.

Property and Equipment, net

Property and equipment, net is stated at cost, net of accumulated depreciation. 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 assets' estimated useful lives or the related lease terms. Expenditures for maintenance and repairs are expensed as incurred. Cost and accumulated depreciation of assets sold or retired are removed from the respective property accounts and any resulting gain or loss is reflected in the consolidated statements of comprehensive loss.

Goodwill, Intangible Assets, Long-Lived Assets and Impairment Assessments

Goodwill represents the excess of the purchase price over the fair value of net assets acquired in connection with business combinations. Goodwill is not amortized, but instead goodwill is required to be tested for impairment annually and under certain circumstances. The Company performs such testing of goodwill in the fourth quarter of each year, or as events occur or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount.

The Company conducts a two-step test for impairment of goodwill. The first step of the test for goodwill impairment compares the fair value of the applicable reporting unit with its carrying value. If the fair value of a reporting unit is less than the reporting unit's carrying value, the Company will perform the second step of the test for impairment of goodwill. During the second step of the test for impairment of goodwill, the Company will compare the implied fair value of the reporting unit's goodwill with the carrying value of that goodwill. If the carrying value of the goodwill exceeds the calculated implied fair value, the excess amount will be recognized as an impairment loss. The Company has one reporting unit and evaluates goodwill for impairment at the entity level. Based upon the results of the step one testing, the Company concluded that no impairment existed as December 31, 2014, and did not perform the second step of the goodwill impairment test.

Intangible assets with finite lives are amortized over their estimated useful lives of one to twelve years. Generally, amortization is based on the higher of a straight-line method or the pattern in which the economic benefits of the intangible asset will be consumed.

The Company also evaluates the recoverability of its long-lived assets for possible impairment whenever events or circumstances indicate that the carrying amount of such assets may not be recoverable. If such review indicates that the carrying amount of long-lived assets is not recoverable, the carrying amount of such assets is reduced to fair value. There were no impairment charges recorded during the years ended December 31, 2014, 2013 and 2012.

Business Combinations

The Company recognizes assets acquired, liabilities assumed, and contingent consideration at their fair value on the acquisition date. The Company’s estimates are inherently uncertain and subject to refinement. As a result, during the measurement period, which may be up to one year from the acquisition date, the Company may record adjustments to the fair value of assets acquired and liabilities assumed, with a corresponding offset to goodwill. Upon the conclusion of the measurement period or final determination of the fair value of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recorded to the Company's consolidated statements of operations. See Note 3 to the Company's consolidated financial statements, for a discussion of the Company's acquisitions during 2014.

In addition, uncertainties in income tax and tax related valuation allowances assumed in connection with a business combination are initially estimated as of the acquisition date. The Company continues to gather information and evaluate these items and records any adjustments to the preliminary estimates to goodwill when the estimates are within the measurement period. Subsequent to the measurement period, changes to these income tax uncertainties and tax related valuation allowances will affect the Company's provision for income taxes in its consolidated statements of comprehensive loss.

Revenue Recognition

            The Company generates revenue by providing software applications as a service through on-demand subscription, perpetual and term licenses and related software maintenance, and professional services. Amounts that have been invoiced are recorded in accounts receivable and in deferred revenue or revenue, depending on whether the revenue recognition criteria have been met.

Recurring Revenue. Recurring revenue, which includes SaaS revenue and maintenance revenue, are recognized as revenue ratably over the stated contractual period. SaaS revenue consists of subscription fees from customers accessing our cloud-based service offerings. Maintenance revenue consists of fees from customers purchasing subscriptions and receiving support for on-premise solutions. The Company also recognizes revenue associated with customers using its products in excess of contracted usage. This customer excess use is primarily attributed to SaaS products and are recorded in SaaS revenue. Revenue related to customer excess use was immaterial during 2014 and 2013.

           Service and Other Revenue. Service and other revenue primarily consist of training, integration, and configuration services. Generally, the Company's professional services arrangements are on a time-and-materials basis. Time and material services are recognized as revenue as the services are rendered based on inputs to the project, such as billable hours incurred. For fixed-fee professional service arrangements, the Company recognizes revenue under the proportional performance method of accounting and estimates the proportional performance on a monthly basis, utilizing hours incurred to date as a percentage of total estimated hours to complete the project. If the Company does not have a sufficient basis to measure progress toward completion, revenue is recognized upon completion. Service and other revenue also includes license revenue from perpetual licenses which are recognized upon delivery of the product, using the residual method, assuming all the other conditions for revenue recognition have been met.

            In certain arrangements with non-standard acceptance criteria, the Company defers the revenue until the acceptance criteria are satisfied. Reimbursements, including those related to travel and out-of-pocket expenses, are included in services and other revenue, and an equivalent amount of reimbursable expenses is included in cost of services and other revenue.

In general, recurring revenue agreements are entered into for twelve to thirty-six months, and the professional services are performed within nine months of entering into a contract with the customer, depending on the size of integration.

SaaS agreements provide specified service level commitments, excluding scheduled maintenance. The failure to meet this level of service availability may require the Company to credit qualifying customers a portion of their subscription and support fees. Based on the Company's historical experience meeting its service level commitments, the Company does not currently have any liabilities on its balance sheet for these commitments.

The Company recognizes revenue when all of the following conditions are met:

• Persuasive evidence of an arrangement exists;

• Delivery has occurred or services have been rendered;

• The fees are fixed or determinable; and    

• Collection of the fees is reasonably assured.

If the Company determines that any one of the four criteria is not met, it will defer recognition of revenue until all the criteria are met.

Multiple-deliverable arrangements with on-demand subscription. For on-demand subscription agreements with multiple-deliverables, the Company evaluates each element to determine whether it represents a separate unit of accounting. The Company determines the best estimated selling price of each deliverable in an arrangement based on a selling price hierarchy of methods contained in Financial Accounting Standards Board (“FASB”) Accounting Standards Update (“ASU”) No. 2009-13, Revenue Recognition (Accounting Standards Codification (“ASC”) Topic 605)-Multiple-Deliverable Revenue Arrangements. The best estimated selling price for a deliverable is based on its vendor-specific objective evidence (“VSOE”), if available, third-party evidence (“TPE”), if VSOE is not available, or estimated selling price (“ESP”), if neither VSOE nor TPE is available. Total arrangement fees are allocated to each element using the relative selling price method. The Company has currently established VSOE for most deliverables, except for fixed fee service arrangements.

The Company considered all of the following factors to establish the ESP for fixed fee service arrangements when sold with its on-demand services: the weighted average actual sales prices of professional services sold on a standalone basis for on-demand services; average billing rate for fixed fee service agreements when sold with on-demand services, cost plus a reasonable mark-up and other factors such as gross margin objectives, pricing practices and growth strategy. The Company is currently using cost plus a reasonable mark-up to establish ESP for fixed fee service.

Multiple-deliverable arrangements with on-premise license. For arrangements with multiple-deliverables, including license, professional services and maintenance, the Company recognizes license revenue using the residual method of accounting pursuant to the requirements of the guidance contained in ASC 985-605, Software Revenue Recognition. Under the residual method, revenue is recognized when VSOE for fair value exists for all of the undelivered elements in the arrangement, but does not exist for one or more of the delivered elements in the arrangement. If evidence of fair value cannot be established for the undelivered elements, all of the revenue is deferred until evidence of fair value can be established, or until the items for which evidence of fair value cannot be established are delivered. For maintenance and certain professional services, the Company has established VSOE as a consistent number of standalone sales of this deliverable have been priced within a reasonably narrow range. The Company's revenue arrangements generally do not include a general right of return relative to the delivered products.

For the Company's term-based licenses, included in services and licenses, that are typically bundled with maintenance for the entire duration of the license, if the only undelivered element is maintenance, then the entire amount of revenue is recognized over the maintenance period, as maintenance is not typically sold separately.

Sales and other taxes collected from customers to be remitted to government authorities are excluded from revenue.

Deferred Revenue

Deferred revenue consists of invoicing and payments received in advance of revenue recognition and is recognized as the revenue recognition criteria are met. The Company invoices its customers annually, quarterly, or in monthly installments. Deferred revenue that will be recognized during the succeeding twelve month period is recorded as current deferred revenue, and the remaining portion is recorded as non-current deferred revenue.

Cost of Revenue

Cost of recurring revenue consists primarily of salaries, benefits, allocated overhead costs related to on-demand operations and technical support personnel, as well as allocated amortization of purchased technology. Cost of services revenue consists primarily of salaries, benefits, travel and allocated overhead costs related to consulting, training and other professional services personnel, including cost of services provided by third-party consultants engaged by the Company. Cost of license revenue consists primarily of amortization of purchased technology.

Deferred Commissions

The deferred commissions on the Company's consolidated balance sheets totaled $5.6 million and $4.8 million at December 31, 2014 and December 31, 2013, respectively. As of December 31, 2014 and 2013 $4.2 million and $3.4 million of the deferred commissions are included in prepaid and other current assets in short-term assets with the remaining amounts included in deposits and other assets in long-term assets in the consolidated balance sheets. The deferred costs mainly represent commission payments to the Company's direct sales force for on-demand subscription and maintenance agreements, which the Company amortizes as sales and marketing expense over the non-cancellable term of the contract as the related revenue is recognized. The commission payments are a direct and incremental cost of the revenue arrangements.

Restructuring and Other Expenses

Restructuring and other expenses are comprised primarily of employee termination costs related to headcount reductions, costs related to properties abandoned in connection with facilities consolidation including estimated losses related to excess facilities based upon the Company's contractual obligations, net of estimated sublease income and related write-downs of leasehold improvements. The Company reassess the liability for excess facilities periodically based on market conditions.

Research and Development

The Company expenses the cost of research and development as incurred. Research and development expenses consist primarily of expenses for research and development staff, the cost of certain third-party service providers and allocated overhead.

Stock-Based Compensation

The Company measures and recognizes compensation expense for stock-based awards made to employees and directors including employee stock options and employee stock purchases under the Company's Employee Stock Purchase Plan ("ESPP") based on estimated fair values on the date of grant using the Black-Scholes option pricing model. Stock-based compensation expense for restricted stock units ("RSU"), relating to both performance and service-based awards, is estimated based on the market value of the Company's stock on the date of grant.

The Company granted performance-based share award ("PSUs") to select executives and other key employees.  The Company's PSUs are in the form of restricted stock units, the vesting of which is based on achievement of specified company or other goals. In 2014, the Company granted PSUs with vesting contingent on its absolute SaaS revenue growth over the three year period from 2014 to 2016, and the Company's relative total shareholder return over the three year period from 2014 through 2016 compared to an index of 17 SaaS companies. PSU awards based on SaaS revenue growth will, to the extent the performance criteria are achieved, vest on the third anniversary of the grant date. PSU awards based on total shareholder return is recognized as compensation costs over the requisite service period, if rendered, even if the market condition is never satisfied. In determining the fair value of PSUs based on total shareholder return the Company considered the achievement of the market condition in the estimated fair value.

