10-K

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(MARK ONE)

x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]

for the fiscal year ended September 30, 2003

OR

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]

Commission File No. 0-14665

DAILY JOURNAL CORPORATION

(Exact name of registrant as specified in its charter)

South Carolina (State or other jurisdiction of incorporation or organization)	95-4133299 (IRS Employer Identification No.)
915 East First Street Los Angeles, California (Address of principal executive offices)	90012 (Zip Code)

Registrant’s telephone number, including area code:    (213) 229-5300

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

Securities registered pursuant to Section 12(g) of the Act:    Common Stock, par value $.01 per share.

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

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

Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2): Yes     ¨ No    x

As of the last business day of Daily Journal Corporation’s most recently completed second fiscal quarter, the aggregate market value of Daily Journal Corporation’s voting stock held by non-affiliates was approximately $14,700,000.

As of December 13, 2002 there were outstanding 1,508,573 shares of Common Stock of Daily Journal Corporation.

Documents incorporated by reference:    Portions of the Proxy Statement for the Annual Meeting of Shareholders to be held during February 2004 are incorporated by reference into Part III.

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Disclosure Regarding Forward-Looking Statements

This Form 10-K includes “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. Certain statements contained in this document, including but not limited to those in “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, are “forward-looking” statements that involve risks and uncertainties that may cause actual future events or results to differ materially from those described in the forward-looking statements. Words such as “expects,” “intends,” “anticipates,” “should,” “believes,” “will,” “plans,” “estimates,” “may,” variations of such words and similar expressions are intended to identify such forward-looking statements. We disclaim any intention or obligation to revise any forward-looking statements whether as a result of new information, future developments, or otherwise. There are many factors that could cause actual results to differ materially from those contained in the forward-looking statements. These factors include, among others: risks associated with the functionality and resources required for new and existing case management software projects; the success or failure of Sustain’s internal software development efforts; the ultimate resolution, if any, of the disputes with the Ontario, Canada Ministries and Sustain’s terminated outside service provider; material changes in the costs of materials; a potential decline in subscriber revenue; an inability to continue borrowing on current terms; possible changes in tax laws; collectibility of accounts receivable; potential increases in employee and consultant costs; attraction, training and retention of employees; changes in accounting guidance; and competitive factors in both the case management software business and the publishing business. In addition, such statements could be affected by general industry and market conditions and growth rates, general economic conditions (particularly in California) and other factors. Although the Company believes that the expectations reflected in such forward-looking statements are reasonable, it can give no assurance that such expectations will prove to have been correct. Important factors that could cause actual results to differ materially from those in the forward-looking statements are disclosed in this Form 10-K, including without limitation in conjunction with the forward-looking statements themselves. Additional information concerning factors that could cause actual results to differ materially from those in the forward-looking statements is contained from time to time in documents filed by the Company with the Securities and Exchange Commission.

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PART I

Item 1.    Business

The Company publishes newspapers and web sites covering California, Arizona and Nevada, as well as the California Lawyer magazine, and produces several specialized information services. It also serves as a newspaper representative specializing in public notice advertising. SUSTAIN Technologies, Inc. (“Sustain”), now a 93% owned subsidiary as of September 30, 2003, has been consolidated since it was acquired in January 1999. Sustain supplies case management software systems and related products to courts and other justice agencies, including district attorney offices and administrative law organizations. These courts and agencies use the Sustain family of products to help manage cases and information electronically and to interface with other critical justice partners. Sustain’s products are designed to help users manage electronic case files from inception to disposition, including all aspects of calendaring and accounting, report and notice generation, the implementation of standards and business rules and other corollary functions. Essentially all of the Company’s operations are based in California, Arizona, Colorado, Nevada and Virginia. The financial information of the Company and Sustain is set forth in Item 8 (“Financial Statements and Supplementary Data”).

Products

Newspapers and related online publications.     The Company publishes 14 newspapers of general circulation. Each newspaper, in addition to news of interest to the general public, has a particular area of in-depth focus with regard to its news coverage, thereby attracting readers interested in obtaining information about that area through a newspaper format. The publications are based in the following cities:

Newspaper publications	Base of  publication
Los Angeles Daily Journal	Los Angeles, California
Daily Commerce	Los Angeles, California
California Real Estate Journal	Los Angeles, California
San Francisco Daily Journal	San Francisco, California
The Daily Recorder	Sacramento, California
The Inter-City Express	Oakland, California
San Jose Post-Record	San Jose, California
Sonoma County Herald-Recorder	Santa Rosa, California
Orange County Reporter	Santa Ana, California
San Diego Commerce	San Diego, California
Business Journal	Riverside, California
Antelope Valley Journal	Palmdale, California
The Record Reporter	Phoenix, Arizona
Nevada Journal	Las Vegas, Nevada

The Daily Journals.     The Los Angeles Daily Journal and the San Francisco Daily Journal are each published every weekday except certain holidays and were established in 1888 and 1893, respectively. In addition to covering state and local news of general interest, these newspapers focus particular coverage on law and its impact on society. (The Los Angeles Daily Journal and the San Francisco Daily Journal are referred to collectively herein as “The Daily Journals”.)

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Generally The Daily Journals seek to be of special utility to lawyers and judges and to gain wide multiple readership of newspapers sent to law firm subscribers.

The Los Angeles Daily Journal and the San Francisco Daily Journal are geared toward their respective regions, but contain much material and render many services in a common endeavor. The Los Angeles Daily Journal is the largest newspaper published by the Company, both in terms of revenues and circulation. At September 30, 2003, the Los Angeles Daily Journal had approximately 10,600 paid subscribers and the San Francisco Daily Journal had approximately 4,800 paid subscribers as compared with total paid subscriptions of 16,400 at September 30, 2002. In addition, The Daily Journals are sold on some newsstands. The Daily Journals carry commercial advertising (display and classified) and public notice advertising required or permitted by law to be published in a newspaper of general circulation. The main source of commercial advertising revenue has been local advertisers, law firms and businesses in or wishing to reach the legal professional community. The gross revenues generated directly by The Daily Journals are attributable approximately 50% to subscriptions and 50% to the sale of advertising and other revenues. Revenues from The Daily Journals constituted approximately 43% of the Company’s total revenues during fiscal 2003, 46% during fiscal 2002 and 48% during fiscal 2001.

The Daily Journals contain the Daily Appellate Report which provides the full text and case summaries of all opinions certified for publication by the California Supreme Court, the California Courts of Appeal, the U.S. Supreme Court, the U.S. Court of Appeals for the Ninth Circuit, the U.S. Bankruptcy Appellate Panel for the Ninth Circuit, the State Bar Court and selected opinions of the U.S. District Courts in California and the Federal Circuit Court of Appeals. The Daily Journals also include a monthly court directory in booklet form. This directory includes a comprehensive list of sitting judges in all California courts as well as courtroom assignments, phone numbers and courthouse addresses, plus “Judicial Transitions” which lists judicial appointments, elevations, confirmations, resignations, retirements and deaths.

The Daily Journals also include Daily Journal Extra, a weekly supplement that features (i) in-depth coverage of current topics of interest to lawyers with a focus on the business aspects of the practice of law and (ii) important settlements and verdicts along with the attorneys and experts representing each party.

It is the policy of The Daily Journals (1) to take no editorial position on the legal and political controversies of the day but instead to publish an “op-ed” page consisting of well-written editorial views of others on many sides of a controversy and (2) to try to report on factual events with technical competence and with objectivity and accuracy. It is believed that this policy suits a professional readership of exceptional intelligence and education, which is the target readership for the newspapers. Moreover, The Daily Journals believe that they bear a duty to their readership, particularly judges and justices, as a self-imposed public trust, regardless, within reason, of short-term income penalties. The Company believes that this policy of The Daily Journals is in the long-term interest of the Company’s shareholders.

The Company publishes the Directory of California Lawyers (the “Directory”), which is updated and published semiannually, in January and July. The Directory includes in a single volume names, addresses, fax and telephone numbers of California lawyers and many informational sections including listings of corporate counsel, private judges, arbitrators and mediators, and federal and state courts and governmental offices. In addition, the Directory

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includes commercial advertising and specialty listings. The Directory is provided as part of normal newspaper service to subscribers of The Daily Journals. In addition, there are about 7,000 directories sold. The regular annual rate is $38. In due course the Company plans to provide an option of subscription service for The Daily Journals at a lower price for subscribers who do not wish to receive the Directory.

The Daily Journals are distributed by mail and hand delivery, with subscribers in the Los Angeles and San Francisco areas usually receiving copies the same day. Certain subscribers in Los Angeles, San Francisco, Santa Clara, Alameda, Orange, Sacramento and San Diego counties receive copies by hand delivery, and additional copies are distributed through newsstands and by microfilm subscriptions. The regular yearly subscription rate for each of The Daily Journals is $610.

Much of the information contained in The Daily Journals is available to subscribers online at www.dailyjournal.com. There is a charge to use some parts of this online service.

Daily Commerce.    Published since 1917, the Daily Commerce, in addition to covering news of general interest, devotes substantial coverage to items designed to serve real estate investors and brokers, particularly those interested in Southern California distressed properties. The nature of the news coverage enhances the effectiveness of public notice advertising in distributing information about foreclosures to potential buyers at foreclosure sales. The features of the paper include default listings, probate estate sales and real estate examination applicants. The Daily Commerce carries both public notice and commercial advertising and is published in the afternoon each business day. It had approximately 1400 paid subscriptions at September 30, 2003. A subscription to the Daily Commerce is $230 per year, and it is primarily distributed by mail.

California Real Estate Journal.    The California Real Estate Journal (the “Real Estate Journal”) is a weekly newspaper directed primarily to persons interested in the commercial real estate market, including real estate brokers, developers, bankers and real estate lawyers. The Real Estate Journal carries news and features such as the status of commercial projects, financial information and articles on brokers and transactions, including defaults and new financings. It carries display and classified advertising. At September 30, 2003, the Real Estate Journal had a circulation of approximately 2,500 paid and requester subscribers at an annual subscription rate of $105. It is distributed by mail and hand delivery. In addition, there is an online news service for subscribers to the California Real Estate Journal.

The Daily Recorder.    The Daily Recorder, based in Sacramento, began operations in 1911. It is published each business day. In addition to general news items, it focuses on the Sacramento legal and real estate communities and on California state government and activities ancillary to it. Among the regular features of The Daily Recorder are news about government leaders and lobbyists, as well as the Daily Appellate Report for those who request it. Advertising in The Daily Recorder consists of both commercial and public notice advertising. The Daily Recorder currently has approximately 1,100 paid subscribers, and is distributed by hand and by mail. The current subscription rate is $265 per year.

The Inter-City Express.    The Inter-City Express (the “Express”) has been published since 1909. It covers general news of local interest and focuses its coverage on news about the real estate and legal communities in the Oakland/San Francisco area. The Express carries both

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commercial and public notice advertising. The Express is published two days a week and is mailed to its approximately 500 subscribers. The annual subscription rate is $144.

San Jose Post-Record.    The San Jose Post-Record (the “Post-Record”) has been published since 1910. In addition to general news of local interest, the Post-Record, which is published three days a week, focuses on legal and real estate news and carries commercial and public notice advertising. A yearly subscription to the Post-Record is $122. It has approximately 300 subscribers, all of whom receive it by mail.

Sonoma County Herald-Recorder.    The Sonoma County Herald-Recorder (the “Herald-Recorder”) has been in existence since 1899. The newspaper carries general news of local interest and is designed to be of special interest to members of the legal and real estate professions. Advertising in the newspaper consists of both public notice and commercial advertising. Its approximately 200 subscribers receive the newspaper two days a week by mail, at a rate of $197 annually.

Orange County Reporter.    The Orange County Reporter (“Orange Reporter”) has been an adjudicated newspaper of general circulation since 1922. In addition to general news of local interest, the Orange Reporter reports local and state legal, business and real estate news, and carries primarily public notice advertising. The Orange Reporter is mailed three days a week to approximately 400 paid and requester subscribers. The annual subscription rate is $87.

San Diego Commerce.    The San Diego Commerce is a thrice-weekly newspaper which carries general news of local interest and public notice advertising and has been an adjudicated newspaper of general circulation since 1970. The San Diego Commerce also serves legal and real estate professionals in San Diego County. It has approximately 200 paid subscribers. The annual subscription rate is $63, covering distribution by mail.

Business Journal.    The Business Journal publishes news of general interest and provides coverage of the business and professional communities in Riverside County. It carries public notice advertising, and its approximately 100 paid subscribers receive it by mail twice weekly. The annual subscription rate is $54.

Antelope Valley Journal.    Started in 1997, the Antelope Valley Journal is a weekly newspaper carrying general news of local interest, as well as public notice advertising. It also serves the real estate professional in north Los Angeles County. It has approximately 100 paid subscribers, and the annual subscription rate is $30.

The Record Reporter (Arizona).    The Record Reporter was acquired in 1995. In addition to general news of local interest, The Record Reporter, which is published three days a week, focuses on real estate news and public record information and carries primarily public notice advertising. It is mailed to approximately 200 paid subscribers. The annual subscription rate is $165 for most subscribers.

Nevada Journal.    The Company acquired the Nevada Supreme Court Reporter in 1994, and the name was changed to the Nevada Journal. Besides stories of general interest and those concerning the courts and legal communities, the Nevada Journal features summaries and full-text opinions issued by the Nevada State and Federal Courts. Special features include local verdicts and settlements, bar examination results and articles on federal opinions. Both commercial and public notice advertising appear in the newspaper. The weekly Nevada Journal,

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as of September 30, 2003, had approximately 100 subscribers. The yearly subscription rate is $152. Much of the information in the Nevada Journal is available to its subscribers online.

Magazines.    Since 1988, the Company has published the California Lawyer, a legal affairs magazine formerly produced by the State Bar of California (the “State Bar”). The magazine was published by the Company in cooperation with the State Bar until December 1993 when the agreement was terminated and the State Bar commenced publishing its own monthly newspaper. The magazine is mailed free to the active members of the State Bar of California and also has approximately 500 paid subscribers. An annual subscription to California Lawyer is $79.

Information Services.    The specialized information services offered by the Company have grown out of its newspaper operations or have evolved in response to a desire for such services primarily from its newspaper subscribers.

The Company has several court rules services. One is Court Rules, a multi-volume, loose-leaf set which had approximately 4,500 subscribers at September 30, 2003 paying $278 per year. Court Rules reproduces court rules for certain state and federal courts in California. The Court Rules appear in two versions, one of which covers Northern California courts (nine volumes) and one of which covers Southern California courts (eight volumes). The Company updates Court Rules on a monthly basis. In addition, the Company publishes a single volume of rules known as Local Rules for major counties of California. Six versions are published for Southern California, each a single bound volume for the rules of: (1) Los Angeles County; (2) Orange County; (3) San Diego County; (4) San Bernardino County; (5) Riverside County; and (6) Ventura, Santa Barbara and San Luis Obispo counties. In addition, the Company publishes single-volume rules for the Federal District Court in the Southern District of California, Federal District Court in the Central District of California and California Probate Rules. In Northern California, three versions of the Local Rules appear in loose-leaf books for Santa Clara/San Mateo, Alameda/Contra Costa and San Francisco counties. The regular subscription price for Local Rules volumes ranges from $45 to $90 per year and volumes are normally updated or replaced whenever there are substantial rule changes. At September 30, 2003, the Company had approximately 4,500 subscribers for its Local Rules publications.

The Judicial Profiles services contain biographical and professional information concerning nearly all judges in California, both active and retired, many of whom are available for private judging. Most of the profiles have previously appeared in The Daily Journals as part of a regular feature. The Judicial Profiles include biographical data on judges and information supplied by each judge regarding the judge’s policies and views on various trial and appellate procedures and the manner in which appearances are conducted in his or her courtroom. Subscribers may purchase either the seven-volume set for Southern California or the six-volume set for Northern California. The approximately 1,000 subscribers to Judicial Profiles receive updates on a quarterly basis. A subscription is $500 per year. During fiscal 2003, the Company discontinued publishing the Judges Books for several counties in the State of Washington.

The Company’s only bankruptcy publication is now the online California Bankruptcy Journal. The Company discontinued the Fourth Circuit Bankruptcy Court Reporter and the Texas Bankruptcy Court Reporter in fiscal 1999 and the online Colorado Bankruptcy Journal in fiscal 2002. The online bankruptcy service has approximately 50 subscribers at September 30, 2003. The annual subscription rate is $150 a year. The online publication contains summaries and full-text bankruptcy opinions from the U. S. Supreme Court and U.S. Court of Appeals for

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the Ninth Circuit, U.S. Bankruptcy Appellate Panel for the Ninth Circuit, and selected full texts from the U.S. Bankruptcy District Courts in California.

The Company also provides computer online foreclosure information to about 700 customers. This service primarily provides distressed property information, some of which also appear in some of the Company’s newspapers, as well as expanded features. Consolidation of both newspapers and online products more effectively utilizes the costs of gathering such information.

Special Online Information Services Supplementing Traditional Services.     The Company, like most modern newspapers, supplements service to Daily Journal subscribers and advertisers with an increasing Internet-based online information service. Some of this online service comes as part of a newspaper subscription, or advertising placement, with no additional charges, and some can be obtained only when customers pay additional charges. So far, in this activity, incremental costs have exceeded supplemental incremental revenues. The Company believes its online service must continue to grow, partly to defend existing profits through continuous product improvement, and partly in the hope of eventually obtaining profits from services not traditionally rendered by newspapers.

Advertising and Newspaper Representative.     The Company’s publications carry commercial advertising, and most also contain public notice advertising. Commercial advertising consists of display and classified advertising. Public notice advertising consists of about 100 different types of legal notices required by law to be published in an adjudicated newspaper of general circulation, including notices of death, fictitious business names, trustee sale notices and notices of governmental hearings. The major types of public notice advertisers are real estate-related businesses and trustees, governmental agencies, attorneys and businesses or individuals filing fictitious business name statements. Many government agencies use the Company’s Internet-based advertising system to produce and send their notices to the Company. California Newspaper Service Bureau (“CNSB”), a division of the Company, is a statewide newspaper representative (commission-earning selling agent) specializing since 1934 in public notice advertising. CNSB places notices and other forms of advertising with adjudicated newspapers of general circulation, many of which are not owned by the Company.

Public notice advertising revenues and related advertising and other service fees for the Company constituted about 28% of the Company’s total revenues in fiscal 2003, 29% in fiscal 2002 and 27% in fiscal 2001. Most of these revenues were generated by (i) notices published in the Company’s newspapers, (ii) commissions and similar fees received from the publication in which the advertising is placed and (iii) filing service fees generated when filing notices with government agencies. The remainder of these revenues are attributable to service fees from users of an online foreclosure/fictitious business name database, service fees for public record searches, fees from attorneys taking continuing legal education “courses” published in the Company’s publications and other miscellaneous fees.

In many states, including California and Arizona, legislatures have considered various proposals, which would result in the elimination or reduction of the amount of public notice advertising required by statute. There is a risk that such laws could change in a manner that would have a significant adverse impact on the Company’s public notice advertising revenues. The acquisition of CNSB, a marginal and threatened enterprise with a negative book net worth

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when purchased, improved the Company’s ability to protect the continued existence of public notice advertising.

Information Systems and Services.    In January 1999, the Company purchased 80% of the capital stock of Sustain from Sustain and certain of its shareholders. As of September 30, 2003, the Company owned 93% of Sustain. Sustain has installations in ten states and three countries, and many of its clients have more than a decade of experience with the Sustain product line. The Company’s revenues derived from Sustain’s operations constituted about 12% of the Company’s total revenues in fiscal 2003, 7% in fiscal 2002 and 6% in fiscal 2001. As a technology based company, Sustain’s success depends on the continued development and improvement of its products. The Company’s expenditures in support of the Sustain software are highly significant and will continue to be necessary to maintain and increase Sustain’s revenues. The Company has expanded its consulting staff to meet its planned internal software development efforts and has also expanded relationships with other service providers. If these development programs are not successful, it will significantly and adversely impact the Company’s ability to maximize its existing investment in the Sustain software, to service its existing customers, and to compete for new opportunities in the case management software business. Sustain’s internal development costs, which are primarily incremental costs, are being expensed as incurred and accordingly will materially impact earnings at least through fiscal 2004, and very likely much longer. If the Company is unable to fund all such development, that also may impact the Company’s ability to maximize its existing investment in the Sustain software and to compete for new opportunities in the case management software business.

Printing.    The Company’s main printing facilities are located in Los Angeles and currently are used primarily to print the Los Angeles Daily Journal including supplements, the Daily Commerce, the Post-Record, The Express, The Daily Recorder, the Orange Reporter, the Herald-Recorder and the Real Estate Journal. The Daily Appellate Report is printed in Los Angeles and shipped to Sacramento and San Francisco for inclusion in the Daily Recorder and the San Francisco Daily Journal. In fiscal 2003 the Company installed new computer-to-plate production equipment in Los Angeles. The San Francisco Daily Journal, San Diego Commerce, the Business Journal, the Record Reporter, the Antelope Valley Journal, the Directory, the Judicial Profiles, the Court Rules and California Lawyer magazine are printed by outside contractors. The Company has a small offset press for in-house printing of items such as legal advertising forms, letterhead and envelopes, promotional flyers and other material for its publications.

Materials

After personnel and software development costs, postage and paper costs are typically the Company’s next two largest expenses.

The Company is subject to periodic increases in postal rates. During the past several years, the Company has instituted changes in an attempt to mitigate higher postage costs. These changes have included contracting for hand delivery in selected sections of the San Francisco Bay area, San Diego, Orange County, Sacramento and Los Angeles, delivering pre-sorted newspapers to the post office on pallets, which facilitates delivery and improves service, and implementing a method of bundling newspapers which reduces the per piece charges. In addition,

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the Company has an ink jet labeler which eliminates paper labels and enables the Company to receive bar code discounts from the postal service on some of its newspapers.

An adequate supply of newsprint and other paper is important to the Company’s operations. The Company currently does not have a contract with paper suppliers. The Company has always been able to obtain sufficient newsprint for its operations, although in the past, shortages of newsprint have sometimes resulted in higher prices. In 1999 and 2002 newsprint prices declined, but in 2000, 2001 and 2003, the price of paper increased moderately. Paper prices may fluctuate substantially in the future, and this could significantly impact income from operations.

Marketing

The Company actively promotes its individual newspapers and its multiple newspaper network as well as its other publications. The Company’s staff includes a number of employees whose primary responsibilities include attracting new subscribers and advertisers. The specialization of each publication creates both target subscribers and target advertisers. Subscribers are likely to be attracted because of the nature of the information carried by the particular publication, and likely advertisers are those interested in reaching such consumer groups. In marketing products, the Company also focuses on its ancillary products which can be of service to subscribers, such as its specialized information services.

The Company receives, on a non-exclusive basis, public notice advertising from a number of agencies. Such agencies ordinarily receive a commission of 15% to 25% on their sales of advertising in Company publications. Commercial advertising agencies also place advertising in Company publications and receive commissions for advertising sales.

Sustain’s staff includes several employees who provide marketing and consulting services which may also result in the licensing of Sustain products.

Competition

Competition for readers and advertisers is very intense, both by established publications and by new entries into the market. For example, shortly before the Company purchased the San Francisco Daily Journal, Associated Newspapers, the owner of a controlling interest in a number of American law-oriented publications including the American Lawyer, purchased a law-oriented San Francisco newspaper and thereafter pursued subscribers and advertisers with more skill and determination than were employed by the former publisher. In 1989 Associated Newspapers sold a controlling interest to Time Warner Inc., which continued very aggressive competition, including amazingly low “price-war” type prices for multiple-copy subscriptions. In 1997 these publications were sold by Time Warner Inc. to a group headed by the investment firm of Wasserstein Perella, Inc., which subsequently also purchased National Law Publishing, publishers of the New York Law Journal, among others. All of the Company’s real estate and business publications and products face strong competition from other publications and service companies.

Readers of specialized newspapers focus on the amount and quality of general and specialized news, amount and type of advertising, timely delivery and price. The Company designs its newspapers to fill niches in the news marketplace that are not covered as well by major metropolitan dailies. The in-depth news coverage which the Company’s newspapers provide along with general news coverage attracts readers who, for personal or professional

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reasons, desire to keep abreast of topics to which a major newspaper cannot devote significant news space. Other newspapers do provide some of the same subject coverage as does the Company, but the Company believes its coverage, particularly that of The Daily Journals, is more complete and therefore attracts more readers. The Company believes that The Daily Journals are the most important newspapers serving California lawyers on a daily basis.

In attracting commercial advertisers, the Company competes with other newspapers and magazines, television, radio and other media, including electronic network systems for employment-related classified advertising. Factors which may affect competition for advertisers are the cost for such advertising compared with other media, and the size and characteristics of the readership of the Company’s publications. The Company competes with anywhere from one serious competitor to several competing newspapers for public notice advertising revenue in all of its markets. Large metropolitan general interest newspapers normally do not carry a significant amount of legal advertising, although recently they too have solicited certain types of public notice advertising. The Company estimates its market share of public notice advertising revenues ranges from 10% to 75%, in the various areas where its adjudicated newspapers are published. CNSB, a division of the Company, faces competition from a number of companies based in California, some of which specialize in placing certain types of notices.

Commencing in 1994, the Company’s California Lawyer magazine faced additional competition from a new State Bar of California publication that is discussed in the Products-Magazines section above. In 1999 the State Bar started a statewide directory that competes with the Company’s Directory. This new publication has not had a material impact on the Company’s operations.

The Company’s court rules publications face competition in both the Southern California market as well as in Northern California. In addition, the Company expects increased competition from online court rules services and the Courts. Subscriptions to the multi-volume Court Rules and Local Rules volumes have declined during fiscal 2003. The Company’s Judicial Profile services have direct competition and also indirect competition, since some of the same information is available through other sources.

The pricing of the Company’s products is reviewed every year. Subscription price increases have in recent years exceeded inflation, as have advertising rate increases.

There is significant competition among a limited number of companies to provide services and software to the courts, and some of these companies are much larger and have greater access to capital and other resources than Sustain. Others provide services for a limited number of courts. Normally, the vendor is selected through a bidding process. Many courts now desire Internet solutions to centralize databases and their management, and to facilitate electronic filing and the publishing of certain information from case management systems. The Sustain product line provides a version of these services, but there are many uncertainties in the process of courts migrating to newer electronic based systems, including whether Sustain’s version of case management systems will find general acceptance and whether the development and modification of such systems can be done in a cost effective manner. The Company is in the process of developing new Internet-based software, but an inability to fully fund and develop a marketable product could impact the Company’s ability to compete in the case management software business. Most of Sustain’s consulting revenues presently come from the particular installation project for the California Administrative Office of the Courts. As a California state

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government agency, the AOC may be subject to budget constraints resulting from California’s significant budget deficit. If those constraints result in a scaling back of the installation project or an inability of the AOC to pay for Sustain’s services, Sustain’s revenues would be materially affected.

Employees

The Company employs approximately 280 full-time employees and about 30 part-time employees including about 20 employees at Sustain. The Company is not a party to any collective bargaining agreements. Certain benefits, including medical insurance, are provided to all full-time employees. Management considers its employee relations to be good.

Executive Officers of the Registrant

The table below sets forth certain information with regard to the one executive officer who is not a director of the Company. All of the executive officers of the Company serve at the pleasure of the Board of Directors.

Name	Age	Principal Occupation Last Five Years
Ira A. Marshall, Jr.	80	Secretary of the Company since 1977; Mr. Marshall is a private investor and businessman making investments for his own account and is a Trustee of Mesabi Trust, which collects and distributes royalties from Mesabi Trust’s interests in mining properties.

Working Capital

Traditionally, the Company has generated sufficient cash flow from operations to cover all needs including capital expenditures without significant borrowing. To a very considerable extent, the Company benefits in this regard from the fact that subscriptions are generally paid a year in advance. In fiscal 2001, expenditures to develop Sustain software exceeded cash flow from all other sources, thus triggering borrowing plans for the first time in many years. The Company’s expenditures in support of the development of Sustain software continue to be very significant, but much below the level of fiscal 2001. If the Company’s overall cash need exceeds cash flow from operations, the Company may borrow under its available line of credit, secure additional financing or change its software development strategy.