Income Taxes

The Company is subject to income and foreign withholding taxes in both the United States and foreign jurisdictions and the Company uses estimates in determining its provision for income taxes. This process involves estimating actual current tax assets and liabilities together with assessing temporary differences resulting from differing treatment of items for tax and accounting purposes. These differences result in deferred tax assets and liabilities, which are recorded on the consolidated balance sheets. Net deferred tax assets are recorded to the extent the Company believes that these assets will more likely than not be realized. In making such determination, all available positive and negative evidence is considered, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax planning strategies and recent financial operations. With the exception of the net deferred tax assets of two of the Company's foreign subsidiaries, it maintained a full valuation allowance against its net deferred tax assets at December 31, 2014 because the Company believes that it is not more-likely-than-not that the gross deferred tax assets will be realized. While the Company has considered future taxable income and ongoing prudent and feasible tax planning strategies in assessing the need for a valuation allowance, in the event the Company was able to determine that it would be able to realize the deferred tax assets in the future, an adjustment to the deferred tax assets would increase net income in the period such determination was made.

Income tax positions must meet a more-likely-than-not recognition threshold at the effective date to be recognized upon the adoption of accounting for uncertainty in income taxes and in subsequent periods. This interpretation also provides guidance on measurement, derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. The Company recognizes interest and penalties related to unrecognized tax benefits in income tax expense in the accompanying consolidated statement of comprehensive loss. Accrued interest and penalties are included in other liabilities.

Advertising Costs

The Company expenses advertising costs in the period incurred. Advertising expense was $1.2 million, $227,000, and $146,000 for 2014, 2013 and 2012, respectively.

Comprehensive Income (Loss)

Comprehensive income (loss) is the total of net income (loss), unrealized gains and losses on investments and foreign currency translation adjustments. Unrealized gains and losses on investments and foreign currency translation adjustment amounts are excluded from net loss and are reported in accumulated other comprehensive income (loss) in the accompanying consolidated financial statements.

Recent Accounting Pronouncements

In May 2014, the FASB issued Accounting Standards Update No. 2014-09 (ASU 2014-09) "Revenue from Contracts with Customers." ASU 2014-09 supersedes the revenue recognition requirements in “Revenue Recognition (Topic 605)”, and requires entities to recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services. ASU 2014-09 is effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. Early adoption is not permitted. The Company is currently in the process of evaluating the impact of the adoption of ASU 2014-09 on the consolidated financial statements.

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CONSOLIDATED BALANCE SHEETS (Parenthetical) (USD $) In Thousands, except Share data, unless otherwise specified	Dec. 31, 2014	Dec. 31, 2013
Statement of Financial Position [Abstract]
Accounts receivable, allowances (in dollars)	$ 1,063	$ 650
Preferred stock, par value (in dollars per share)	$ 0.001	$ 0.001
Preferred stock, shares authorized	5,000,000	5,000,000
Preferred stock, shares issued	0	0
Preferred stock, shares outstanding	0	0
Common stock, par value (in dollars per share)	$ 0.001	$ 0.001
Common stock, shares authorized	100,000,000	100,000,000
Common stock, shares issued	51,285,000	47,817,000
Common stock, shares outstanding	48,946,000	45,478,000
Treasury stock, shares	2,339,000	2,339,000

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Net Loss Per Share

12 Months Ended

Dec. 31, 2014

Earnings Per Share [Abstract]

Net Loss Per Share

Net Loss Per Share

Basic net loss per share is calculated by dividing net loss for the period by the weighted average common shares outstanding during the period. Diluted net loss per share is calculated by dividing the net loss for the period by the weighted average common shares outstanding, adjusted for all dilutive potential common shares, which includes shares issuable upon the conversion of the Convertible Notes, the exercise of outstanding common stock options, the release of restricted stock, and purchases of shares under the Employee Share Purchase Plan (ESPP) to the extent these shares are dilutive. For 2014, 2013 and 2012, the diluted net loss per share calculation was the same as the basic net loss per share calculation as all potential common shares were anti-dilutive.

Diluted net loss per share does not include the effect of the following potential weighted average common shares because to do so would be anti-dilutive for the periods presented (in thousands):

	Years Ended December 31,
	2014	2013	2012
Restricted stock	2,379	1,918	3,543
Stock options	1,630	2,490	3,299
ESPP	39	42	67
Convertible notes	829	7,129	7,680
Total	4,877	11,579	14,589

The weighted average exercise price of stock options excluded for 2014, 2013 and 2012 was $4.09, $4.42 and $4.74, respectively.

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Document and Entity Information (USD $) In Millions, except Share data, unless otherwise specified	12 Months Ended
	Dec. 31, 2014	Feb. 17, 2015	Jun. 30, 2014
Document and Entity Information
Entity Registrant Name	CALLIDUS SOFTWARE INC
Entity Central Index Key	0001035748
Document Type	10-K
Document Period End Date	Dec. 31, 2014
Amendment Flag	false
Current Fiscal Year End Date	--12-31
Entity Well-known Seasoned Issuer	No
Entity Voluntary Filers	No
Entity Current Reporting Status	Yes
Entity Filer Category	Accelerated Filer
Entity Public Float			$ 564.0
Entity Common Stock, Shares Outstanding		49,075,288
Document Fiscal Year Focus	2014
Document Fiscal Period Focus	FY

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Stock-Based Compensation

12 Months Ended

Dec. 31, 2014

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Stock-Based Compensation

Stock-Based Compensation

Stockholder-Approved Stock Option and Incentive Plans

In June 2013, the 2013 Stock Incentive Plan ("2013 Plan") became effective upon the approval of the Company's Board of Directors and stockholders, and as a result, the 2003 Stock Incentive Plan ("2003 Plan") was expired and replaced. All outstanding shares available for grant under the 2003 Plan expired upon the adoption of the 2013 Plan.

The Company was authorized to issue 3,469,500 shares of common stock under the 2013 Plan. Under the 2013 plan, the Company's Board of Directors (or an authorized subcommittee) may grant stock options or other types of stock awards, such as restricted stock, restricted stock units, stock bonus awards or stock appreciation rights. Incentive stock options may be granted only to the Company's employees. Nonstatutory stock options and other stock-based awards may be granted to employees, consultants or non-employee directors. These options vest as determined by the board of directors (or an authorized subcommittee), generally over four years. The restricted stock units also vest as determined by the board, generally over three years.

Shares Available for Grant

A summary of the Company's shares available for grant and the status of options and awards are as follows:

	Years Ended December 31,
	2014		2013		2012
	(Number of Shares)
Beginning Available	2,478,798		2,578,940		2,014,218
Authorized	—		3,469,500		1,756,431
Granted	(1,913,499	)	(2,024,798	)	(2,519,851	)
Cancelled	383,549		1,335,591		1,328,142
Expired	(178,337	)	(2,880,435	)	—
Ending Available	770,511		2,478,798		2,578,940

Expense Summary

Stock-based compensation expenses of $11.8 million, $10.4 million and $13.7 million was recorded during the years ended December 31, 2014, 2013 and 2012, in the consolidated statement of comprehensive loss. The table below sets forth a summary of stock-based compensation expense for the years ended December 31, 2014, 2013 and 2012 (in thousands).

	Years Ended December 31,
	2014		2013		2012
Stock-based compensation:
Stock Options	$	790	$	866	$	838
Restricted Stock Units
Performance-based Awards	2,370		1,097		444
Service-based Awards	7,705		7,835		11,571
ESPP	948		597		802
Total stock-based compensation	$	11,813	$	10,395	$	13,655

The table below sets forth the functional classification of stock-based compensation expense for the years ended December 31, 2014, 2013 and 2012 (in thousands):

	Years Ended December 31,
	2014		2013		2012
Stock-based compensation:
Cost of recurring revenue	$	911	$	783	$	1,550
Cost of services and other revenue	1,026		1,060		2,070
Sales and marketing	3,518		2,420		3,778
Research and development	2,012		1,797		1,782
General and administrative	4,346		4,335		4,475
Total stock-based compensation	$	11,813	$	10,395	$	13,655

Determination of Fair Value    

The fair value of service-based awards is estimated based on the market value of the Company’s stock on the date of grant. A portion of the performance-based awards granted during 2014 are based on relative stockholder return and therefore are subject to a market condition. As a result, the fair value of performance awards is calculated using a Monte Carlo simulation model that estimates the distribution of the potential outcomes of the grants of performance awards based on simulated future index of the peer companies.

The fair value of each stock option is estimated on the date of grant and the fair value of each ESPP share is estimated on the beginning date of the offering period using the Black-Scholes-Merton valuation model and the assumptions noted in the following table.

	Years Ended December 31,
	2014	2013	2012
Stock Option Plans
Expected life (in years)	—	5.0 to 6.1	5.0 to 6.0
Risk-free interest rate	—	1.41% to 1.93%	0.72% to 1.33%
Volatility	—	61% to 63%	60% to 65%
Dividend Yield	—	—	—
Employee Stock Purchase Plan
Expected life (in years)	0.5 to 1.0	0.5 to 1.0	0.5 to 1.0
Risk-free interest rate	0.05% to 0.12%	0.08% to 0.17%	0.13% to 0.20%
Volatility	47% to 50%	41% to 62%	56% to 62%
Dividend Yield	—	—	—

Expected Dividend Yield—The Company has never paid dividends and do not expect to pay dividends.

Risk-Free Interest Rate—The risk-free interest rate was based on the implied yield currently available on U.S. Treasury zero-coupon issues with a remaining term equivalent to the expected term.

Expected Term—Expected term represents the period that the Company's stock-based awards are expected to be outstanding. The Company's assumptions about the expected term have been based on historical experience, giving consideration to the contractual terms of the stock-based awards, vesting schedules and expectations of future employee behavior as influenced by changes to the terms of its stock-based awards. The expected term for stock options was estimated using the simplified method allowed under SEC guidance.

Expected Volatility—Expected volatility is based on the historical volatility over the expected term.

Stock Options

As of December 31, 2014, the Company had $1.8 million of unrecognized compensation expense, net of forfeitures, which it expects to recognize over a weighted average period of 2.5 years. No stock options were granted during the year ended December 31, 2014. For the years ended December 31, 2013, the weighted-average fair value of stock options granted by the Company was $3.87 per share. The total intrinsic value of stock options exercised was $5.9 million, $6.2 million and $1.4 million for 2014, 2013 and 2012, respectively. The total cash received from employees as a result of stock option exercises was $2.9 million, $5.1 million and $3.7 million for 2014, 2013 and 2012, respectively.    

Stock option activity is summarized below:

	Number of Shares		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (Years)	Aggregate Intrinsic Value (in thousands)
Outstanding as of December 31, 2011	4,403,003		$	4.71
Granted	120,200		5.86
Exercised	(714,820	)	5.16			$	1,358
Forfeited	(134,346	)	3.52
Expired	(638,555	)	7.64
Outstanding as of December 31, 2012	3,035,482		4.09
Granted	815,500		6.79
Exercised	(1,427,456	)	3.54			6,151
Forfeited	(108,306	)	5.10
Expired	(367,006	)	5.30
Outstanding as of December 31, 2013	1,948,214		5.34
Granted	—		—
Exercised	(701,220	)	4.09			5,940
Forfeited	(44,407	)	7.40
Expired	(26,626	)	10.17
Outstanding as of December 31, 2014	1,175,961		$	5.89	5.99	$	12,278
Vested and Expected to Vest as of December 31, 2014	1,100,528		$	5.82	5.83	$	11,566
Exercisable as of December 31, 2014	730,899		$	5.33	4.60	$	8,039

As of December 31, 2014, the range of exercise prices and weighted average remaining contractual life of outstanding options are as follows:

		Options Outstanding			Options Exercisable
Range of Exercise Prices	Number of Shares	Weighted Average Remaining Contractual Life (Years)	Weighted Average Exercise Price		Number of Shares	Weighted Average Exercise Price
$3.11 - $4.14	133,132	0.53	$	3.63	133,132	$	3.63
$4.15 - $4.15	140,000	0.92	4.15		140,000	4.15
$4.31 - $5.27	140,061	5.53	4.93		109,695	5.03
$5.70 - $5.70	60,000	1.42	5.70		60,000	5.70
$6.01 - $6.01	122,000	8.41	6.01		48,291	6.01
$6.25 - $6.42	80,700	8.37	6.26		79,900	6.26
$6.59 - $6.59	231,407	8.49	6.59		70,989	6.59
$6.67 - $6.74	42,334	8.50	6.67		14,604	6.67
$7.69 - $7.69	207,327	8.66	7.69		68,622	7.69
$9.17 - $10.35	19,000	8.80	9.98		5,666	9.96
$3.11 - $10.35	1,175,961	5.99	$	5.89	730,899	$	5.33

Restricted Stock Units

As of December 31, 2014, the Company had $16.1 million of unrecognized compensation expense, net of forfeitures, which it expect to recognize over a weighted average period of 1.7 years.