Inflation

The effects of inflation are not significantly any more or less adverse on the Company’s businesses than they are on other publishing companies. The Company has experienced the effects of inflation primarily through increases in costs of personnel, newsprint, postage and services. These costs have generally been offset by periodic price increases for advertising and subscription rates, but with frequent exceptions during several years when the Company has experienced substantial increases in postage and newsprint expenses and additional costs related to acquisitions.

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Item 2.     Properties

The Company owns office and printing facilities in Los Angeles and leases space for its other offices under operating leases, which expire at various dates through 2006. The Company’s office and storage facilities in Sacramento were sold during fiscal 2002 and smaller office space has been leased.

The main Los Angeles property is comprised of a two-story, 34,000 square foot building constructed in 1990, which is fully occupied by the Company. Approximately 75% of the building is devoted to office space and the remainder to printing and production equipment and facilities. In 1996 the Company purchased about 40,000 square feet of land near the Los Angeles facility which was used for additional parking. In 1998 the Company purchased additional land and an 11,300 square foot building adjacent to the new parking lot. It was first used for storage and then demolished. In December 2003, the Company finished building a 37,000 square foot building and parking facilities on the properties acquired in 1996 and 1998. The new Los Angeles building provides additional office, production and storage space, and thus the Company no longer needs to occupy certain adjacent space it previously leased from a third party. The Company occupies a portion of the new building’s first floor and will complete the build-out of the second floor as needed.

At September 30, 2003, the Company had approximately 11,000 square feet of office space in San Francisco under a lease expiring in February 2004. In December 2003, the Company signed a lease for approximately 10,500 square feet of new office space in San Francisco. The new lease commences in February 2004 and has a term of approximately five years. In Denver, Sustain has approximately 9,400 square feet of office space under a lease expiring in September 2004. In addition, the Company rents facilities in each of the remaining cities where its staff is located on a month-to-month basis or pursuant to leases generally of no longer than three years duration.

See Note 5 of Notes to Consolidated Financial Statements for information concerning rents payable under leases.

Item 3.    Legal Proceedings

On April 2, 2003, Sustain received a letter from counsel acting on behalf of the Ontario, Canada Ministry of the Solicitor General, Ministry of Public Safety and Security and Ministry of the Attorney General (the “Ministries”) purporting to invoke the dispute resolution process set forth in the Integrated Justice Supplier Agreement, dated as of April 22, 1999, between Sustain and the Ministries (the “Agreement”), and claiming $20 million of damages.

The Agreement had called for the eventual license by the Ministries of the new Sustain software product that was being developed for Sustain by an outside service provider. As discussed in Item 7, the service provider’s work was seriously flawed and could not be licensed to the Ministries. The agreement was formally terminated on June 7, 2002.

Rather than immediately invoking the dispute resolution procedures set forth in the Agreement, counsel for Sustain and counsel for the Ministries engaged in informal discussions with respect to this matter, and the parties so far have not utilized the dispute resolution process set forth in the Agreement. Counsel for Sustain last communicated with counsel for the

13

Ministries by a letter sent on April 15, 2003. At this point, management is unable to determine whether this matter will have a material adverse effect on Sustain and the Company.

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

Rule 14a-4(c)(1) of the Securities and Exchange Commission provides that if the proponent of a shareholder proposal fails to notify the company at least 45 days prior to the date of the mailing of the prior year’s proxy statement, the proxies of the Company’s management would be permitted to use their discretionary authority at the Company’s next annual meeting of shareholders if the proposal were raised at the meeting without any discussion of the matter in the proxy statement.

No matters were submitted to a vote of shareholders during the last quarter of the Company’s fiscal year ended September 30, 2003.

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PART II

Item 5.     Market for Registrant’s Common Stock and Related Shareholder Matters

The following table sets forth the sales prices of the Company’s common stock for the periods indicated. Quotations are as reported by Nasdaq (Small-Cap Issues), the automated quotation system of the National Association of Securities Dealers, Inc.

	High		Low
Fiscal 2003
Quarter ended December 31, 2002	$	26.92	$	22.52
Quarter ended March 31, 2003		27.00		21.00
Quarter ended June 30, 2003		25.30		23.82
Quarter ended September 30, 2003		27.77		24.11

	High		Low
Fiscal 2002
Quarter ended December 31, 2001	$	32.75	$	19.00
Quarter ended March 31, 2002		30.25		23.25
Quarter ended June 30, 2002		28.50		25.50
Quarter ended September 30, 2002		27.50		21.25

As of December 12, 2003, there were approximately 1,300 holders of record of the Company’s common stock, and the last trade was at $30.50 per share.

The Company did not declare or pay any dividends during fiscal 2003 or 2002. A determination by the Company whether or not to pay dividends in the future will depend on numerous factors, including the Company’s earnings, cash flow, financial condition, capital requirements, future prospects, acquisition opportunities, and other relevant factors. The Board of Directors does not expect that the Company will pay any dividends or other distributions to shareholders in the foreseeable future.

From time to time, the Company has purchased shares, including treasury shares, of its common stock and may continue to do so. See Note 3 to consolidated financial statements. Stock purchases are made primarily to reduce dilution of net income (loss) per share caused by the deferred management incentive plan under which selected employees are paid, subject to certain conditions, supplemental compensation tied to future pre-tax earnings. During fiscal 2003, the Company purchased 16,115 shares of common and treasury stock at an average price per share of $25.17.

Item 6. Selected Financial Data

The following sets forth selected financial data for the Company as of, and for each of the five years ended September 30, 2003. Such data should be read in conjunction with, and is qualified in its entirety by reference to, the Company’s consolidated financial statements and the notes thereto and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” each included herein.

15

	Fiscal Year Ended September 30
	2003			2002			2001			2000			1999
	(Dollar amounts in thousands, except share and per share amounts)
Consolidated Statement of Operations Data:
Revenues
Advertising	$	16,969		$	17,359		$	18,868		$	20,455		$	20,759
Circulation		10,375			11,044			11,346			11,651			11,675
Information systems and services		3,979			2,491			2,055			2,328			1,213
Advertising service fees and other		2,906			3,137			2,955			2,910			2,688
Gain from sale of property, net		—			274			—			—			—
		34,229			34,305			35,224			37,344			36,335
Costs and expenses
Salaries and employee benefits		16,511			17,239			17,743			17,598			16,461
Newsprint and printing expenses		1,716			2,115			2,934			3,089			3,232
Commissions and other outside services		5,693			5,633			5,439			5,907			4,508
Postage and delivery costs		1,985			1,993			2,034			2,061			2,254
Depreciation, amortization and goodwill impairment charges		2,356			2,544			3,877			2,517			1,767
Other general and administrative expenses		3,515			3,641			4,147			4,520			5,155
Write-off and expense of capitalized software		—			—			15,048			—			—
		31,776			33,165			51,222			35,692			33,377
Income (loss) from operations		2,453			1,140			(15,998	)		1,652			2,958
Other income and expenses
Interest income		100			63			101			439			516
Interest expense		(150	)		(157	)		(162	)		—			—
Income (loss) before taxes		2,403			1,046			(16,059	)		2,091			3,474
Benefits from (provision for) income taxes		—			180			2,000			(700	)		(1,550	)
Income (loss) before minority interest in net loss of subsidiary		2,403			1,226			(14,059	)		1,391			1,924
Minority interest in net loss of subsidiary (7%)		—			—			686			447			199
Net income (loss)	$	2,403		$	1,226		$	(13,373	)	$	1,838		$	2,123
Weighted average number of common shares outstanding – basic and diluted		1,474,805			1,487,798			1,494,900			1,546,319			1,579,251
Basic and diluted net income (loss) per share	$	1.63		$	0.82		$	(8.95	)	$	1.19		$	1.34
	September 30
	2003			2002			2001			2000			1999
Consolidated Balance Sheet Data:
Working capital as conventionally reported	$	(2,092	)	$	(2,962	)	$	(4,939	)	$	1,731		$	6,040
Working capital before deductions of specified items (1)		4,817			4,263			2,838			9,639			13,858
Total assets		24,176			21,433			21,167			35,050			31,525
Shareholders’ equity		6,866			4,868			3,929			17,858			17,668

(1) Before deducting for each of the five years the liability for deferred subscription revenue and other revenues which will be earned within one year.

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

Results of Operations

2003 Compared to 2002

Revenues were $34,229,000 in fiscal 2003 and $34,305,000 (including a gain of $274,000 from the sale of Sacramento property) in fiscal 2002. Consulting and other fees of Sustain increased by $1,488,000, while advertising and subscription revenues declined by $1,059,000.

Display advertising and conference revenues increased by $92,000, while classified advertising revenues decreased by $508,000. Public notice advertising revenues increased by $26,000. The Company’s smaller newspapers, those other than the Los Angeles and San Francisco Daily Journals (“The Daily Journals”), accounted for about 91% of the total public notice advertising revenues. Public notice advertising revenues and related advertising and other service fees constituted about 28% of the Company’s total revenues. Circulation revenues decreased an aggregate of $669,000 primarily because in the last quarter of fiscal 2002, the Company discontinued several small publications and because the court rule revenues declined as more courts are now providing their rules online. The Daily Journals accounted for about 72% of the Company’s total circulation revenues, and their circulation levels decreased slightly. The court rule and judicial profile services generated about 18% of the total circulation revenues, with the other newspapers and services accounting for the balance. Information system and service revenues increased by $1,488,000 primarily because of increased consulting revenues of Sustain for the installation of Sustain software in several California counties. The Company’s revenues derived from Sustain’s operations constituted about 12% and 7% of the Company’s total revenues for fiscal 2003 and 2002, respectively.

Costs and expenses decreased by $1,389,000 (4%) to $31,776,000 from $33,165,000. Total personnel costs were $16,511,000, representing a decrease of $728,000 (4%), primarily because of the closing of several small publications in the last quarter of fiscal 2002 and the consolidation of several activities. Newsprint and printing expenses decreased by $399,000 (19%) primarily because of the reduction in newsprint usage and the discontinuance of several publications. Depreciation and amortization expenses decreased by $188,000 (7%) primarily due to more fully depreciated assets.

The Company’s expenditures for the development of Sustain software products are highly significant and will materially impact overall results at least through fiscal 2004, and very likely much longer. These Sustain internal software development costs, primarily incremental costs, aggregated $1,195,000 and $1,760,000 for fiscal 2003 and 2002, respectively. If these development programs are not successful, they will significantly and adversely impact the Company’s ability to maximize its existing investment in the Sustain software, to service its existing customers, and to compete for new opportunities in the case management software business.

The Company’s traditional business segment pretax profit decreased by $473,000 (9%) of which $274,000 was from the sale of Sacramento property in the prior year to $4,599,000 from $5,072,000. The declines in advertising and subscription revenues were partially offset by reduced expenses resulting from the decrease in newsprint and printing expenses and personnel

17

costs because of the closing of several small publications in the last quarter of fiscal 2002 and the consolidation of several activities. Sustain’s business segment pretax loss decreased by $1,830,000 (45%) to $2,196,000 from $4,026,000, primarily due to increased consulting revenues. The consolidated net income was $2,403,000 and $1,226,000 for fiscal 2003 and 2002, respectively. Tax provisions were not recorded for fiscal 2003 because the Company was able to utilize net operating loss carry-forwards attributable to the Sustain-segment losses in prior years to offset taxes which otherwise would have been payable. In subsequent years there may be additional tax benefits of $1,473,000 from past Sustain losses. During fiscal 2002, the Company recorded income tax benefits of $180,000 because of the tax law change for the carry-back of net operating losses. Net income per share increased to $1.63 from $.82.

2002 Compared to 2001

Revenues were $34,305,000 and $35,224,000 for the fiscal years ended September 30, 2002 and 2001, respectively. This decrease of $919,000 (3%) was primarily attributable to a decline in revenues from display and classified advertising which was partially offset by the advertising and subscription rate increases and the gain of $274,000 from the sale of the Sacramento property.

Display advertising and conference revenues declined by $945,000, and classified advertising revenues decreased by $660,000. Public notice advertising revenues increased by $96,000. The Company’s smaller newspapers, those other than the Los Angeles and San Francisco Daily Journals (“The Daily Journals”), accounted for about 91% of the total public notice advertising revenues in 2002. Public notice advertising revenues and related advertising and other service fees constituted about 29% of the Company’s total revenues in 2002. Circulation revenues decreased an aggregate of $302,000 primarily because of fewer subscriptions to the court rule services due to some courts now providing their rules online. The Daily Journals accounted for about 73% of the Company’s total circulation revenues in 2002, and their circulation levels decreased slightly. The court rule and judicial profile services generated about 18% of the total circulation revenues in 2002, with the other newspapers and services accounting for the balance. Information system and service revenues increased by $436,000 primarily because of increased consulting revenues of Sustain. The Company’s revenues derived from Sustain’s operations constituted about 7% and 6% of the Company’s total revenues for fiscal 2002 and 2001, respectively.

Costs and expenses, excluding the write-off of capitalized software of $15,048,000 in 2001, decreased by $3,009,000 (8%), to $33,165,000 from $36,174,000. Total personnel costs were $17,239,000 in 2002, representing a decrease of $504,000 (3%), primarily because of the closing of various small regional offices. Newsprint and printing expenses decreased by $819,000 (28%) primarily because of the reduction in newsprint usage and prices and the discontinuance of House Counsel magazine. Commissions and other outside services increased by $194,000 (4%) primarily because of costs of individual software consultants hired to help develop Sustain software of $1,760,000, partially offset by reduced editorial freelancers’ works and other computer support services. Depreciation and amortization expenses decreased by $1,333,000 (34%) primarily because all the Sustain’s remaining goodwill of $979,000 had been written off as of September 30, 2001. Other general and administrative expenses declined by $506,000 (12%) mainly resulting from less bad debt expense as well as reduced legal fees.

18

Sustain’s internal development costs, primarily incremental costs, aggregated $1,760,000 for fiscal 2002 compared to $339,000 in fiscal 2001. During fiscal 2001 and 2000, there were $15,048,000 of costs for the development of a new Sustain software product by an outside service provider. After an initial assessment of the development effort and an analysis of the program and product designs, Sustain believed that the new software was “technologically feasible” in accordance with the guidance set forth in Statement of Financial Accounting Standards No. 86, Accounting for the Costs of Computer Software to be Sold, Leased, or Otherwise Marketed (“SFAS 86”). Accordingly, the Company determined that it needed to capitalize these development costs attributable to the outside service provider. In March 2001, however, one of Sustain’s important customers was the first to discover a database-locking problem while it was conducting “acceptance testing” of the software prior to completing installation. This problem prevented the software from being “scalable” to a large number of users, which was an important requirement for Sustain’s customers. Shortly thereafter, Sustain determined that correcting the scalability problem would be prohibitively expensive, and therefore the development efforts of the outside provider were discontinued, and its work was terminated. As a result of these events, Sustain concluded that the software was no longer technologically feasible and the Company stopped capitalizing costs. In addition, the Company wrote off and expensed the previously capitalized costs aggregating $15,048,000. The Company also booked a net tax benefit of $2,000,000 in fiscal 2001 based on management’s estimate of the timing of the utilization of tax benefits, for financial statement purposes, from overall losses attributable to the Sustain segment.

The Company’s traditional business segment pretax profit increased by $1,456,000 (40%) to $5,072,000 from $3,616,000, primarily due to reduced expenses resulting from the decrease in newsprint and printing expenses and the closing of some small regional offices. In addition, in 2002 the Company realized a gain from the sale of its Sacramento property of $274,000. Sustain’s business segment pretax loss increased by $85,000 (2%) to $4,026,000 from $3,941,000, excluding the fiscal 2001 write-off of capitalized software of $15,048,000, primarily due to its software development project. The consolidated net income for fiscal 2002 was $1,226,000 as compared with a net loss of $13,373,000 in fiscal 2001. A tax provision was not recorded for fiscal 2002 because the Company was able to utilize net operating loss carry-forwards to offset taxes which otherwise would have been payable. In addition, the Company recorded income tax benefits of $180,000 in 2002 resulting from the tax law change for the carry-back of net operating losses. Net income per share was $0.82 in fiscal 2002 as compared with a net loss per share of $8.95 in fiscal 2001.

Liquidity and Capital Resources

During the fiscal year ended September 30, 2003, the Company’s cash and cash equivalents and U.S. Treasury Bill positions increased by $1,284,000. Cash and cash equivalents were used for the net purchase of capital assets of $3,281,000, including $2,565,000 for the new facilities in Los Angeles. The cash provided by operating activities of $5,037,000 included a net decrease in prepayments for subscriptions and others of $316,000, primarily related to the discontinuance of several small publications in the last quarter of fiscal 2002. Proceeds from the sale of subscriptions from newspapers, court rule books and other publications and for software maintenance and other services are recorded as deferred revenue and are included in earned revenue only when the services are rendered. Cash flows from operating activities increased by $1,358,000 for the fiscal year ended September 30, 2003 as compared to the prior comparable period primarily due to increased net income. As of September 30, 2003 the Company had

19

working capital of $4,817,000 before deducting the liability for deferred subscription revenues and other revenues of $6,909,000 which will be earned within one year.

During fiscal 2004, and very likely much longer, the Company expects its total expenditures in support of the development of the Sustain software to continue to be very significant. In addition, there has never been a resolution of the issues between Sustain and the outside software development service provider which was terminated in April 2001. The terminated outside service provider filed for bankruptcy in December 2001 and stated in its filings with the U.S. Bankruptcy Court that it was considering bringing a collection action against Sustain. If it ever does, Sustain will assert counter-claims that completely offset the terminated outside provider’s claims. Sustain will vigorously defend any litigation or action brought by the terminated outside service provider, although no assurances can be made as to the ultimate outcome of the dispute. It is the opinion of management that adequate provision has been made for any amounts that may become due as a result of the dispute. In a related matter, counsel for the Ontario, Canada Ministry of the Solicitor General, Ministry of Public Safety and Security and Ministry of the Attorney General sent a letter to Sustain claiming damages of $20 million as a result of Sustain’s inability to deliver a functional software system due to the flawed work of the outside service provider. In addition to the legal risks associated with these matters, the pendency of these issues could have an impact on Sustain’s ability to attract new customers or work with its existing customers.

The Company has a real estate loan of $1,808,000 secured by its existing Los Angeles facilities. In addition, a bank has expressed interest in lending the Company up to an additional $3.4 million to be secured by the new building and parking facilities, and the Company is considering whether to pursue this opportunity.

If the Company requires additional funds, it may, among other things, change Sustain’s development strategy or attempt to secure additional financing, which may or may not be available to the Company on acceptable terms.

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Critical Accounting Policies

The Company’s financial statements and accompanying notes are prepared in accordance with generally accepted accounting principles. Preparing financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. These estimates and assumptions are affected by management’s application of accounting policies. Management believes that both accounting for capitalized software costs and income tax accounting are critical accounting policies.

Pursuant to Statement of Financial Accounting Standards No. 86, Accounting for the Costs of Computer Software to be Sold, Leased, or Otherwise Marketed (“SFAS 86”), costs related to the research and development of a new software product are to be expensed as incurred until the technological feasibility of the product is established. Accordingly, costs related to the development of new Sustain software products are expensed as incurred until technological feasibility has been established, at which time such costs are capitalized, subject to expected recoverability. In general, “technological feasibility” is achieved when the developer has established the necessary skills, hardware and technology to produce a product and a detailed program design has been (a) completed, (b) traced to the product specifications and (c) reviewed for high-risk development issues.

In fiscal 2000, the Company hired an outside service provider specifically to initially assess the technical feasibility of developing new Sustain software products, and the costs of this analysis were expensed. The service provider delivered a report that included extensive product specifications, an Erwin diagram of the system, a detailed architecture analysis and a diagram of the object model. The product functions, features and technical requirements were set forth in their most detailed logical form, and coding of the new program (based in part on Sustain’s existing commercial case management software program) had already begun. While Sustain’s customers made it clear that “scalability” to a large number of users would be an important function of the new software, it would not have been reasonable to conclude at the time that “scalability” presented a high-risk development issue because the outside service provider had already developed a Microsoft-based architecture specifically designed to handle this requirement. (As discussed above, under SFAS 86, high risk development issues must be resolved before technological feasibility can be established.) Consequently, for a period of time prior to the second quarter of fiscal 2001, the Company believed that technological feasibility had been established for the new Sustain software. During the course of 2000, the development project began to run over-schedule and over-budget, but the Company was consistently receiving positive progress reports from the outside service provider. The delays and costs were attributed to factors unrelated to technological feasibility, including a sale of the service provider to a venture capital firm, significant turnover in the service provider’s senior and project management and frequent requests for additional functionality and services by Sustain’s customers. There was no suggestion of any significant risks to the successful scalability or completion of the software. In fact, the Company received a specific assurance from Microsoft Corporation, whose technical consultants had reviewed the software, that “the Sustain application supports extensive scalability.” In March 2001, however, one of Sustain’s important customers was the first to discover a database-locking problem that actually prevented scalability. The seriousness of the scalability issue was readily apparent and, upon examination, the Company came to believe that correcting it could be prohibitively expensive. The outside service provider estimated that an additional $20 million would be required to fix the problem. As a result of these developments, the Company reconsidered its earlier decision and determined that technological feasibility did

21

not exist. Accordingly, the Company stopped capitalizing costs in accordance with the guidance in Question #8 of the FASB Staff Implementation Guide to SFAS 86, and the previously capitalized development costs were written off and expensed in their entirety. These events had no effect on the Company’s financial statements for 2003 or 2002.

Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes, establishes financial accounting and reporting standards for the effect of income taxes. The objectives of accounting for income taxes are to recognize the amount of taxes payable or refundable for the current year and the deferred tax liabilities and assets for the future tax consequences of events that have been recognized in the financial statements or tax returns. Judgment is required in assessing the future tax consequences of events that have been recognized in the Company’s financial statements or tax returns. Fluctuations in the actual outcome of these future tax consequences could materially impact the Company’s financial position or its results of operations. In future years, there may be additional tax benefits, for financial statement purposes, from past Sustain-segment losses.

In August 2001, the Financial Accounting Standard Board issued SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” (SFAS No. 144). SFAS No. 144 supersedes SFAS No. 121. SFAS 144 retained substantially all of the requirements of SFAS No. 121 while resolving certain implementation issues. SFAS No.144 is effective for fiscal years beginning after December 15, 2001, with early application encouraged. The Company does not believe that the adoption of this statement has a material impact on the financial statements.

The above discussion and analysis should be read in conjunction with the consolidated financial statements and the notes thereto included in this report. (See Notes 4-6 for taxes, debt and commitments and contingencies.)

Item 7A.    Qualitative and Quantitative Disclosures about Market Risk

The Company does not use derivative financial instruments. The Company does maintain a portfolio of cash equivalents maturing in three months or less as of the date of purchase and of U.S. Treasury Bills maturing within one year. Given the short-term nature of the investments and borrowings, and the fact that the Company had no outstanding borrowing except for the real estate loan which bears a fixed interest rate, the Company was not subject to significant interest rate risk. The real estate loan of $1,808,000 bears interest at approximately 6.84% and is repayable in equal monthly installments of about $18,000 through 2016. The real estate loan is secured by the Company’s existing facilities in Los Angeles.

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REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

THE BOARD OF DIRECTORS AND SHAREHOLDERS

DAILY JOURNAL CORPORATION

We have audited the accompanying consolidated balance sheets of Daily Journal Corporation as of September 30, 2003 and 2002, and the related consolidated statements of operations, shareholders’ equity and cash flows for each of the three years in the period ended September 30, 2003. Our audits also included the financial statement schedule listed in the Index at Item 15(a) for the years ended September 30, 2003, 2002 and 2001. These financial statements and schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.

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

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Daily Journal Corporation at September 30, 2003 and 2002, and the consolidated results of its operations and its cash flows for each of the three years in the period ended September 30, 2003, in conformity with accounting principles generally accepted in the United States. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

/s/    ERNST & YOUNG, LLP

Los Angeles, California

October 31, 2003

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Item 8.    Financial Statements and Supplementary Data

DAILY JOURNAL CORPORATION

CONSOLIDATED BALANCE SHEETS

	September 30
	2003			2002
ASSETS
Current assets
Cash and cash equivalents	$	491,000		$	513,000
U.S. Treasury Bills, at cost plus discount earned		5,592,000			4,286,000
Accounts receivable, less allowance for doubtful accounts of $400,000 and $500,000 at September 30, 2003 and 2002, respectively		6,205,000			5,953,000
Inventories		22,000			18,000
Prepaid expenses and other assets		214,000			141,000
Deferred income taxes		980,000			901,000
Total current assets		13,504,000			11,812,000
Property, plant and equipment, at cost
Land, buildings and improvements		11,122,000			8,538,000
Furniture, office equipment and computer software		6,126,000			6,118,000
Machinery and equipment		1,492,000			1,351,000
		18,740,000			16,007,000
Less accumulated depreciation		(8,226,000	)		(7,024,000	)
		10,514,000			8,983,000
Capitalized software, net		28,000			634,000
Deferred income taxes		130,000			4,000
	$	24,176,000		$	21,433,000
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities
Accounts payable	$	5,905,000		$	5,086,000
Accrued liabilities		2,608,000			2,371,000
Income taxes		80,000			—
Notes payable—current portion		94,000			92,000
Deferred subscription revenue and other revenues		6,909,000			7,225,000
Total current liabilities		15,596,000			14,774,000
Notes payable—long term		1,714,000			1,791,000
Commitments and contingencies (Notes 5 and 6)		—			—
Minority Interest—7%		—			—
Shareholders’ equity
Preferred stock, $.01 par value, 5,000,000 shares authorized and no shares issued		—			—
Common stock, $.01 par value, 5,000,000 shares authorized; 1,509,503 shares and 1,525,618 shares outstanding, respectively		15,000			15,000
Other paid-in capital		1,919,000			1,939,000
Retained earnings		5,802,000			3,784,000
Less 46,271 treasury shares, at cost		(870,000	)		(870,000	)
Total shareholders’ equity		6,866,000			4,868,000
	$	24,176,000		$	21,433,000

See accompanying Notes to Consolidated Financial Statements

24

DAILY JOURNAL CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

	Year ended September 30
	2003			2002			2001
Revenues
Advertising	$	16,969,000		$	17,359,000		$	18,868,000
Circulation		10,375,000			11,044,000			11,346,000
Information systems and services		3,979,000			2,491,000			2,055,000
Advertising service fees and other		2,906,000			3,137,000			2,955,000
Gain from sale of property, net		—			274,000			—
		34,229,000			34,305,000			35,224,000
Costs and expenses
Salaries and employee benefits		16,511,000			17,239,000			17,743,000
Newsprint and printing expenses		1,716,000			2,115,000			2,934,000
Commissions and other outside services		5,693,000			5,633,000			5,439,000
Postage and delivery expenses		1,985,000			1,993,000			2,034,000
Depreciation, amortization and goodwill impairment charges		2,356,000			2,544,000			3,877,000
Other general and administrative expenses		3,515,000			3,641,000			4,147,000
Write-off and expense of capitalized software		—			—			15,048,000
		31,776,000			33,165,000			51,222,000
Income (loss) from operations		2,453,000			1,140,000			(15,998,000	)
Other income and expenses
Interest income		100,000			63,000			101,000
Interest expense		(150,000	)		(157,000	)		(162,000	)
Income (loss) before taxes		2,403,000			1,046,000			(16,059,000	)
Benefit from (provision for) income taxes		—			180,000			2,000,000
Income (loss) before minority interest in net loss of subsidiary		2,403,000			1,226,000			(14,059,000	)
Minority interest in net loss of subsidiary (7%)		—			—			686,000
Net income (loss)	$	2,403,000		$	1,226,000		$	(13,373,000	)
Weighted average number of common shares outstanding—basic and diluted		1,474,805			1,487,798			1,494,900
Basic and diluted net income (loss) per share	$	1.63		$	0.82		$	(8.95	)

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

	Common Stock					Other Paid- in Capital			Retained Earnings			Treasury Stock			Total Shareholders’ Equity
	Share		Amount
Balance at September 30, 2000	1,553,256		$	16,000		$	1,974,000		$	16,657,000		$	(789,000	)	$	17,858,000
Net loss	—			—			—			(13,373,000	)		—			(13,373,000	)
Purchase of common stock	(19,735	)		(1,000	)		(25,000	)		(530,000	)		—			(556,000	)
Balance at September 30, 2001	1,533,521			15,000			1,949,000			2,754,000			(789,000	)		3,929,000
Net income	—			—			—			1,226,000			—			1,226,000
Purchase of common stock	(7,903	)		—			(10,000	)		(196,000	)		—			(206,000	)
Purchase of treasury stock	—			—			—			—			(81,000	)		(81,000	)
Balance at September 30, 2002	1,525,618			15,000			1,939,000			3,784,000			(870,000	)		4,868,000
Net income	—			—			—			2,403,000			—			2,403,000
Purchase of common stock	(16,115	)		—			(20,000	)		(385,000	)		—			(405,000	)
Purchase of treasury stock	—			—			—			—			—			—
Balance at September 30, 2003	1,509,503		$	15,000		$	1,919,000		$	5,802,000		$	(870,000	)	$	6,866,000

See accompanying Notes to Consolidated Financial Statements

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DAILY JOURNAL CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

	Year ended September 30
	2003			2002			2001
Cash flows from operating activities
Net income (loss)	$	2,403,000		$	1,226,000		$	(13,373,000	)
Adjustments to reconcile net income (loss) to net cash provided by operations
Write-off and expense of capitalized software		—			—			15,048,000
Depreciation, amortization and goodwill impairment charges		2,356,000			2,544,000			3,877,000
Minority interest in consolidated subsidiary		—			—			(686,000	)
Deferred income taxes		(205,000	)		(180,000	)		(2,516,000	)
Discount earned on U.S. Treasury Bills		(8,000	)		(20,000	)		—
Changes in assets and liabilities
(Increase) decrease in current assets
Accounts receivable, net		(252,000	)		644,000			2,378,000
Income tax receivable		—			—			2,709,000
Inventories		(4,000	)		49,000			(6,000	)
Prepaid expenses and other assets		(73,000	)		13,000			17,000
Increase (decrease) in current liabilities
Accounts payable		819,000			(38,000	)		1,410,000
Accrued liabilities		237,000			(7,000	)		320,000
Income taxes		80,000			—			—
Deferred subscription and other revenues		(316,000	)		(552,000	)		(131,000	)
Cash provided by operating activities		5,037,000			3,679,000			9,047,000
Cash flows from investing activities
Net (purchases) sales of U.S. Treasury Bills		(1,298,000	)		(4,266,000	)		1,972,000
Capital and capitalized software expenditures, including acquisitions
Purchases of property, plant and equipment, net		(3,281,000	)		(1,438,000	)		(1,796,000	)
Capitalized software		—			—			(8,105,000	)
Net cash used for investing activities		(4,579,000	)		(5,704,000	)		(7,929,000	)
Cash flows from financing activities
Loan proceeds		—			—			2,000,000
Payment of loan principle		(75,000	)		(76,000	)		(41,000	)
Purchase of common and treasury stock		(405,000	)		(287,000	)		(556,000	)
Cash (used for) provided by financing activities		(480,000	)		(363,000	)		1,403,000
(Decrease) increase in cash and cash equivalents		(22,000	)		(2,388,000	)		2,521,000
Cash and cash equivalents
Beginning of year		513,000			2,901,000			380,000
End of year	$	491,000		$	513,000		$	2,901,000
Interest paid during year	$	150,000		$	157,000		$	162,000
Income taxes paid during year	$	35,000		$	15,000		$	—

See accompanying Notes to Consolidated Financial Statements

26

DAILY JOURNAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.    THE COMPANY AND OPERATIONS

The Daily Journal Corporation (the “Company”) publishes newspapers and web sites covering California, Arizona and Nevada, as well as the California Lawyer magazine, and produces several specialized information services. SUSTAIN Technologies, Inc. (“Sustain”), now a 93% owned subsidiary as of September 30, 2003, has been consolidated since it was acquired in January 1999. (See Note 2.) Sustain supplies case management software systems and related products to courts and other justice agencies, including district attorney offices and administrative law organizations. These courts and agencies use the Sustain family of products to help manage cases and information electronically and to interface with other critical justice partners. Sustain’s products are designed to help users manage electronic case files from inception to disposition, including all aspects of calendaring and accounting, report and notice generation, the implementation of standards and business rules and other corollary functions. Essentially all of the Company’s operations are based in California, Arizona, Colorado, Nevada and Virginia.

2.    ACQUISITIONS

In January 1999 the Company acquired an 80% equity interest in Sustain for cash of $6.67 million. During March 2000, June 2000 and October 2001, the Company acquired additional equity interests in Sustain of 6%, 5% and 2%, respectively, for cash of approximately $7 million primarily paid to Sustain pursuant to rights offerings. The results of operations for the additional ownership interests have been included in the financial statements from the dates of such acquisitions. The acquisitions were accounted for using the purchase method of accounting; accordingly, the purchase price in excess of the net assets was allocated to purchased software ($3,275,000) and goodwill ($1,895,000). The purchased software is being amortized over five years, and during fiscal 2001, the remaining net book value of goodwill of approximately $979,000 was written off due to the asset’s permanent impairment, based on Sustain’s losses and expected future cash flows. (See Note 3.) Since fiscal 2001, the Company has not allocated losses to the minority interest of Sustain as there has been a deficit in the minority interest balance. The minority interest had accumulated deficit balances of $715,000 and $662,000 as of September 30, 2003 and 2002, respectively.

3.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation:    The consolidated financial statements include the accounts of the Daily Journal Corporation and its 93% owned subsidiary, Sustain. All significant intercompany accounts and transactions have been eliminated in consolidation.

Cash equivalents:    The Company considers all highly liquid investments, including U.S. Treasury Bills with a maturity of three months or less when purchased, to be cash equivalents.

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Fair Value of Financial Instruments:    The carrying amounts of cash, investments in U.S. Treasury Bills, accounts receivable, accounts payable and debt instrument approximate fair value because of the short maturity of these financial instruments.

Inventories:    Inventories, comprised of newsprint and paper, are stated at cost, on a first-in, first-out basis, which does not exceed current market value.

Income taxes:    The Company accounts for income taxes using an asset and liability approach which requires the recognition of deferred tax liabilities and assets for the expected future consequences of temporary differences between the carrying amounts for financial reporting purposes and the tax basis of the assets and liabilities.

Property, plant and equipment:    Property, plant and equipment are carried on the basis of cost. Depreciation of assets is provided in amounts sufficient to depreciate the cost of related assets over their estimated useful lives ranging from 3 – 31.5 years. At September 30, 2003, the estimated useful lives were (i) 5 – 30.5 years for building and improvements, (ii) 3 – 5 years for furniture, office equipment and software, and (iii) 3 – 10 years for machinery and equipment. Leasehold improvements are amortized over the term of the related leases or the useful life of the assets, whichever is shorter. Assets have been depreciated using an accelerated method for both financial statement and tax purposes.

Significant expenditures which extend the useful lives of existing assets are capitalized. Maintenance and repair costs are expensed as incurred. Gains or losses on dispositions of assets are reflected in current earnings.

Capitalized Software, net:    The Company’s expenditures in support of the Sustain software are highly significant. The capitalized Sustain software costs consist of purchased software upon the acquisition of Sustain of $3,023,000, less accumulated amortization of $2,995,000 and $2,389,000 as of September 30, 2003 and 2002, respectively. The remaining capitalized software, net, represents software costs accounted for pursuant to Statement of Financial Accounting Standards No. 86, Accounting for the Costs of Computer Software to be Sold, Leased, or Otherwise Marketed. This software is being amortized over five years. The amortization expenses for capitalized software were $607,000, $605,000 and $604,000 for fiscal years 2003, 2002 and 2001, respectively. Costs related to the research and development of new Sustain software products are expensed as incurred until technological feasibility of the product has been established, at which time such costs are capitalized, subject to expected recoverability.

During fiscal 2001 and 2000, there were also capitalized costs of $15,048,000 for the development of Sustain software related to the use of an outside service provider. In March 2001, however, one of Sustain’s important customers discovered a database-locking problem in the new software while it was conducting “acceptance testing” of the program prior to its installation. This problem prevented the software from being “scalable” to a large number of users, which was an important requirement for Sustain’s customers. Shortly thereafter, in April 2001, Sustain determined that correcting the scalability problem would be prohibitively expensive, and therefore the development efforts of the outside provider were discontinued, and its work was terminated. As a result of these events, Sustain determined that the software was no longer technologically feasible and the Company stopped capitalizing costs. The Company also wrote off and expensed in fiscal 2001 the capitalized software development costs aggregating $15,048,000. In partial offset, the Company booked, through reported income, a net tax benefit of

28

$2,000,000 in fiscal 2001 after taking into account management’s estimate of the timing of the utilization of all tax benefits for financial statement purposes. In subsequent years, there may be additional tax benefits of about $1,473,000 from past Sustain-segment losses.

The Company is continuing its internal Sustain software development efforts and has teamed with other service providers to seek new business opportunities. If these development and marketing efforts are not successful, there will be a significant and adverse impact on the Company’s ability to maximize its existing investment in the Sustain software, to service its existing customers, and to compete for new opportunities in the case management software business. These Sustain software development costs ($1,195,000 and $1,760,000 during fiscal 2003 and 2002, respectively), which are primarily incremental costs, are being expensed as incurred and accordingly will materially impact earnings at least through fiscal 2004, and very likely much longer.

Intangible assets:    Intangible assets consisted of goodwill resulting from the acquisitions of Sustain equity in 1999, 2000 and 2001. The remaining balance of these intangible assets of $979,000 was written off as of September 30, 2001 due to Sustain’s losses and its expected future cash flows.

Revenue Recognition:    Proceeds from the sale of subscriptions for newspapers, court rule books and other publications and other services are recorded as deferred revenue and are included in earned revenue only when the services are provided, generally over the subscription term.

The Company recognizes revenues from both the lease and sale of software products. Revenues from leases of software products are recognized over the life of the lease while revenues from software product sales are recognized normally upon delivery, installation or acceptance pursuant to a signed agreement. Revenues from annual maintenance contracts generally call for the Company to provide software updates and upgrades to customers and are recognized ratably over the maintenance period. Consulting and other services are recognized as performed.

Deferred Management Incentive Plan:    In fiscal 1987 the Company implemented a plan for Deferred Management Incentive Plan that entitles an employee to participate in pre-tax earnings of the Company for the lesser of (i) ten years or (ii) as long as that employee remains employed or is in retirement following employment to age 65. In 2003 the Company modified the Plan to provide employees with three different types of non-negotiable incentive certificates based on the natures of the particular participants’ responsibilities. Participant interests entitled employees to receive 3.85% (amounting to $218,925) of Daily Journal non-consolidated income before taxes, workers’ compensation and supplemental compensation expenses, 1.50% (amounting to $0) for Sustain and 8.2% (amounting to $260,480) for Daily Journal consolidated in fiscal 2003. In previous years, certificates entitled employees to receive 12.72% (amounting to $112,455) in fiscal 2002 and 12.49% (amounting to $0) in fiscal 2001 of the Daily Journal consolidated pre-tax earnings. In addition, the employee holders of certificates are entitled to receive the same percentage of pre-tax earnings in each of the next nine years subsequent to the year of the grant of the certificate provided they remain employed or are in retirement following employment to age 65.

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Treasury stock and net income (loss) per common share:    As of September 30, 2003 and 2002, the Company owned 46,271 of the 599,409 units of a limited partnership that has no known liabilities and owns as its sole asset 599,409 shares of common stock of Daily Journal Corporation. This investment, at a total cost of $870,000, is considered treasury stock and is excluded from the calculation of weighted average shares. The net income (loss) per common share is based on the weighted average number of shares outstanding during each year. The shares used in the calculation were 1,474,805 for 2003, 1,487,798 for 2002 and 1,494,900 for 2001. The Company does not have any common stock equivalents, and therefore basic and diluted net income (loss) per share is the same.

Use of Estimates:    The presentation of the Company’s financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates.

Reclassifications:    Certain reclassifications of previously reported amounts have been made to conform to the current year’s presentation.

Impairment of Long-Lived Assets:    The Company evaluates long-lived assets and certain identifiable intangibles for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. An impairment loss is recognized when the sum of the undiscounted future cash flows is less than the carrying amount of the asset, in which case a write-down is recorded to reduce the related asset to its estimated fair value. In fiscal 2001, the Company determined that the carrying value of its existing unamortized goodwill was impaired and recorded a write-off, which resulted in an additional loss of approximately $979,000 ($.41 net loss per share.)

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4.     INCOME TAXES

The provision for income taxes (benefits) consists of the following:

	2003			2002			2001
Current:
Federal	$	—		$	—		$	355,000
State		207,000			—			161,000
		207,000			—			516,000
Deferred:
Federal		(207,000	)		(180,000	)		(1,981,000	)
State		—			—			(535,000	)
		(207,000	)		(180,000	)		(2,516,000	)
	$	—		$	(180,000	)	$	(2,000,000	)

The difference between the statutory federal income tax rate and the Company’s effective rate is summarized below:

	2003	2002	2001
Statutory federal income tax rate	34.0%	34.0%	(34.0%)
State franchise taxes (net of federal tax benefit)	5.8	5.8	(1.5)
Research and development tax credit	—	—	1.6
Change in valuation allowance	(39.6)	(71.1)	27.1
Other, net, primarily amortization of goodwill	(.2)	14.1	(5.7)
Effective tax rate	—	(17.2%)	(12.5%)

The Company’s deferred income tax assets/(liabilities) were comprised of the following at September 30:

	2003			2002			2001
Deferred tax assets/(liabilities) attributable to:
Accrued liabilities, including vacation pay accrual	$	418,000		$	339,000		$	513,000
Bad debt reserves not yet deductible		159,000			199,000			199,000
Depreciation and amortization		812,000			(4,000	)		13,000
Cash/accrual accounting method change		395,000			394,000			—
Net operating loss and research credit carry-forwards, other		1,990,000			3,593,000			4,359,000
Total deferred tax assets		3,774,000			4,521,000			5,084,000
Deferred tax asset—valuation allowance		(2,664,000	)		(3,616,000	)		(4,359,000	)
Net deferred tax asset	$	1,110,000		$	905,000		$	725,000

At September 30, 2003, the Company has a deferred tax asset of $3,774,000 primarily related to fiscal 2001’s net operating loss and research and development credit carry-forwards which expire in years 2015 through 2021. Due to the uncertainty surrounding the timing of realizing the benefits of its tax attributes in future tax returns, the Company has provided a valuation allowance against the asset of $2,664,000, resulting in a net deferred tax asset of $1,110,000. The reduction in the valuation allowance for the current fiscal year was $952,000 primarily due to utilization of net operating loss carry-forwards. In future years, there may be additional tax benefits, for financial statement purposes, from past Sustain-segment losses.

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The Company has net operating losses available to be carried forward to offset future taxable income as follows:

Fiscal Year Generated	Amount	Fiscal Year Expiration
2000	$1,650,000 (California NOL only)	2015
2001	$1,872,000 (Federal NOL only)	2021
2001	$4,181,000 (California NOL only)	2016

In addition, the Company has Research and Development Credits available to be carried forward to offset future federal tax as follows:

Fiscal Year Generated	Amount	Fiscal Year Expiration
2000	$355,000	2020
2001	$81,000	2021

5.     DEBT AND COMMITMENTS

As of September 30, 2003, the Company has a real estate loan of $1,808,000, which bears interest at approximately 6.84% (adjusted downward from 8.02% pursuant to the Loan Revision Agreement dated September 12, 2003) and is repayable in equal monthly installments of about $18,000 through 2016. The real estate loan is secured by the Company’s existing office and printing facilities in Los Angeles.

The Company owns its facilities in Los Angeles and leases space for its other offices under operating leases which expire at various dates through 2006. The Company is responsible for a portion of maintenance, insurance and property tax expenses relating to certain leased property. Rental expenses for the fiscal years 2003, 2002 and 2001 were $930,000, $925,000 and $939,000, respectively.

In conjunction with the acquisition of Sustain in January 1999, Sustain entered into five-year employment agreements with each of the three Sustain principals. Sustain pays an aggregate of $65,000 per month pursuant to the three employment agreements, each of which expires in January 2004. Sustain does not expect to extend or renew these employment agreements.

The following table represents the Company’s future obligations:

	Payments Due by Fiscal Year
	2004		2005		2006		2007		2008		2009 and after		Total
Long-term debt	$	94,000	$	101,000	$	108,000	$	116,000	$	124,000	$	1,265,000	$	1,808,000
Operating leases		693,000		320,000		260,000		229,000		229,000		115,000		1,846,000
Employment Agreements		242,000												242,000
Total commitments	$	1,029,000	$	421,000	$	368,000	$	345,000	$	353,000	$	1,380,000	$	3,896,000

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6.     CONTINGENCIES

Management has received information furnished by legal counsel on the current stage of all outstanding legal proceedings and the development of these matters to date. There continue to be outstanding issues, including the amounts due to each of them from the other, between Sustain and the terminated outside service provider whose software development work was terminated by Sustain in April 2001 as a result of serious flaws and long delays. The terminated outside service provider filed for bankruptcy in December 2001 and stated in its filings with the U.S. Bankruptcy Court that it was considering bringing a collection action against Sustain. If it does, Sustain will assert counter-claims that completely offset the terminated outside provider’s claims. Sustain will vigorously defend any litigation or action brought by the terminated outside service provider, although no assurances can be made as to the ultimate outcome of the dispute. It is the opinion of management that adequate provision has been made for any amounts that may become due as a result of the dispute.

In addition, Sustain received a letter in April 2003 from counsel to the Ontario, Canada Ministry of the Solicitor General, Ministry of Public Safety and Security and Ministry of the Attorney General (collectively, the “Ministries”). The Ministries had entered into a contract with Sustain, dated as of April 22, 1999 (the “Contract”), pursuant to which the Ministries sought to license the software product that was to be developed by the outside service provider referred to above. The Contract was formally terminated in June 2002. The letter from counsel purported to invoke the dispute resolution process set forth in the Contract and claimed damages in the amount of $20 million. Counsel for Sustain and counsel for the Ministries engaged in preliminary discussions with respect to this matter, and the parties so far have not utilized the dispute resolution process set forth in the Contract. Counsel for Sustain last communicated with counsel for the Ministries by a letter sent in April 2003. At this point, management is unable to determine whether this matter will have a material adverse effect on Sustain and the Company.

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7.    OPERATING SEGMENTS

The Company has two segments of business. The Company’s reportable segments are (1) the traditional business and (2) Sustain. The traditional business segment publishes the Company’s newspapers and a magazine and produces several specialized information services. The Sustain segment provides the SUSTAIN^® family of products which consists of technologies and applications to enable justice agencies to automate their operations. The accounting policies of the reportable segments are the same as those described in Note 3 of Notes to Consolidated Financial Statements. Inter-segment transactions were eliminated, and the reported segment loss of Sustain was net of the minority interest. Summarized financial information concerning the Company’s reportable segments is shown in the following table:

	Reportable Segments
	Traditional Business			Sustain			Total Results for both Segments
				(in thousands)
2003
Revenues	$	30,250		$	3,979		$	34,229
Profit (loss) before taxes		4,599			(2,196	)		2,403
Total assets		21,001			3,175			24,176
Capital expenditures		3,226			55			3,281
Depreciation and amortization		1,511			845			2,356
Income tax benefits (expenses)		(1,800	)		1,800			—
Total after-tax income (loss)		2,799			(396	)		2,403
2002
Revenues	$	31,814		$	2,491		$	34,305
Profit (loss) before taxes		5,072			(4,026	)		1,046
Total assets		19,131			2,302			21,433
Capital expenditures		1,327			111			1,438
Depreciation and amortization		1,714			830			2,544
Income tax benefits (expenses)		(2,000	)		2,180			180
Total after-tax income (loss)		3,072			(1,846	)		1,226
2001
Revenues	$	33,169		$	2,055		$	35,224
Profit (loss) before taxes		3,616			(18,989	)		(15,373	)
Total assets		18,423			2,744			21,167
Capital expenditures		1,635			8,266			9,901
Depreciation, amortization and goodwill impairment charges		1,641			2,236			3,877
Income tax benefits (expenses)		(1,390	)		3,390			2,000
Total after-tax income (loss)		2,226			(15,599	)		(13,373	)

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8.    RESULTS OF OPERATIONS BY QUARTER (UNAUDITED)

	Quarter ended
	12/02			03/03			06/03			09/03
	(in thousands except per share amounts)
2003
Revenues	$	8,489		$	8,254		$	8,888		$	8,598
Costs and expenses		7,929			7,846			8,147			7,854
Income from operations		560			408			741			744
Other income (expense)		(6	)		(21	)		(1	)		(22	)
Income before taxes		554			387			740			722
Benefits from income taxes		—			—			—			—
Income before minority interest in net loss of subsidiary		554			387			740			722
Minority interest in net loss of subsidiary		—			—			—			—
Net income		554			387			740			722
Basic and diluted net income per share		.37			.27			.50			.49
2002	12/01			03/02			06/02			09/02
Revenues	$	8,002		$	8,586		$	9,020		$	8,697
Costs and expenses		8,135			8,416			8,346			8,268
Income (loss) from operations		(133	)		170			674			429
Other income (expense)		(21	)		(26	)		(28	)		(19	)
Income (loss) before taxes		(154	)		144			646			410
Benefits from income taxes		—			180			—			—
Income before minority interest in net loss of subsidiary		(154	)		324			646			410
Minority interest in net loss of subsidiary		—						—			—
Net income (loss)		(154	)		324			646			410
Basic and diluted net income (loss) per share		(.10	)		.22			.43			.27
2001	12/00			03/01			06/01			09/01
Revenues	$	8,528		$	8,738		$	9,294		$	8,664
Costs and expenses		8,643			21,565			10,761			10,253
Loss from operations		(115	)		(12,827	)		(1,467	)		(1,589	)
Other income (expense)		36			(41	)		(37	)		(19	)
Loss before taxes		(79	)		(12,868	)		(1,504	)		(1,608	)
Benefits from (provision for) income taxes		30			5,290			685			(4,005	)
Loss before minority interest in net loss of subsidiary		(49	)		(7,578	)		(819	)		(5,613	)
Minority interest in net loss of subsidiary		46			604			36			—
Net loss		(3	)		(6,974	)		(783	)		(5,613	)
Basic and diluted net loss per share		(.00	)		(4.68	)		(.53	)		(3.74	)

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

No such changes or disagreements.

Item 9A.    Controls and Procedures.

An evaluation was performed under the supervision and with the participation of the Company’s management, including Gerald L. Salzman, its Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures as of September 30, 2003. Based on that evaluation, Mr. Salzman concluded that the Company’s disclosure controls and procedures are effective in ensuring that information required to be disclosed by the Company in reports it files or submits under the

35

Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported as specified in the rules and forms of the Securities Exchange Commission. There have been no material changes in the Company’s internal control over financial reporting or in other factors reasonably likely to affect its internal control over financial reporting during the fiscal year ended September 30, 2003.

36

PART III

Item 10.    Directors and Executive Officers of the Registrant

The information set forth in the tables, the notes thereto, and the paragraphs under the caption “Election of Directors” in the Company’s Proxy Statement for Annual Meeting of Shareholders to be held on or about February 4, 2004 (the “Proxy Statement”), is incorporated herein by reference. The information set forth under Item 1 of this Form 10-K under the caption “Executive Officers of the Registrant” is also incorporated herein by reference.

The Company has adopted a Code of Ethics that applies to all directors, officers and employees of the Company, including the Chief Executive Officer, Chief Financial Officer and Controller. The Company’s Code of Ethics is attached to this Form 10-K as Exhibit 14.

Item 11.    Executive Compensation

The information set forth under the caption “Executive Compensation” in the Proxy Statement is incorporated herein by reference.

Item 12.    Security Ownership of Certain Beneficial Owners and Management

The information set forth under the caption “Security Ownership of Certain Beneficial Owners and Management” in the Proxy Statement is incorporated herein by reference.

Item 13.    Certain Relationships and Related Transactions

The information set forth under the captions “Executive Compensation-Compensation Committee Interlocks and Insider Participation” and “Certain Relationships and Related Transactions” in the Proxy Statement is incorporated herein by reference.

Item 14.    Principal Accountant Fees and Services

The information set forth under the caption “Other Matters Regarding Independent Accountants” in the Proxy Statement is incorporated herein by reference.

37

PART IV

Item 15(a).    Exhibits, Financial Statements, Financial Statement Schedules, and Reports on Form 8-K

The following documents are filed as part of this Report:

(1)	Consolidated Financial Statements:
	Report of Ernst & Young LLP, Independent Auditors
	Consolidated Balance Sheets at September 30, 2003 and 2002
	Consolidated Statements of Operations for each of the three years in the period ended September 30, 2003
	Consolidated Statements of Shareholders’ Equity for each of the three years in the period ended September 30, 2003
	Consolidated Statements of Cash Flows for each of the three years in the period ended September 30, 2003
	Notes to Consolidated Financial Statements
(2)	Consolidated Financial Statement Schedule for the three years ended September 30, 2003:
	II Valuation and Qualifying Accounts
	All other schedules are omitted because they are not applicable or the required information is shown in the financial statements or notes thereto.
(3)	Exhibits
2.1	Stock Purchase Agreement, dated as of January 22, 1999, by and among Daily Journal Corporation, Choice Information Systems, Inc., Michael W. Payton and Terence E. Hahm. (±)
2.2	Asset Purchase Agreement, dated as of January 22, 1999, by and among Choice Information Systems, Inc., Quindeca Corporation and Jerry L. Short. (±)
3.1	Articles of Incorporation of Daily Journal Corporation, as amended. (†)
3.2	Bylaws of Daily Journal Corporation. (#)
10.1	Employment Agreement, dated as of January 22, 1999, between Choice Information Systems, Inc. and Michael W. Payton. (±)
10.2	Employment Agreement, dated as of January 22, 1999, between Choice Information Systems, Inc. and Jerry L. Short. (±)
10.3	Employment Agreement, dated as of January 22, 1999, between Choice Information Systems, Inc. and Terence E. Hahm. (±)
10.4	Shareholder’s Agreement, dated as of January 22, 1999, among Choice Information Systems, Inc., Daily Journal Corporation, Quindeca Corporation, Michael W. Payton and Terence E. Hahm. (±)

38

10.5(a)	Form of Non-Negotiable Certificate Representing an Employee Participant Interest in the Daily Journal Corporation (“DJC”) Plan for Supplemental Compensation to an Employee as long as that Employee Remains Employed by DJC or one of its Subsidiaries, Based on Pre-tax Earnings of DJC and its Subsidiaries on a Consolidated Basis. (‡)
10.5(b)	Form of Non-Negotiable Certificate Representing an Employee Participant Interest in the Daily Journal Corporation (“DJC”) Plan for Supplement Compensation to an Employee as long as that Employee Remains Employed by DJC or one of its Subsidiaries, Based on Pre-tax Earnings of DJC’s Non-Sustain Operations. (‡)
10.5(c)	Form of Non-Negotiable Certificate Representing an Employee Participant Interest in the Daily Journal Corporation (“DJC”) Plan for Supplement Compensation to an Employee as long as that Employee Remains Employed by DJC or one of its Subsidiaries, Based on Pre-tax Earnings of Sustain Technologies, Inc. (‡)
10.7	Lease dated December 9, 1998 between Daily Journal Corporation and One Trinity Center. (†)
10.8	Lease dated August 26, 1999 between Sustain Technologies, Inc. and The Prudential Insurance Company of America. (†)
10.9	Note Secured by Deed of Trust, dated January 2, 2001, in the principal amount of $2,000,000 executed by Daily Journal Corporation in favor of City National Bank. (f)
10.10	Deed of Trust, Assignment of Rents and Fixture Filing, dated January 2, 2001, executed by Daily Journal Corporation in favor of City National Bank. (f)
10.11	Loan Revision Agreement, dated September 12, 2003, in reference to the Note Secured by Deed of Trust, dated January 2, 2001, in the principal amount of $2,000,000 executed by Daily Journal Corporation in favor of City National Bank.
10.12	Lease dated December 15, 2003 between Daily Journal Corporation and OTR.
14	Daily Journal Corporation Code of Ethics.
21	Daily Journal Corporation’s List of Subsidiaries.
31	Certification by Chief Executive Officer and Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32	Certification by Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
99.1	Press Release of Daily Journal Corporation issued January 27, 1999. (±)

(†	)	Filed as an Exhibit bearing the same number to the Annual Report on Form 10-K for the year ended September 30, 1999.
(‡	)	Management Compensatory Plan.
(±	)	Filed as an Exhibit bearing the same number to the report on Form 8-K dated January 27, 1999.
(#	)	Filed as an Exhibit bearing the same number to the Annual Report on Form 10-K for the year ended September 30, 2000.
(f	)	Filed as an Exhibit to the quarterly report on Form 10-Q for the quarter ended December 30, 2000.