Restricted stock unit activity is summarized below:

	Number of Shares		Weighted Average Remaining Contractual Term (Years)	Aggregate Intrinsic Value (in thousands)
Unreleased as of December 31, 2011	3,859,292
Granted	2,399,651
Released	(2,597,880	)
Forfeited	(551,380	)
Unreleased as of December 31, 2012	3,109,683
Granted	1,209,298
Released	(1,754,872	)
Forfeited	(856,695	)
Unreleased as of December 31, 2013	1,707,414
Granted	1,913,499
Released	(736,269	)
Forfeited	(183,607	)
Unreleased as of December 31, 2014	2,701,037		1.02	$	43,487
Vested and Expected to Vest as of December 31, 2014	2,700,828		1.02	$	40,169

Restricted stock units granted to employees are not considered outstanding at the time of grant, as the holders of these units are not entitled to dividends and voting rights. Unvested restricted stock units are not considered outstanding in the computation of basic net loss per share.

Performance-based Awards

The Company includes performance-based award activity with restricted stock units.

In 2014 the Company granted performance-based awards with vesting contingent on absolute SaaS revenue growth over the three year period from 2014 to 2016, and the Company's relative total shareholder return over the three year period from 2014 through 2016 versus an index of 17 SaaS companies. In 2014, $1.9 million of expense, net of forfeiture, was recognized.

In 2013, the Company granted performance-based awards with vesting contingent on successful attainment of pre-set SaaS revenue growth and recurring revenue gross profit target. In 2014 $0.5 million expense, net of forfeiture, was recognized.

Employee Stock Purchase Plan

The Company's Employee Stock Purchase Plan (ESPP), which was adopted in 2003 and amended and restated in 2013, qualifies as an "employee stock purchase plan" under Section 423 of the Internal Revenue Code. The ESPP is designed to enable eligible employees to purchase shares of the Company's common stock at a discount on a periodic basis through payroll deductions. Each offering period under the ESPP covers 12 months and consists of two consecutive six-month purchase periods. The purchase price for shares of common stock purchased under the ESPP is 85% of the lesser of the fair market value of the Company's common stock on the first day of the applicable offering period and the fair market value of the Company's common stock on the last day of each purchase period. The Company issued approximately 319,000, 435,000 and 407,000 shares during the years ended December 31, 2014, 2013 and 2012 under the ESPP. The weighted-average fair value of stock purchase rights granted under the ESPP during 2014, 2013 and 2012 was $3.59 per share, $1.96 per share and $1.76 per share, respectively.

As of December 31, 2014, the Company had $0.5 million of unrecognized compensation expense related to ESPP subscriptions that will be recognized over 0.6 years.

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CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (USD $) In Thousands, except Per Share data, unless otherwise specified	12 Months Ended
	Dec. 31, 2014	Dec. 31, 2013	Dec. 31, 2012
Revenues:
Recurring	$ 99,807	$ 81,734	$ 70,919
Services and other	36,811	30,603	24,033
Total revenues	136,618	112,337	94,952
Cost of revenues:
Recurring	31,282	28,741	30,039
Services and other	24,756	19,048	20,301
Total cost of revenues	56,038	47,789	50,340
Gross profit	80,580	64,548	44,612
Operating expenses:
Sales and marketing	47,040	34,916	32,442
Research and development	20,307	17,143	16,643
General and administrative	26,255	22,951	19,953
Income from settlement and patent licensing	(500)	(500)	0
Acquisition-related contingent consideration	0	0	(1,612)
Restructuring	1,025	1,699	1,115
Total operating expenses	94,127	76,209	68,541
Operating loss	(13,547)	(11,661)	(23,929)
Interest income and other income (expense), net	3,504	264	70
Interest expense	(506)	(3,183)	(3,451)
Induced Conversion of Convertible Debt Expense	0	(4,776)	0
Loss before provision (benefit) for income taxes	(10,549)	(19,356)	(27,310)
Provision (benefit) for income taxes	1,012	2,055	388
Net loss	(11,561)	(21,411)	(27,698)
Net loss per share-basic and diluted
Net loss per share (in dollars per share)	$ (0.24)	$ (0.55)	$ (0.78)
Shares used in basic and diluted per share computation (in shares)	47,547	38,858	35,393
Comprehensive loss
Net loss	(11,561)	(21,411)	(27,698)
Unrealized gains on available-for-sale securities	(7)	(11)	26
Foreign currency translation adjustments	(897)	(63)	24
Comprehensive loss	$ (12,465)	$ (21,485)	$ (27,648)

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Fair Value Measurements

12 Months Ended

Dec. 31, 2014

Fair Value Disclosures [Abstract]

Fair Value Measurements

Fair Value Measurements

The Company measures financial assets at fair value on an ongoing basis. The estimated fair value of the Company's financial assets was determined using the following inputs at December 31, 2014 and 2013 (in thousands):

	Fair Value Measurements at Reporting Date Using
December 31, 2014	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Money market funds (1)	$	6,310	$	6,310	$	—	$	—
Corporate notes and obligations (2)	2,766		—		2,766		—
Total	$	9,076	$	6,310	$	2,766	$	—

_______________________________________________________________________________

(1) Included in cash and cash equivalents on the consolidated balance sheet.

(2) Included in short-term investments on the consolidated balance sheet.

	Fair Value Measurements at Reporting Date Using
December 31, 2013	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Money market funds(1)	$	6,306	$	6,306	$	—	$	—
Corporate notes and obligations(2)	6,115		—		6,115		—
U.S. government and agency obligations(2)	1,751		—		1,751		—
Total	$	14,172	$	6,306	$	7,866	$	—

_______________________________________________________________________________

(1) Included in cash and cash equivalents on the consolidated balance sheet.

(2) Included in short-term investments on the consolidated balance sheet.

During 2014 and 2013 the Company had no Level 3 instruments.

Valuation of Investments

Level 1 and Level 2

The Company's available-for-sale securities include money market funds, U.S. Treasury bills, commercial paper, corporate notes and obligations, and U.S. government and agency obligations. The Company values these securities using a pricing matrix from a pricing service provider, who may use quoted prices in active markets for identical assets (Level 1 inputs) or inputs other than quoted prices that are observable either directly or indirectly (Level 2 inputs). The Company classifies all of its available-for-sale securities, except for money market funds and U.S. Treasury, as having Level 2 inputs. The Company validates the estimated fair value of certain securities from a pricing service provider on a quarterly basis. The valuation techniques used to measure the fair value of the financial instruments having Level 2 inputs, all of which have counterparties with high credit ratings, were derived from the following: non-binding market consensus prices that are corroborated by observable market data, quoted market prices for similar instruments or pricing models, with all significant inputs derived from or corroborated by observable market data.

Level 3

The Company did not have any transfers between Level 1, Level 2 and Level 3 fair value measurements during the year ended December 31, 2014 as there were no changes in the composition in Level 1, 2 or 3.

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Financial Instruments

12 Months Ended

Dec. 31, 2014

Financial Instruments

Financial Instruments

Financial Instruments

As of December 31, 2014, all marketable debt securities are classified as available-for-sale and carried at estimated fair value, which is determined based on the inputs discussed below.

The Company classifies all highly liquid instruments with an original maturity on the date of purchase of three months or less as cash and cash equivalents. The Company classifies available-for-sale securities that have a maturity date longer than three months to be short-term investments, including those investments with a maturity date of longer than one year that are highly liquid and for which the Company does not have a positive intent to hold to maturity.

Interest income is included within interest income and other income (expense), net in the accompanying consolidated statements of comprehensive loss. Realized gains and losses are calculated using the specific identification method. As of December 31, 2014 and 2013, the Company had no short-term investments in an unrealized loss position for a duration greater than 12 months.

The components of the Company's marketable debt securities classified as available-for-sale were as follows at December 31, 2014 (in thousands):

December 31, 2014	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair value
Cash	$	27,890	$	—	$	—		$	27,890
Cash equivalents:
Money market funds	6,310		—		—			6,310
Total cash equivalents	6,310		—		—			6,310
Total cash and cash equivalents	$	34,200	$	—	$	—		$	34,200
Short-term investments:
Corporate notes and obligations	2,773		—		(7		)	2,766
Total short-term investments	$	2,773	$	—	$	(7	)	$	2,766

For investments in securities classified as available-for-sale, market value and the amortized cost of debt securities have been classified in accordance with the following maturity groupings based on the contractual maturities of those securities as of December 31, 2014 (in thousands):

Contractual maturity	Amortized Cost		Estimated Fair value
Less than 1 year	$	1,956	$	1,954
Between 1 and 2 years	817		812
Total	$	2,773	$	2,766

The components of the Company's marketable debt securities classified as available-for-sale were as follows for December 31, 2013 (in thousands):

December 31, 2013	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair value
Cash	$	21,989	$	—	$	—	$	21,989
Cash equivalents:
Money market funds	6,306		—		—		6,306
Total cash equivalents	6,306		—		—		6,306
Total cash and cash equivalents	$	28,295	$	—	$	—	$	28,295
Short-term investments:
U.S. government and agency obligations	6,115		—		—		6,115
Corporate notes and obligations	1,751		—		—		1,751
Total short-term investments	$	7,866	$	—	$	—	$	7,866

For investments in securities classified as available-for-sale, estimated fair value and the amortized cost of debt securities have been classified in accordance with the following maturity groupings based on the contractual maturities of those securities as of December 31, 2013 (in thousands):

Contractual maturity	Amortized Cost		Estimated Fair value
Less than 1 year	$	5,066	$	5,066
Between 1 and 2 years	2,800		2,800
Total	$	7,866	$	7,866

The Company had no realized losses on sales of its investments during the years ended December 31, 2014, 2013, and 2012, respectively. The Company had proceeds, net of purchases of investments, of $5.1 million and $4.8 million from maturities and sales of investments for 2014 and 2013, respectively.

The short-term investments in government obligations or highly rated credit securities generally have minor to moderate fluctuations in the fair values from period to period. The Company monitors credit ratings, downgrades and significant events surrounding these securities so as to assess if any of the impairments will be considered other-than-temporary. The Company did not identify any government obligations or highly rated credit securities held as of December 31, 2014 and 2013 for which the fair value declined significantly below amortized cost and were considered other-than-temporary impairments.

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Related Party Transactions

12 Months Ended

Dec. 31, 2014

Related Party Transactions [Abstract]

Related Party Transactions

Related Party Transactions

In June 2013, in the normal course of business, the Company entered into agreements with Lithium Technologies, Inc. (“Lithium”). The Chief Financial Officer of Lithium is a member of the Company's Board of Directors. The Company purchased an annual subscription for Lithium's social media management solutions in the amount of $120,000 and renewed in 2014. During 2013 and 2014, the Company paid the entire annual fee of $120,000 in each year, for Lithium’s social media management solution. For the 2013 fee, $62,000 was expensed in 2013 and $58,000 was expensed in 2014. For the 2014 fee, $62,000 was expensed in 2014 and $58,000 was included in prepaid expenses in current assets, as of December 31, 2014. In 2013, Lithium entered into a two-year web hosting agreement with the Company in the amount of $113,000. During 2013, the Company recognized approximately $52,000 in revenue under this agreement. In addition, during 2013, the Company entered into an agreement with Lithium in the amount of $143,550 under which it provided professional services, of which approximately $120,000 was recognized in 2013 and the remaining balance of $23,550 was recognized in 2014.

In 2014, the Company purchased a one-time annual subscription from Lithium for Social Success Services for $40,000, which amount was paid in full in October 2014. As of December 31, 2014, $17,000 of this amount was expensed and $23,000 was included in prepaid expenses. Also in 2014, the Company purchased an annual subscription from Lithium for Community Administration for $45,000, which was paid in full in January 2015.

Webcom Inc., a wholly-owned subsidiary of the Company, uses the services of a third-party vendor to perform product modeling and maintenance of certain equipment. The third-party vendor is owned by a relative of Webcom's senior management. For the year ended December 31, 2014 and 2013, the Company paid approximately $149,000 and $143,000, respectively, to this vendor.

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Stockholders' Equity

12 Months Ended

Dec. 31, 2014

Stockholders' Equity Note [Abstract]

Stockholders' Equity

Stockholders' Equity

Preferred Stock

The Company's certificate of incorporation authorizes 5,000,000 shares of undesignated preferred stock with a par value of $0.001, of which no shares were outstanding as of December 31, 2014 and 2013.

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Contractual Obligations, Commitments and Contingencies

12 Months Ended

Dec. 31, 2014

Commitments and Contingencies Disclosure [Abstract]

Contractual Obligations, Commitments and Contingencies

Contractual Obligations, Commitments and Contingencies

Contractual Obligations and Commitments

For each of the next five years and beyond, the Company has the following contractual obligations, long-term operating and capital lease obligations and unconditional purchase commitments (in thousands):

	Settlement Payable (1)				Unconditional purchase commitments (2) (3) (4)		Operating lease commitments (5)		Capital lease obligations (6)
	Principal		Interest
Year Ending December 31:
2015	$	1,963	$	37	$	9,271	$	694	$	1,011
2016	1,900		100		223		2,323		—
2017	466		34		—		2,266		—
2018	—		—		—		2,185		—
2019	—		—		—		2,024		—
2020 and beyond	—		—		—		5,067		—
Future minimum payments	$	4,329	$	171	$	9,494	$	14,559	1,011
Less: amount representing interest									(10		)
Present value of capital lease obligations									$	1,001

(1) In November 2014, the Company entered into a settlement agreement with Versata and agreed to make payments of $0.5 million starting on January 31, 2015 and every three months thereafter to January 2017.

(2) Unconditional purchase commitments includes the financing arrangement that the Company entered into in 2014, for the purchase of storage equipment, primarily for the Company's data centers. The principal amount financed is $3.8 million and is payable in two installments of $2.6 million and $1.2 million in three months and one year, respectively, from November 2014.

(3) Unconditional purchase commitments includes indemnity holdback payables for Clicktools Ltd. and LeadRocket, Inc.

(4) Unconditional purchase commitments includes $2.7 million for leasehold improvements for the Company's headquarters.

(5) The Company has facilities under several non-cancellable operating lease agreements that expire at various dates through 2018. The Company's rent expense for the years ended December 31, 2014, 2013 and 2012 was $2.1 million, $1.9 million and $1.5 million, respectively.

(6) The Company entered into non-cancellable capital leases with various expiration dates.

(7) The above table does not include the Wells Fargo Revolver, because the Company was unable to make a reasonably reliable estimate of the amount and period in which the Revolver will be paid.

Included in non-current deposits and other assets in the consolidated balance sheets at December 31, 2014 and 2013 is restricted cash and rental deposits totaling $0.2 million and $0.5 million, respectively,related to security deposits on leased facilities and a customer letter of credit. The restricted cash represents investments in certificates of deposit and secured letters of credit required by landlords to meet security deposit requirements for the leased facilities.

As of December 31, 2014, the liability for uncertain tax positions was $3.0 million including interest. Due to the high degree of uncertainty regarding the timing of potential future cash flows associated with these liabilities, the Company is unable to make a reasonably reliable estimate of the amount and period in which these liabilities might be paid.

In October 2014, the Company entered into a sublease agreement ("Sublease") with Oracle America, Inc. (“Sublandlord”) for office space located at 4140 Dublin Boulevard, Dublin, California 94568 ("Subleased Premises"), to replace the Company’s current corporate headquarters.

The term of the Sublease commences in February 2015, when the Sublandlord delivers possession of the Subleased Premises to the Company and expires on May 15, 2022. Base rent will be abated from the commencement of the Sublease until November 30, 2015. Thereafter, monthly base rent will be $149,928 for 2015 and increase annually as set forth in the Sublease, up to $184,411 in 2022. The total cash obligation for base rent over the term of the Sublease is approximately $15.1 million, without rent abatement, and is included in the operating lease commitment in the table above. In addition to base rent, the Company will be required to pay its pro rata share of building operating costs including utilities, insurance, repair and personnel costs, along with real estate taxes in excess of the amounts for certain base years.

Letter of Credit

The Company obtained a $0.2 million letter of credit in August 2014 for its leased space in Pleasanton, California. The letter of credit will expire on August 31, 2015.

The Company obtained a $1.1 million letter of credit in October 2014 for its leased space in Dublin, California. The letter of credit will expire on October 1, 2015.

Warranties and Indemnification

The Company generally warrants that its software will perform to standard documentation. Under the Company's standard warranty, should a software product not perform as specified in the documentation within the warranty period, it will repair or replace the software or refund the license fee paid. To date, the Company has not incurred any costs related to warranty obligations for its software.

The Company's product license and on-demand agreements typically include a limited indemnification provision for claims by third parties relating to its intellectual property. To date, the Company has not incurred and has not accrued for any costs related to such indemnification provisions.

Intellectual Property Litigation

Versata Software, Inc., Versata Development Group, Inc. and Versata Inc. v. Callidus Software, Inc - Settled

On July 19, 2012, Versata Software, Inc. and Versata Development Group, Inc. (collectively, “Versata”) filed suit against the Company in the United States District Court for the District of Delaware (“Delaware District Court”). The suit asserted that the Company infringed U.S. Patent Nos. 7,904,326, 7,908,304 and 7,958,024. On May 30, 2013, the Company answered the complaint and filed a counterclaim in the Delaware District Court. The Company's counterclaim asserted that Versata infringed U.S. Patent Nos. 6,269,355, 6,850,924 and 6,473,748. On August 30, 2013, the Company filed petitions with the United States Patent and Trademark Office Patent Trial and Appeal Board (“PTAB”) for covered business method (“CBM”) patent review of U.S. Patent Nos. 7,904,326, 7,908,304 and 7,958,024, which Versata filed responses to on December 12, 2013. The Company also filed a motion with the Delaware District Court on August 30, 2013 to stay the litigation pending completion of the patent review proceedings with the PTAB (“Motion to Stay”). On January 8, 2014, the Company was granted leave by the Delaware District Court to add Versata Inc. (included in the above definition of “Versata”) as a counterclaim defendant. On March 4, 2014, the PTAB instituted covered business method patent review of each of Versata’s patents, namely, U.S. Patent Nos. 7,904,326, 7,908,304 and 7,958,024, finding it more likely than not that the Company would prevail in establishing that the challenged claims were not patentable. After requesting the PTAB to reconsider its decision to institute, which was denied, Versata filed a petition for writ of mandamus with the Court of Appeals for the Federal Circuit (“CAFC”) on April 11, 2014 asking that Court to deny institution of CBM patent review by the PTAB. The CAFC denied Versata’s petition for writ of mandamus on May 5, 2014. On April 17, 2014, the Company filed additional petitions with the PTAB for CBM patent review to address all of the remaining claims not previously covered in the prior petitions with respect to U.S Patent Nos. 7,908,304 and 7,958,024. On May 8, 2014, the Delaware District Court: (i) granted our Motion to Stay in part with respect to U.S. Patent No. 7,904,326, and (ii) denied the Company's Motion to Stay in part with respect to U.S. Patent Nos. 7,908,304 and 7,958,024. On May 8, 2014, the Company appealed to the CAFC the Delaware District Court’s denial of the Motion to Stay with respect to U.S. Patent Nos. 7,908,304 and 7,958,024. On October 2, 2014, the PTAB instituted covered business method patent review of the remaining claims covered in the second set of petitions for U.S Patent Nos. 7,908,304 and 7,958,024. On October 21, 2014, the Company engaged in a mediation with Versata and on November 13, 2014, entered into an agreement with Versata to settle and dismiss the pending district court litigation and patent office proceedings, to extend patent cross-licenses and covenants not to sue to one another, and the Company was appointed as an authorized reseller of certain Versata products. Under the agreement, each party covenanted not to sue the other (and its related entities) for infringement of any patents now owned (including pending patents) or later acquired by either party. In addition, each party granted to the other a fully paid-up, irrevocable, nonexclusive, worldwide license to certain patents (including the patents asserted in the pending district court litigation) for specified products of each party. The agreement also contained a release for any past infringement or claim between the parties and dismissal of the civil pending in the Delaware District Court, as well as the five covered business method patent review proceedings then-pending before the PTAB. Pursuant to the agreement, the Company agreed to pay to Versata $4.5 million in nine equal quarterly installments, commencing on January 31, 2015. The fair value of these payments was $4.3 million, of which the Company recognized a charge to earnings for $2.9 million in 2014 and capitalized $1.4 million for the value of the patent license. The $1.4 million will be amortized to expense over the average life span of the associated patents of approximately 9.5 years. The difference between the installment payment and the fair value will be charged to interest as incurred.

Callidus Software, Inc. v. Xactly Corporation - Settled

On August 31, 2012, the Company filed suit against Xactly Corporation (“Xactly”) in the United States District Court for the Central District of California. The suit alleged that Xactly infringed U.S. Patents 8,046,387 and 7,774,378. On October 24, 2012, the Company amended its complaint to add Xactly's President and Chief Executive Officer as a defendant and to add claims for trademark infringement, false advertising, false and misleading advertising, trade libel, defamation, intentional interference with prospective economic advantage, intentional interference with contractual relations, breach of contract and unfair competition, in addition to patent infringement. On January 28, 2013, the Company further amended its complaint to allege that Xactly also infringed U.S. Patent 6,473,748 and dismissed its intentional interference with contractual relations claim. On March 14, 2013, the case was transferred to the United States District Court in the Northern District of California. On May 31, 2013, the Company and Xactly entered into a stipulated dismissal of the Company's trademark infringement claim whereby Xactly agreed that it would not use the Company's trademarks-in-suit in certain of Xactly's marketing and advertising activities going forward. On November 25, 2013, Callidus, Xactly and Xactly's President and Chief Executive Officer entered into a Settlement, Release, and License Agreement that, among other things, included an agreement by Xactly to pay the Company $2.0 million in license fee, which will be paid in four equal annual installments of $0.5 million beginning November 2013. Upon receipt of installment payments, the Company will record the amount under operating expenses as an offset to legal fees.