Item 15(b).    Reports on Form 8-K

None.

39

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.

DAILY JOURNAL CORPORATION
By	/s/ Gerald L. Salzman
	Gerald L. Salzman
	President

Date:    December 29, 2003

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.

Signature	Title	Date
/s/    CHARLES T. MUNGER         Charles T. Munger	Chairman of the Board	December 29, 2003
/s/    GERALD L. SALZMAN         Gerald L. Salzman	President, Chief Executive Officer, Chief Financial Officer, Treasurer and Director	December 29, 2003
/s/    J.P. GUERIN         J.P. Guerin	Director	December 29, 2003
Donald W. Killian, Jr.	Director
George C. Good	Director

40

EXHIBIT INDEX

2.1	Stock Purchase Agreement, dated as of January 22, 1999, by and among Daily Journal Corporation, Choice Information Systems, Inc., Michael W. Payton and Terence E. Hahm. (±)
2.2	Asset Purchase Agreement, dated as of January 22, 1999, by and among Choice Information Systems, Inc., Quindeca Corporation and Jerry L. Short. (±)
3.1	Articles of Incorporation of Daily Journal Corporation, as amended. (†)
3.2	Bylaws of Daily Journal Corporation. (#)
10.1	Employment Agreement, dated as of January 22, 1999, between Choice Information Systems, Inc. and Michael W. Payton. (±)
10.2	Employment Agreement, dated as of January 22, 1999, between Choice Information Systems, Inc. and Jerry L. Short. (±)
10.3	Employment Agreement, dated as of January 22, 1999, between Choice Information Systems, Inc. and Terence E. Hahm. (±)
10.4	Shareholder’s Agreement, dated as of January 22, 1999, among Choice Information Systems, Inc., Daily Journal Corporation, Quindeca Corporation, Michael W. Payton and Terence E. Hahm. (±)
10.5(a)	Form of Non-Negotiable Certificate Representing an Employee Participant Interest in the Daily Journal Corporation (“DJC”) Plan for Supplemental Compensation to an Employee as long as that Employee Remains Employed by DJC or one of its Subsidiaries, Based on Pre-tax Earnings of DJC and its Subsidiaries on a Consolidated Basis. (‡)
10.5(b)	Form of Non-Negotiable Certificate Representing an Employee Participant Interest in the Daily Journal Corporation (“DJC”) Plan for Supplement Compensation to an Employee as long as that Employee Remains Employed by DJC or one of its Subsidiaries, Based on Pre-tax Earnings of DJC’s Non-Sustain Operations. (‡)
10.5(c)	Form of Non-Negotiable Certificate Representing an Employee Participant Interest in the Daily Journal Corporation (“DJC”) Plan for Supplement Compensation to an Employee as long as that Employee Remains Employed by DJC or one of its Subsidiaries, Based on Pre-tax Earnings of Sustain Technologies, Inc. (‡)
10.7	Lease dated December 9, 1998 between Daily Journal Corporation and One Trinity Center. (†)
10.8	Lease dated August 26, 1999 between Sustain Technologies, Inc. and The Prudential Insurance Company of America. (†)
10.9	Note Secured by Deed of Trust, dated January 2, 2001, in the principal amount of $2,000,000 executed by Daily Journal Corporation in favor of City National Bank. (f)
10.10	Deed of Trust, Assignment of Rents and Fixture Filing, dated January 2, 2001, executed by Daily Journal Corporation in favor of City National Bank. (f)

41

10.11	Loan Revision Agreement, dated September 12, 2003, in reference to the Note Secured by Deed of Trust, dated January 2, 2001, in the principal amount of $2,000,000 executed by Daily Journal Corporation in favor of City National Bank.
10.12	Lease dated December 15, 2003 between Daily Journal Corporation and OTR.
14	Daily Journal Corporation Code of Ethics.
21	Daily Journal Corporation’s List of Subsidiaries.
31	Certification by Chief Executive Officer and Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32	Certification by Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
99.1	Press Release of Daily Journal Corporation issued January 27, 1999. (±)

(†) Filed as an Exhibit bearing the same number to the Annual Report on Form 10-K for the year ended September 30, 1999.

(‡) Management Compensatory Plan.

(±) Filed as an Exhibit bearing the same number to the report on Form 8-K dated January 27, 1999.

(#) Filed as an Exhibit bearing the same number to the Annual Report on Form 10-K for the year ended September 30, 2000.

(f) Filed as an Exhibit to the quarterly report on Form 10-Q for the quarter ended December 30, 2000.

42

Daily Journal Corporation

Schedule II—Valuation and Qualifying Accounts

Description	Balance at Beginning of Period		Additions Charged to Costs and Expenses		Accounts Charged off less Recoveries			Balance at End of Period
2003
Allowance for doubtful accounts	$	500,000	$	140,000	$	(240,000	)	$	400,000
2002
Allowance for doubtful accounts	$	500,000	$	139,000	$	(139,000	)	$	500,000
2001
Allowance for doubtful accounts	$	500,000	$	245,000	$	(245,000	)	$	500,000

43

EX-10.5(A)

Exhibit 10.5(a)

Non-Negotiable Certificate

Representing an Employee Participant Interest in the

Daily Journal Corporation (“DJC”) Plan for Supplemental Compensation

to an Employee, as long as that Employee Remains Employed by DJC or one of its Subsidiaries,

based on Pre-tax Earnings of DJC and its Subsidiaries

on a Consolidated Basis (“DJC Consolidated”)

                         , 2003

This non-negotiable certificate represents the right of                                  (the “Employee”) to receive, in addition to all other compensation due or awarded:

(1) in December 2003,             /1,805,053 of the pre-tax earnings of DJC Consolidated for the year ended September 30, 2003; plus

(2) in December of each of the following nine years, the same fraction of the pre-tax earnings of DJC Consolidated for the year ended the preceding September 30.

If more shares of DJC are issued for consideration (e.g., in a merger or public offering), the denominator of the Employee’s fractional interest will be increased by the number of shares issued, effective with the first payment due thereafter, to reflect the share increase. Both the numerator and the denominator of the fraction will be appropriately adjusted to reflect any changes in shares outstanding which occur without additional consideration to DJC, as in stock splits and stock dividends.

No additional payments will be made to the Employee under this or any other certificate after the employee either (1) shall have left the employ of DJC, prior to the Employee’s reaching age 65, for any reason whatsoever (including but not limited to being unreasonably fired by DJC prior to reaching age 65) or (2) directly or indirectly enters the employ (either as a direct or indirect employee or direct or indirect independent contractor) of any competitor of DJC or any of its subsidiaries whether such employment occurs before or after the Employee reaches age 65.

Compensation to the Employee under this certificate, and other such certificates issued to the employee and other employees, shall not be deducted in making pre-tax earnings computations for the purpose of the Plan. Pre-tax earnings computations, for purposes of the Plan, shall be reasonable approximations made by DJC to facilitate convenient and economical accounting practices and will be final and binding on the Employee.

Payments to be made under this non-negotiable certificate are in addition to payments to be made under unexpired certificates, if any, issued to the Employee in prior years.

IN WITNESS WHEREOF, this certificate is executed as of                          , 2003.

DAILY JOURNAL CORPORATION
By
	Charles T. Munger, Chairman

EX-10.5(B)

Exhibit 10.5(b)

Non-Negotiable Certificate

Representing an Employee Participant Interest in the

Daily Journal Corporation (“DJC”) Plan for Supplemental Compensation

to an Employee, as long as that Employee Remains Employed by DJC or one of its Subsidiaries,

based on Pre-tax Earnings of DJC’s Non-Sustain Operations (“DJC Non-Consolidated”)

                         , 2003

This non-negotiable certificate represents the right of                                          (the “Employee”) to receive, in addition to all other compensation due or awarded:

(1) in December 2003,             /1,805,053 of the pre-tax earnings of DJC Non-Consolidated for the year ended September 30, 2003; plus

(2) in December of each of the following nine years, the same fraction of the pre-tax earnings of DJC Non-Consolidated for the year ended the preceding September 30.

If more shares of DJC are issued for consideration (e.g., in a merger or public offering), the denominator of the Employee’s fractional interest will be increased by the number of shares issued, effective with the first payment due thereafter, to reflect the share increase. Both the numerator and the denominator of the fraction will be appropriately adjusted to reflect any changes in shares outstanding which occur without additional consideration to DJC, as in stock splits and stock dividends.

No additional payments will be made to the Employee under this or any other certificate after the employee either (1) shall have left the employ of DJC, prior to the Employee’s reaching age 65, for any reason whatsoever (including but not limited to being unreasonably fired by DJC prior to reaching age 65) or (2) directly or indirectly enters the employ (either as a direct or indirect employee or direct or indirect independent contractor) of any competitor of DJC or any of its subsidiaries whether such employment occurs before or after the Employee reaches age 65.

Compensation to the Employee under this certificate, and other such certificates issued to the employee and other employees, shall not be deducted in making pre-tax earnings computations for the purpose of the Plan. Pre-tax earnings computations, for purposes of the Plan, shall be reasonable approximations made by DJC to facilitate convenient and economical accounting practices and will be final and binding on the Employee.

Payments to be made under this non-negotiable certificate are in addition to payments to be made under unexpired certificates, if any, issued to the Employee in prior years.

IN WITNESS WHEREOF, this certificate is executed as of                          , 2003.

DAILY JOURNAL CORPORATION

By
	Charles T. Munger, Chairman

EX-10.5(C)

Exhibit 10.5(c)

Non-Negotiable Certificate

Representing an Employee Participant Interest in the

Daily Journal Corporation (“DJC”) Plan for Supplemental Compensation

to an Employee, as long as that Employee Remains Employed by DJC or one of its Subsidiaries,

based on Pre-tax Earnings of Sustain Technologies Inc. (“Sustain”)

                                 , 2003

This non-negotiable certificate represents the right of                                      (the “Employee”) to receive, in addition to all other compensation due or awarded:

(1) in December 2003,             /1,805,053 of the pre-tax earnings of Sustain for the year ended September 30, 2003; plus

(2) in December of each of the following nine years, the same fraction of the pre-tax earnings of Sustain for the year ended the preceding September 30.

If more shares of DJC are issued for consideration (e.g., in a merger or public offering), the denominator of the Employee’s fractional interest will be increased by the number of shares issued, effective with the first payment due thereafter, to reflect the share increase. Both the numerator and the denominator of the fraction will be appropriately adjusted to reflect any changes in shares outstanding which occur without additional consideration to DJC, as in stock splits and stock dividends.

No additional payments will be made to the Employee under this or any other certificate after the employee either (1) shall have left the employ of DJC, prior to the Employee’s reaching age 65, for any reason whatsoever (including but not limited to being unreasonably fired by DJC prior to reaching age 65) or (2) directly or indirectly enters the employ (either as a direct or indirect employee or direct or indirect independent contractor) of any competitor of DJC or any of its subsidiaries whether such employment occurs before or after the Employee reaches age 65.

Compensation to the Employee under this certificate, and other such certificates issued to the employee and other employees, shall not be deducted in making pre-tax earnings computations for the purpose of the Plan. Pre-tax earnings computations, for purposes of the Plan, shall be reasonable approximations made by DJC to facilitate convenient and economical accounting practices and will be final and binding on the Employee.

Payments to be made under this non-negotiable certificate are in addition to payments to be made under unexpired certificates, if any, issued to the Employee in prior years.

IN WITNESS WHEREOF, this certificate is executed as of                          , 2003.

DAILY JOURNAL CORPORATION

By
	Charles T. Munger, Chairman

EX-10.11

Exhibit 10.11

LOAN REVISION AGREEMENT

TO: CITY NATIONAL BANK LOAN NO. 422525-65393

This Loan Revision Agreement (“Agreement”) dated September 12, 2003, refers to the loan evidenced by a promissory note (“Note”) dated January 2, 2001, in favor of City National Bank, a national banking association (“CNB”) executed by Daily Journal Corporation, a South Carolina corporation (“Borrower”), in the amount of $2,000,000.00, payable in full on March 1, 2016, subject to the installment maturities therein, if any. The Note is secured by a deed of trust dated January 2, 2001 executed by Borrower for the benefit of CNB (hereinafter referred to as the “encumbrance”), recorded on February 13, 2001, as Instrument No. 01-0232153, in the Recorder’s Office of Los Angeles County, State of California.

As of the date hereof, the Note has an outstanding unpaid principal balance of $1,808,377.26, on which interest is paid to September 1, 2003.

The Borrower hereby requests that CNB revise the terms of the Note and that CNB accept payment thereof at the time, or times, and in the manner as follows:

1. Effective October 1, 2003, the “Interest Rate” as defined in the first paragraph on page 1 of the Note is amended from 8.02% to 6.84%.

2. The second paragraph on page 1 of the Note is deleted in its entirety, and replaced with the following language:

Principal and interest together are payable in installments of Eighteen Thousand Sixty-Eight and 97/100 Dollars ($18,068.97) each month commencing November 1, 2003, and continuing thereafter on the same day of each month, until maturity, as above stated, when all unpaid interest and principal shall be payable.

In consideration of CNB’s acceptance of the revision of the Note, including the time for payment thereof, all as set forth above, the Borrower does hereby acknowledge and admit to such indebtedness, and further does unconditionally agree to pay such indebtedness together with interest thereon within the time and in the manner as revised in accordance with the foregoing, together with any and all attorneys’ fees, costs of collection and any other sums secured by the encumbrance.

Subject to applicable California law, any and all security for the principal obligation held by CNB, including the encumbrance, may be enforced by CNB concurrently or independently of each other, and in such order as CNB may determine; and with reference to any such security in addition to the encumbrance, CNB may, without consent of or notice to Borrower, exchange, substitute or release such security without affecting the liability of the Borrower, and CNB may release any one or more parties hereto or to the above obligation, or permit the liability of said party or parties to terminate without affecting the liability of any other party or parties liable thereon.

This Agreement is a revision only, and not a novation; and except as herein provided, all of the terms and conditions of the Note and the encumbrance shall remain unchanged and in full force and effect.

When more than one Borrower signs this Agreement, all agree:

a. That where in this Agreement the word “Borrower” appears, it shall read “each Borrower”;

b. That breach of any covenant by any Borrower may, at CNB’s option, be treated as breach by all Borrowers;

c. That the liability and obligations of each Borrower are joint and several.

Failure of Borrower to return the executed original of this Agreement to CNB not later than September 30, 2003, shall render this Agreement void and of no effect, and any Event of Default now existing in respect of the Note shall be continuing and subject to all of the rights and remedies ascribed to CNB under the Note, the encumbrance and the law.

“Borrower”	Daily Journal Corporation, a South Carolina corporation
	By:	/s/    Gerald L. Salzman
		Gerald L. Salzman
	Its:	President

The foregoing Agreement is accepted this 12^th day of September, 2003.

“CNB”	City National Bank, a national banking association
	By:	/s/    Steve Tsoflias
		Steve Tsoflias
	Its:	Vice President

EX-10.12

Exhibit 10.12

OFFICE LEASE

between

OTR, an OHIO GENERAL PARTNERSHIP,

as Nominee of The State Teachers Retirement Board of Ohio,

a statutory organization created by the laws of Ohio

(Landlord)

and

DAILY JOURNAL CORPORATION,

a SOUTH CAROLINA CORPORATION

(Tenant)

for Premises

44 Montgomery Street, Suite 250

San Francisco, California

OFFICE LEASE

THIS OFFICE LEASE (this “Lease”), dated December 15, 2003, is made and entered into by and between OTR, an OHIO GENERAL PARTNERSHIP, as Nominee of The State Teachers Retirement Board of Ohio, a statutory organization created by the laws of Ohio (“Landlord”), and DAILY JOURNAL CORPORATION, a SOUTH CAROLINA CORPORATION (“Tenant”), upon the following terms and conditions.

ARTICLE I – SUMMARY AND CERTAIN DEFINITIONS

Unless the context otherwise specifies or requires, the following terms shall have the meanings specified herein:

1.1 Building.

The term “Building” shall mean that certain office building located at 44 MONTGOMERY STREET in San Francisco, California, commonly known as 44 Montgomery Street, together with any related land, improvements, common areas, driveways, sidewalks and landscaping.

1.2 Premises.

The term “Premises” shall mean Suite 250 in the Building, as more particularly outlined on the “Floor Plan of Premises” attached hereto as Exhibit “A” and incorporated herein by reference. As used herein, “Premises” shall not include any storage area in the Building or rooftop area on the Building, which areas shall (if applicable) be leased or rented pursuant to separate written agreements.

1.3 Rentable Area of the Premises.

The term “Rentable Area of the Premises” shall mean ten thousand four hundred twenty-one (10,421) square feet, which Landlord and Tenant have stipulated as the Rentable Area of the Premises.

1.4 Lease Year.

The term “Lease Year” shall mean such consecutive twelve (12) month period following the Commencement Date.

1.5 Lease Term.

The term of this Lease (the “Lease Term”) shall be for a period of five (5) consecutive Lease Years plus two (2) consecutive calendar months following the Commencement Date, unless sooner terminated as otherwise provided in this Lease.

1.6 Commencement Date.

Subject to adjustment as provided in Section 3.1, the term “Commencement Date” shall mean February 1, 2004.

1.7 Expiration Date.

Subject to adjustment as provided in Section 3.1, the term “Expiration Date” shall mean March 31, 2009.

1.8 Base Rent.

Subject to adjustment as provided in Article IV, the term “Base Rent” shall mean the following amounts for the following period:

PERIOD	MONTHLY BASE RENT	ANNUAL RATE/RSF	ANNUAL BASE RENT
02/01/04 – 03/15/04	$0	N/A	N/A
03/16/04 – 03/31/04	$9,553*	N/A	N/A
04/01/04 – 03/31/09	$19,105	$22	$229,260

* prorated for partial month

1.9 Tenant’s Percentage Share.

The Building consists of six hundred twenty-two thousand two hundred nineteen (622,219) rentable square feet. The Premises consists of ten thousand four hundred twenty-one (10,421) square feet,

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which represents one and sixty-eight hundredths of one percent (1.68%) of the Building’s total rentable area. Therefore, the term “Tenant’s Percentage Share” shall mean one and sixty-eight hundredths of one percent (1.68%) with respect to increases in Property Taxes and Operating Expenses (as such terms are hereinafter defined).

1.10 Prepaid Rent.

The term “Prepaid Rent” shall mean nine thousand five hundred fifty-three dollars ($9,553) delivered by Tenant to Landlord upon execution of this Lease in agreement of the terms set forth herein.

1.11 Security Deposit.

The term “Security Deposit” shall mean eighteen thousand five hundred dollars ($18,500) delivered by Tenant to Landlord to secure Tenant’s performance of its obligations hereunder.

1.12 Tenant’s Permitted Use.

The term “Tenant’s Permitted Use” shall mean general and administrative office use, and no other use.

1.13 Business Hours.

The term “Business Hours” shall mean the hours of 8:00 a.m. to 6:00 p.m. Monday through Friday, and 9:00 a.m. to 1:00 p.m. Saturdays (federal and state holidays excepted). “Holidays” are defined to be the following days: New Years Day, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day, and to the extent of utilities or services provided by union members engaged at the Building, such other holidays observed by such unions.

1.14 Landlord’s Address for Notices.

The term “Landlord’s Address for Notices” shall mean: OTR:44 Montgomery, Attn: Property Manager, 44 Montgomery Street, Suite 1710, San Francisco, California 94104-4704, with a copy (but which copy shall not constitute notice) to OTR, Attn: Director of Real Estate, 275 Broad Street, Columbus, Ohio 43215-3771.

1.15 Tenant’s Address for Notices.

The term “Tenant’s Address for Notices” shall mean: 1145 Market Stret, 8^th Floor, San Francisco, CA 94103-1545, before occupancy. Upon occupancy, “Tenant’s Address for Notices” shall mean: 44 Montgomery Street, Suite 250, San Francisco, CA 94104-4630.

1.16 Landlord’s Address for Payment.

The term “Landlord’s Address for Payment” shall mean: 44 Montgomery, P.O. Box 633176, Cincinnati, OH 45263-3176.

1.17 Brokers.

The term “Brokers” shall mean SEAGATE PROPERTIES, INC. and CB RICHARD ELLIS.

ARTICLE II – PREMISES

2.1 Lease of Premises.

Commencing on the Commencement Date, Landlord agrees to and shall lease the Premises to Tenant, and Tenant agrees to and shall lease and hire the Premises from Landlord, upon all of the terms, covenants and conditions contained in this Lease.

2.2 Acceptance of Premises.

Unless otherwise specifically set forth in this Lease, Tenant acknowledges that Landlord has not made any representation or warranty with respect to the condition of the Premises or the Building or with respect to the suitability or fitness of either for the conduct of Tenant’s Permitted Use or for any other purpose. Prior to Tenant’s taking possession of the Premises, Landlord or its designee and Tenant will walk the Premises for the purpose of reviewing the condition of the Premises. If at such review Landlord and Tenant reasonably determine that the condition of the Premises corresponds with the conditions agreed to in this Lease and the Work Letter Agreement (attached hereto as Exhibit B), then within ten (10) business days after such review, Landlord and Tenant shall execute and deliver to each other duplicate original counterparts of the Acceptance Letter (attached hereto as Exhibit E). Except as is expressly set forth in this Lease or Work Letter Agreement, or as may be expressly set forth in the Acceptance Letter, Tenant agrees to accept the Premises in its “as is” physical condition without any

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agreements, representations, understandings or obligations on the part of Landlord to perform any alterations, repairs, or improvements (or to provide any allowance for same).

ARTICLE III – TERM

3.1 Term.

Except as otherwise provided in this Lease, the Lease Term shall be for the period described in Section 1.5 of this Lease, commencing on the Commencement Date described in Section 1.6 of this Lease and ending on the Expiration Date described in Section 1.7 of this Lease; provided, however, that, for any reason, Landlord is unable to deliver possession of the Premises on the date described in Section 1.6 of this Lease, Landlord shall not be liable for any damage caused thereby, but if Landlord is unable to deliver possession within ninety (90) days of the Commencement Date, Tenant may, at its option, declare this Lease to be void, and Tenant and Landlord will be released from their rights and responsibilities hereunder. If Landlord delivers possession within ninety (90) days of the Commencement Date, or if Tenant elects to honor the Lease despite Landlord’s failure to make timely delivery of the Premises, then the Lease Term shall commence upon, and the Commencement Date shall be the date that possession of the Premises is so tendered to Tenant (except for unreasonable Tenant-caused delays which shall not be deemed to delay commencement of the Lease Term), and, unless Landlord elects otherwise, the Expiration Date described in Section 1.7 of this Lease shall be extended by an equal number of days, but in no event shall the Expiration Date be earlier than the last day of the calendar month. Notwithstanding the above, if Landlord fails to deliver the Premises within seven (7) days of the date described in Section 1.6 of this Lease, Landlord will compensate Tenant in the form of an additional Base Rent credit in an amount equal to the amount that Tenant must pay its current Landlord in addition to its regular rent as provided by the “holding over” provision of Tenant’s present Lease. This amount is acknowledged by Landlord and Tenant to be fifty percent (50%) of Tenant’s present monthly minimum lease payment of twenty-seven thousand three hundred twenty and 42/100 dollars ($27,320.42).

3.2 Option to Extend Term.

Tenant shall have an option (the “Renewal Option”) to renew the Lease Term with respect to all (but not less than all) of the Premises demised under or pursuant to this Lease as of the Expiration Date for one additional term (the “Renewal Term”) of five (5) years, commencing on the day immediately following the Expiration Date, under the following terms and conditions:

(i) No material breach or default under the Lease by Tenant has occurred, either on the date Tenant exercises the Renewal Option or at any time through and including the proposed commencement date of the Renewal Term;

(ii) The Renewal Option is personal to Tenant and Tenant shall not have assigned the Lease or sublet the Premises;

(iii) Tenant gives Landlord written notice (the “Renewal Notice”), of its election to exercise the Renewal Option no earlier than nine (9) months prior to the Expiration Date and no later than six (6) months prior to the Expiration Date;

(iv) If Tenant exercises the Renewal Option exactly in the manner provided herein:

(a) the Base Rent payable for the Renewal Term shall be ninety-five percent (95%) of the “Fair Market Value” (the “Fair Market Value”), of the Premises, but in no event shall the Base Rent for the Renewal Term be less than the Base Rent payable under the Lease on the Expiration Date. Landlord shall give Tenant written notice setting forth the Fair Market Value, which notice shall be given prior to the commencement date of the Renewal Term. If the parties are unable to agree on the Fair Market Value within sixty (60) days after Landlord’s receipt of the Notice to Renew, either party may request that the Fair Market Value be determined pursuant to the ADR Process described in Section 18.30 of the Lease. Such determination shall be final and binding on the parties. If the Fair Market Value is not determined until after the commencement date of the Renewal Term, Tenant shall pay, during the Renewal Term, until the Fair Market Value is determined, Base Rent in the amount of one-hundred percent (100%) of the amount of the Base Rent in effect on the Expiration Date, including, but not limited to any adjustments for Property Taxes and Operating Expenses.

(b) Tenant shall have no further options to renew the Lease Term beyond the expiration date of the Renewal Term.

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(c) Landlord shall not be obligated to perform any leasehold improvement work in the Premises or give Tenant an allowance or other economic concession for any such work or for any other purposes;

(d) Except as otherwise provided herein, all of the terms and provisions of this Lease shall remain the same and in full force and effect during the Renewal Term.

(v) If Tenant exercises the Renewal Option, Landlord and Tenant shall execute and deliver an amendment to the Lease reflecting the lease of the Premises by Landlord to Tenant for the Renewal Term on the terms provided herein.

3.3 Option to Terminate.

Tenant shall have an option to terminate the Lease (the “Termination Option”) on the first (1^st) day of the thirty-seventh (37^th) calendar month of the Lease Term (the “Termination Date”), under the following terms and conditions:

(i) The Termination Option is personal to Tenant and may not be transferred or assigned unless it is transferred or assigned to an affiliate (which transfer or assignment has been approved by Landlord);

(ii) Tenant delivers to Landlord irrevocable written notice of its exercise of the Termination Option no later than six (6) months prior to the Termination Date;

(iii) On or prior to the Termination Date, Tenant shall pay a fee (the “Termination Fee”) in the amount of the sum of the unamortized tenant improvement costs paid by Landlord, plus the unamortized real estate brokerage commissions paid by Landlord, plus two (2) months’ rent at the then-current rate;

(iv) On or prior to the Termination date, Tenant surrenders the Premises and all improvements, alterations, and additions to Landlord in the condition required under the Lease; and,

(v) Notwithstanding anything contained in the Lease to the contrary: (a) Tenant shall pay to Landlord rent and other charges which accrue under the Lease until the Termination Date, said rent and charges shall be payable at the same time and place as they would have been payable under the Lease; (b) rent and charges for any partial month shall be prorated, and Tenant shall remain liable following the termination of the Lease to pay the full amount of all adjustment to rental and charges payable on an estimated basis or otherwise subject to adjustments, including, without limitation, payment of taxes and other operating expenses payable under this Lease through the Termination Date; and (c) the termination of this Lease shall not terminate Tenant’s obligations under this Lease which expressly survive the termination of this Lease, including, without limitation, any of Tenant’s indemnification obligations under this Lease.

ARTICLE IV – RENTAL

3.4 Definitions.

Unless the context otherwise specifies or requires, the following terms shall have the meanings specified herein:

 4.1.1 Base Year.

The term “Base Year” shall mean calendar year 2004.

 4.1.2 Property Taxes.

The term “Property Taxes” shall mean the aggregate amount of all real estate taxes, assessments (whether they be general or special), sewer rents and charges, transit taxes, taxes based upon the receipt of rent and any other federal, state or local governmental charge, general, special, ordinary or extraordinary (but not including income or franchise taxes, capital stock, inheritance, estate, gift, or any other taxes imposed upon or measured by Landlord’s gross income or profits, unless the same shall be imposed in lieu of real estate taxes or other ad valorem taxes), which Landlord shall pay or become obligated to pay in connection with the Building, or any part thereof. Property Taxes shall also include all reasonable fees and costs, including attorney’s fees, appraisals and consultants’ fees, incurred by Landlord in seeking to obtain a reassessment, reduction of, or a limit on the increase in, any Property Taxes. Property Taxes for any calendar year shall be Property Taxes which are due for payment or paid in such year, rather than Property Taxes which are assessed or become a lien during such year. Property

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Taxes shall include any tax, assessment, levy, imposition or charge imposed upon Landlord and measured by or based in whole or in part upon the Building or the rents or other income from the Building, to the extent that such items would be payable if the Building was the only property of Landlord subject to same and the income received by Landlord from the Building was the only income of Landlord. Property Taxes shall also include any personal property taxes imposed upon the furniture, fixtures, machinery, equipment, apparatus, systems and appurtenances of Landlord used in connection with the Building.

4.1.3 Operating Expenses.

The term “Operating Expenses” shall mean all reasonable costs, fees, disbursements and expenses paid or incurred by or on behalf of Landlord directly connected to the operation, ownership, maintenance, insurance, management, replacement and repair of the Building (excluding Property Taxes) including without limitation:

(i) Premiums for property, casualty, liability, earthquake, rental interruption or other types of insurance carried by Landlord to the extent carried by other institutional owners and operators of first class office buildings.

(ii) Salaries, wages, and other amounts paid or payable for personnel including the Building manager, superintendent, operation and maintenance staff, and other employees of Landlord involved in the maintenance and operation of the Building, including contributions and premiums towards fringe benefits, unemployment, disability and worker’s compensation insurance, pension plan contributions and similar premiums and contributions and the total charges of any independent contractors or property managers engaged in the operation, repair, care, maintenance and cleaning of any portion of the Building.

(iii) Cleaning expenses, including without limitation janitorial services, window cleaning, and garbage and refuse plants.

(iv) Landscape expenses, including without limitation irrigation, trimming, mowing, fertilizing, seeding, and replacing plants.

(v) Heating, ventilating, air conditioning and steam/utilities expenses, including fuel, gas, electricity, water, sewer, telephone, and other services.

(vi) Maintaining operating, repairing and replacing components of equipment or machinery, including without limitation heating, refrigeration, ventilation, electrical, plumbing, mechanical, elevator, escalator, sprinklers, fire/life safety, security and energy management system, including service contractors, maintenance contracts, supplies and parts.

(vii) Other items of repair or maintenance of elements of the Building.

(viii) The costs of policing, security and supervision of the Building.

(ix) Fair market rental and other costs with respect to the management office for the Building, as long as such costs do not exceed the costs for similar class A buildings in the San Francisco Central Business District.

(x) The cost of the rental of any machinery or equipment (which would be considered, under GAAP standards, a capital expense if purchased), or the cost of supplies used in the maintenance and operation of the Building, and the costs of policing, security and supervision of the Building.

(xi) Audit fees and the cost of accounting services incurred in the preparation of statements referred to in this Lease and financial statements, and in the computation of the rents and charges payable by tenants of the Building.

(xii) Capital expenditures (a) made primarily to reduce Operating Expenses or to comply with any laws or other governmental requirements applicable to the Building, or (b) for replacements (as opposed to additions or new improvements) of items located in the common areas of the Building, required to keep such areas in good condition; provided all such permitted capital expenditures (together with reasonable financing charges) shall be amortized for purposes of this Lease over the shorter of (x) their useful lives, (y) the period during which the reasonably estimated savings in Operating Expenses equals the expenditures, or (z) five (5) years.

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(xiii) Legal fees and expenses.

(xiv) A reasonable fee for the administration and management of the Building as reasonably determined by Landlord from time to time, provided that such fee does not exceed the fee charged for administration and management for similar class A buildings in the San Francisco Central Business District.

4.1.4 Exclusions from Operating Expenses.

Operating Expenses shall not include costs of alteration of the Premises of tenants of the Building, capital improvements (if so considered under GAAP), payments under any ground lease or master lease, casualty losses, rentals for items which, if purchased rather than rented, would constitute a capital improvement, depreciation charges, interest and principal payments on mortgages, real estate brokerage and leasing commissions, expenses incurred in enforcing obligations of other tenants of the Building, costs incurred by Landlord due to the violation by Landlord or any tenant of the terms and conditions of any lease in the Building, salaries and other compensation of executive officers of the managing agent of the Building senior to the Building manager, Landlord’s general administrative costs and corporate overhead not directly attributable to the Operating Expenses of the Building, costs incurred in connection with upgrading the Building to comply with Applicable Law as later defined in Section 6.2.1 of this Lease, tax penalties, costs arising from the negligence of Landlord or its agents, costs arising from Landlord’s charitable or political contributions, costs of any special service provided to any one tenant of the Building but not to tenants of the Building generally, and costs of marketing or advertising the Building.

4.1.5 Adjustment.

If the Building does not have ninety-five percent (95%) occupancy during an entire calendar year, including the Base Year, then the variable cost component of “Property Tax” and “Operating Expenses” shall be equitably adjusted so that the total amount of Property Tax and Operating Expenses equals the total amount which would have been paid or incurred by Landlord had the Building been one hundred percent (100%) occupied for the entire calendar year. In no event shall Landlord be entitled to receive from Tenant and any other tenants in the Building an aggregate amount in excess of actual Operating Expenses as a result of the foregoing provision.

4.2 Base Rent.

4.2.1 Rent Adjustment.

During the Lease Term, Tenant shall pay to Landlord as rental for the Premises the Base Rent described in Section 1.8 above.

4.2.2 Tax and Operating Expense Adjustment.

In addition to the Rent Adjustment, during each calendar year subsequent to the Base Year, the Base Rent shall be increased by (collectively, the “Tax and Operating Expense Adjustment”): (i) Tenant’s Percentage Share of the total dollar increase, if any, in Property Taxes for such year over Property Taxes for the Base Year; and (ii) Tenant’s Percentage Share of the total dollar increase, if any, in Operating Expenses paid or incurred by Landlord during such year over Operating Expenses paid or incurred by Landlord during the Base Year; provided, however, that in any one (1) calendar year, Tenant’s Percentage Share of the total dollar increase in the Tax and Operating Expense Adjustment may not be increased more than ten percent (10%) from the total dollar cost of Tenant’s Percentage Share for the previous calendar year. A decrease in Property Taxes or Operating Expenses below the Base Year amounts shall not decrease the amount of the Base Rent due hereunder or give rise to a credit in favor of Tenant.

If Tenant’s Additional Rent as finally determined for any calendar year exceeds the total payments made by Tenant on account thereof, Tenant shall pay Landlord the deficiency within ten (10) days of Tenant’s receipt of Landlord’s statement. If the total payments made by Tenant on account thereof exceed Tenant’s Additional Rent as finally determined for such year, Tenant’s excess payment shall be credited toward the rent next due from Tenant under this Lease. For any partial calendar year at the beginning or end of the Term, Additional Rent shall be prorated on the basis of a 365-day year by computing Tenant’s Share of the increases in Operating Costs and Taxes for the entire year and then prorating such amount for the number of days during such year included in the Lease Term. Notwithstanding the termination of this Lease, Landlord shall pay to Tenant or Tenant shall pay to Landlord, as the case may be, within ten (10) days after Tenant’s receipt of Landlord’s final statement for the calendar year in which this Lease terminates, the difference between Tenant’s Additional Rent for that year, as finally determined by Landlord, and the total amount previously paid by Tenant on account thereof.

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4.2.3 Tax Exempt Tenant.

If for any reason Base Taxes or Taxes for any year during the Lease Term are reduced, refunded or otherwise changed, Tenant’s Additional Rent shall be reduced, refunded or adjusted accordingly. If Taxes are temporarily reduced as a result of space in the Building being leased to a tenant that is entitled to an exemption from property taxes or other taxes, then for purposes of determining Additional Rent for each year in which Taxes are reduced by any such exemption, Taxes for such year shall be calculated on the basis of the amount the Taxes for the year would have been in the absence of the exemption. The obligations of Landlord to refund any overpayment of Additional Rent and of Tenant to pay any Additional Rent not previously paid shall survive the expiration of the Term. Notwithstanding anything to the contrary in this Lease, if there is at any time a decrease in Taxes below the amount of the Taxes for the Base Year, then for purposes of calculating Additional Rent for the year in which such decrease occurs and all subsequent periods, Base Taxes shall be reduced to equal the Taxes for the year in which the decrease occurs.

4.3 Adjustment Procedure; Estimates.

The Tax and Operating Expense Adjustment shall be determined and paid as follows:

4.3.1 Estimates.

During each calendar year subsequent to the Base Year, Landlord shall give Tenant written notice of its estimate of any increased amounts payable under Section 4.2.2 for that calendar year. On or before the first day of each calendar month during the calendar year, Tenant shall pay to Landlord one-twelfth ( ¹/12th) of such estimated amounts; provided, however, that, not more often than quarterly, Landlord may, by written notice to Tenant, revise its estimate for such year, and subsequent payments by Tenant for such year shall be based upon such revised estimate.

4.3.2 Landlord’s Statement.

Within one hundred twenty (120) days after the close of each calendar year or as soon thereafter as is practicable, Landlord shall deliver to Tenant a statement of that year’s Property Taxes and Operating Expenses, and the actual Tax and Operating Expense Adjustment to be made pursuant to Section 4.2.2 for such calendar year, as determined by Landlord (the “Landlord’s Statement”). Such Landlord’s Statement shall be binding upon Tenant, except as specifically provided in Section 4.4 below. If the amount of the actual Tax and Operating Expense Adjustment is more than the estimated payments for such calendar year made by Tenant, Tenant shall pay the deficiency to Landlord within ten (10) days of receipt of Landlord’s Statement. If the amount of the actual Tax and Operating Expense Adjustment is less than the estimated payments for such calendar year made by Tenant, any excess shall be credited against Rent (as hereinafter defined) next payable by Tenant under this Lease or, if the Lease Term has expired, any excess shall be paid to Tenant. No delay in providing the Statement shall act as a waiver of Landlord’s right to increase in payment pursuant to the Tax and Operating Expense Adjustment.

4.3.3 Termination.

If this Lease shall terminate on a day other than the end of a calendar year, the amount of the Tax and Operating Expense Adjustment to be paid that is applicable to the calendar year in which such termination occurs shall be prorated on the basis of the number of days from January 1 of the calendar year to the termination date bears to 365. The termination of this Lease shall not affect the obligations of Landlord and Tenant pursuant to Section 4.3.2 to be performed after such termination.

4.4 Review of Landlord’s Statement.

Provided that Tenant is not then in default beyond any applicable cure period of its obligations to pay Base Rent, additional rent described in Section 4.2.2 or any other payments required to be made by it under this Lease, and provided further that Tenant strictly complies with the provisions of this Section 4.4, Tenant shall have the right, once each calendar year, to reasonably review supporting data for any portion of a Landlord’s Statement (provided, however, Tenant may not have an audit or review right to all documentation relating to Building operations as this would far exceed the relevant information necessary to properly document a pass-through billing statement, but real estate tax statements, and information on utilities, repairs, maintenance and insurance will be available and provided further that such audit or review shall be of information relating to Landlord’s Statement not more than one (1) year before the Landlord’s Statement in question), in accordance with the following procedure:

4.4.1 Notice.

Tenant shall, within ten (10) business days after any such Landlord’s Statement is delivered, deliver a written notice to Landlord specifying the portions of the Landlord’s Statement that are claimed to be incorrect, and Tenant shall simultaneously pay to Landlord all amounts due from Tenant to Landlord as specified in the Landlord’s Statement. Except as expressly set forth below, in no event shall Tenant be entitled to withhold, deduct, or offset any monetary obligation of Tenant to Landlord under the Lease (including, without limitation, Tenant’s obligation to make all payments of Base Rent and all payments of Tenant’s Tax and Operating Expense Adjustment) pending the completion of and regardless

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of the results of any review of records under this Section 4.4. The right of Tenant under this Section 4.4 may only be exercised once for any Landlord’s Statement and must be exercised within one year after the date of the Landlord’s Statement, and if Tenant fails to meet any of the above conditions as a prerequisite to the exercise of such right, the right of Tenant under this Section 4.4 for a particular Landlord’s Statement shall be deemed waived.

4.4.2 Records.

Tenant acknowledges that Landlord maintains its records for the Building at Landlord’s manager’s corporate offices presently located at the address set forth in Section 1.14 and Tenant agrees that any review of records under this Section 4.4 shall be at the sole expense of Tenant and shall be conducted by an independent firm of certified public accountants of national standing. Tenant acknowledges and agrees that any records reviewed under this Section 4.4 constitute confidential information of Landlord, which shall not be disclosed to anyone other than the accountants performing the review, the principals of Tenant, and its agents, officers, staff, and legal counsel who receive the results of the review. The disclosure of such information to any other person by Tenant, or its agents, officers, staff, and legal counsel, shall constitute a material breach of this Lease.

4.4.3 Landlord’s Review; Reconciliation.

Any errors disclosed by the review shall be promptly corrected by Landlord, provided, however, that if Landlord disagrees with any such claimed errors, Landlord shall have the right to cause another review to be made by an independent firm of certified public accountants of national standing. In the event of a disagreement between the two accounting firms, the review that discloses the least amount of deviation from the Landlord’s Statement shall be deemed to be correct. In the event that the results of the review of records (taking into account, if applicable, the results of any additional review caused by Landlord) reveal that Tenant has overpaid obligations for a preceding period, the amount of such overpayment shall be credited against Tenant’s subsequent installment obligations to pay the estimated Tax and Operating Expense Adjustment. In the event that such results show that Tenant has underpaid its obligations for a preceding period, Tenant shall be liable for Landlord’s actual accounting fees, and the amount of such underpayment shall be paid by Tenant to Landlord with the next succeeding installment obligation of estimated Tax and Operating Expense Adjustment.

4.5 Payment.

Concurrently with the execution hereof, Tenant shall pay Landlord Base Rent for the first one-half ( ¹/2) calendar month of the Lease Term. Thereafter the Base Rent described in Section 1.8, as adjusted in accordance with Section 4.2, shall be payable in advance on the first day of each calendar month. If the Commencement Date is other than the first day of a calendar month, the prepaid Base Rent for such partial month shall be prorated in the proportion that the number of days this Lease is in effect during such partial month bears to the total number of days in the calendar month. All Rent, and all other amounts payable to Landlord by Tenant pursuant to the provisions of this Lease, shall be paid to Landlord, without notice, demand, abatement, deduction or offset, in lawful money of the United States at Landlord’s office in the Building or to such other person or at such other place as Landlord may designate from time to time by written notice given to Tenant. No payment by Tenant or receipt by Landlord of a lesser amount than the correct Rent due hereunder shall be deemed to be other than a payment on account; nor shall any endorsement or statement on any check or any letter accompanying any check or payment be deemed to effect or evidence an accord and satisfaction; and Landlord may accept such check or payment without prejudice to Landlord’s right to recover the balance or pursue any other remedy in this Lease or at law or in equity provided.

4.6 Late Charge; Interest.

Tenant acknowledges that the late payment of Base Rent or any other amounts payable by Tenant to Landlord hereunder (all of which shall constitute additional rental to the same extent as Base Rent) will cause Landlord to incur administrative costs and other damages, the exact amount of which would be impracticable or extremely difficult to ascertain. Landlord and Tenant agree that if Landlord does not receive any such payment on or before ten (10) days after the date the payment is due, Tenant shall pay to Landlord, as additional rent, (a) a late charge equal to five percent (5%) of the overdue amount to cover such additional administrative costs; and (b) interest on the delinquent amounts at the lesser of the maximum rate permitted by law (if any) or twelve percent (12%) per annum from the date due to the date paid.

4.7 Additional Rent.

For purposes of this Lease, all amounts payable by Tenant to Landlord pursuant to this Lease, whether or not denominated as such, shall constitute additional rental hereunder. Such additional rental, together with the Base Rent, Rent Adjustment, and Tax and Operating Expense Adjustment, shall sometimes be referred to in this Lease as “Rent”.

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4.8 Additional Taxes.

Notwithstanding anything in Section 4.1.2 to the contrary, Tenant shall reimburse Landlord upon demand for any and all taxes payable by or imposed upon Landlord upon or with respect to: any fixtures or personal property located in the Premises; any leasehold improvements made in or to the Premises by or for Tenant; the Rent payable hereunder, including, without limitation, any gross receipts tax, license fee or excise tax levied by any governmental authority; the possession, leasing, operation, management, maintenance, alteration, repair, use or occupancy of any portion of the Premises (including without limitation any applicable possessory interest taxes); or this transaction or any document to which Tenant is a party creating or transferring an interest or an estate in the Premises.

4.9 Base Rent Abatement.

If Landlord fails to perform the obligations required of Landlord under the terms of this Lease, and such failure causes the Premises to be completely untenantable and unusable by Tenant because solely of the failure of the HVAC system in the Premises, the electricity in the Premises, the failure of the elevator service to the Premises, or a total failure to provide access to the Premises, Tenant shall give Landlord notice (the “Initial Notice”), specifying such failure to perform by Landlord (the “Landlord Default”). If Landlord has not cured such Landlord Default within ten (10) days after the receipt of the Initial Notice, Tenant may deliver an additional notice to Landlord (the “Additional Notice”), specifying such Landlord Default and Tenant’s intention to abate the payment of rent under this Lease. If Landlord does not cure such Landlord Default within ten (10) days of receipt of the Additional Notice (the “Abatement Date”), Tenant may, upon written notice to Landlord, immediately abate Base Rent payable under this Lease for the Premises rendered untenantable, for the period beginning on the Abatement Date and the nonuse of the Premises by Tenant to the earlier of the date Landlord cures such Landlord Default or the date Tenant recommences the use of the Premises. Such right to abate Base Rent shall be Tenant’s sole and exclusive remedy at law or in equity for a Landlord Default. In no event shall Tenant have the right to terminate this Lease as a result of a Landlord Default. Except as provided in this Section 4.9, nothing contained herein shall be interpreted to mean that Tenant is excused from paying Rent due hereunder.

ARTICLE V – SECURITY DEPOSIT

Upon the execution of this Lease, Tenant shall deposit with Landlord the Security Deposit described in Section 1.11 above. The Security Deposit is made by Tenant to secure the faithful performance of all the terms, covenants and conditions of this Lease to be performed by Tenant. If Tenant shall default with respect to any covenant or provision hereof, Landlord may use, apply or retain all or any portion of the Security Deposit to cure such default or to compensate Landlord for any loss or damage which Landlord may suffer thereby. If Landlord so uses or applies all or any portion of the Security Deposit, Tenant shall immediately upon written demand deposit cash with Landlord in an amount sufficient to restore the Security Deposit to the full amount hereinabove stated. Landlord may from time to time require Tenant to increase the amount of the Security Deposit in order for the Security Deposit to bear the same ratio to the then Base Rent as the initial Security Deposit bears to the initial Base Rent. Tenant’s failure to do so shall be a material breach of this Lease. Landlord shall not be required to keep the Security Deposit separate from its general accounts. If Tenant performs all of Tenant’s obligations hereunder, the Security Deposit, or so much thereof as has not theretofore been applied by Landlord, shall be returned, without payment of interest or other increment for its use, to Tenant (or, at Landlord’s option, to the last assignee, if any, of Tenant’s interest hereunder) within a reasonable period of time (not to exceed thirty (30) days) after the expiration or termination of this Lease and surrender of the Premises by Tenant; provided that Landlord may retain the Security Deposit as security for the payment of any Rent Adjustment for up to thirty (30) days following an expiration or termination pursuant to Section 4.2.1 above and shall, upon the determination of such adjustment, apply the retained Security Deposit against any deficiency due Landlord and return the balance, if any, to Tenant. No trust relationship is created herein between Landlord and Tenant with respect to the Security Deposit. The Security Deposit shall not be considered an advance payment of rental or a measure of Landlord’s damages in case of default by Tenant.

ARTICLE VI – USE OF PREMISES

6.1 Tenant’s Permitted Use.

Tenant shall use the Premises only for Tenant’s Permitted Use as set forth in Section 1.12 above and shall not use or permit the Premises to be used for any other purpose. Tenant shall, at its sole cost and expense, obtain all governmental licenses and permits required to allow Tenant to conduct Tenant’s Permitted Use. Landlord disclaims any warranty that the Premises are suitable for Tenant’s use and Tenant acknowledges that it has had a full opportunity to make its own determination in this regard.

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6.2 Compliance With Laws and Other Requirements.

6.2.1 Applicable Law.

Tenant shall not modify the Premises so that it violates any laws, statues, ordinances and governmental rules, regulations or requirements now in force or which may hereafter be in force (including, without limitation, the Americans With Disabilities Act and Environmental Requirements), with the requirements of any board of fire underwriters or other similar body now or hereafter constituted, with any direction or occupancy certificate issued pursuant to any law by any public officer or officers, as well as the provisions of all recorded documents affecting the Premises, as they related to or affect the condition, use or occupancy of the Premises, excluding requirements of structural changes not related to or affected by improvements made by or for Tenant or Tenant’s use of the Premises (collectively, the “Applicable Law”). The parties acknowledge and agree that Tenant’s obligation to comply with the Applicable Law as provided herein is a material part of the bargained for consideration for this Lease. Subject to the last sentence of this Section 6.2.1, Tenant’s obligation under this paragraph shall include, without limitation, the responsibility of Tenant to make substantial repairs and alterations to the Premises, regardless of, among other factors, the relationship of the cost of curative action to the rental payable under this Lease, the length of the then remaining term hereof, the relative benefit of the repairs to Tenant, the degree in which the curative action may interfere with Tenant’s use or enjoyment of the Premises, the likelihood that the parties contemplated the particular law involved, and whether the law involved is related to Tenant’s particular use of the Premises. Tenant waives any rights now or hereafter in whole or in part to otherwise seek redress against the Applicable Law to terminate this Lease, to receive any abatement, diminution, reduction or suspension of payment of rent, or to compel Landlord to make any repairs to comply with any such legal requirements, on account of any such occurrence or situation. Notwithstanding the foregoing provisions of this Section 6.2.1, Tenant shall not be required to perform any structural changes to the Premises or other portions of the Building unless such changes relate to or are affected or triggered by (i) Tenant’s Alterations, or (ii) Tenant’s particular use of the Premises (as opposed to Tenant’s use of the Premises for general office purposes in a normal and customary manner). In no event shall Tenant be required to remove any ACM, as defined in Section 18.29 herein, nor will Tenant be required to make Alterations or improvements to the Premises as delivered on the Commencement Date in order to make the Premises comply with the Applicable Law, if such violations of the Applicable Law existed at the Commencement Date, or would have existed at the Commencement Date had the Applicable law been in effect at that time.

6.2.2 No Violation.

Tenant shall not use the Premises, or permit the Premises to be used, in any manner which: (a) violates any Applicable Law; (b) causes or is reasonably likely to cause damage to the Building or the Premises; (c) violates a requirement or condition of any fire and extended insurance policy covering the Building and/or the Premises, or increases the cost of such policy; (d) constitutes or is reasonably likely to constitute a nuisance, annoyance or inconvenience to other tenants or occupants of the Building or its equipment, facilities or systems; (e) interferes with, or is reasonably likely to interfere with, the transmission or reception of microwave, television, radio, telephone or other communication signals by antennae or other facilities located in the Building; or (f) violates the Rules and Regulations described in Section 18.2.

6.3 Hazardous Materials.

6.3.1 Prohibition.

No Hazardous Materials (as defined herein), shall be Handled (as also defined herein), upon, about, above or beneath the Premises or any portion of the Building by or on behalf of Tenant, its subtenants or its assignees, or their respective contractors, clients, officers, directors, employees, agents, or invitees. Notwithstanding the foregoing, normal quantities of Tenant’s Hazardous Materials customarily used in the conduct of general administrative and executive office activities (e.g., copier fluids, cleaning supplies, batteries, etc.) may be Handled in accordance with applicable Environmental Law (as defined herein) at the Premises without Landlord’s prior written consent.

6.3.2 Remediation.

Notwithstanding the obligation of Tenant to indemnify Landlord pursuant to this Lease, Tenant shall, at its sole cost and expense, promptly take all actions required by any Regulatory Authority (as defined herein), or necessary for Landlord to make full economic use of the Premises or any portion of the Building, which requirements or necessity arises from the Handling of Tenant’s Hazardous Materials upon, about, above or beneath the Premises or any portion of the Building. Such actions shall include, but not be limited to, the investigation of the environmental condition of the Premises or any portion of the Building, the preparation of any feasibility studies or reports and the performance of any cleanup, remedial, removal or restoration work. Tenant shall take all actions necessary to restore the Premises or any portion of the Building to the condition existing prior to the introduction of Tenant’s Hazardous Materials, notwithstanding any less stringent standards or remediation allowable under applicable Environmental Laws. Tenant shall nevertheless obtain Landlord’s written approval prior to undertaking

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any actions required by this Section, which approval shall not be unreasonably withheld so long as such actions would not potentially have a material adverse long-term or short-term effect on the Premises or any portion of the Building.

6.3.3 Additional Documents.

Tenant agrees to execute affidavits, representations, and the like from time to time at Landlord’s request stating Tenant’s best knowledge and belief regarding the presence of Hazardous Materials on the Premises.

6.3.4 Environmental Laws.

As used herein, “Environmental Laws” means and includes all now and hereafter existing statutes, laws, ordinances, codes, regulations, rules, rulings, orders, decrees, directives, policies and requirements by any Regulatory Authority regulating, relating to, or imposing liability or standards of conduct concerning public health and safety or the environment.

6.3.5 Hazardous Materials.

As used herein, “Hazardous Materials” means: (a) any material or substance: (i) which is defined or becomes defined as a “hazardous substance”, “hazardous waste,” “infectious waste,” “chemical mixture or substance,” or “air pollutant” under Environmental Laws; (ii) containing petroleum, crude oil or any fraction thereof; (iii) containing polychlorinated biphenyls (PCB’s); (iv) containing asbestos; (v) which is radioactive; or (vi) which is infectious; or (b) any other material or substance displaying toxic, reactive, ignitable or corrosive characteristics, as all such terms are used in their broadest sense, and are defined, or become defined by environmental laws; or (c) materials which cause a nuisance upon or waste to the Premises or any portion of the Building.

6.3.6 Handle.

As used herein, “Handle,” “handle,” “Handled,” “handled,” “Handling,” or “handling” shall mean any installation, handling, generation, storage, treatment, use, disposal, discharge, release, manufacture, refinement, presence, migration, emission, abatement, removal, transportation, or any other activity of any type in connection with or involving Hazardous Materials.

6.3.7 Regulatory Authority.

As used herein, “Regulatory Authority” shall mean any federal, state or local governmental agency, commission, board or political subdivision.

ARTICLE VII – UTILITIES AND SERVICES

7.1 Building Services.

As long as Tenant is not in monetary default under this Lease, Landlord agrees to furnish or cause to be furnished to the Premises the following utilities and services, subject to the conditions and standards set forth herein:

7.1.1 Elevator Service.

Non-attended automatic elevator service (if the Building has such equipment serving the Premises), in common with Landlord and other tenants and occupants and their agents and invitees.