TQP Development, LLC v. Callidus Software, Inc. - Settled

On December 14, 2012, TQP Development, LLC (“TQP”) filed suit against Callidus in the United States District Court for the Eastern District of Texas Marshall Division (“Texas District Court”). The suit asserted that Callidus infringed U.S. Patent No. 5,412,730. The Company filed a petition with the PTAB on October 11, 2013 for covered business method patent review of U.S. Patent No. 5,412,730. On December 2, 2013, the Company entered into a Settlement Agreement with TQP for no monetary consideration. Pursuant to the Settlement Agreement, 1) TQP dismissed, with prejudice, its outstanding suit against the Company in the Texas District Court on December 4, 2013, and 2) the PTAB accepted the parties’ joint motion to terminate the covered business method patent review proceeding on December 11, 2013.

Other matters

In addition to the above litigation matters, the Company from time to time is a party to other various litigation and customer disputes incidental to the conduct of its business. At the present time, the Company believes that none of these matters are likely to have a material adverse effect on the Company's future financial results.

The Company records a liability when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. The Company reviews the need for any such liability on a quarterly basis and records any necessary adjustments to reflect the effect of ongoing negotiations, contract disputes, settlements, rulings, advice of legal counsel, and other information and events pertaining to a particular case in the period they become known. At December 31, 2014, the Company has not recorded any such liabilities in accordance with accounting for contingencies. However, litigation is subject to inherent uncertainties and the Company's view on these matters may change in the future.

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Stockholders' Equity (Details) (USD $)	Dec. 31, 2014	Dec. 31, 2013	Nov. 30, 2003
Stockholders' Equity Note [Abstract]
Preferred stock, shares outstanding	0	0
Preferred Stock
Authorized shares of undesignated preferred stock	5,000,000	5,000,000	5,000,000
Preferred stock par value (in dollars per share)	$ 0.001	$ 0.001	$ 0.001

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Balance Sheet Components

12 Months Ended

Dec. 31, 2014

Balance Sheet Components

Balance Sheet Components

Balance Sheet Components

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

	Estimated Useful Life	As of December 31,
		2014		2013
Equipment	3 years	$	24,189	$	16,616
Purchased software	5 years	6,784		6,648
Furniture and fixtures	3 years	1,772		1,612
Leasehold improvements	Lease term up to 5 years	1,947		1,872
Construction in progress		3,724		72
Property and equipment, gross		38,416		26,820
Less: Accumulated depreciation		19,661		15,469
Property and equipment, net		$	18,755	$	11,351

Depreciation expense for 2014, 2013 and 2012 was $4.8 million, $4.5 million and $3.1 million, respectively.

In 2014, the Company improved its data center and incurred equipment costs. In addition, the Company moved its headquarters from Pleasanton, California to Dublin, California in February 2015 and incurred construction in progress costs related to furniture, fixtures and leasehold improvements.

Property and equipment includes assets that were acquired under capital leases of $6.9 million and $7.3 million for the years ended December 31, 2014 and 2013, respectively. Accumulated amortization relating to these assets acquired under capital leases were $4.3 million and $3.5 million for the years ended December 31, 2014 and 2013, respectively. Amortization expense for these assets have been included in depreciation expense.

Total prepaid and other current assets consisted of the following (in thousands):

	As of December 31,
	2014		2013
Foreign withholding tax	$	177	$	403
Convertible debt issuance costs, current portion	—		129
Deferred commissions	4,215		3,381
Prepaid expenses	5,856		1,945
Other current assets	136		374
Total prepaid and other current assets	$	10,384	$	6,232

Accrued payroll and related expenses consisted of the following (in thousands):

	As of December 31,
	2014		2013
Vacation accrual	$	2,793	$	2,139
Commissions	2,387		2,177
Bonus	1,628		1,262
ESPP	966		686
Severance liability	—		252
Accrued payroll related expenses	1,277		861
Total accrued payroll related expenses	$	9,051	$	7,377

Accrued expenses consisted of the following (in thousands):

	As of December 31,
	2014		2013
Sales tax payable	$	733	$	1,099
Income taxes payable	125		87
Restructuring facility liability	148		98
Versata settlement	1,963		—
Holdback payable	1,922		—
Customer payments	998		438
Equipment financing arrangement	3,775		—
Accrued expenses	7,204		3,673
Total accrued expenses	$	16,868	$	5,395

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Convertible Notes

12 Months Ended

Dec. 31, 2014

Debt Disclosure [Abstract]

Convertible Notes

Convertible Notes

The Convertible Notes contain an optional redemption feature which allows the Company, any time after June 6, 2014, to redeem all or part of the Convertible Notes for cash if the last reported sale price per share of common stock (as defined below) had been at least 130% of the conversion price then in effect for at least 20 trading days during any 30 consecutive trading-day period ending within 5 trading days prior to the date on which the Company provides notice of redemption. The redemption price would be 100% of the principal amount of the notes being redeemed, plus accrued and unpaid interest.

During 2014, the remaining aggregate principal amount of $14.2 million of the Company's 4.75% Convertible Senior Notes (“Convertible Notes”) were converted into 1,840,770 shares of common stock. The Company paid accrued interest of $0.3 million and reclassified $0.3 million of deferred debt issuance costs to additional paid-in capital in connection with the conversion of the Convertible Notes. As of December 31, 2014, the Company had no outstanding Convertible Notes or related deferred debt issuance costs.

During the fourth quarter of 2013, the Company entered into agreements with three existing holders of its Convertible Notes pursuant to which such holders converted $45.0 million aggregate principal amount of the Convertible Notes into 5,837,015 shares of the Company’s common stock. In addition to issuing the requisite number of shares of the Company’s common stock pursuant to the terms of the Convertible Notes, the Company also paid accrued interest of $0.3 million, associated broker cost, cash and stock premium of $4.8 million. The cash and stock premium recognized as Debt Conversion Expense on the Consolidated Statement of Comprehensive Loss for the twelve months ended December 31, 2013. Additionally, in 2013 the Company reclassified $1.0 million of deferred debt issuance costs to additional paid-in capital in connection with the conversion of the Convertible Notes. The current balance of the debt issuance costs associated with the issuance of the Convertible Notes was recorded within prepaid and other current assets, and the non-current balance was recorded within deposits and other assets, and has been amortized to interest expense over the terms of the Convertible Notes. As of December 31, 2013, $0.1 million of the debt issuance costs were included in prepaid and other current assets, with the remaining amount of $0.2 million recorded in deposits and other.

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Revolving Line of Credit (Notes)

12 Months Ended

Dec. 31, 2014

Line of Credit Facility [Line Items]

Schedule of Line of Credit Facilities [Table Text Block]

Revolving Line of Credit

In May 2014, the Company entered into a credit agreement with Wells Fargo Bank, National Association ("Wells Fargo"), under which Wells Fargo agreed to make a revolving loan ("Revolver") to us in an amount not to exceed $10.0 million, with an accordion feature that allows us to increase the maximum borrowing amount by not less than $5.0 million and not more than $10.0 million. In September 2014, the Company increased the maximum borrowing amount to $15.0 million. The Revolver matures in May 2019.

Pursuant to the agreement, the Company is required to maintain a leverage ratio of 3.00:1.00 and a minimum liquidity of $7.5 million.

Outstanding borrowings under the Revolver bear interest, at the Company's option, at a base rate plus an applicable margin. The applicable margin ranges between 0.75% and 2.25% depending on the Company's leverage ratio. A fee of 0.25% per annum is payable with respect to the unused portion of the commitment. Interest is payable every three months. As of December 31, 2014 the Company had borrowed $10.5 million under the Revolver. The carrying value of total debt approximates fair market value. Interest rate at December 31, 2014 was 2%.

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Segment, Geographic and Customer Information (Details) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2014 customer segment	Dec. 31, 2013 customer	Dec. 31, 2012 customer
Segment Reporting [Abstract]
Number of operating segments	1
Revenues by geographic area
Goodwill	$ 46,970	$ 31,207
Intangible Assets, Net (Excluding Goodwill)	17,757	16,995	21,196
Concentration Risk Number of Customers	0	0	0
Revenues	136,618	112,337	94,952
Europe [Member]
Revenues by geographic area
Goodwill	11,369
Intangible Assets, Net (Excluding Goodwill)	2,549
United States
Revenues by geographic area
Revenues	106,194	88,684	74,477
EMEA
Revenues by geographic area
Revenues	15,162	12,241	11,578
Asia Pacific
Revenues by geographic area
Revenues	8,400	5,379	4,943
Other
Revenues by geographic area
Revenues	$ 6,862	$ 6,033	$ 3,954

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Employee Benefit Plan (Details) (USD $)	12 Months Ended
	Dec. 31, 2014	Dec. 31, 2013
Compensation and Retirement Disclosure [Abstract]
Employer matching contribution as a percentage of employee's contribution	50.00%
Maximum annual contribution to the plan made by the employer	$ 1,000
Expense recognized related to 401(k) tax-deferred savings plan	$ 272,000	$ 220,000

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Stock-Based Compensation (Tables)

12 Months Ended

Dec. 31, 2014

Dec. 31, 2013

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Summary of stock-based compensation expenses

The table below sets forth a summary of stock-based compensation expense for the years ended December 31, 2014, 2013 and 2012 (in thousands).

	Years Ended December 31,
	2014		2013		2012
Stock-based compensation:
Stock Options	$	790	$	866	$	838
Restricted Stock Units
Performance-based Awards	2,370		1,097		444
Service-based Awards	7,705		7,835		11,571
ESPP	948		597		802
Total stock-based compensation	$	11,813	$	10,395	$	13,655

Schedule of functional classification of stock-based compensation expense

The table below sets forth the functional classification of stock-based compensation expense for the years ended December 31, 2014, 2013 and 2012 (in thousands):

	Years Ended December 31,
	2014		2013		2012
Stock-based compensation:
Cost of recurring revenue	$	911	$	783	$	1,550
Cost of services and other revenue	1,026		1,060		2,070
Sales and marketing	3,518		2,420		3,778
Research and development	2,012		1,797		1,782
General and administrative	4,346		4,335		4,475
Total stock-based compensation	$	11,813	$	10,395	$	13,655

Schedule of valuation assumptions for determining the fair value of stock options and employee stock purchase plans

The fair value of each stock option is estimated on the date of grant and the fair value of each ESPP share is estimated on the beginning date of the offering period using the Black-Scholes-Merton valuation model and the assumptions noted in the following table.