7.1.2 HVAC.

During Business Hours, such air conditioning, heating and ventilation as, in Landlord’s reasonable judgment, are required for the comfortable use and occupancy of the Premises; provided, however, that if Tenant shall require heating, ventilation or air conditioning in excess of that which Landlord shall be required to provide hereunder, Landlord may provide such additional heating, ventilation or air conditioning at such rates and upon such additional conditions as shall be determined by Landlord from time to time. Notwithstanding the above, Landlord represents that Non-Business Hours HVAC service shall be made available to Tenant upon written request to Landlord. The current rate charged by Landlord for Non-Business Hours HVAC service is one hundred eighty-five dollars ($185) per hour for chilled-air service and eighty-five dollars ($85) per hour for fan-only service, excepting Sunday service, which is one hundred eighty-five dollars ($185) per hour for both chilled-air and fan-only service. Landlord may increase these rates only if, and to the extent higher rates are charged for similarly sized tenant spaces for similar class A buildings in the San Francisco Central Business District

7.1.3 Water.

Water for drinking and if rest rooms are within the Premises, rest room purposes.

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7.1.4 Janitorial and Cleaning.

Reasonable janitorial and cleaning services (performed at least every business day), provided that the Premises are used exclusively for office purposes and are kept reasonably in order by Tenant. If the Premises are not used exclusively as offices, Landlord, at Landlord’s sole discretion, may require that the Premises be kept clean and in order by Tenant, at Tenant’s expense, to the satisfaction of Landlord and by persons approved by Landlord; and, in all events, Tenant shall pay to Landlord the cost of removal of Tenant’s refuse and rubbish, to the extent that the same exceeds the refuse and rubbish attendant to normal office usage.

7.1.5 Electricity.

At all reasonable times, electric service which from time to time may fluctuate but in no event shall be less than the product of one kilowatt per square foot multiplied by the rentable square feet of the Premises, and not more than the product of six (6) kilowatts per square foot multiplied by the rentable square feet of the Premises (collectively, said minimum and maximum products shall be referred to as the “wattage allowance”); provided, however, that: (i) without Landlord’s consent, Tenant shall not install, or permit the installation, in the Premises of any computers, word processors, electronic data processing equipment or other type of equipment or machines which will increase Tenant’s use of electric current in excess of the wattage allowance; (ii) if Tenant shall require electric service which may disrupt the provision of electrical service to other tenants or be in excess of the wattage allowance, Landlord may refuse to grant its consent or may condition its consent upon Tenant’s payment of the cost of installing and providing any additional facilities required to furnish such excess power to the Premises and upon the installation in the Premises of electric current meters to measure the amount of electricity consumed, in which latter event Tenant shall pay for the cost of such meter(s) and the cost of installation, and repair thereof, as well as for all excess electric current consumed at the rates charged by the applicable local public utility, plus a reasonable amount to cover the additional expenses incurred by Landlord in keeping account of the electricity so consumed; and (iii) if Tenant’s increased electrical requirements will materially affect the temperature level in the Premises or the Building, Landlord’s consent may be conditioned upon Tenant’s requirement to pay such amounts as will be incurred by Landlord to install and operate any machinery or equipment necessary to restore the temperature level to that otherwise required to be provided by Landlord, including but not limited to the cost of modifications to the air conditioning system. In the event of any utility deregulation whereby California utility customers may choose service providers, Landlord may select such utility service provider which it deems to be appropriate to service the utility needs of tenants of the Building, with or without regard to the rates charged by such utility service provider, so long as Landlord’s selection is commercially reasonable. Landlord shall not, in any way, be liable or responsible to Tenant for any loss or damage or expense which Tenant may incur or sustain if, for any reasons beyond Landlord’s reasonable control, either the quantity or character of electric service is changed or is no longer available or suitable for Tenant’s requirements. Tenant covenants that at all times its use of electric current shall never exceed the capacity of the feeders, risers or electrical installations of the Building. If submetering of electricity in the Building will not be permitted under future laws or regulations, the Rent will then be equitably and periodically adjusted to include an additional payment to Landlord reflecting the cost to Landlord for furnishing electricity to Tenant in the Premises.

7.1.6 Payments.

Any amounts which Tenant is required to pay to Landlord pursuant to this Section 7.1 shall be payable upon demand by Landlord and shall constitute additional rent.

7.2 Interruption of Service.

Landlord shall not be liable for any failure to furnish, stoppage of, or interruption in furnishing any of the services or utilities described in Section 7.1, when such failure is caused by accident, breakage, repairs, strikes, lockouts, labor disputes, labor disturbances, governmental regulation, civil disturbances, acts of war, moratorium or other governmental action, or any other cause beyond Landlord’s reasonable control, and, in such event, Tenant shall not be entitled to any damages nor shall any failure or interruption abate or suspend Tenant’s obligation to pay Rent, Base Rent and additional rent required under this Lease or constitute or be construed as a constructive or other eviction of Tenant. Further, in the event any governmental authority or public utility promulgates or revises any law, ordinance, rule or regulation, or issues mandatory controls or voluntary controls relating to the use or conservation of energy, water, gas, light or electricity, the reduction of automobile or other emissions, or the provision of any other utility or service, Landlord may take any reasonably appropriate action to comply with such law, ordinance, rule, regulation, mandatory control or voluntary guideline and Tenant’s obligations hereunder shall not be affected by any such action of Landlord. The parties acknowledge that safety and security devices, services and programs provided by Landlord, if any, while intended to deter crime and ensure safety, may not in given instances prevent theft or other criminal acts, or ensure safety of persons or property. The risk that any safety or security device, service or program may not be effective, or may malfunction, or be circumvented by a criminal, is assumed by Tenant with respect to Tenant’s property and interests, and Tenant shall obtain insurance coverage to the extent Tenant desires protection against

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such criminal acts and other losses, as further described in this Lease. Tenant agrees to cooperate in any reasonable safety or security program developed by Landlord or required by Law.

7.3 Utility Deregulation.

7.3.1 Landlord Controls Selection.

Landlord has advised Tenant that presently Pacific Gas & Electric (“Electric Service Provider”) is the utility company selected by Landlord to provide electricity service for 44 Montgomery Street. Notwithstanding the foregoing, if permitted by law, Landlord shall have the right at any time and from time to time during the Lease Term to either contract for service from a different company or companies providing electricity service (each such company shall hereinafter be referred to as an “Alternate Service Provider”) or continue to contract for service from the Electric Service Provider.

7.3.2 Tenant Shall Give Landlord Access.

Tenant shall cooperate with Landlord, the Electric Service Provider, and any Alternate Service Provider at all reasonable times and, as reasonable necessary, shall allow Landlord, Electric Service Provider, and any Alternate Service Provider reasonable access to 44 Montgomery Street’s electric lines, feeders, risers, wiring and any other machinery within the Premises.

ARTICLE VIII – MAINTENANCE AND REPAIRS

8.1 Landlord’s Obligations.

Except as expressly provided in Sections 8.2 and 8.3 below, Landlord shall maintain the Building in reasonable order and repair throughout the Lease Term; provided, however, that Landlord shall not be liable for any failure to make any repairs or to perform any maintenance unless such failure shall persist for an unreasonable time after written notice of the need for such repairs or maintenance is given to Landlord by Tenant. Except as provided in Article XI, and in Section 4.9, there shall be no abatement of Rent, nor shall there be any liability of Landlord, by reason of any injury or inconvenience to, or interference with, Tenant’s business or operations arising from the making of, or failure to make, any maintenance or repairs in or to any portion of the Building.

8.2 Tenant’s Obligations.

During the Lease Term, Tenant shall, at its sole cost and expense, maintain the Premises in good order and repair (including, without limitation, the carpet, wall covering, doors, plumbing and other fixtures, equipment, alterations and improvements, whether installed by Landlord or Tenant). Further, Tenant shall be responsible for, and upon demand by Landlord shall promptly reimburse Landlord for, any damage to any portion of the Building or the Premises caused by (a) Tenant’s activities in the Building or the Premises; (b) the performance or existence of any alterations, additions or improvements made by Tenant in or to the Premises; (c) the installation, use, operation or movement of Tenant’s property in or about the Building or the Premises; or (d) any act or omission by Tenant or its officers, partners, employees, agents, contractors or invitees.

8.3 Landlord’s Rights.

Landlord and its contractors shall have the right, at all reasonable times and upon prior written, oral or telephonic notice to Tenant at the Premises, other than in the case of any emergency in which case no notice shall be required, to enter upon the Premises to make any repairs to the Premises or the Building reasonably or deemed reasonably necessary by Landlord and to erect such equipment, including scaffolding, as is reasonably necessary to effect such repairs.

ARTICLE IX – ALTERATIONS, ADDITIONS, AND IMPROVEMENTS

9.1 Landlord’s Consent; Conditions.

Tenant shall not make or permit to be made any alterations, additions, or improvements in or to the Premises (collectively, the “Alterations”) without the prior written consent of Landlord, which consent may be given or withheld in Landlord’s reasonable discretion. Landlord may impose as a condition to making any Alterations such requirements as Landlord in its reasonable discretion deems necessary or desirable including without limitation: Tenant’s submission to Landlord, for Landlord’s prior written approval, of all plans and specifications relating to the Alterations, and upon completion of the Alterations, Tenant’s delivery to Landlord for its permanent files on reproducible set of “as built” drawings showing the Alterations as constructed or installed in the Premises; Landlord’s prior written approval of the time or times when the Alterations are to be performed; Landlord’s prior written approval of the contractors and subcontractors performing work in connection with the Alterations; employment of

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union contractors and subcontractors who shall not cause labor disharmony; Tenant’s receipt of all necessary permits and approvals from all governmental authorities having jurisdiction over the Premises prior to the construction of the Alterations; Tenant’s delivery to Landlord of such bonds and insurance as Landlord shall reasonably require; Tenant’s payment to Landlord of all costs and expenses incurred by Landlord because of Tenant’s Alterations, including but not limited to costs incurred in reviewing the plans and specifications for, and the progress of, the Alterations; and payment to Landlord a construction supervision in the amount of five percent (5%) of the costs of the Alterations. Tenant is required to provide Landlord written notice of whether the Alterations include the Handling of any Hazardous Materials and whether these materials are of a customary and typical nature for industry practices. Upon completion of the Alterations, Tenant shall provide Landlord with copies of as-built plans. Neither the approval by Landlord of plans and specifications relating to any Alterations nor Landlord’s supervision or monitoring of any Alterations shall constitute any warranty by Landlord to Tenant of the adequacy of the design for Tenant’s intended use or the proper performance of the Alterations.

9.2 Performance of Alterations Work.

All work relating to the Alterations shall be performed in compliance with the plans and specifications approved by Landlord, all applicable laws, ordinances, rules, regulations and directives of all governmental authorities having jurisdiction over the Premises and the requirements of all carriers of insurance insuring the Premises and the Building, the Board of Underwriters, Fire Rating Bureau, or similar organization. All work shall be performed in a diligent, first class manner and so as not to unreasonably interfere with any other tenants or occupants of the Building. All costs incurred by Landlord relating to the Alterations shall be payable to Landlord by Tenant as additional rent upon demand. No asbestos-containing materials shall be used or incorporated in the Alterations. No lead-containing surfacing material, solder, or other construction materials or fixtures where the presence of lead might create a condition of exposure not in compliance with Environmental Laws shall be incorporated in the Alterations.

9.3 Liens.

Tenant shall pay when due all costs for work performed and materials supplied to the Premises. Tenant shall keep Landlord, the Premises and the Building free from all liens, stop notices and violation notices relating to the Alterations or any other work performed for, materials furnished to or obligations incurred by or for Tenant and Tenant shall protect, indemnify, hold harmless and defend Landlord, the Premises and the Building of and from any and all loss, cost, damage, liability and expense, including attorneys’ fees, arising out of or related to any such liens or notices. Further, Tenant shall give Landlord not less than seven (7) business days prior written notice before commencing any Alterations in or about the Premises to permit Landlord to post appropriate notices of non-responsibility. Tenant shall also secure, prior to commencing any Alterations, at Tenant’s sole expense, a completion and lien indemnity bond satisfactory to Landlord for such work. During the progress of such work, Tenant shall, upon Landlord’s request, furnish Landlord with lien releases covering all work theretofore performed. Tenant shall satisfy or otherwise discharge all liens, stop notices or other claims or encumbrances within ten (10) days after Landlord notifies Tenant in writing that any such lien, stop notice, claim or encumbrance has been filed. If Tenant fails to pay and remove such lien, claim or encumbrance within such ten (10) days, Landlord, at its election, may pay and satisfy the same and in such event the sums so paid by Landlord, with interest from the date of payment at the rate set forth in this Lease for amounts owed Landlord by Tenant shall be deemed to be additional rent due and payable by Tenant at once without notice or demand.

9.4 Lease Termination.

Except as provided herein, upon expiration or earlier termination of this Lease Tenant shall surrender the Premises to Landlord in the same condition as existed on the date Tenant first occupied the Premises (whether pursuant to this Lease or an earlier lease), subject to reasonable wear and tear. All Alterations shall become a part of the Premises and shall become the property of Landlord upon the expiration or earlier termination of this Lease, unless Landlord shall, by written notice given to Tenant, require Tenant to remove some or all of Tenant’s Alterations, in which event Tenant shall promptly remove the designated Alterations and shall promptly repair any resulting damage, all at Tenant’s sole expense. All business and trade fixtures, machinery and equipment, furniture, movable partitions and items of personal property owned by Tenant or installed by Tenant at its expense in the Premises shall be and remain the property of Tenant; upon the expiration or earlier termination of this Lease, Tenant shall, at its sole expense, remove all such items and repair any damage to the Premises or the Building caused by such removal. If Tenant fails to remove any such items or repair such damage promptly after the expiration or earlier termination of the Lease, Landlord may, but need not, do so with no liability to Tenant, and Tenant shall pay Landlord the cost thereof upon demand. Notwithstanding the foregoing to the contrary, in the event that Landlord gives its consent, pursuant to the provisions of this Article IX, to allow Tenant to make an Alteration in the Premises, Landlord agrees, upon Tenant’s written request, to notify Tenant in writing at the time of the giving of such consent whether Landlord will require Tenant, at Tenant’s cost, to remove such Alteration at the end of the Lease Term.

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ARTICLE X – INDEMNIFICATION AND INSURANCE

10.1 Indemnification.

10.1.1 Tenant.

Tenant agrees to protect, indemnify, hold harmless and defend Landlord and any Mortgagee, as defined herein, and each of their respective partners, directors, officers, agents and employees, successors and assigns (except to the extent the losses described below are caused by the gross negligence or intentional misconduct of Landlord, its agents and employees), from and against:

(i) any and all loss, cost, damage, liability or expense as incurred (including but not limited to reasonable attorneys’ fees and legal costs) arising out of or related to any claim, suit or judgment brought by or in favor of any person or persons for damage, loss or expense due to, but not limited to, bodily injury, including death or property damage sustained by such person or persons which arises out of, or is in any way attributable to the use or occupancy of the Premises or any portion of the Building by Tenant or the acts or omissions of Tenant or its agents, employees, contractors, clients, invitees or subtenants except to the extent caused by the negligence or intentional misconduct of Landlord or its agents or employees. Such loss or damage shall include, but not be limited to, any injury or damage to, or death of, Landlord’s employees or agents or damage to the Premises or any portion of the Building.

(ii) any and all environmental damages which arise from the Tenant’s Handling of any Hazardous Materials, as defined in Section 6.3. For the purpose of this Lease, “environmental damages” shall mean (a) all claims, judgments, damages, penalties, fines, costs, liabilities, and losses (including without limitation, diminution in the value of the Premises or any portion of the Building, damages for the loss of or restriction on use of rentable or usable space or of any amenity of the Premises or any portion of the Building, and from any adverse impact of Landlord’s marketing of space); (b) all reasonable sums paid for settlement of claims, attorneys’ fees, consultants’ fees and experts’ fees; and (c) all costs incurred by Landlord in connection with investigation or remediation relating to the Tenant’s Handling of Hazardous Materials. To the extent that Landlord is held strictly liable by a court or other governmental agency of competent jurisdiction under any Environmental Laws, Tenant’s obligation to Landlord and the other indemnities under the foregoing indemnification shall likewise be without regard to fault on Tenant’s part with respect to the violation of any Environmental Law which results in liability to the Landlord. Tenant’s obligations and liabilities pursuant to this Section 10.1 shall survive the expiration or earlier termination of this Lease.

10.1.2 Landlord.

Landlord agrees to protect, indemnify, hold harmless and defend Tenant from and against any and all loss, cost, damage, liability or expense, including reasonable attorneys’ fees, with respect to any claim of damage or injury to persons or property at the Premises, to the extent caused by the gross negligence or intentional misconduct of Landlord or its authorized agents or employees.

10.1.3 No Limitation.

Notwithstanding anything to the contrary contained herein, nothing shall be interpreted or used to (a) in any way affect, limit, reduce or abrogate any insurance coverage provided by any insurers to either Tenant or Landlord, or (b) infer or imply that Tenant is a partner, joint venturer, agent, employee, or otherwise acting by or at the direction of Landlord.

10.2 Property Insurance.

10.2.1 Tenant All-Risk.

At all times during the Lease Term, Tenant shall procure and maintain, at its sole expense, “all-risk” property insurance, for damage or other loss caused by fire or other casualty or cause including, but not limited to, vandalism and malicious mischief, theft, water damage of any type, including sprinkler leakage, bursting of pipes, and explosion, in an amount not less than one hundred percent (100%) of the replacement cost covering (a) all Alterations made by or for Tenant in the Premises; and (b) Tenant’s trade fixtures, equipment and other personal property from time to time situated in the Premises. The proceeds of such insurance shall be used for the repair or replacement of the property so insured, except that if not so applied or if this Lease is terminated following a casualty, the proceeds applicable to the leasehold improvements shall be paid to Landlord and the proceeds applicable to Tenant’s personal property shall be paid to Tenant.

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10.2.2 Landlord All-Risk.

Landlord shall, at all times during the Lease Term, procure and maintain “all-risk” property insurance in the amount not less than ninety percent (90%) of the insurable replacement cost covering the Building in which the Premises are located and such other insurance as may be required by a Mortgagee (defined hereafter) or otherwise desired by Landlord.

10.3 Liability Insurance.

10.3.1 Tenant.

At all times during the Lease Term, Tenant shall procure and maintain, at its sole expense, commercial general liability insurance applying to the use and occupancy of the Premises and the business operated by Tenant. Such insurance shall have a minimum combined single limit of liability of at least Two Million Dollars ($2,000,000) per occurrence and a general aggregate limit of at least Two Million Dollars ($2,000,000). All such policies shall be written to apply to all bodily injury, property damage, and personal injury losses, and shall be endorsed to include Landlord and its agents, beneficiaries, partners, employees, and any deed of trust holder or mortgagee of Landlord or any ground lessor as additional insureds. Such liability insurance shall be written as primary policies, not excess or contributing with or secondary to any other insurance as may be available to the additional insureds.

10.3.2 Alcohol.

Prior to the sale, storage, use or giving away of alcoholic beverages on or from the Premises by Tenant or another person, Tenant, at its own expense, shall obtain a policy or policies of insurance issued by a responsible insurance company and in a form acceptable to Landlord saving harmless and protecting Landlord and the Premises against any and all damages, claims, liens, judgments, expenses and costs, including actual attorneys’ fees, arising under any present or future law, statute, or ordinance of the State of California or other governmental authority having jurisdiction of the Premises, by reason of any storage, sale, use or giving away of alcoholic beverages on or from the Premises. Such policy or policies of insurance shall have a minimum combined single limit of One Million Dollars ($1,000,000) per occurrence and shall apply to bodily injury, fatal or nonfatal; injury to means of support; and injury to property of any person. Such policy or policies of insurance shall name Landlord and its agents, beneficiaries, partners, employees and any mortgagee of Landlord or any ground lessor of Landlord as additional insureds.

10.3.3 Landlord.

Landlord shall, at all times during the Lease Term, procure and maintain commercial general liability insurance for the Building in which the Premises are located. Such insurance shall have minimum combined single limit of liability of at least Two Million Dollars ($2,000,000) per occurrence, and a general aggregate limit of at least Two Million Dollars ($2,000,000).

10.4 Workers’ Compensation Insurance.

At all times during the Lease Term, Tenant shall procure and maintain Workers’ Compensation Insurance in accordance with the laws of the State of California, and Employer’s Liability insurance with a limit not less than One Million Dollars ($1,000,000) Bodily Injury Each Accident; One Million Dollars ($1,000,000) Bodily Injury By Disease—Each Person; and One Million Dollars ($1,000,000) Bodily Injury to Disease—Policy Limit.

10.5 Policy Requirements.

All insurance required to be maintained by Tenant shall be issued by insurance companies authorized to do insurance business in the State of California and, except for Workers’ Compensation Insurance as defined in Section 10.4 above, rated not less than A-VIII in Best’s Insurance Guide. A certificate of insurance (or, at Landlord’s option, copies of the applicable policies) evidencing the insurance required under this Article X shall be delivered to Landlord not less than thirty (30) days prior to the Commencement Date. No such policy shall be subject to cancellation or modification without thirty (30) days prior written notice to Landlord and to any deed of trust holder, mortgagee or ground lessor designated by Landlord to Tenant. Tenant shall furnish Landlord with a replacement certificate with respect to any insurance not less than thirty (30) days prior to the expiration of the current policy.

10.6 Waiver of Subrogation.

Each party hereby waives any right of recovery against the other for injury or loss due to hazards covered by insurance or required to be covered, to the extent of the injury or loss covered thereby. Any policy of insurance to be provided by Tenant or Landlord pursuant to this Article X shall contain a clause denying the applicable insurer any right of subrogation against the other party.

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10.7 Failure to Insure.

If Tenant fails to maintain any insurance which Tenant is required to maintain pursuant to this Article X, Tenant shall be liable to Landlord for any loss or cost resulting from such failure to maintain. Tenant may not self-insure against any risks required to be covered by insurance without Landlord’s prior written consent, which consent may be given or withheld in Landlord’s sole and absolute discretion.

ARTICLE XI – DAMAGE OR DESTRUCTION

11.1 Total Destruction.

Except as provided in Section 11.3 below, this Lease shall terminate if the Building is totally destroyed.

11.2 Partial Destruction of Premises.

If the Premises are damaged by any casualty and, in Landlord’s reasonable opinion, the Premises (exclusive of any Alterations made to the Premises by Tenant) can be restored to its pre-existing condition within one hundred eighty (180) days after the date of the damage or destruction, Landlord shall, upon written notice from Tenant to Landlord of such damage, except as provided in Section 11.3, promptly and with due diligence repair any damage to the Premises (exclusive of any Alterations to the Premises made by Tenant, which shall be promptly repaired by Tenant at its sole expense) and, until such repairs are completed, the Rent shall be abated from the date of damage or destruction in the same proportion that the rentable area of the portion of the Premises which is unusable by Tenant in the conduct of its business bears to the total rentable area of the Premises. If such repairs cannot, in Landlord’s opinion, be made within said one hundred eighty (180) day period, then Landlord may, at its option, exercisable by written notice given to Tenant within thirty (30) days after the date of the damage or destruction, elect to make the repairs within a reasonable time after the damage or destruction, in which event this Lease shall remain in full force and effect but the Rent shall be abated as provided in the preceding sentence; if Landlord does not so elect to make the repairs, then either Landlord or Tenant shall have the right, by written notice given to the other within sixty (60) days after the date of the damage or destruction, to terminate this Lease as of the date of the damage or destruction.

11.3 Exceptions to Landlord’s Obligations.

Notwithstanding anything to the contrary contained in this Article XI, Landlord shall have no obligation to repair the Premises if either: (a) the Building in which the Premises are located is so damaged as to require repairs to the Building exceeding twenty percent (20%) of the full insurable value of the Building; or (b) Landlord elects to demolish the Building in which the Premises are located; or (c) the damage or destruction occurs less than one (1) year prior to the Expiration Date, exclusive of option periods. Further, Tenant’s Rent shall not be abated if either (i) the damage or destruction is repaired within five (5) business days after Landlord receives written notice from Tenant of the casualty, or (ii) to the extent that Tenant, or any officers, partners, employees, agents or invitees of Tenant, or any assignee or subtenant of Tenant, is, in whole or in part, responsible for the damage or destruction.

11.4 Waiver.

The provisions contained in this Lease shall supersede any laws (whether statutory, common law or otherwise) now or hereafter in effect relating to damage, destruction, self-help or termination, including California Civil Code Sections 1932 and 1933.

ARTICLE XII – CONDEMNATION

12.1 Taking.

If the entire Premises or so much of the Premises as to render the balance unusable by Tenant shall be taken by condemnation, sale in lieu of condemnation or in any other manner for any public or quasi-public purpose (collectively “Condemnation”), then this Lease shall terminate on the date that title or possession to the Premises is taken by the condemning authority.

12.2 Award.

In the event of any Condemnation, the entire award for such taking shall belong to Landlord. Tenant shall have no claim against Landlord or the award for the value of any unexpired term of this Lease or otherwise. Tenant shall be entitled to independently pursue a separate award in a separate proceeding for Tenant’s relocation costs directly associated with the taking, provided such separate award does not diminish Landlord’s award.

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12.3 Temporary Taking.

No temporary taking of the Premises shall terminate this Lease or entitle Tenant to any abatement of the Rent payable to Landlord under this Lease; provided, further, that any award for such temporary taking shall belong to Tenant to the extent that the award applies to any time period during the Lease Term and to Landlord to the extent that the award applies to any time period outside the Lease Term.

ARTICLE XIII – RELOCATION

Intentionally Deleted.

ARTICLE XIV – ASSIGNMENT AND SUBLETTING

14.1 Restriction.

Without the prior written consent of Landlord, Tenant shall not, either voluntarily or by operation of law, assign, encumber, or otherwise transfer this Lease or any interest herein, or sublet the Premises or any part thereof, or permit the Premises to be occupied by anyone other than Tenant or Tenant’s employees (any such assignment, encumbrance, subletting, occupation or transfer is hereinafter referred to as a “Transfer”). For purposes of this Lease the term “Transfer” shall also include (a) if Tenant is a partnership the withdrawal or change, voluntary, involuntary or by operation of law, of a partner, or a transfer of partnership interests, or the dissolution of the partnership, and (b) if Tenant is a closely held corporation (i.e. whose stock is not publicly held and not traded through an exchange or over the counter) or a limited liability company, the dissolution, merger, consolidation, division, liquidation or other reorganization of Tenant, or within a twelve month period: (i) the sale or other transfer of more than an aggregate of 20% of the voting securities of Tenant (other than to immediate family members by reason of gift or death) or (ii) the sale, mortgage, hypothecation or pledge of more than an aggregate of 50% of Tenant’s net assets. A Transfer in violation of the foregoing shall be void and, at Landlord’s option, shall constitute a material breach of this Lease. Notwithstanding anything contained in this Article XIV to the contrary, Tenant expressly covenants and agrees not to enter into any lease, sublease, license, concession or other agreement for use, occupancy or utilization of the Premises which provides for rental or other payment for such use, occupancy or utilization based in whole or in part on the net income or profits derived by any person from the property leased, used, occupied or utilized (other than an amount based on a fixed percentage or percentages of receipts or sales), and that any such purported lease, sublease, license, concession or other agreement shall be absolutely void and ineffective as a conveyance of any right or interest in the possession, use, occupancy or utilization of any part of the Premises. Notwithstanding anything contained in this Lease to the contrary, Tenant may effectuate a Transfer to any of the following entities without Landlord’s consent; provided, however, that Tenant shall provide Landlord with prior written notice thereof and provided that the tangible net worth of the proposed Transferee is such that such Transferee is capable of performing Tenant’s obligation under this Lease, as reasonably determined by Landlord:

(i) Any entity controlling, controlled by or under common control with Tenant (a “Corporate Affiliate”);

(ii) Any entity with which Tenant has merged or consolidated, or

(iii) Any entity which acquires all or substantially all of the shares of stock or assets of Tenant, and which continues to operate substantially the same business at the Premises as had been maintained by Tenant (each, an “Affiliate Transferee”).

14.2 Notice to Landlord.

If Tenant desires to assign this Lease or any interest herein, or to sublet all or any part of the Premises, then at least fifteen (15) days but not more than one hundred eighty (180) days prior to the effective date of the proposed assignment or subletting, Tenant shall submit to Landlord in connection with Tenant’s request for Landlord’s consent:

14.2.1 Statement.

A statement containing (a) the name and address of the proposed assignee or subtenant; (b) such financial information with respect to the proposed assignee or subtenant as Landlord shall reasonably require; (c) the type of use proposed for the Premises; and (d) all of the principal terms of the proposed assignment or subletting; and

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14.2.2 Original Documents.

Four (4) originals of the assignment or sublease on a form approved by Landlord and four (4) originals of the Landlord’s Consent to Sublease or Assignment and Assumption of Lease and Consent.

14.3 Landlord’s Recapture Rights.

At any time within twenty (20) business days after Landlord’s receipt of all (but not less than all) of the information and documents described in Section 14.2 above, Landlord may, at its option by written notice to Tenant, elect to: (a) sublease the Premises or the portion thereof proposed to be sublet by Tenant upon the same terms as those offered to the proposed subtenant; (b) take an assignment of the Lease upon the same terms as those offered to the proposed assignee; or (c) terminate the Lease in its entirety or as to the portion of the Premises proposed to be assigned or sublet, with a proportionate adjustment in the Rent payable hereunder if the Lease is terminated as to less than all of the Premises. If Landlord does not exercise any of the options described in the preceding sentence, then, during the above-described twenty (20) business day period, Landlord shall either consent or deny its consent to the proposed assignment or subletting.

14.4 Landlord’s Consent; Standards.

Landlord’s consent to a proposed assignment or subletting shall not be unreasonably withheld; but, in addition to any other grounds for denial, Landlord’s consent shall be deemed reasonably withheld if, in Landlord’s good faith judgment: (a) the proposed assignee or subtenant does not have in Landlord’s reasonable judgment the financial strength to perform its obligations under this Lease or any proposed sublease; (b) the business and operations of the proposed assignee or subtenant are not of comparable quality to the business and operations being conducted by other tenants in the Building; (c) the proposed assignee or subtenant intends to use any part of the Premises for a purpose not permitted under this Lease; (d) either the proposed assignee or subtenant, or any person which directly or indirectly controls, is controlled by, or is under common control with the proposed assignee or subtenant occupies space in the Building, or is negotiating with Landlord to lease space in the Building; (e) the proposed assignee or subtenant is disreputable; or (f) the use of the Premises or the Building by the proposed assignee or subtenant would, in Landlord’s reasonable judgment, impact the Building in a negative manner, including but not limited to significantly increasing the pedestrian traffic in and out of the Building or requiring any alterations to the Building to comply with applicable laws; (g) the subject space is not regular in shape with appropriate means of ingress and egress suitable for normal renting purposes; (h) the transferee is a government (or agency or instrumentality thereof), or (i) Tenant has failed to cure a default at the time Tenant requests consent to the proposed Transfer. Tenant shall not be entitled to and Tenant hereby waives any right it may have to make any claim for, money damages (nor shall Tenant claim any money damages by way of set-off, counterclaim or defense) based upon any claim or assertion by Tenant that Landlord has unreasonably withheld or unreasonably delayed its consent or approval to a proposed assignment or subletting or as provided for in this Section 14.4. Tenant’s sole remedy shall be an action or proceeding to enforce any provision hereof, or for specific performance, injunction or declaratory judgment. Tenant acknowledges that Tenant’s rights under this Section 14.4 satisfy the conditions set forth in Section 1951.4 of the California Civil Code with respect to the availability to Landlord of certain remedies for a default by Tenant under this Lease, and which provides, in part: “The lessor has the remedy described in California Civil Code Section 1951.4 (lessor may continue the lease in effect after lessee’s breach and abandonment and recover rent as it becomes due, if lessee has the right to sublet or assign, subject only to reasonable limitations).”

14.5 Additional Rent.

If Landlord consents to any such assignment or subletting, the amount by which all sums or other economic consideration payable to Tenant in connection with such assignment or subletting, whether denominated as rental or otherwise, exceeds, in the aggregate, the total sum which Tenant is obligated to pay Landlord under this Lease (prorated to reflect obligations allocable to less than all of the Premises under a sublease) shall be paid to Landlord promptly after receipt as additional Rent under the Lease without affecting or reducing any other obligation of Tenant hereunder.

14.6 Landlord’s Costs.

If Tenant shall Transfer this Lease or all or any part of the Premises or shall request the consent of Landlord to any Transfer, Tenant shall pay to Landlord as additional rent Landlord’s reasonable costs related thereto, including, without limitation, a minimum fee to Landlord of Five Hundred Dollars ($500.00) and Landlord’s actual attorney’s fees and costs.

14.7 Continuing Liability of Tenant.

Notwithstanding any Transfer, Tenant shall remain as fully and primarily liable for the payment of Rent and for the performance of all other obligations of Tenant contained in this Lease to the same extent as if the Transfer had not occurred; provided, however, that any act or omission of any transferee, other than Landlord, that violates the terms of this Lease shall be deemed a violation of this Lease by Tenant.

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14.8 Non-Waiver.

The consent by Landlord to any Transfer shall not relieve Tenant, or any person claiming through or by Tenant, terms, of the obligation to obtain the consent of Landlord, pursuant to this Article XIV, to any further Transfer. In the event of an assignment or subletting, Landlord may collect rent from the assignee or the subtenant without waiving any rights hereunder and collection of the rent from a person other than Tenant shall not be a waiver of any of Landlord’s rights under this Article XIV, an acceptance of assignee or subtenant as Tenant, or a release of Tenant from the performance of Tenant’s obligations under this Lease. If Tenant shall default under this Lease and fail to cure within the time permitted, Landlord is irrevocably authorized, as Tenant’s agent and attorney-in-fact, to direct any transferee to make all payments under or in connection with the Transfer directly to Landlord (which Landlord shall apply towards Tenant’s obligations under this Lease) until such default is cured.

ARTICLE XV – DEFAULT AND REMEDIES

15.1 Events of Default By Tenant.

The occurrence of any of the following shall constitute a material default and breach of this Lease by Tenant:

15.1.1 Failure to Pay Rent.

The failure by Tenant to pay Base Rent or make any other payment required to be made by Tenant hereunder within three (3) days of receiving written notice of delinquency from Landlord. Any payment of Base Rent or any other payment required to be made by Tenant that is not paid as and when due under the terms of this Lease shall be required to be paid by hand delivery to the on-site property management office. Landlord’s acceptance of any partial payment of Base Rent or any other payments made by Tenant hereunder shall not constitute a waiver of any of Landlord’s rights, including the right to recover possession base on a properly served default notice.

15.1.2 Abandonment.

The abandonment of the Premises by Tenant for fourteen (14) consecutive days without the payment of Rent.

15.1.3 Failure to Perform.

The failure by Tenant to observe or perform any other provision of this Lease to be observed or performed by Tenant, other than those described in Sections 15.1.1 and 15.1.2 above, if such failure continues for thirty (30) days after written notice thereof by Landlord to Tenant; provided, however, that if the nature of the default is such that it cannot be cured within the thirty (30) day period, no default shall exist if Tenant commences the curing of the default within the thirty (30) day period and thereafter diligently prosecutes the same to completion. The thirty (30) day notice described herein shall be in lieu of, and not in addition to, any notice required under Section 1161 of the California Code of Civil Procedure or any other law now or hereafter in effect requiring that notice of default be given prior to the commencement of an unlawful detainer or other legal proceeding.

15.1.4 Bankruptcy.

The making by Tenant or its Guarantor of any general assignment for the benefit of creditors, the filing by or against Tenant or its Guarantor of a petition under any federal or state bankruptcy or insolvency laws (unless, in the case of a petition filed against Tenant or its Guarantor the same is dismissed within thirty (30) days after filing); the appointment of a trustee or receiver to take possession of substantially all of Tenant’s assets at the Premises or Tenant’s interest in this Lease or the Premises, when possession is not restored to Tenant within thirty (30) days; or the attachment, execution or other seizure of substantially all of Tenant’s assets located at the Premises or Tenant’s interest in this Lease or the Premises, if such seizure is not discharged within thirty (30) days.

15.1.5 Misstatement.

Any material misrepresentation herein, or material misrepresentation or omission in any financial statements provided by Tenant or any Guarantor in connection with negotiating or entering into this Lease or in connection with any Transfer under Section 14.1.

15.2 Landlord’s Right To Terminate Upon Tenant Default.

In the event of any material default by Tenant as provided in Section 15.1 above, Landlord shall have, to the extent permitted by California Law, the right to terminate this Lease and recover possession of the Premises by giving written notice to Tenant of Landlord’s election to terminate this Lease, in which event Landlord shall be entitled to receive from Tenant: (a) the worth at the time of award of any unpaid

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Rent which had been earned at the time of such on award; plus (b) 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 rental loss Tenant proves could have been reasonably avoided; plus (c) the worth at the time of award of the amount by which the unpaid Rent for the balance of the term after the time of award exceeds the amount of such rental loss that Tenant proves could be reasonably avoided; plus (d) 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 things would be likely to result therefrom; and (e) 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 applicable law. As used in subsections (a) and (b) above, “worth at the time of award” shall be computed by allowing interest on such amounts at the then highest lawful rate of interest, but in no event to exceed one percent (1%) per annum plus the rate established by the Federal Reserve Bank of San Francisco on advances made to banks under Sections 13 and 13a of the Reserve Act (“discount rate”) prevailing at the time of award. As used in subsection (c) above, “worth at the time of award” shall be computed by discounting such amount by (x) the discount rate of the Federal Reserve Bank of San Francisco prevailing at the time of award plus (y) one percent (1%).

15.3 Mitigation of Damages.

If Landlord terminates this Lease or Tenant’s right to possession of the Premises, Landlord shall have no obligation to mitigate Landlord’s damages except to the extent required by applicable law. If Landlord has not terminated this Lease or Tenant’s right to possession of the Premises, Landlord shall have no obligation to mitigate under any circumstances and may permit the Premises to remain vacant or abandoned. If Landlord is required to mitigate damages as provided herein: (a) Landlord shall be required only to use reasonable efforts to mitigate, which shall not exceed such efforts as Landlord generally uses to lease other space in the Building, (b) Landlord will not be deemed to have failed to mitigate if Landlord or its affiliates lease any other portions of the Building or other projects owned by Landlord or its affiliates in the same geographic area, before re-letting the Premises or any portion of the Premises, and (c) any failure to mitigate as described herein with respect to any period of time shall only reduce the Rent and other amounts to which Landlord is entitled hereunder by the reasonable rental value of the Premises during such period.

15.4 Landlord’s Right to Continue Lease Upon Tenant Default.

In the event of a default of this Lease by Tenant, and if Landlord does not elect to terminate this Lease as provided in Section 15.2 above, Landlord may, from time to time, without terminating this Lease, enforce all of its rights and remedies under this Lease or at law or in equity. Without limiting the foregoing, Landlord has the remedy described in California Civil Code Section 1951.4 (Landlord may continue this Lease in effect after Tenant’s default and recover Rent as it becomes due, if Tenant has the right to Transfer, subject only to reasonable limitations). In the event Landlord re-lets the Premises, to the fullest extent permitted by law, the proceeds of any re–letting shall be applied first to pay to Landlord all costs and expenses of such re–letting (including without limitation, costs and expenses of retaking or repossessing the Premises, removing persons and property therefrom, securing new tenants, including expenses for redecoration, alterations and other costs in connection with preparing the Premises for the new tenant, and if Landlord shall maintain and operate the Premises, the costs thereof) and receivers’ fees incurred in connection with the appointment of and performance by a receiver to protect the Premises and Landlord’s interest under this Lease and any necessary or reasonable alterations; and second, to the payment of any indebtedness of Tenant to Landlord other than Rent due and unpaid hereunder; third, to the payment of Rent due and unpaid hereunder; and the residue, if any, shall be held by Landlord and applied in payment of other or future obligations of Tenant to Landlord as the same may be due and payable, and the remainder shall promptly be returned to Tenant.

15.5 Right of Landlord to Perform.

All covenants and agreements to be performed by Tenant under this Lease shall be performed by Tenant at Tenant’s sole cost and expense. If Tenant shall fail to pay any sum of money, other than Rent, required to be paid by it hereunder or shall fail to perform any other act on its part to be performed hereunder, Landlord may, but shall not be obligated to, make any payment or perform any such other act on Tenant’s part to be made or performed, without waiving or releasing Tenant of its obligations under this Lease. Any sums so paid by Landlord and all necessary incidental costs, together with interest thereon at the lesser of the maximum rate permitted by law if any or twelve percent (12%) per annum from the date of such payment, shall be payable to Landlord as additional rent on demand and Landlord shall have the same rights and remedies in the event of nonpayment as in the case of default by Tenant in the payment of Rent.

15.6 Non-Waiver.

Nothing in this Article shall be deemed to affect Landlord’s rights to indemnification for liability or liabilities arising prior to termination of this Lease or Tenant’s right to possession for personal injury or property damages under the indemnification clause or clauses contained in this Lease. No acceptance by

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Landlord of a lesser sum than the Rent then due shall be deemed to be other than on account of the earliest installment of such rent due, nor shall any endorsement or statement on any check or any letter accompanying any check or payment as rent be deemed an accord and satisfaction, and Landlord may accept such check or payment without prejudice to Landlord’s right to recover the balance of such installment or pursue any other remedy in the Lease provided. The delivery of keys to any employee of Landlord or to Landlord’s agent or any employee thereof shall not operate as a termination of this Lease or a surrender of the Premises.

15.7 Cumulative Remedies.

The specific remedies to which Landlord may resort under the terms of the Lease are cumulative and are not intended to be exclusive of any other remedies or means of redress to which it may be lawfully entitled in case of any breach or threatened breach by Tenant of any provisions of the Lease. In addition to the other remedies provided in the Lease, Landlord shall be entitled to a restraint by injunction of the violation or attempted or threatened violation of any of the covenants, conditions or provisions of the Lease or to a decree compelling specific performance of any such covenants, conditions or provisions.

15.8 Default by Landlord.

Landlord’s failure to perform or observe any of its obligations under this Lease shall constitute a default by Landlord under this Lease only if such failure shall continue for a period of thirty (30) days (or if the cure reasonably takes more than thirty (30) days, and Landlord commences to undertake the cure within the thirty (30) day period, then the additional time, if any, which is reasonably necessary to promptly and diligently cure the failure) after Landlord receives written notice from Tenant specifying the default. The notice shall give in reasonable detail the nature and extent of the failure and shall identify the Lease provision(s) containing the obligation(s). If Landlord shall default in the performance of any of its obligations under this Lease (after notice and opportunity to cure as provided herein), Tenant may pursue any remedies available to it under the law and this Lease, except that in no event shall Landlord be liable for punitive damages, lost profits, business interruption, speculative, consequential or other such damages. In recognition that Landlord must receive timely payments of Rent and operate the Building, Tenant shall have no right of self-help to perform repairs or any other obligation of Landlord, and shall have no right to withhold, set-off, or abate Rent, except as specifically set forth in this Lease.

ARTICLE XVI – ATTORNEY’S FEES; INDEMNIFICATION

16.1 Attorneys’ Fees.

If either Landlord or Tenant shall commence any action or other proceeding against the other arising out of, or relating to, this Lease or the Premises, the prevailing party shall be entitled to recover from the losing party, in addition to any other relief, its actual attorneys’ fees irrespective of whether or not the action or other proceeding is prosecuted to judgment and irrespective of any court schedule of reasonable attorneys’ fees. In addition, Tenant shall reimburse Landlord, upon demand, for all reasonable attorneys’ fees incurred in collecting Rent or otherwise seeking interpretation of this Lease or enforcement against Tenant, its sublessees and assigns, of Tenant’s obligations under this Lease.

16.2 Indemnification.

Should Landlord be made a party to any litigation instituted by Tenant against a party other than Landlord, or by a third party against Tenant, Tenant shall indemnify, hold harmless and defend Landlord from any and all loss, cost, liability, damage or expense incurred by Landlord, including attorneys’ fees, in connection with the litigation.

ARTICLE XVII – SUBORDINATION AND ATTORNMENT

17.1 Subordination.

This Lease, and the rights of Tenant hereunder, are and shall be subject and subordinate to the interests of (i) all present and future ground leases and master leases of all or any part of the Building; (ii) present and future mortgages and deeds of trust encumbering all or any part of the Building; (iii) all past and future advances made under any such mortgages or deeds of trust; and (iv) all renewals, modifications, replacements and extensions of any such ground leases, master leases, mortgages and deeds of trust; provided, however, that any lessor under any such ground lease or master lease or any mortgagee or beneficiary under any such mortgage or deed of trust (any such lessor, mortgagee or beneficiary is hereinafter referred to as a “Mortgagee”) shall have the right to elect, by written notice given to Tenant, to have this Lease made superior in whole or in part to any such ground lease, master lease, mortgage or deed of trust (or subject and subordinate to such ground lease, master lease, mortgage

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or deed of trust but superior to any junior mortgage or junior deed of trust). Upon demand, Tenant shall execute, acknowledge and deliver any instruments reasonably requested by Landlord or any such Mortgagee to effect the purposes of this Section 17.1. Such instruments may contain, among other things, provisions to the effect that such Mortgagee (hereafter, for the purposes of this Section 17.1, a “Successor Landlord”) shall (a) not be liable for any act or omission of Landlord or its predecessors, if any, prior to the date of such Successor Landlord’s succession to Landlord’s interest under this Lease; (b) not be subject to any offsets or defenses which Tenant might have been able to assert against Landlord or its predecessors, if any, prior to the date of such Successor Landlord’s succession to Landlord’s interest under this Lease; (c) not be liable for the return of any security deposit under the Lease unless the same shall have actually been deposited with such Successor Landlord; (d) be entitled to receive notice of any Landlord default under this Lease plus a reasonable opportunity to cure such default prior to Tenant having any right or ability to terminate this Lease as a result of such Landlord default; (e) not be bound by any rent or additional rent which Tenant might have paid for more than the current month to Landlord; (f) not be bound by any amendment or modification of the Lease or any cancellation of the same made without Successor Landlord’s prior written consent; (g) not be bound by any obligation to make any payment to Tenant which was required to be made prior to the time such Successor Landlord succeeded to Landlord’s interest, and (h) not be bound by any obligation under the Lease to perform any work or to make any improvements to the demised Premises. Any obligations of any Successor Landlord under its respective lease shall be non-recourse as to any assets of such Successor Landlord other than its interest in the Building and its related improvements. Not withstanding the foregoing, Tenant’s Subordination shall only be effective as to the extent that the future Mortgagee agrees that this Lease shall survive the termination of the Mortgagee’s interest by lapse of time, foreclosure or otherwise so long as Tenant is not in default under this Lease.

17.2 Attornment.

If the interests of Landlord under the Lease shall be transferred to any superior Mortgagee or Successor Landlord or other purchaser or person taking title to the Building by reason of the termination of any superior lease or the foreclosure of any superior mortgage or deed of trust, and so long as such Successor Landlord or Mortgagee agrees not to disturb Tenant’s possession of the Premises under this Lease, Tenant shall be bound to such Successor Landlord under all of the terms, covenants and conditions of the Lease for the balance of the term thereof remaining and any extensions or renewals thereof which may be effected in accordance with any option therefor in the Lease, with the same force and effect as if Successor Landlord were the landlord under the Lease, and Tenant shall attorn to and recognize as Tenant’s landlord under this Lease such Successor Landlord, as its landlord, said attornment to be effective and self-operative without the execution of any further instruments upon Successor Landlord’s succeeding to the interest of Landlord under the Lease. Tenant acknowledges that Landlord is (a) the assignee of the lessor’s interest in that certain Ground Lease dated June 11, 1963 (“Existing Ground Lease”) for the land underlying the Building, and (b) the assignee of the lessee’s interest in the Ground Lease. Upon expiration or termination of the Existing Ground Lease, Tenant will attorn to and continue to recognize Landlord as the landlord under this Lease. Tenant shall, upon demand, execute any documents reasonably requested by any such person to evidence the attornment described in this Section 17.2. Concurrently, upon written request from Tenant, and provided Tenant is not in default under this Lease, Landlord agrees to use diligent, commercially reasonable efforts to obtain a Non-Disturbance Agreement from the Successor Landlord, ground lessor or master lessor (if different from Landlord), or any Mortgagee. Such Non-Disturbance Agreement may be embodied in the Mortgagee’s customary form of Subordination and Non-Disturbance Agreement. If, after exerting diligent, commercially reasonable efforts, Landlord is unable to obtain a Non-Disturbance Agreement from any such Mortgagee, Landlord shall have no further obligation to Tenant with respect thereto.

17.3 Mortgagee Protection.

Tenant agrees to give any Mortgagee, by registered or certified mail, a copy of any notice of default served upon Landlord by Tenant, provided that prior to such notice Tenant has been notified in writing (by way of service on Tenant of a copy of Assignment of Rents and Leases, or otherwise) of the address of such Mortgagee (hereafter the “Notified Party”). Tenant further agrees that if Landlord shall have failed to cure such default within twenty (20) days after such notice to Landlord (or if such default cannot be cured or corrected within that time, then such additional time as may be necessary if Landlord has commenced within such twenty (20) days and is diligently pursuing the remedies or steps necessary to cure or correct such default), then the Notified Party shall have an additional thirty (30) days within which to cure or correct such default (or if such default cannot be cured or corrected within that time, then such additional time as may be necessary if the Notified Party has commenced within such thirty (30) days and is diligently pursuing the remedies or steps necessary to cure or correct such default). Until the time allowed, as aforesaid, for the Notified Party to cure such default has expired without cure, Tenant shall have no right to, and shall not, terminate this Lease on account of Landlord’s default.

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ARTICLE XVIII – MISCELLANEOUS

18.1 Quiet Enjoyment.

Provided that Tenant performs all of its obligations hereunder, Tenant shall have and peaceably enjoy the Premises during the Lease Term free of claims by or through Landlord, subject to all of the terms and conditions contained in this Lease.

18.2 Rules and Regulations.

The Rules and Regulations attached hereto as Exhibit C are hereby incorporated by reference herein and made a part hereof. Tenant shall abide by, and faithfully observe and comply with the Rules and Regulations and any reasonable and non-discriminatory amendments, modifications and/or additions thereto as may hereafter be adopted and published by written notice to tenants by Landlord for the safety, care, security, good order and/or cleanliness of the Premises and/or the Building. Landlord shall enforce the Rules and Regulations in a non-discriminatory manner, but will not be liable to Tenant for any violation of rules or regulations by any other tenant or occupant of the Building.

18.3 Estoppel Certificates.

Tenant agrees at any time and from time to time, upon not less than twenty (20) days’ prior written notice from Landlord, to execute, acknowledge and deliver to Landlord a statement in writing addressed and certifying to Landlord, to any current or prospective Mortgagee or any assignee thereof, to any prospective purchaser of the land, improvements or both comprising the Building, and to any other party designated by Landlord, that this Lease is unmodified and in full force and effect (or if there have been modifications, that the same is in full force and effect as modified and stating the modifications); that Tenant has accepted possession of the Premises, which are acceptable in all respects, and that any improvements required by the terms of this Lease to be made by Landlord have been completed to the satisfaction of Tenant (or if such improvements have not been completed to the satisfaction of Tenant, stating in what way the improvements are unsatisfactory under the terms of this Lease or the Work Letter Agreement); that Tenant is in full occupancy of the Premises; that no rent has been paid more than thirty (30) days in advance; that the first month’s Base Rent has been paid; that Tenant is entitled to no free rent or other concessions except as stated in this Lease; that Tenant has not been notified of any previous assignment of Landlord’s or any predecessor landlord’s interest under this Lease; the dates to which Base Rent, additional rental and other charges have been paid; that Tenant, as of the date of such certificate, has no charge, lien or claim of setoff under this Lease or otherwise against Base Rent, additional rental or other charges due or to become due under this Lease (or if Tenant asserts a charge, lien or claim of setoff under this Lease, then Tenant will specify the amount sought pursuant to which such charge, lien or claim of setoff is being sought); that Landlord is not in default in performance of any covenant, agreement or condition contained in this Lease; or any other matter relating to this Lease or the Premises or, if so, specifying each such default. If there is a Guaranty under this Lease, said Guarantor shall confirm the validity of the Guaranty by joining in the execution of the Estoppel Certificate or other documents so requested by Landlord or Mortgagee. In addition, in the event that such certificate is being given to any Mortgagee, such statement may contain any other provisions customarily required by such Mortgagee including, without limitations an agreement on the part of Tenant to furnish to such Mortgagee, written notice of any Landlord default and a reasonable opportunity for such Mortgagee to cure such default prior to Tenant being able to terminate this Lease. Any such statement delivered pursuant to this Section may be relied upon by Landlord or any Mortgagee, or prospective purchaser to whom it is addressed and such statement, if required by its addressee, may so specifically state. If Tenant does not execute, acknowledge and deliver to Landlord the statement as and when required herein, Landlord is hereby granted an irrevocable power-of-attorney, coupled with an interest, to execute such statement on Tenant’s behalf, which statement shall be binding on Tenant to the same extent as if executed by Tenant.

18.4 Entry by Landlord.

Landlord may enter the Premises at reasonable times and frequency to: inspect the same; exhibit the same to prospective purchasers, Mortgagees or tenants; determine whether Tenant is complying with all of its obligations under this Lease; supply janitorial and other services to be provided by Landlord to Tenant under this Lease; post notices of non-responsibility; and make repairs or improvements in or to the Building or the Premises; provided, however, that all such work shall be done as promptly as reasonably possible and so as to cause as little interference to Tenant as reasonably possible. Tenant hereby waives any claim for damages for any injury or inconvenience to, or interference with, Tenant’s business, any loss of occupancy or quiet enjoyment of the Premises or any other loss occasioned by such entry, unless caused by the negligence or willful misconduct of Landlord. Landlord at all times shall have and retain a key with which to unlock all of the doors in, on or about the Premises (excluding Tenant’s vaults, safes and similar areas designated by Tenant in writing in advance), and Landlord shall have the right to use any and all means by which Landlord may deem proper to open such doors to obtain entry to the Premises, and any entry to the Premises obtained by Landlord by any such means, or otherwise, shall not under any circumstances be or construed to be a forcible or unlawful entry into or a detainer of the

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Premises or an eviction, actual or constructive, of Tenant from any part of the Premises. Such entry by Landlord shall not act as a termination of Tenant’s duties under this Lease. If Landlord shall be required to obtain entry by means other than a key provided by Tenant, the cost of such entry shall be payable by Tenant to Landlord as additional rent.

18.5 Landlord’s Lease Undertakings.

Notwithstanding anything to the contrary contained in this Lease or in any exhibits, Riders or addenda hereto attached (collectively the “Lease Documents”), it is expressly understood and agreed by and between the parties hereto that: (a) the recourse of Tenant or its successors or assigns against Landlord with respect to the alleged breach by or on the part of Landlord of any representation, warranty, covenant, undertaking or agreement contained in any of the Lease Documents or otherwise arising out of Tenant’s use of the Premises or the Building (collectively, “Landlord’s Lease Undertaking”) shall extend only to Landlord’s interest in the real estate of which the Premises demised under the Lease Documents are a part (“Landlord’s Real Estate”) and not to any other assets of Landlord or its beneficiaries; and (b) no personal liability or personal responsibility of any sort with respect to any of Landlord’s Lease Undertakings or any alleged breach thereof is assumed by, or shall at any time be asserted or enforceable against, Landlord, OTR, an Ohio general partnership, Seagate Properties, Inc., or against any of their respective directors, officers, employees, agents, constituent partners, beneficiaries, trustees or representatives. Tenant acknowledges that this Lease is executed by certain general partners of OTR, not individually but solely on behalf of, and as the authorized nominee and agent for, the State Teachers Retirement Board of Ohio, and Tenant and all persons dealing with Landlord waive any right to bring a cause of action against the individuals executing this Lease on behalf of Landlord and must look solely to the Landlord’s Real Estate for the enforcement of any claim against Landlord.