	Years Ended December 31,
	2014	2013	2012
Stock Option Plans
Expected life (in years)	—	5.0 to 6.1	5.0 to 6.0
Risk-free interest rate	—	1.41% to 1.93%	0.72% to 1.33%
Volatility	—	61% to 63%	60% to 65%
Dividend Yield	—	—	—
Employee Stock Purchase Plan
Expected life (in years)	0.5 to 1.0	0.5 to 1.0	0.5 to 1.0
Risk-free interest rate	0.05% to 0.12%	0.08% to 0.17%	0.13% to 0.20%
Volatility	47% to 50%	41% to 62%	56% to 62%
Dividend Yield	—	—	—

Summary of the Company's shares available for grant

A summary of the Company's shares available for grant and the status of options and awards are as follows:

	Years Ended December 31,
	2014		2013		2012
	(Number of Shares)
Beginning Available	2,478,798		2,578,940		2,014,218
Authorized	—		3,469,500		1,756,431
Granted	(1,913,499	)	(2,024,798	)	(2,519,851	)
Cancelled	383,549		1,335,591		1,328,142
Expired	(178,337	)	(2,880,435	)	—
Ending Available	770,511		2,478,798		2,578,940

Schedule of stock option activity

	Number of Shares		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (Years)	Aggregate Intrinsic Value (in thousands)
Outstanding as of December 31, 2011	4,403,003		$	4.71
Granted	120,200		5.86
Exercised	(714,820	)	5.16			$	1,358
Forfeited	(134,346	)	3.52
Expired	(638,555	)	7.64
Outstanding as of December 31, 2012	3,035,482		4.09
Granted	815,500		6.79
Exercised	(1,427,456	)	3.54			6,151
Forfeited	(108,306	)	5.10
Expired	(367,006	)	5.30
Outstanding as of December 31, 2013	1,948,214		5.34
Granted	—		—
Exercised	(701,220	)	4.09			5,940
Forfeited	(44,407	)	7.40
Expired	(26,626	)	10.17
Outstanding as of December 31, 2014	1,175,961		$	5.89	5.99	$	12,278
Vested and Expected to Vest as of December 31, 2014	1,100,528		$	5.82	5.83	$	11,566
Exercisable as of December 31, 2014	730,899		$	5.33	4.60	$	8,039

Schedule of restricted stock unit activity

	Number of Shares		Weighted Average Remaining Contractual Term (Years)	Aggregate Intrinsic Value (in thousands)
Unreleased as of December 31, 2011	3,859,292
Granted	2,399,651
Released	(2,597,880	)
Forfeited	(551,380	)
Unreleased as of December 31, 2012	3,109,683
Granted	1,209,298
Released	(1,754,872	)
Forfeited	(856,695	)
Unreleased as of December 31, 2013	1,707,414
Granted	1,913,499
Released	(736,269	)
Forfeited	(183,607	)
Unreleased as of December 31, 2014	2,701,037		1.02	$	43,487
Vested and Expected to Vest as of December 31, 2014	2,700,828		1.02	$	40,169

Schedule of range of exercise prices and weighted average remaining contractual life of outstanding options

As of December 31, 2014, the range of exercise prices and weighted average remaining contractual life of outstanding options are as follows:

		Options Outstanding			Options Exercisable
Range of Exercise Prices	Number of Shares	Weighted Average Remaining Contractual Life (Years)	Weighted Average Exercise Price		Number of Shares	Weighted Average Exercise Price
$3.11 - $4.14	133,132	0.53	$	3.63	133,132	$	3.63
$4.15 - $4.15	140,000	0.92	4.15		140,000	4.15
$4.31 - $5.27	140,061	5.53	4.93		109,695	5.03
$5.70 - $5.70	60,000	1.42	5.70		60,000	5.70
$6.01 - $6.01	122,000	8.41	6.01		48,291	6.01
$6.25 - $6.42	80,700	8.37	6.26		79,900	6.26
$6.59 - $6.59	231,407	8.49	6.59		70,989	6.59
$6.67 - $6.74	42,334	8.50	6.67		14,604	6.67
$7.69 - $7.69	207,327	8.66	7.69		68,622	7.69
$9.17 - $10.35	19,000	8.80	9.98		5,666	9.96
$3.11 - $10.35	1,175,961	5.99	$	5.89	730,899	$	5.33

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Contractual Obligations, Commitments and Contingencies (Details) (USD $)	12 Months Ended
	Dec. 31, 2014	Dec. 31, 2013	Dec. 31, 2012
Contractual cash obligations
Quarterly installment of legal settlement	$ 500,000
Operating lease rent expense	2,100,000	1,900,000	1,500,000
Restricted cash	200,000	500,000
Unconditional purchase commitments
Contractual cash obligations
2014	9,271,000
2015	223,000
2016	0
2017	0
Future minimum payments	9,494,000
Operating lease commitments
Contractual cash obligations
2014	694,000
2015	2,323,000
2016	2,266,000
2017	2,185,000
2018	2,024,000
2019 and beyond	5,067,000
Future minimum payments	14,559,000
Principal of settlement payable [Member]
Contractual cash obligations
2014	1,963,000
2015	1,900,000
2016	466,000
2017	0
2018	0
2019 and beyond	0
Future minimum payments	4,329,000
Interest on settlement payable [Member]
Contractual cash obligations
2014	37,000
2015	100,000
2016	34,000
2017	0
2018	0
Future minimum payments	171,000
Capital lease obligations
Contractual cash obligations
2014	1,011,000
2015	0
2016	0
Future minimum payments	1,011,000
Less: amount representing interest	(10,000)
Present value of capital lease obligations	1,001,000
EMC Storage Equipment [Member]
Contractual cash obligations
Principal Amount Outstanding on Loans Managed and Securitized or Asset-backed Financing Arrangement	3,800,000
EMC Storage Equipment [Member] | Due in Three Months [Member]
Contractual cash obligations
Principal Amount Outstanding on Loans Managed and Securitized or Asset-backed Financing Arrangement	$ 2,600,000

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Employee Benefit Plan

12 Months Ended

Dec. 31, 2014

Compensation and Retirement Disclosure [Abstract]

Employee Benefit Plan

Employee Benefit Plan

In 1999, the Company established a 401(k) tax-deferred savings plan ("401(k) plan"), whereby eligible employees may contribute a percentage of their eligible compensation up to the maximum allowed under IRS rules. The Company's contributions are discretionary, and no such contributions have been made since the inception of this plan up until December 31, 2011. Beginning January 1, 2012, the Company contributed 50% of each dollar that an employee contributed to their 401(k) plan up to a maximum of $1,000 annually, and the vesting of the Company's contributions is based on years of service. During the years ended December 31, 2014 and 2013, the Company recognized approximately $272,000 and $220,000, respectively in expense related to the 401(k) plan match.

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Restructuring (Tables)

12 Months Ended

Dec. 31, 2014

Restructuring and Related Activities [Abstract]

Summary of accrued restructuring expenses

The following table sets forth a summary of accrued restructuring expenses for 2014 and 2013 (in thousands):

	December 31, 2013		Additions		Adjustments		Cash Payments			December 31, 2014
Severance and termination-related costs	$	141	$	70	$	—	$	(211	)	$	—
Facilities related costs	234		162		20		(222		)	194
Total accrued restructuring expenses	$	375	$	232	$	20	$	(433	)	$	194

	December 31, 2012		Additions		Adjustments			Cash Payments			December 31, 2013
Severance and termination-related costs	$	589	$	1,706	$	(7	)	$	(2,147	)	$	141
Facilities related costs	289		—		—			(55		)	234
Total accrued restructuring expenses	$	878	$	1,706	$	(7	)	$	(2,202	)	$	375

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Balance Sheet Components (Details) (USD $)	12 Months Ended
	Dec. 31, 2014	Dec. 31, 2013	Dec. 31, 2012
Property and equipment
Foreign withholding tax	$ 177,000	$ 403,000
Deferred Foreign Income Tax Expense (Benefit)	(93,000)	81,000	32,000
Property and equipment, gross	38,416,000	26,820,000
Less: Accumulated depreciation	19,661,000	15,469,000
Property and equipment, net	18,755,000	11,351,000
Depreciation and amortization expense	4,800,000	4,500,000	3,100,000
Amortization of intangible assets	4,971,000	4,825,000	5,094,000
Prepaids and other current assets
Convertible debt issuance costs, current portion	0	129,000
Deferred costs	4,215,000	3,381,000
Prepaid expenses	5,856,000	1,945,000
Other current assets	136,000	374,000
Total prepaid and other current assets	10,384,000	6,232,000
Accrued payroll and related expenses
Vacation accrual	2,793,000	2,139,000
Commissions	2,387,000	2,177,000
Accrued Bonuses, Current	1,628,000	1,262,000
ESPP	966,000	686,000
Restructuring severance liability	0	252,000
Accrued payroll related expenses	1,277,000	861,000
Total accrued payroll related expenses	9,051,000	7,377,000
Accrued expenses
Sales tax payable	733,000	1,099,000
Income taxes payable	125,000	87,000
Restructuring facility liability	148,000	98,000
Estimated Litigation Liability, Current	1,963,000	0
Business Acquisition, Indemnity Holdback Accrued	1,922,000	0
Customer Deposits, Current	998,000	438,000
Loans Payable, Current	3,775,000	0
Other Accrued Liabilities, Current	7,204,000	3,673,000
Total accrued expenses	16,868,000	5,395,000
Equipment
Property and equipment
Property and equipment, gross	24,189,000	16,616,000
Property, Plant and Equipment, Useful Life	3 years
Purchased software
Property and equipment
Property and equipment, gross	6,784,000	6,648,000
Property, Plant and Equipment, Useful Life	5 years
Furniture and fixtures
Property and equipment
Property and equipment, gross	1,772,000	1,612,000
Property, Plant and Equipment, Useful Life	3 years
Leasehold improvements
Property and equipment
Property and equipment, gross	1,947,000	1,872,000
Property, Plant and Equipment, Useful Life	5 years
Construction in progress
Property and equipment
Property and equipment, gross	3,724,000	72,000
Assets acquired under capital leases
Property and equipment
Property and equipment, gross	6,900,000	7,300,000
Less: Accumulated depreciation	$ 4,300,000	$ 3,500,000

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Restructuring (Details) (USD $)	12 Months Ended
	Dec. 31, 2014	Dec. 31, 2013	Dec. 31, 2012
Restructuring and Related Activities [Abstract]
Restructuring expenses	$ 1,025,000	$ 1,699,000	$ 1,115,000
Restructuring
Other Noncash Income (Expense)	800,000
Changes in restructuring reserve
Balance at the beginning of the period	194,000	375,000	878,000
Cash Payments		(232,000)	(1,706,000)
Additions		20,000	(7,000)
Adjustments		433,000	2,202,000
Balance at the end of the period		194,000	375,000
Severance and termination-related costs
Changes in restructuring reserve
Balance at the beginning of the period		141,000	589,000
Cash Payments		(70,000)	(1,706,000)
Additions		0	(7,000)
Adjustments		211,000	2,147,000
Balance at the end of the period		0	141,000
Facilities related costs
Changes in restructuring reserve
Balance at the beginning of the period		234,000	289,000
Cash Payments		(162,000)	0
Additions		20,000	0
Adjustments		222,000	55,000
Balance at the end of the period		$ 194,000	$ 234,000

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CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (USD $) In Thousands, except Share data, unless otherwise specified	Total	Common Stock	Additional Paid-in Capital	Treasury Stock	Accumulated Other Comprehensive Income	Accumulated Deficit
Balance at Dec. 31, 2011	$ 14,542	$ 33	$ 238,798	$ (14,430)	$ 189	$ (210,048)
Balance (in shares) at Dec. 31, 2011		35,198,000		2,339,000
Increase (Decrease) in Shareholders' Equity
Exercise of stock options under stock incentive plans	3,683	1	3,682
Exercise of stock options under stock incentive plans (in shares)		715,000
Issuance of common stock under stock purchase plans	1,542		1,542
Issuance of common stock under stock purchase plans (in shares)		407,000
Issuance of common stock under restricted stock plans, net of shares withheld for employee taxes	(2,346)	0	(2,346)
Issuance of common stock under restricted stock plans, net of shares withheld for employee taxes (in shares)		2,218,000
Stock-based compensation	13,655		13,655
Unrealized gain (loss) on investments	26				26
Cumulative translation adjustment	24				24
Net loss	(27,698)					(27,698)
Balance at Dec. 31, 2012	3,428	34	255,331	(14,430)	239	(237,746)
Balance (in shares) at Dec. 31, 2012		38,538,000		2,339,000
Increase (Decrease) in Shareholders' Equity
Exercise of stock options under stock incentive plans	5,055	1	5,054
Exercise of stock options under stock incentive plans (in shares)		1,429,000
Issuance of common stock under stock purchase plans	1,574	1	1,573
Issuance of common stock under stock purchase plans (in shares)		435,000
Issuance of common stock under restricted stock plans, net of shares withheld for employee taxes	(1,297)	3	(1,300)
Issuance of common stock under restricted stock plans, net of shares withheld for employee taxes (in shares)		1,544,000
Stock-based compensation	10,395		10,395
Conversion of debt to equity	44,383	6	44,377
Conversion of debt to equity (in shares)		5,871,000
Unrealized gain (loss) on investments	(11)				(11)
Cumulative translation adjustment	(63)				(63)
Net loss	(21,411)					(21,411)
Balance at Dec. 31, 2013	42,053	45	315,430	(14,430)	165	(259,157)
Balance (in shares) at Dec. 31, 2013		47,817,000		2,339,000
Increase (Decrease) in Shareholders' Equity
Exercise of stock options under stock incentive plans	2,870	1	2,869
Exercise of stock options under stock incentive plans (in shares)		701,000
Issuance of common stock under stock purchase plans	1,983	0	1,983
Issuance of common stock under stock purchase plans (in shares)		319,000
Issuance of common stock under restricted stock plans, net of shares withheld for employee taxes	(1,722)	1	(1,723)
Issuance of common stock under restricted stock plans, net of shares withheld for employee taxes (in shares)		607,000
Stock-based compensation	11,813		11,813
Conversion of debt to equity	13,942	2	13,940
Conversion of debt to equity (in shares)		1,841,000
Unrealized gain (loss) on investments	(7)				(7)
Cumulative translation adjustment	(897)				(897)
Net loss	(11,561)					(11,561)
Balance at Dec. 31, 2014	$ 58,474	$ 49	$ 344,312	$ (14,430)	$ (739)	$ (270,718)
Balance (in shares) at Dec. 31, 2014		51,285,000		2,339,000

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Goodwill and Intangible Assets

12 Months Ended

Dec. 31, 2014

Goodwill and Intangible Assets Disclosure [Abstract]

Goodwill and Intangible Assets

Goodwill and Intangible Assets

Goodwill

The changes in the carrying amount of goodwill for the fiscal years ended December 31, 2014 and 2013 are as follows (in thousands):

	Goodwill
Balance as of December 31, 2012 and 2013	$	31,207
Acquisitions	16,259
Foreign currency translation impact	(496		)
Balance as of December 31, 2014	$	46,970

In February 2014, the Company recorded goodwill of $1.6 million related to the acquisition of LeadRocket Inc. and in the last quarter of 2014, the Company recorded goodwill of $14.7 million related to the acquisition of Clicktools Ltd. Refer to Note 3, Acquisitions for further details.

Based on the Company's annual impairment review in the fourth quarter of 2014, 2013 and 2012, it concluded that goodwill was not impaired in any of the years presented.

Intangible assets

Intangible assets consisted of the following as of December 31, 2014 and 2013 (in thousands):

	December 31, 2013 Cost		December 31, 2013 Net		Net Additions (1)		Foreign currency translation impact			Amortization Expense			December 31, 2014 Net		Weighted Average Amortization Period (Years)
Developed technology	$	21,187	$	9,669	$	3,906	$	(53	)	$	(3,271	)	$	10,251	4.1
Customer relationships	8,154		4076		1,260		(41		)	(1,025		)	4,270		3.6
Tradenames	1,522		828		686		(25		)	(298		)	1,191		3.6
Favorable lease	53		—		—		—			—			—		N/A
Patents and licenses	3,059		2393		—		—			(348		)	2,045		6.7
Other	142		29		—		—			(29		)	—		N/A
Total	$	34,117	$	16,995	$	5,852	$	(119	)	$	(4,971	)	$	17,757

(1) Included in the additions are the intangibles acquired for Clicktools of $3.0 million and LeadRocket of $2.6 million as discussed in Note 3 to the consolidated financial statements and other purchased technology as part of the normal course of operations.

	December 31, 2012 Cost		December 31, 2012 Net		Net Additions		Foreign currency translation impact		Amortization Expense			December 31, 2013 Net		Weighted Average Amortization Period (Years)
Developed technology	$	20,576	$	12,384	$	611	$	—	$	(3,326	)	$	9,669	4.3
Customer relationships	8,154		4,952		—		—		(876		)	4,076		4.9
Tradenames	1,522		1,040		—		—		(212		)	828		5.2
Favorable lease	40		1		13		—		(14		)	—		N/A
Patents and licenses	3,059		2,744		—		—		(351		)	2,393		7.6
Other	142		75		—		—		(46		)	29		0.5
Total	$	33,493	$	21,196	$	624	$	—	$	(4,825	)	$	16,995

Amortization expense related to intangible assets was $5.0 million, $4.8 million and $5.1 million in 2014, 2013 and 2012, respectively, and was charged to cost of revenue for purchased technology, tradenames and patents and licenses; sales and marketing expense for customer relationships; and general and administrative expense for the favorable lease and other. The Company's intangible assets are amortized over their estimated useful lives of one to twelve years. Total future expected amortization is as follows (in thousands):

	Developed Technology		Customer Relationships		Tradenames		Patents and Licenses
Year Ending December 31:
2015	$	2,828	$	1,290	$	382	$	346
2016	2,741		1,290		353		346
2017	2,417		1,019		285		346
2018	1,519		491		96		313
2019	311		74		32		180
2020 and beyond	435		106		43		514
Total expected amortization expense	$	10,251	$	4,270	$	1,191	$	2,045

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Stock-Based Compensation (Details 4) (Stock options, USD $)	12 Months Ended
	Dec. 31, 2014	Dec. 31, 2013
$3.11 - $4.14
Stock-Based Compensation
Range of exercise prices - lower limit (in dollars per share)		$ 3.11
Range of exercise prices - upper limit (in dollars per share)		$ 4.14
Options Outstanding, Number of Shares	133,132
Options Outstanding, Weighted Average Remaining Contractual Life	6 months 11 days
Options Outstanding, Weighted Average Exercise Price (in dollars per share)	$ 3.63
Options Exercisable, Number of Shares	133,132
Options Exercisable, Weighted Average Exercise Price (in dollars per share)	$ 3.63
$4.15 - $4.15
Stock-Based Compensation
Range of exercise prices - lower limit (in dollars per share)		$ 4.15
Range of exercise prices - upper limit (in dollars per share)		$ 4.15
Options Outstanding, Number of Shares	140,000
Options Outstanding, Weighted Average Remaining Contractual Life	11 months 1 day
Options Outstanding, Weighted Average Exercise Price (in dollars per share)	$ 4.15
Options Exercisable, Number of Shares	140,000
Options Exercisable, Weighted Average Exercise Price (in dollars per share)	$ 4.15
$4.31 - $5.27
Stock-Based Compensation
Range of exercise prices - lower limit (in dollars per share)		$ 4.31
Range of exercise prices - upper limit (in dollars per share)		$ 5.27
Options Outstanding, Number of Shares	140,061
Options Outstanding, Weighted Average Remaining Contractual Life	5 years 6 months 11 days
Options Outstanding, Weighted Average Exercise Price (in dollars per share)	$ 4.93
Options Exercisable, Number of Shares	109,695
Options Exercisable, Weighted Average Exercise Price (in dollars per share)	$ 5.03
$5.70 - $5.70
Stock-Based Compensation
Range of exercise prices - lower limit (in dollars per share)		$ 5.70
Range of exercise prices - upper limit (in dollars per share)		$ 5.70
Options Outstanding, Number of Shares	60,000
Options Outstanding, Weighted Average Remaining Contractual Life	1 year 5 months 1 day
Options Outstanding, Weighted Average Exercise Price (in dollars per share)	$ 5.70
Options Exercisable, Number of Shares	60,000
Options Exercisable, Weighted Average Exercise Price (in dollars per share)	$ 5.70
$6.01 - $6.01
Stock-Based Compensation
Range of exercise prices - lower limit (in dollars per share)		$ 6.01
Range of exercise prices - upper limit (in dollars per share)		$ 6.01
Options Outstanding, Number of Shares	122,000
Options Outstanding, Weighted Average Remaining Contractual Life	8 years 4 months 28 days
Options Outstanding, Weighted Average Exercise Price (in dollars per share)	$ 6.01
Options Exercisable, Number of Shares	48,291
Options Exercisable, Weighted Average Exercise Price (in dollars per share)	$ 6.01
$6.25 - $6.42
Stock-Based Compensation
Range of exercise prices - lower limit (in dollars per share)		$ 6.25
Range of exercise prices - upper limit (in dollars per share)		$ 6.42
Options Outstanding, Number of Shares	80,700
Options Outstanding, Weighted Average Remaining Contractual Life	8 years 4 months 13 days
Options Outstanding, Weighted Average Exercise Price (in dollars per share)	$ 6.26
Options Exercisable, Number of Shares	79,900
Options Exercisable, Weighted Average Exercise Price (in dollars per share)	$ 6.26
$6.59 - $6.59
Stock-Based Compensation
Range of exercise prices - lower limit (in dollars per share)		$ 6.59
Range of exercise prices - upper limit (in dollars per share)		$ 6.59
Options Outstanding, Number of Shares	231,407
Options Outstanding, Weighted Average Remaining Contractual Life	8 years 5 months 27 days
Options Outstanding, Weighted Average Exercise Price (in dollars per share)	$ 6.59
Options Exercisable, Number of Shares	70,989
Options Exercisable, Weighted Average Exercise Price (in dollars per share)	$ 6.59
$6.67 - $6.74
Stock-Based Compensation
Range of exercise prices - lower limit (in dollars per share)		$ 6.67
Range of exercise prices - upper limit (in dollars per share)		$ 6.74
Options Outstanding, Number of Shares	42,334
Options Outstanding, Weighted Average Remaining Contractual Life	8 years 6 months
Options Outstanding, Weighted Average Exercise Price (in dollars per share)	$ 6.67
Options Exercisable, Number of Shares	14,604
Options Exercisable, Weighted Average Exercise Price (in dollars per share)	$ 6.67
$7.69 - $7.69
Stock-Based Compensation
Range of exercise prices - lower limit (in dollars per share)		$ 7.69
Range of exercise prices - upper limit (in dollars per share)		$ 7.69
Options Outstanding, Number of Shares	207,327
Options Outstanding, Weighted Average Remaining Contractual Life	8 years 7 months 28 days
Options Outstanding, Weighted Average Exercise Price (in dollars per share)	$ 7.69
Options Exercisable, Number of Shares	68,622
Options Exercisable, Weighted Average Exercise Price (in dollars per share)	$ 7.69
$9.17 - $10.35
Stock-Based Compensation
Range of exercise prices - lower limit (in dollars per share)		$ 9.17
Range of exercise prices - upper limit (in dollars per share)		$ 10.35
Options Outstanding, Number of Shares	19,000
Options Outstanding, Weighted Average Remaining Contractual Life	8 years 9 months 18 days
Options Outstanding, Weighted Average Exercise Price (in dollars per share)	$ 9.98
Options Exercisable, Number of Shares	5,666
Options Exercisable, Weighted Average Exercise Price (in dollars per share)	$ 9.96
$3.11 - $10.35
Stock-Based Compensation
Range of exercise prices - lower limit (in dollars per share)		$ 3.11
Range of exercise prices - upper limit (in dollars per share)		$ 10.35
Options Outstanding, Number of Shares	1,175,961
Options Outstanding, Weighted Average Remaining Contractual Life	5 years 11 months 27 days
Options Outstanding, Weighted Average Exercise Price (in dollars per share)	$ 5.89
Options Exercisable, Number of Shares	730,899
Options Exercisable, Weighted Average Exercise Price (in dollars per share)	$ 5.33