18.6 Transfer of Landlord’s Interest.

In the event of any transfer of Landlord’s interest in the Building, Landlord shall be automatically freed and relieved from all applicable liability with respect to performance of any covenant or obligation on the part of Landlord under this Lease occurring after the date of such transfer, provided any deposits or advance rents held by Landlord are turned over to the grantee and said grantee expressly assumes, subject to the limitations of this Lease, all the terms, covenants and conditions of this Lease to be performed on the part of Landlord, it being intended hereby that the covenants and obligations contained in this Lease on the part of Landlord shall, subject to all the provisions of this Lease, be binding on Landlord, its successors and assigns, only during their respective periods of ownership.

18.7 Holdover.

If Tenant holds possession of the Premises after the expiration or termination of the Lease Term, by lapse of time or otherwise, Tenant shall become a tenant at sufferance upon all of the terms contained herein, except as to Lease Term and Rent. During such holdover period, Tenant shall pay to Landlord a monthly rental equivalent to one hundred fifty percent (150%) of the Rent payable by Tenant to Landlord with respect to the last month of the Lease Term. The monthly rent payable for such holdover period shall in no event be construed as a penalty or as liquidated damages for such retention of possession. Without limiting the foregoing, Tenant hereby agrees to indemnify, defend and hold harmless Landlord, its beneficiary, and their respective agents, contractors and employees, from and against any and all claims, liabilities, actions, losses, damages (including without limitation, direct, indirect, incidental and consequential) and expenses (including, without limitation, court costs and reasonable attorneys’ fees) asserted against or sustained by any such party and arising from or by reason of such retention of possession, which obligations shall survive the expiration or termination of the Lease Term.

18.8 Notices.

All notices which Landlord or Tenant may be required, or may desire, to serve on the other may be served, as an alternative to personal service, by mailing the same by registered or certified mail, postage prepaid return receipt requested, or by Federal Express or other nationally recognized courier service, addressed to Landlord at the address for Landlord get forth in Section 1.14 above and to Tenant at the address for Tenant set forth in Section 1.15 above, or, from and after the Commencement Date, to Tenant at the Premises whether or not Tenant has departed from, abandoned or vacated the Premises, or addressed to such other address or addresses as either Landlord or Tenant may from time to time designate to the other in writing. Any notice shall be deemed to have been served at the time it was received.

18.9 Brokers.

The parties recognize as the broker(s) who procured this Lease the firm(s) specified in Section 1.16 and agree that Landlord shall be solely responsible for the payment of any brokerage commissions to said broker(s), and that Tenant shall have no responsibility therefor unless written provision to the contrary has been made a part of this Lease. If Tenant has dealt with any other person or real estate broker in respect to leasing, subleasing or renting space in the Building, Tenant shall be solely responsible for the payment

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of any fee due said person or firm and Tenant shall protect, indemnify, hold harmless and defend Landlord from any liability in respect thereto.

18.10 Communications and Computer Lines.

Tenant may, in a manner consistent with the provisions and requirements of this Lease, install, maintain, replace, remove or use any communications or computer wires, cables and related devices (collectively the “Lines”) at the Building in or serving the Premises, provided: (a) Tenant shall obtain Landlord’s prior written consent, which consent may be conditioned as required by Landlord, (b) if Tenant at any time uses any equipment that may create an electromagnetic field exceeding the normal insulation ratings of ordinary twisted pair riser cable or cause radiation higher than normal background radiation, the Lines therefor (including riser cables) shall be appropriately insulated to prevent such excessive electromagnetic fields or radiation, and (c) Tenant shall pay all costs in connection therewith. Landlord reserves the right to require that Tenant remove any Lines which are installed in violation of these provisions.

18.10.1 New Lines.

Landlord may (but shall not have the obligation to): (a) install new Lines at the Property, and (b) create additional space for Lines at the Property, and adopt reasonable and uniform rules and regulations with respect to the Lines.

18.10.2 Line Problems.

Notwithstanding anything to the contrary contained in this Lease, Landlord reserves the right to require that Tenant remove any or all Lines installed by or for Tenant within or serving the Premises. Tenant shall not, without the prior written consent of Landlord in each instance, grant to any third party a security interest or lien in or on the Lines, and any such security interest or lien granted without Landlord’s written consent shall be null and void. Except to the extent arising from the intentional or negligent acts of Landlord or Landlord’s agents or employees, Landlord shall have no liability for damages arising from, and Landlord does not warrant that Tenant’s use of any Lines will be free from the following, (collectively called “Line Problems”): (a) any eavesdropping or wire-tapping by unauthorized parties, (b) any failure of any Lines to satisfy Tenant’s requirements, or (c) any shortages, failures, variations, interruptions, disconnections, loss or damage caused by the installation, maintenance, replacement, use or removal of Lines by or for other tenants or occupants at the Property. Under no circumstances shall any Line Problems be deemed an actual or constructive eviction of Tenant, render Landlord liable to Tenant for abatement of Rent, or relieve Tenant from performance of Tenant’s obligations under this Lease. Landlord in no event shall be liable for damages by reason of loss of profits, business interruption or other consequential damage arising from any Line Problems.

18.10.3 Removal of Electrical and Telecommunication Wires, Lines and Equipment.

(i) Landlord May Elect to Either Remove or Keep Wires.

Within ten (10) days after the expiration or sooner termination of the Lease, Landlord may elect (“Election Right”) by written notice to Tenant to:

(a) Retain any or all wiring, cables, riser, and similar installations appurtenant thereto installed by Tenant in the risers of the Building (“Wiring”);

(b) Remove any or all such Wiring and restore the Premises and risers to their condition prior to the installation of the Wiring (“Wiring Restoration Work”). Landlord shall perform such Wire Restoration Work at Tenant’s sole cost and expense; or

(c) Require Tenant to perform the Wire Restoration Work at Tenant’s sole cost and expense.

(ii) Survival.

The provisions of this Clause shall survive the expiration or sooner termination of the Lease.

(iii) Condition of Wiring.

In the event Landlord elects to retain the Wiring (pursuant to Paragraph (i)(a) hereof), Tenant covenants that:

(a) Tenant shall be the sole owner of such Wiring, that Tenant shall have the right to surrender such Wiring, and that such Wiring shall be free of all liens and encumbrances; and

(b) All Wiring shall be left in good condition.

(iv) Landlord Can Apply Security Deposit.

In the event Tenant fails or refuses to pay all costs of the Wiring Restoration Work within fifteen (15) days of Tenant’s receipt of Landlord’s notice requesting Tenant’s

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reimbursement for or payment of such costs, Landlord may apply all or any portion of Tenant’s Security Deposit toward the payment of such unpaid costs relative to the Wiring Restoration Work.

(v) No Limit on Right to Sue.

The retention or application of such Security Deposit by Landlord pursuant to this Clause does not constitute a limitation on or waiver of Landlord’s right to seek further remedy under law or equity.

18.11 Entire Agreement.

This Lease contains all of the agreements and understandings relating to the leasing of the Premises and the obligations of Landlord and Tenant in connection with such leasing. Landlord has not made, and Tenant is not relying upon, any warranties, or representations, promises or statements made by Landlord or any agent of Landlord, except as expressly set forth herein. This Lease supersedes any and all prior agreements and understandings between Landlord and Tenant and alone expresses the agreement of the parties.

18.12 Amendments.

This Lease shall not be amended, changed or modified in any way unless in writing executed by Landlord and Tenant. Landlord shall not have waived or released any of its rights hereunder unless in writing and executed by Landlord.

18.13 Successors.

Subject to the limitations expressly provided herein, this Lease and the obligations of Landlord and Tenant contained herein shall bind and benefit the successors and assigns of the parties hereto.

18.14 Force Majeure.

Landlord shall incur no liability to Tenant with respect to, and shall not be responsible for any failure to perform, any of Landlord’s obligations hereunder if such failure is caused by any reason beyond the control of Landlord including, but not limited to, strike, labor trouble, governmental rule, regulations, ordinance, statute or interpretation, or by fire, earthquake, civil commotion, or failure or disruption of utility services. The amount of time for Landlord to perform any of Landlord’s obligations shall be extended by the amount of time Landlord is delayed in performing such obligation by reason of any event of force majeure occurrence whether similar to or different from the foregoing types of occurrences. Notwithstanding the above, if Landlord fails to perform any of its obligations under the Lease pursuant to any event of force majeure, and if such failure renders the Premises substantially unusable for Tenant’s purposes, then Tenant may abate its obligations to pay rent until such time as Landlord has cured such failure.

18.15 Survival of Obligations.

Any obligations of Tenant accruing prior to the expiration of the Lease shall survive the expiration or earlier termination of the Lease, and Tenant shall promptly perform all such obligations whether or not this Lease has expired or been terminated.

18.16 Light and Air.

No diminution or shutting off of any light, air or view by any structure now or hereafter erected shall in any manner affect this Lease or the obligations of Tenant hereunder, or increase any of the obligations of Landlord hereunder.

18.17 Governing Law.

This Lease shall be governed by, and construed in accordance with, the laws of the State of California.

18.18 Severability.

In the event any provision of this Lease is found to be unenforceable, the remainder of this Lease shall not be affected, and any provision found to be invalid shall be enforceable to the extent permitted by law. The parties agree that in the event two different interpretations may be given to any provision hereunder, one of which will render the provision unenforceable, and one of which will render the provision enforceable, the interpretation rendering the provision enforceable shall be adopted.

18.19 Captions.

All captions, headings, titles, numerical references and computer highlighting are for convenience only and shall have no effect on the interpretation of this Lease. Accordingly, this Lease shall be

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construed neither for nor against Landlord or Tenant, but shall be given a fair and reasonable interpretation in accordance with the plain meaning of its terms, and the intent of the parties.

18.20 Interpretation.

Tenant acknowledges that it has read and reviewed this Lease and that it has had the opportunity to confer with counsel in the negotiation of this Lease. Accordingly, this Lease shall be construed neither for nor against Landlord or Tenant, but shall be given a fair and reasonable interpretation in accordance with the plain meaning of its terms and the intent of the parties.

18.21 Independent Covenants.

Each covenant, agreement, obligation or other provision of this Lease to be performed by Tenant are separate and independent covenants of Tenant, and not dependent on any other provision of the Lease.

18.22 Number and Gender.

All terms and words used in this Lease, regardless of the number or gender in which they are used, shall be deemed to include the appropriate number and gender, as the context may require.

18.23 Time is of the Essence.

Time is of the essence of this Lease and the performance of all obligations hereunder.

18.24 Joint and Several Liability.

If Tenant comprises more than one person or entity, or if this Lease is guaranteed by any party, all such persons shall be jointly and severally liable for payment of rents and the performance of Tenant’s obligations hereunder.

18.25 Exhibits.

Exhibits A (Floor Plan), B (Work Letter Agreement), C (Rules and Regulations), D (Intentionally Deleted), and E (Tenant Acceptance Letter), and are incorporated into this Lease by reference and made a part hereof.

18.26 Offer to Lease.

The submission of this Lease to Tenant or its broker or other agent, does not constitute an offer to Tenant to lease the Premises. This Lease shall have no force and effect until (a) it is executed and delivered by Tenant to Landlord, and (b) it is fully reviewed, executed and delivered by Landlord to Tenant; provided, however, that upon execution of this Lease by Tenant and delivery to Landlord, such execution and delivery by Tenant shall, in consideration of the time and expense incurred by Landlord in reviewing the Lease and Tenant’s credit, constitute an offer by Tenant to Lease the Premises upon the terms and conditions set forth herein (which offer to Lease shall be irrevocable for fifteen (15) business days following the date of delivery).

18.27 No Counterclaim; Choice of Laws.

Landlord and Tenant agree that the laws of the State of California shall govern and that venue for any action between Landlord and Tenant shall be proper if brought in the City and County of San Francisco. LANDLORD AND TENANT EACH HEREBY WAIVE TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM BROUGHT BY EITHER PARTY AGAINST THE OTHER IN CONNECTION WITH THIS LEASE OR THE PREMISES. If commences any unlawful detainer action or dispossessory proceedings, Tenant agrees not to consolidate such action or proceeding with any other proceeding, and waives any right to assert any counterclaim in such action or proceeding.

18.28 Rights Reserved by Landlord.

Landlord reserves the following rights exercisable without notice (except as otherwise expressly provided to the contrary in this Lease) and without being deemed an eviction or disturbance of Tenant’s use or possession of the Premises or giving rise to any claim for set-off or abatement of Rent: (a) to change the name or street address of the Building; (b) to install, affix and maintain all signs on the exterior and/or interior of the Building; (c) to designate and/or approve prior to installation, all types of signs, window shades, blinds, drapes, awnings or other similar items, and all internal lighting that may be visible from the exterior of the Premises and, notwithstanding the provisions of Article IX, the design, arrangement, style, color and general appearance of the portion of the Premises visible from the exterior, and contents thereof, including, without limitation, furniture, fixtures, equipment, art work, wall coverings, carpet and decorations, and all changes, additions and removals thereto, shall, at all times have the appearance of Premises having the same type of exposure and used for substantially the same purposes that are generally prevailing in comparable office buildings in the area; (d) to change the location or any other tenant, the arrangement, size, character, use or location of entrances or passageways, doors, doorways, corridors, elevators, escalators, stairs, landscaping, toilets or any other part of the

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Building, or to change common area to tenant space and tenant space to common area; (e) to grant any party the exclusive right to conduct any business or render any service in the Building, provided such exclusive right shall not operate to prohibit Tenant from using the Premises for the purposes permitted under this Lease; (f) to prohibit the placement of vending or dispensing machines of any kind in or about the Premises other than for use by Tenant’s employees; (g) to prohibit the placement of video or other electronic games in the Premises; (h) to have access for Landlord and other tenants of the Building to any mail chutes and boxes located in or on the Premises according to the rules of the United States Post Office and to discontinue any mail chute business in the Building; (i) to close the Building after normal business hours, except that Tenant and its employees and invitees shall be entitled to admission at all times under such rules and regulations as Landlord prescribes for security purposes; (j) to install, operate and maintain security systems which monitor, by close circuit television or otherwise, all persons entering or exiting the Building; (k) to install and maintain pipes, ducts, conduits, wires and structural elements located in the Premises which serve other parts or other tenants of the Building; and (l) to retain at all times master keys or pass keys to the Premises. None of the foregoing shall result in any liability of Landlord to Tenant.

18.29 Asbestos.

Tenant acknowledges that it has been expressly disclosed to Tenant by Landlord’s Managing Agent that the Building and the Premises contain asbestos containing materials (“ACM”). The acknowledgment by Tenant of the ACM does not in any manner impose any liability or responsibility on Tenant for removal, treatment, or abatement of such ACM or any responsibility whatsoever regarding such ACM provided, however, that Tenant shall comply with all applicable laws and regulations in connection with any work in the Premises including, but not limited to, work which requires entry into the ceiling.

18.30 ADR Process.

If Landlord and Tenant are unable for any reason to timely agree on (i) the Prevailing Rental Rate referenced in Section 3.2.1, if applicable, or (ii) the correction of alleged errors in Landlord’s Statement as provided in Section 4.4. or (iii) the amount of Base Rent to be abated if an interruption of services or utilities occurs as described in Section 7.2 or an impairment to the Premises occurs due to Landlord’s failure to maintain or repair as described in Section 8.2 (collectively, “Specified Disputes”), then Landlord and Tenant agree that all Specified Disputes shall be resolved pursuant to the neutral binding alternative dispute resolution process (“ADR Process”) described below. Landlord and Tenant (acting together or individually) shall submit a notice of a Specified Dispute (“Notice of Dispute”) to JAMS (defined below) which Notice sets forth the details of the dispute and requests JAMS to implement the ADR Process set forth below.

18.30.1 ADR Process.

The Notice of Dispute shall be delivered to the San Francisco office of Judicial Arbitration and Mediation Service (“JAMS”) for binding resolution pursuant to the ADR Process. The ADR Process shall be conducted according to the following procedure:

(i) The ADR Process shall be conducted in San Francisco, California.

(ii) JAMS shall promptly select a single retired California Superior Court Judge to be the hearing officer (“Hearing Officer”). The Hearing Officer shall not have any actual or perceived conflict of interest with Landlord or Tenant, any affiliate or subsidiary or their respective counsel and absent any conflict, neither Landlord or Tenant shall have the right to object to the Hearing Officer. The Hearing Officer shall have extensive and recent civil trial experience and shall not have been primarily a criminal courts judge during his/her career. The first hearing day shall be scheduled not later than thirty (30) calendar days following appointment of the Hearing Officer and the hearing process shall be concluded within thirty (30) calendar days from commencement.

(iii) The Hearing Officer shall preside over the ADR Process, shall accept relevant evidence, and may (in her/her discretion) hear live testimony of the parties and their expert and other witnesses, examine and cross-examine the parties and their witnesses, allow counsel to examine and cross-examine witnesses, hear arguments of counsel, and otherwise conduct and control a hearing as if he/she were sitting as a California Superior Court Judge without a jury. At the conclusion of the hearing, the Hearing Officer shall orally announce a tentative decision as to the disagreement(s) which form the basis of the Specified Dispute(s). In announcing the tentative decision and in rendering the Final Award (defined below), the Hearing Officer shall be required to follow California law in the interpretation of any document or agreement (including this Lease), in admitting evidence and in fashioning a remedy. The Hearing Officer shall not have the power or authority to award any amount in the nature or character of punitive or exemplary damages, but shall have the power to issue an award for compensatory damages based on breach or default of the Lease, shall have the power to issue injunctive or other equitable relief where appropriate, shall have the power to issue a judgment for unlawful detainer of the Premises, and shall have the power to issue an award for attorneys’ fees and costs as allowed by this Lease.

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(iv) Within ten (10) calendar days following conclusion of the oral hearing, the Hearing Officer shall prepare and deliver to each of the parties a written decision, accompanied by a statement of facts, law, underlying reasons and conclusions necessary to fully explain his/her decision (“Final Award”). If the Final Award requires payment by one party of any amount of money to the other party, the Hearing Officer shall require that payment be made within thirty (30) calendar days following issuance of the Final Award, and, if payment is not timely made, the Final Award shall provide the party to whom payment is due with the right but not the obligation to seek immediate enforcement of the Final Award by a court of competent jurisdiction.

(v) The Final Award shall be binding on each party to the dispute, shall be admissible in any court of law for any purpose reasonably related thereto (including, but not limited to, for the purpose of determining whether or not a breach or default under the Lease has occurred), and either party may petition the California Superior Court to enter the Final Award as the final judgement and award of the court and/or to enforce enforcement of a Final Award.

(vi) Each party shall pay one-half of the fees and costs for JAMS and the Hearing Officer. If advance payment or deposit is required prior to commencement of the ADR Process, each party to the dispute hereby represents and warrants that it will timely pay and deposit said amount. The failure to timely pay any amounts requested by the Hearing Officer or JAMS shall constitute an immediate and material event of default and if said amounts are not timely paid following receipt of a five (5) business day notice and demand to pay, the Hearing Officer shall be required (without the taking of any evidence or testimony) to issue a Final Award in favor of the party to the dispute timely paying its fees, on the terms and conditions requested by said party, which shall be final and binding.

18.31 Miscellaneous: Signage.

Upon move-in, Tenant shall receive from Landlord at Landlord’s cost:

(1) One (1) suite sign insert which includes insert and one (1) line of verbiage

(2) One (1) elevator lobby strip

(3) One (1) main lobby strip for each seven hundred fifty (750) square feet leased

(4) Ten (10) suite keys and ten (10) restroom guest keys

All signage shall be in accordance with Building Standard signage specification and is subject to Landlord’s prior approval. Additional signage and keys may be purchased through Seagate Properties, Inc.

IN WITNESS WHEREOF, the parties hereto have executed this Lease as of the date first above written.

LANDLORD:	TENANT:
OTR, an OHIO GENERAL PARTNERSHIP, as Nominee of The State Teachers Retirement Board of Ohio, a statutory organization created by the laws of Ohio	DAILY JOURNAL CORPORATION, a SOUTH CAROLINA CORPORATION

By:	/s/    MATT BULANICH	By:	/s/    GERALD L. SALZMAN
Its:	Director of Real Estate	Its:	President
Date:	December 15, 2003	Date:	December 15, 2003

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EX-14

Exhibit 14

DAILY JOURNAL CORPORATION

CODE OF ETHICS

A. Regulatory Basis.

Pursuant to 17 C.F.R. § 229.406, promulgated by the Securities and Exchange Commission to implement section 406 of the Sarbanes-Oxley Act of 2002, a company subject to reporting requirements under the Securities Exchange Act of 1934 must disclose whether or not it has adopted a written code of ethics applicable to its principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, and if no such code has been adopted, why not.

In addition, pursuant to Nasdaq Marketplace Rule 4350, companies with securities listed on the Nasdaq Stock Market must adopt a code of conduct that applies to all directors, officers and employees.

The Company believes that this Code of Ethics is reasonably designed to deter wrongdoing and to promote the purposes set forth in 17 C.F.R. § 229.406. The Company also believes that this Code of Ethics promotes an atmosphere of self-awareness and prudent conduct by encouraging and protecting the reporting of questionable behavior in accordance with Nasdaq Marketplace Rule 4350. As used herein, “Company” means Daily Journal Corporation and its subsidiary, Sustain Technologies, Inc.

B. Scope.

This Code of Ethics applies to all directors, officers and employees of the Company.

C. Purpose.

The Company is proud of the values with which it conducts business. It has and will continue to uphold the highest levels of business ethics and personal integrity in all types of transactions and interactions. To this end, the Company’s Code of Ethics serves to (1) emphasize the Company’s commitment to ethics and compliance with the law; (2) set forth the Company’s basic standards of ethical and legal behavior for its directors, officers and employees; (3) elaborate reporting mechanisms for known or suspected ethical or legal violations and for other questionable behavior; and (4) deter and detect wrongdoing.

Given the variety and complexity of ethical questions that may arise in the course of the Company’s business, this Code of Ethics serves only as a rough guide. Confronted with ethically ambiguous situations, all directors, officers and employees should remember the Company’s commitment to the highest ethical standards and seek independent advice, where necessary, to ensure that all actions they take on behalf of the Company honor this commitment.

D. Ethical Standards.

1. Honest and Ethical Conduct.

All directors, officers and employees shall behave honestly and ethically at all times and with all people. They shall act in good faith, with due care, and shall engage only in fair and open competition, by treating ethically competitors, suppliers, customers and colleagues. They shall not misrepresent facts or engage in illegal, unethical, or anti-competitive practices for personal or professional gain. No director, officer or employee may offer or accept bribes, kickbacks or substantial gifts either directly or through another party.

This fundamental standard of honest and ethical conduct extends to the handling of conflicts of interest. All directors, officers and employees shall avoid any actual, potential, or apparent conflicts of interest with the Company and any personal activities, investments or associations that might give rise to such conflicts. They shall not use the Company for personal gain, self-deal, compete with the Company or take advantage of corporate opportunities other than on behalf of the Company. They shall act on behalf of the Company free from improper influence or the appearance of improper influence on their judgment or performance of duties. There is a likely conflict of interest if, for example, a director, officer or employee causes the Company to engage in business transactions with relatives or friends; receives loans or guarantees of obligations from the Company (or a third party because of his or her relationship to the Company); has more than a modest financial interest in the Company’s competitors, suppliers, or customers; or uses non-public information for personal gain or for gain by relatives or friends.

If a director, officer or employee involved in a particular decision has a relationship—business, financial, or otherwise—with a competitor, supplier, customer, candidate for employment or other person, that might impair or appear to impair his or her independence in making that decision, he or she shall disclose such relationship to the Chairman of the Audit Committee. No action may be taken with respect to the transaction or party giving rise to the actual, potential or apparent conflict unless and until such action has been approved by the Audit Committee.

2. Timely and Truthful Disclosure.

In reports and documents filed with or submitted to the Securities and Exchange Commission and other regulators, and in other public communications made by the Company, the Company’s directors, officers and employees involved in the preparation of such reports, documents and communications shall make disclosures that are full, fair, accurate, timely and understandable. Such disclosures shall contain thoroughly and accurately reported financial and accounting data. No director, officer or employee shall knowingly conceal or falsify information, misrepresent material facts or omit material facts necessary to avoid misleading the Company’s independent public auditor or the public.

3. Legal Compliance.

In conducting the business of the Company, all directors, officers and employees shall comply with applicable governmental laws, rules and regulations at all levels of government in the United States and in any non-U.S. jurisdiction in which the Company does business. If a director, officer or employee is unsure whether a particular action would violate an applicable law, rule, or regulation, he or she should seek the advice of the Company’s outside counsel before undertaking it. It is always illegal to trade in the Company’s securities while in possession of material, non-public information, and it is also illegal to communicate or “tip” such information to others.

4. Confidentiality.

The Company’s directors, officers and employees shall take all reasonable steps to protect the confidentiality of non-public information about the Company and its customers and to prevent the unauthorized disclosure of such information unless required by applicable law or regulation or legal or regulatory process.

E. Violations of Ethical Standards.

1. Reporting Known or Suspected Violations.

The Company’s directors and executive officers shall promptly report any known or suspected violations of this Code of Ethics and any other questionable behavior to the Chairman of the Audit Committee. All other officers and employees are encouraged to send a report of a known or suspected violation or of any questionable behavior (anonymously, if desired) to J.P. Guerin, Chairman of the Daily Journal Corporation Audit Committee, at 355 South Grand Avenue, 34^th Floor, Los Angeles, CA 90071. No retaliatory action of any kind will be permitted against anyone making such a report, and the Audit Committee will strictly enforce this prohibition.

Upon learning of any unethical business conduct, or dishonest or illegal acts, the Audit Committee shall investigate the report as it deems appropriate and provide feedback to the reporting party (unless such party is anonymous) as to the result of its investigation.

2. Accountability for Adherence.

If the Audit Committee determines that this Code of Ethics has been violated directly or by failure to report a violation, withholding information related to a violation or taking prohibited retaliatory action against someone who reported questionable behavior, it may discipline the offending director, officer or employee for non-compliance with penalties up to and including removal from office or dismissal. Such penalties may include, depending upon the severity of the infraction, oral or written reprimands, the withholding of bonuses, the deduction of some or all of the person’s earned units in the Company’s Deferred Management Compensation Plan, the forfeiture of director stipends, removal from committees of the Board of Directors and, if warranted, termination. In addition, violations may result in criminal penalties and/or civil liabilities for the offending director, officer or employee and/or the Company.

F. Waivers

The Company’s Board of Directors, in its discretion, may grant a waiver of a provision of this Code of Ethics to any director, officer or employee. If the waiver is granted for a director or executive officer, a current report on Form 8-K must be filed with the Securities and Exchange Commission in accordance with the applicable rules and regulations of the Commission and Nasdaq.

EX-21

Exhibit 21

SUSTAIN Technologies, Inc., a Virginia Corporation (“Sustain”), is a 93% owned subsidiary of the Daily Journal Corporation that was acquired in January 1999. Prior to September 28, 1999, Sustain did business as Choice Information Systems, Inc.

EX-31

Exhibit 31

CERTIFICATIONS BY CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICIER PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Gerald L. Salzman, certify that:

1. I have reviewed this annual report on Form 10-K of the Daily Journal Corporation;

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 registrant as of, and for, the periods presented in this report;

4. I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

a. designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under my supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to me by others within those entities, particularly during the period in which this report is being prepared;

b. evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report my 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

c. 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 that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. I have disclosed, based on my most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

a. all significant deficiencies 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: December 29, 2003

/s/    GERALD L. SALZMAN

Gerald L. Salzman

Chief Executive Officer, President,

Chief Financial Officer and Treasurer

EX-32

Exhibit 32

CERTIFICATION BY CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report on Form 10-K of Daily Journal Corporation (the “Company”) for the fiscal year ended September 30, 2003 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Gerald L. Salzman, President, Chief Executive Officer and Chief Financial Officer of the Company, certify, pursuant 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1)    the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)    the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/    GERALD L. SALZMAN

Gerald L. Salzman

Chief Executive Officer,

President and Chief Financial Officer

December 29, 2003

The foregoing certification is being furnished solely pursuant to 18 U.S.C. Section 1350, and is not being filed as part of the Report or as a separate disclosure document.