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Acquisition (Tables)

12 Months Ended

Dec. 31, 2014

Acquisitions

Schedule of intangible assets

Intangible assets consisted of the following as of December 31, 2014 and 2013 (in thousands):

	December 31, 2013 Cost		December 31, 2013 Net		Net Additions (1)		Foreign currency translation impact			Amortization Expense			December 31, 2014 Net		Weighted Average Amortization Period (Years)
Developed technology	$	21,187	$	9,669	$	3,906	$	(53	)	$	(3,271	)	$	10,251	4.1
Customer relationships	8,154		4076		1,260		(41		)	(1,025		)	4,270		3.6
Tradenames	1,522		828		686		(25		)	(298		)	1,191		3.6
Favorable lease	53		—		—		—			—			—		N/A
Patents and licenses	3,059		2393		—		—			(348		)	2,045		6.7
Other	142		29		—		—			(29		)	—		N/A
Total	$	34,117	$	16,995	$	5,852	$	(119	)	$	(4,971	)	$	17,757

(1) Included in the additions are the intangibles acquired for Clicktools of $3.0 million and LeadRocket of $2.6 million as discussed in Note 3 to the consolidated financial statements and other purchased technology as part of the normal course of operations.

	December 31, 2012 Cost		December 31, 2012 Net		Net Additions		Foreign currency translation impact		Amortization Expense			December 31, 2013 Net		Weighted Average Amortization Period (Years)
Developed technology	$	20,576	$	12,384	$	611	$	—	$	(3,326	)	$	9,669	4.3
Customer relationships	8,154		4,952		—		—		(876		)	4,076		4.9
Tradenames	1,522		1,040		—		—		(212		)	828		5.2
Favorable lease	40		1		13		—		(14		)	—		N/A
Patents and licenses	3,059		2,744		—		—		(351		)	2,393		7.6
Other	142		75		—		—		(46		)	29		0.5
Total	$	33,493	$	21,196	$	624	$	—	$	(4,825	)	$	16,995

LeadRocket [Member]

Acquisitions

Schedule of Business Acquisitions, by Acquisition [Table Text Block]

The purchase price allocation for LeadRocket is summarized as follows (in thousands):

	Fair Value
Net liabilities assumed	$	(1,224	)
Intangible assets	2,640
Goodwill	1,584
Total purchase price	$	3,000

Schedule of intangible assets

The following table sets forth the components of identifiable intangible assets acquired and their estimated useful lives as of the date of the LeadRocket acquisition (in thousands):

	Fair Value	Useful Life
Developed technology	570	2-4 years
Patents	1,060	10 years
Domain names and trademarks	850	5 years
Customer relationships	160	3 years
Total intangible assets subject to amortization	2,640

Clicktools [Member]

Acquisitions

Schedule of Business Acquisitions, by Acquisition [Table Text Block]

The preliminary purchase price allocation for Clicktools is summarized as follows (in thousands):

	Fair Value
Net liabilities assumed	$	(1,270	)
Intangible assets	3,000
Goodwill	14,675
Total purchase price	$	16,405

Schedule of intangible assets

The following table sets forth the components of identifiable intangible assets acquired and their estimated useful lives as of the date of the Clicktools acquisition (in thousands). The intangible assets are reported in British Pounds and will be translated to U.S. Dollars at December 31, 2014.

	Fair Value		Useful Life
Developed technology	$	1,300	3 years
Domain names and trademarks	600		3 years
Customer relationships	1,100		3 years
Total intangible assets subject to amortization	$	3,000

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The Company and Significant Accounting Policies (Details 1) (USD $) In Millions, unless otherwise specified	12 Months Ended
	Dec. 31, 2014	Dec. 31, 2013
Prepaid and other current assets and deposits and other assets
Restricted cash included in deposits and other assets	0.2	$ 0.5
Deferred costs included in prepaid and other current assets	4.2	$ 3.4
Minimum
Property and Equipment, net
Property, Plant and Equipment, Useful Life	3 years
Maximum
Property and Equipment, net
Property, Plant and Equipment, Useful Life	5 years

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Income Taxes

12 Months Ended

Dec. 31, 2014

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

The following is a geographical breakdown of consolidated loss before income taxes by income tax jurisdiction (in thousands):

	2014			2013			2012
United States	$	(11,557	)	$	(20,675	)	$	(27,796	)
Foreign	1,008			1,319			486
Total	$	(10,549	)	$	(19,356	)	$	(27,310	)

The provision for income taxes for 2014, 2013 and 2012 consists of the following (in thousands):

	2014			2013		2012
Current:
Federal	$	(25	)	$	—	$	4
State	3			—		—
Foreign	1,138			1,815		559
Deferred:
Federal	78			159		(185		)
State	(89		)	—		(22		)
Foreign	(93		)	81		32
Total provision for income taxes	$	1,012		$	2,055	$	388

The decrease in provision for income taxes in 2014 from 2013 was primarily due to a net decrease in foreign withholding taxes offset by an increase in income taxes in foreign jurisdiction.

The provision for income taxes differs from the expected tax benefit computed by applying the statutory federal income tax rates to consolidated loss before income taxes as follows (in thousands):

	Year Ended December 31,
	2014			2013			2012
Federal tax at statutory rate	$	(3,587	)	$	(6,581	)	$	(9,286	)
State taxes, net of benefit	3			—			—
Non-deductible expenses	453			1,248			2,416
Foreign taxes	703			1,447			427
Current year net operating losses and other deferred tax assets for which no benefit has been recognized	4,828			7,320			7,181
Research and experimentation credit	(1,239		)	(1,379		)	—
Tax benefit due to the recognition of acquired deferred tax liabilities	(149		)	—			(350		)
Total provision for income taxes	$	1,012		$	2,055		$	388

Deferred income taxes reflect the net tax effect of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amount used for income tax purposes. Net deferred tax assets consist of the following (in thousands):

	As of December 31,
	2014			2013
Deferred tax assets
Net operating loss carryforwards	$	54,712		$	53,902
Accrued expenses	5,420			2,161
Unrealized gain/loss on investments	916			915
Research and experimentation credit carryforwards	12,609			10,884
Capitalized research and experimentation costs	14,072			18,100
Deferred stock compensation	3,956			2,223
Gross deferred tax assets	91,685			88,185
Less valuation allowance	(90,598		)	(86,604		)
Total deferred tax assets, net of valuation allowance	1,087			1,581
Deferred tax liabilities
Property and equipment and intangibles	(1,699		)	(1,602		)
Goodwill	(1,024		)	(887		)
Net deferred tax liabilities	$	(1,636	)	$	(908	)

In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Based on the level of historical taxable income and projections for future taxable income over the period in which the temporary differences are deductible, the Company recorded a valuation allowance against the deferred tax assets for which it believes it is not more likely than not to be realized. As of December 31, 2014 and 2013, a valuation allowance has been recorded on all deferred tax assets, except the deferred tax assets related to two of its foreign subsidiaries, based on the analysis of profitability for those subsidiaries.

The net changes for valuation allowance for years ended December 31, 2014 and 2013 were an increase of $4.0 million and $7.8 million, respectively.

The Company recorded approximately $0.9 million and no additional net deferred tax liabilities related to the various acquisitions completed during 2014 and 2013, respectively. The additional deferred tax liabilities create a new source of taxable income, thereby requiring the Company to release a portion of its deferred tax asset valuation allowance with a related reduction in income tax expense.

As of December 31, 2014, the Company had net operating loss carryforwards for federal and California income tax purposes of $169.0 million and $38.0 million, respectively, available to reduce future income subject to income taxes. The federal net operating loss carryforwards, if not utilized, will expire over 20 years beginning in 2017. The California net operating loss carryforward, began to expire in 2014.

Not included in the deferred income tax asset balance at December 31, 2014 is approximately $8.9 million, which pertains to certain net operating loss carryforwards resulting from the exercise of employee stock options. When recognized, the tax benefit of these losses will be accounted for as a credit to additional paid-in capital rather than a reduction of the income tax provision.

The Company also has research credit carryforwards for federal and California income tax purposes of approximately $8.4 million and $8.7 million, respectively, available to reduce future income taxes. The federal research credit carryforward, if not utilized, will expire over 20 years beginning in 2019. The California research credit carries forward indefinitely.

Federal and California tax laws impose restrictions on the utilization of net operating loss and tax credit carryforwards in the event of an ownership change, as defined in Section 382 of the Internal Revenue Code. The Company's ability to utilize its net operating loss and tax credit carryforwards are subject to limitations under these provisions.

The Company has not provided for federal income taxes on all of the non-U.S. subsidiaries' undistributed earnings as of December 31, 2014 of $2.7 million, because such earnings are intended to be indefinitely reinvested. The residual U.S. tax liability, if such amounts were remitted, would be nominal.

The activity related to the Company's unrecognized tax benefits is set forth below (in thousands):

	Amount
Balance at January 1, 2013	$	2,478
Increases related to prior year tax positions	175
Increases related to current year tax positions	222
Reductions to unrecognized tax benefits as a result of a lapse of applicable statute of limitations	(32		)
Balance at December 31, 2013 (1)	2,843
Increases related to prior year tax positions	(44		)
Increases related to current year tax positions	270
Reductions to unrecognized tax benefits as a result of a lapse of applicable statute of limitations	(32		)
Balance at December 31, 2014 (2)	$	3,037

(1) $2.6 million million of the unrecognized tax benefits reduced deferred tax assets and $0.3 million was included in accrued expenses on the consolidated balance sheet.

(2) $2.7 million of the unrecognized tax benefits reduced deferred tax assets and $0.3 million was included in accrued expenses on the consolidated balance sheet.

If recognized, $0.3 million of the unrecognized tax benefits at December 31, 2014 would reduce the Company's annual effective tax rate. The Company also accrued potential penalties and interest of $0.1 million related to these unrecognized tax benefits during 2014, and in total, as of December 31, 2014, the Company recorded a liability for potential penalties and interest of $0.2 million. The Company recognized interest and penalties related to unrecognized tax benefits within the income tax expense line in the accompanying consolidated statement of comprehensive loss. Accrued interest and penalties are included within the related tax liability line in the consolidated balance sheet. The Company classified the unrecognized tax benefits as a noncurrent liability, as the Company does not expect any payment of incremental taxes over the next 12 months. The Company also does not expect its unrecognized tax benefits to change significantly over the next 12 months.

The Company files U.S., state, and foreign income tax returns in jurisdictions with varying statutes of limitations. All tax years generally remain subject to examination by federal and most state tax authorities. In foreign jurisdictions, the 2004 through 2014 tax years generally remain subject to examination by their respective tax authorities.